Although the goal of any business is to succeed and become profitable, this task cannot be accomplished without verifying reliable data on its financial situation. (more…)
Achieving excellence in financial management is certainly not an easy task. After all, how can you master all of the concepts involved? Is it possible to acquire all of this knowledge and apply it to your daily work?
CAPEX and OPEX are examples of two acronyms that can make all the difference in this sense. To get a deeper understanding of them, their attributes and how to use them in your company, continue reading this text!
CAPEX and OPEX: What are they?
The acronym CAPEX is derived from the expression “capital expenditure” and thus it is related to expenses and investments associated with physical goods. In other words, it’s all the goods purchased by a company.
OPEX, on the other hand, signifies “operational expenditure.” Thus, it is related to all the costs related to operations and services.
In general terms, buying a car for a company would be classified as a CAPEX. A one-off expense for transport services, on the other hand, would be classified as an OPEX.
Carefully distinguishing between them is a good way to define and analyze KPIs for your business, since this offers a deeper vision of the company’s expenses, which will help your firm’s financial control.
In general, most of the annual costs for a corporation are operational expenses. Thus reducing OPEX should be one of management’s objectives, as long as this doesn’t compromise the quality of the products and/or services that it offers.
One point that should be emphasized is the difference between the way these two types of expenses are taxed. Since the life of a CAPEX generally extends beyond a fiscal year, you have to use amortization and depreciation to redistribute this cost. In contrast, operational expenses can be deducted from your taxes during the tax year that they take place.
Mastering these two concepts is fundamental to a company’s strategic planning, since the option of investing in a physical good can compromise a business’s cashflow. Operational costs, on the other hand, can become excessive in the medium term without offering any financial return.
You need to consider, first of all, your company’s working capital situation. A limitation in terms of this may oblige your company to opt for an OPEX, given that it represents a smaller initial investment and is also tax deductible.
However, the question isn’t that simple, and that’s why you should analyze your past and future demands. Investing more in OPEX is something that appears good at the moment, but this doesn’t mean that a CAPEX is a bad idea.
To find out which of the two options, CAPEX or OPEX, fits best in your company, it is necessary to calculate how much each of them will cost and, based on the amounts, decide which the best option is. It is important to remember that the cheapest is not always the best: what really should be taken into account is cost-benefit.
The method for analyzing the cost of each operation is the Total Cost of Ownership (TCO).
The total cost of ownership is a method to assess the direct and indirect costs of a particular product or service over time. It takes into account both the price of the good and its maintenance cost.
The CAPEX and OPEX indexes are calculated differently. Keep reading and learn more!
In the case of CAPEX, it is necessary to observe in the company’s balance sheet the variances that occurred during the period of one year, then apply the formula: CAPEX = variation in assets during the year – variation in liabilities during the year.
Let’s say that a company had R$ 2 million in assets in 2017 and R$ 3 million in 2018, for example. Thus, the variance was R$ 1 million. In the same way, liabilities in 2017 were R$ 500 thousand, and in 2018, R$ 600 thousand — variation of R$ 100 thousand.
Therefore, with the data presented, we have: CAPEX = R$ 1 million – 100 thousand = R$ 900 thousand.
The OPEX calculation is even easier: just sum up all the company’s operating costs in a certain period of time. Usually the period of 1 year is used. Based on these costs, it is possible to identify which model is more suitable for your company.
As we mentioned, it is important to remember that just a lower initial cost is not a good criterion of choice. It is important to think about the scale these prices will have over time and if the company has enough cash to maintain itself until the return on investment — should it be delayed.
With the rise of technology, new products and services emerge every day in the IT sector. As digital transformation progresses, this renewal process tends to become faster and faster. One of its effects is that hardware and software become outdated in ever shorter time periods.
Taking this into account, CAPEX might be a bad option given that the investment in IT facilities requires a large amount of capital — and the return of this invested capital demands time.
As technology advances at a faster pace, it is possible that investing in new equipment and software is needed before the return on investment. In addition, the future of the company is taken into account when the company’s IT investments are planned.
Therefore, until it reaches this planned level — which can take time —, a good part of the resources acquired will be idle. In the current context of companies, in which updates are necessary in short periods of time, OPEX is a more interesting solution for the IT department.
Among its advantages we can mention:
Of course, each enterprise has its own particularities, but in general, OPEX is the solution that best suits a company’s IT department. Once you know the concepts of CAPEX and OPEX, you can decide which model is more suitable for each department of your company and, thus, increase your efficiency.
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Do you know what the real relevance of a balance sheet is? Among all your accounting reports, they’re considered the most important. However, many business leaders still neglect them.
You can use this report to help the financial management of your company and verify your assets, rights, liabilities, third party capital, profit reserves, and sources of income.
Interested in this subject? Want to get a better understanding of the importance of balance sheets? Then this article is for you. Take a look!
What is a balance sheet?
