Patent Cost in Financial Projections

The cost of purchasing a patent can be capitalized as a long term asset in the balance sheet and amortized over its useful life. Research and development costs incurred in developing a product which is later patented are normally not capitalized and are treated as an expense in the income statement.

Last modified January 29th, 2019 by Michael Brown
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Retained Earnings Total Assets Ratio

A business can fund it’s operations from both internal (retained earnings) and external (debt and injected capital) sources. The retained earnings to total assets ratio is the ratio of the accumulated retained profits of the business compared to its total assets, and is an indication of the percentage of assets funded by internal resources.

Last modified February 8th, 2019 by Michael Brown
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Operating Return on Assets Ratio

The operating return on assets ratio measures the ability of a business operation to use its assets to generate earnings. It is calculated by dividing the operating income by the assets of the business.

Last modified February 11th, 2019 by Michael Brown
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Asset Turnover Ratio

Efficiency is the ability of a business to use its asset base to generate revenue (and therefore profit). The asset turnover ratio is used in the financial projections template as one indicator of efficiency, and shows the amount of revenue generated by the business relative to the amount invested in assets.

Last modified February 8th, 2019 by Michael Brown
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Estimate Capital Expenditure

Capital expenditure is amounts spent of long term assets during the accounting period.

Long term assets are assets which have a long life and are for use within the business and not held for resale, they include for example land, buildings, equipment, and plant and machinery, needed to get the new business up and running, ready to start producing and selling goods and services.

Capital expenditures are included in the financial projection as a negative amount in the cash flow statement, as money flows out of the business to pay for them.

Last modified January 29th, 2019 by Michael Brown
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Enter Fixed Assets Opening Balance

The opening day fixed assets form part of the opening balance sheet of the business, and include such items as, land, buildings, plant & machinery, fixtures & fittings, and motor vehicles.

Fixed assets are assets which have a long life and are for use within the business and not held for resale. They are not part of the trading stock, and are not involved in the day to day working capital cycle of the business so are not readily convertible into cash.

Fixed assets are sometimes referred to as long term assets or capital assets.

Last modified January 29th, 2019 by Michael Brown
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