On 10 January, Sam Enterprises sells merchandise for $10,000 cash and earns a profit of $1,000. As a result of this transaction, an asset (i.e., cash) increases by $10,000 while another asset ( i.e., merchandise) decreases by $9,000 (the original cost). Creditors have preferential rights over the assets of the business, and so it is … Read more
Companies must also periodically review their intangible asset values for impairment. For example, consider a fictitious acquisition in which one company buys another. The company being sold may have had strong brand recognition, thus fostering a goodwill intangible asset. If the buying company blunders the handling of the new company, that goodwill value may get … Read more
A music production company might own the rights to songs, which means that whenever a song is played or sold, revenue is earned. Although these assets have no physical properties, they provide a future financial benefit for the music company and the musical artist. Thus, you will often see that when a company is bought … Read more
It also indicates how profitable it would have been if all funds invested were shared by the investors and it shows how well a company is efficiently using its assets. Though appealing at a cursory glance, the inflation of ROE doesn’t reflect a commensurate enhancement in operational efficiency or profitability. Instead, it underscores the delicate … Read more