It’s a formal accounting statement of all of your company’s financial transactions for a given period. Thus, all of the accounting rows detailing credits and debits are those that appear in an organization’s accounting ledger.
Through this statement you can determine the balance of your assets, rights and liabilities. You can also identify all your sources of income from any accounting entity.
Therefore, the balance sheet and income statement are considered indispensable to the financial planning for any company.
How is a balance sheet structured?
Every balance sheet is structured based on a chart of accounts, which is defined when a company begins its activities. Every balance sheet needs to consist of three accounting categories which are as follows:
How should you prepare your balance sheet?
It’s a good idea to use a brief balance sheet each month to verify whether all the transactions listed in the accounting ledger are correct.
When you have many alterations of value, it’s possible that one or more income or expense items have been left out of your ledger, or that the total of assets or liabilities has been listed incorrectly.
Due to this limitation, you always need to make adjustments to your accounts so that they are in keeping with reality, and the total of these alterations in terms of assets and liabilities have to be equal.
Is your balance sheet a decision making analysis tool?
Yes. We should consider the balance sheet an analysis tool for any business, because it shows the overall situation of its accounts. It supplies managers with financial data that will help them drive their company’s profitability and rate of return on investment. Take a look!
Whenever the assets of your business are greater than your liabilities, we are talking about positive net worth. When the assets and liabilities are equal this indicates zero net worth. In the same way, when your liabilities are greater than your assets it indicates negative net worth.
Every time that your company has zero or negative net worth, it’s a good idea to take steps to overcome this by broadening your sources of revenue, investing more capital or collecting unpaid debts.
What is the importance of a balance sheet to financial indicators?
Through this document, you can analyze and monitor some of your company’s financial indicators, sometimes with the help of other documents. This shows that a balance sheet is an instrument used for analysis and decision making just like indicators.
Take a look at these five indicators and the results that they offer.
Net profit margin
This margin indicates how much money your company generates with every sale or service it offers.
To calculate it, divide the total revenues for a given period by the net profits, which can be found in the income statement. Then multiply this result by 100 to determine the net profit margin percentage.
Profit growth rate
One of the totals found in the balance sheet is the company’s accumulated profit during its entire existence.
With the current year’s balance sheet and those from previous years in hand, you can calculate your company’s profit growth year after year.
Return on equity
By dividing the equity listed on the balance sheet by the company’s net revenues, you can calculate the return on equity percentage, which indicates how much money your capital and other equity investments generate for your business.
Return on assets
Specifically, in relation to the document’s assets, such as vehicles, real estate, equipment and mobile assets, the return on assets shows how much money they generate, taking into consideration the investments made in acquiring them.
Beyond this, to obtain more specific results, you can make this calculation just using a portion of the revenues and one element of the assets.
For example, an insurance company that offers corporate cars to its salespeople can divide the total value of signed contracts by the value of the use of the car utilized by the salesperson responsible to achieve these sales.
Or, when dealing with the opening of a new office, you can divide the total revenues by the equity investment made to open it. You need this to determine, within a more complex panorama — which involves other factors — the total return on investment of this expansion.
Debt ratio
To obtain this ratio, you need to sum the company’s short term liabilities and divide them by its total assets. Then you can multiply this result by 100 to obtain this ratio in percentage form.
Analyzing this indicator, the lower the ratio is, the better it is for your company. If it is very high, it’s time to evaluate your costs and even your processes one at a time to decrease your debt and increase your gross and net revenues.
Is the accounting record mandatory?
Now that you know what the balance sheet is and all its structure and importance, let us understand the obligation of accounting records, which are used to compile all the financial transactions of your business, including assets, rights and obligations.
The accounting record is mandatory and valid for any type of company. In addition, organizations must also present the recorded facts, which are the financial records themselves cataloged in the daily ledger. To do so, they need to be updated and provide real information on the current moment of the organization.
What are the consequences of not having the balance sheet?
The balance sheet is more than just an obligation. This document can assist in different processes and situations to which your company will be exposed. Therefore, see below the main consequences of not having or keeping your balance sheet updated or at hand.
Defense for tax proceedings
The balance sheet is an important resource of evidences for tax proceedings, and the information in this document can be used during the discussions. However, when a company does not present it, the defense will become more fragile and will prove that the organization is not compliant, and does not even have its documents and processes organized.
Exempt profits above Presumption
According to Income Tax (IT) standards, companies that do not present financial statements that indicate the profit have its revenues demarcated in 8%, which is the limit of presumption of income for companies in the industrial and commercial sector, and in 32% for businesses that operate with the provision of services.
Performance Analysis
The financial performance of your company will be known with this document, as it reveals important data on profit, among other indicators.
Therefore, by neglecting it, the company will be at the mercy of the cash flow alone, which is not complete enough to aid in performance and strategy analyses that improve the business behavior. In addition, as it is mandatory, your company will not be able to file a request for court-supervised reorganization.
