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How to Calculate and Analyze Return on Equity

When it comes to evaluating a business, especially one that is publicly traded, determining its return on equity (ROE) is one way to see how it’s performing. What is Return on Equity? Return on equity is a ratio that gives investors insight into how effectively the company’s management team is taking care of the shareholders’ financial investments in the company. The greater the ROE percentage, the better the business’ management staff is at making income and creating growth from shareholders’ investments.   How ROE is Determined In order to calculate ROE, a company’s net income is divided by shareholder equity. To arrive at net income, businesses account for the cost of… Read More

Furniture, Fixtures and Equipment – and Depreciation

When it comes to determining depreciation for Furniture, Fixtures and Equipment (FF&E), there are many considerations that exist for accountants and business owners. Defining Furniture, Fixtures and Equipment FF&E refers to expenses for business items that are not affixed to the building where that business operates. Real world examples of depreciable assets includes chairs, desks, phones, tables, cabinets, etc., which are used to perform business-related tasks, directly or indirectly. These types of items are associated with long-term use generally more than 12 months, according to the Internal Revenue Service. Understanding How It Works When it comes to accounting for the expense of the item, it can be depreciated equally and… Read More

LIFO Versus FIFO and How Each Method Values Inventory

As the name implies, First-In, First-Out (FIFO) is a way for companies to value their inventory. The first items put into inventory or produced by the company are accordingly the first taken out of inventory or transferred to customers and therefore expensed. When it comes to accounting for acquisition and/or production costs, initial and earlier costs are the first to be expensed, with more recent costs staying on the balance sheet to be expensed later. Assume a company already has 200 widgets costing $4/widget. From there, the company increased its inventory at three more times during a selected accounting period. Three hypothetical, additional purchases include: 200 widgets @ $6/widget 200… Read More

When Full Costing Accounting Makes Sense

With more than 1.4 million accounting jobs in 2018, according to the Bureau of Labor Statistics, there are many different uses for accountants and their skills. With the need for accuracy and transparency in private and public accounting, one important concept to explore is absorption, or full costing. Absorption or full costing is an accounting method that is used by businesses to determine the complete cost of producing products or services. When it comes to calculating the full cost, there are three main categories taken in account: Direct Costs – How much material, labor, machinery, etc. it costs to produce each product. Total Amount of Fixed Costs – Examples include… Read More

Payroll Management Tips

When it comes to an employer’s responsibility for non-exempt workers, according to the U.S. Department of Labor, there are many requirements businesses must follow related to payroll. In one example, there are strict regulations on what information employers must document for each non-exempt worker. While there’s no requirement on how the information is recorded, there are three main categories. Personal details: This should include the employee’s name, complete address, Social Security number, date of birth and gender. Job details: This must include the worker’s job description and hours clocked in each day and week. Pay details: The employee’s hourly wage based on straight time, and how employees are compensated –… Read More

Understanding and Applying Accounting Reports and Ratios

When it comes to tracking incoming sales and outgoing expenses, there are many ways businesses can keep up with their invoices and implement strategies to reduce the time they spend on unpaid sales. Accounts Receivable Turnover Ratio Simply defined, the accounts receivable turnover ratio is a way of showing what percent of a company’s receivables or invoices are paid by clients.  The U.S. Small Business Administration explains this ratio is determined by “dividing average accounts receivable by sales.” Determining average accounts receivable is done by adding the beginning and ending figures — be it a month, quarter or year, then dividing by 2. Determining the sales figure is calculated by… Read More

How to Value and Sell a Website Effectively

Whether a business owner wants to sell a website or he has been approached by an individual expressing interest in purchasing it, understanding what it’s worth is essential to a fair sale for everyone involved. Initial Factors  To determine what a website is worth to a potential buyer, it needs to undergo a performance review. Evaluation factors can include looking at the number of sales the website has generated over the past year compared to previous years or other competitors. Additional considerations include how much the website is used to gain new customers relative to other sales channels, such as in-person and cold sales calls or in-bound customer calls.   Valuing… Read More