Capital Expenditure: An expenditure which results in the acquisition of a fixed asset or addition to a fixed asset, or improvement of the earning capacity of the asset.
Capital Losses: Losses which do not arise in the normal course of business.
Capital Profits: Profits not earned in the regular course of business.
Capital Receipts: Receipts in the form of additions to capital, liabilities or sale proceeds of fixed assets.
Revenue Expenditure: An expenditurs whose benefit is limited to one year.
Revenue Losses: .Losses that occur in the regular course of business.
Revenue Profits: Profits earned in the normal course of business.
Revenue Receipts: Receipts arising out of services rendered or goods sold.
Deferred Revenue Expenditure: A revenue expenditure which involves a heavy amount and the benefit of which is likely to spread over a number of years.
Liquidity means the short term debt repaying capacity of firm
Current ratio is the relationship between current assets and current liabilities
Technical liquidity is a measure of firm’s capacity to meet current liabilities from its
current assets
Operational liquidity is a measure of firm’s ability to meet its obligations from its
cash flows
Profitability is an indicator of efficiency of firm. Profitability of a firm can be
measured with the help of sales or investment.
Working Capital Turnover: The turnover of working capital, which indicates the frequency at which they were rotating is another measure of the efficiency of working capital management. Like any other turnover or activity ratio, a low ratio reflects a slow movement of the current assets, thereby implying a sub optimum
utilization of working capital.
Rate of Return on Current Assets: The return on current assets is yet another useful economic indicator of the profitability of the enterprises and thus indicates the efficiency or otherwise with which the current assets are put to use. The rate of net profit to current assets is calculated to under line the efficiency. In case where current assets form more than half, this ratio becomes significant.
Collection Period: Another indicator which is considered to be important in judging the working capital efficiency is the collection period. This ratio indicates the total number of days that was taken by the firms in collecting their debts. A comparison of the norms fixed with the results obtained would show the positive
or negative tendencies.
Interest as Percentage of Profits before Interest and Tax: One of the ratios that is used to determine the debt capacity of a firm is this coverage ratio. This ratio reveals the ability of the company in servicing the debt undertaken. A high ratio speaks about the interest burden of the company and consequently the adverse impact of the same on profitability. In the same way, a high ratio enhances the financial risk of the firm.
