Using gross profit margin to analyze profitability

Gross profit margin measures the proportion of profit yielded by sales. To calculate this ratio, divide gross profit by sales revenue: Gross profit margin = Gross profit⁄Sales revenue It is also knows as gross profit ratio or percentage. Calculating gross profit margin For the year ended April 2, 2016, Michael Kors Holdings Ltd. had gross profit of $2,797.2 million […]
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What are current assets?

Accountants define current assets as assets deemed to be liquid enough to be converted into cash within one year or less. Report this item on the  above noncurrent assets. Types Types of current assets include: Cash and cash equivalents Short-term investments Accounts receivable Merchandise inventory Prepaid assets Current assets are “liquid” “Liquidity” means how easily an […]
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What are noncurrent assets and how are they measured?

Noncurrent assets are assets not considered liquid enough to be converted to cash within one year or less. They are listed in the balance sheet below current assets. Types of noncurrent assets Property, plant, and equipment Long-term investments Goodwill Copyrights, trademarks, and other intangible assets Understanding operating cycles Noncurrent assets are assets that are likely to […]
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Accounting for cash and cash equivalents

Companies’ balance sheets report cash and cash equivalents. In this article, I explain what this means. Defining cash Cash is the standard medium of exchange, the basis for measuring and accounting for everything. It may consist of coins, currency, and funds available on deposit in a bank. It may also include petty cash balances on hand and […]
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Computing and interpreting inventory turnover

Inventory turnover measures how productively a company uses its merchandise inventory to generate sales and profits. Calculating inventory turnover Here is the formula for inventory turnover: Inventory turnover = Cost of goods sold⁄Average inventory Cost of goods sold measures the amount paid to purchase or manufacture items that were sold during the period. To find cost […]
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Accounting for merchandise inventory

Inventory, also called merchandise inventory, is the company’s investment in products that it plans to sell to customers. It is an asset recorded on the balance sheet along with other current assets. Manufacturers make their own inventory, while retailers and other businesses buy their inventory from suppliers. Recording inventory Under U.S. Generally Accepted Accounting Principles, companies usually […]
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