Product Portfolio Optimization (PPO) includes the following elements:
- Determination of the rational composition of the product portfolio;
- Analysis of customers demand for individual products;
- Consideration of limits on production capacity, working capital, and customer demand;
The Cost of Goods Sold account, found on the Income Statement, indicates the costs associated with the quantity of units sold during the period. The Balance Sheet account Inventory represents the costs associated with the quantity of unsold units at the end of a period.
The Cost-Volume-Profit analysis is a tool to visualize relationships between revenue, costs, and income. It is the central element of the Variable Costing Model. The Cost-Volume-Profit Chart demonstrates the relationship between Volume and Costs, and therefore, Income.
Costs should be divided into two basic categories:
- Fixed or Variable – depending on whether the costs change with variations in production volume;
Cost Management means (1) knowledge of where, when and what company resources are used, (2) forecast of where, for what and what amount of additional financial resources are necessary, and (3) ability to ensure the highest possible efficiency level of resource use. Cost Management is the ability to save resources and maximize their efficiency.
Accounts Receivable Turnover Ratio
The Accounts Receivable Turnover Ratio indicates how many times, on average, the receivables revolve, that is, are generated and collected during the year. The receivables turnover ratio is computed as follows:
Working Capital – the most significant indicator of the Short-Term Liquidity, which is the amount of assets invested by the company in its own current operations during each operations cycle. The quantity of Working Capital reflects the share of current assets belonging to the enterprise, and at the same time it expresses the long-term financial [...]
The cash flow gives the analyst a better understanding of a company’s financial strength than traditional balance sheet ratios, which all too often have not provided creditors with early warning signals. Cash flows are less prone to distortions by accounting policies or changes in accounting methods.
1. The balance sheet
When a credit analyst has to make a credit decision, the first thing he or she will have to analyse is a firm’s balance sheet. The balance sheet analysis alone may often not be sufficient to assess a firm’s creditworthiness, and other factors have to be taken into consideration.
We are going to finish this module with a Case Study in which we will try to examine most of the non-financial and financial factors affecting an individual business and how we may come to a considered opinion on the level of risk involved for a bank lending to that business.
