Finance Formulas / July 22, 2018 / Heaven Estes
Accounts receivable, inventory, prepaid assets and certain investments are not included in the cash ratio. These items may require time and effort to find a buyer in the market. In addition, the amount of money received from the sale of any of these items may be indeterminable. The cash ratio restricts the asset portion of the equation to only the most liquid of assets, such as cash, cash equivalents and marginable securities.
Liabilities include all of the money a company owes. Similarly to assets, liabilities are divided into current liabilities, which include things like rent, tax, utilities, debts that are payable within a year, and dividends payable. "Long-term liabilities" generally refers to long-term debt the company has issued (bonds), but can include other non-immediate expenses such as pension obligations.
Contribution margin is a cost accounting concept that lets a company determine the profitability of its individual products. The phrase contribution margin can also refer to a per unit measure of a product's gross operating margin. It's calculated as the product's sale price minus its total variable costs per unit. This metric helps a company evaluate different areas of the business to determine the profitability of each service or product.
Annual Percentage rate (APR) explains the cost of borrowing with a variety of loans, including credit cards and mortgage loans. Costs are quoted as a percentage. For example, if your loan has an APR of 10 percent, you would pay $10 per $100 that you borrow each year. All other things being equal, the loan with the lowest APR is typically least expensive—but it’s usually more complicated than that.
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