Class notes

Accounting principles To maintain uniformity and consistency in accounting records, certain rules or principles have been developed which are generally accepted by the accounting profession. These rules are called by different names such as principles, concepts, conventions, postulates, assumptions and modifying principles. One such accounting principle which is generally accepted is " GAAP ". Generally Accepted accounting principles (GAAP)  refers to the rules or guidelines adopted for recording and reporting business transactions, to bring uniformity in the preparation and the presentation of financial statements.  These principles are also referred to as concepts and conventions.  The accounting principles are classified into  1.Accounting concepts 2.Accounting Conventions Basic Accounting Concepts The important concepts have been listed as below: 1. the Business entity 2. Money measurement 3. Going concerned 4. Accounting period 5. Cost 6. Dual aspect (or Duality...

Module 1: INTRODUCTION TO FINANCIAL ACCOUNTING INTRODUCTION Accountants can now engage in exciting new development areas such as forensic accounting, e-commerce, financial planning, environmental accounting, and others, in addition to their traditional role as financial record keepers. It collects data and distributes economic information about the company to a wide range of users as an information system. Definition of Accounting :  Definition by the American Institute of Certified Public Accountants (The year 1961):  “Accounting is the art of recording,  classifying and summarizing in a  significant manner and in terms of money, transactions and events which are, in part at least, of a financial character, and interpreting the result thereof”. Definition by the American Accounting Association (the Year 1966):  “The process of identifying,  measuring and communicating economic information to permit informed judgments and decisions by the users of accountin...

EBIT-EPS Analysis (Part-I)

EBIT-EPS Analysis

Cost of capital Meaning of Cost of Capital : An investor provides long-term funds (i.e., Equity shares, Preference Shares, Retained earnings, Debentures etc.) to a company and quite naturally he expects a good return on his investment. In order to satisfy the investor’s expectations the company should be able to earn enough revenue. Thus, to the company, the cost of capital is the minimum rate of return that the company must earn on its investments to fulfill the expectations of the investors. If a company can raise long-term funds from the market at 10%, then 10% can be used as cut-off rate as the management gains only when the project gives return higher than 10%. Hence 10% is the discount rate or cut-off rate. In other words, it is the minimum rate of return required on the investment project to keep the market value per share unchanged. In order to maximise the shareholders’ wealth through increased price of shares, a company has to earn more than the cost of capital. The firm’s co...