How to calculate indicators with the balance sheet?
Indicators are important tools for knowing the performance and health of a company. Some metrics aid in the balance sheet evaluation process and allow you to learn about the economic and financial situation in a reliable and up-to-date way so you can make the best decision. Here is how to calculate some important indicators:
Now that we understand what the balance sheet is, it is essential that you establish it in your company. That way, liquidity indices are ensured with the purpose of leveraging your business, in addition to correctly meeting the accounting standards imposed on all companies.
Did you like this content? Then check out how to make a good indicator management and learn about the importance of this task for your company!
It’s common for large companies to face problems with expense control, expenses, cost reduction, profitability, among other elements related to finances. The issue is that, depending on the severity, these problems may dictate the success of the business.
The good news is that there are ways to manage these issues without hurting the company’s progress. One of the indicators that may help is the COGS: a measure capable of providing essential information on the relationship between the sales and purchases of an enterprise.
In this article, you’ll understand how to calculate COGS and its importance to optimize strategic management. Check it out!
COGS, also known as Cost of Goods Sold, is the relationship between sales and the expenses needed to produce and stock a particular good.
This financial indicator measures the success of a product by the amount of capital in stock. That way, it’s possible to consider what remains in the inventory in a given period of time, instead of identifying only the goods output index.
COGS is most commonly used in commerce. For industries, there is another indicator, the Cost of Services Sold, or COSS. In this case, the same logic is used; the only difference is in the factors included in the calculation.
The inclusion of COGS in the financial balance sheet of any company may bring very interesting benefits that will allow it to achieve the expected results and control its production. Here are a few:
Because COGS deals directly with inventory and production expenses, it can be a great ally to find out if the organization is not overspending with a product/operation or if certain items in the inventory have been on the shelf for a long time.
The results obtained from calculating the Cost of Goods Sold are part of the accounting expenses and should be included with the sales revenues. That way, COGS becomes an important instrument not only to indicate profitability, but also to help company managers analyze the purchases of materials and the sales of what they produce.
Reveals if the company is healthy
Many investors use COGS to find the business’s gross margin. Since they can analyze the percentage of revenues and how much is available to cover expenses, it’s easy to have an idea of how the company’s finances are.
With the results obtained by COGS, the company has enough information to improve its planning and create strategies to stimulate the consumer to acquire its products. After all, it’s possible to find out which items take a long time to be sold, and thus, think of plans to pass on these idle products. For example, do special offers or provide specific discounts.
As the company is able to identify which are the best-selling products and which ones have been in stock the longest, it’s possible to define measures to analyze the space.
In other words, it’s possible to determine how this area can best be used, in addition to using another space with capacity aligned to the quantity of products.
It is easy
Another positive point of COGS is the simplicity of the calculation, which reveals valuable information for your business. After all, if your company has the accounting data and information up-to-date, it will be possible to know if there are superfluous expenses or investments beyond what is indicated in some operations.
How to balance COGS and COSS?
After you’ve obtained your indicator data, you may reach the conclusion that profitability is below what is expected. To balance this measure and return to the desired range, some steps can be taken.
Studying supply improvements, always seeking to negotiate and control waste, for example, is a great way to reduce costs and balance these parameters.
Also having a rigid control of stock, meaning controlling everything that enters and leaves your firm, as well as returned products or returned raw materials, can increase the precision of your COGS and COSS measurements.
One of the most important parts in accurately calculating COGS is to identify, count and classify the products that are in the inventory, that is, the data must always be updated. This activity is crucial for obtaining input and output control, as well as making customer orders always accessible.
The production’s or service’s raw materials represent another point that needs to be analyzed and cataloged. That way, with these updated data, the chances of getting a correct COGS result are 100%. In addition, the possibility of having a broad view of what is missing or remaining in the inventory is almost certain.
Now that you know what COGS is, its benefits, and how to balance it with COSS, understand how to calculate these indexes below.
As already discussed, COGS aim to indicate the cost of sales in a given period, taking into account what remains in the inventory. For this purpose, the amounts that must be considered are:
Thus the formula is: COGS = BI + P – EI.
For example, if your company has $5 thousand in stock at the beginning of the month, you bought $3 thousand and ended the month with $4 thousand in inventory, the calculation of the COGS is made in the following manner:
COGS = 5000 (BI) + 3000 (P) – 4000 (EI)
COGS = $4 thousand
Then you subtract this result from your revenues to obtain your gross profit for the month.
Once you’ve obtained the gross profit, you can determine the net profit by subtracting the other costs, such as taxes on revenues, telephone and internet bills, etc.
In terms of the COSS, which calculates the cost of services provided, the values are:
Thus, the formula is as follows: COSS = BV + (L + DCS + ICS) – EV
Note! The operations for gross profit and net profit are the same as in the previous calculation.
Most often, turnover and acquisition costs are used to calculate sales profitability.
The inventory or the services in progress are included in this calculation. This allows the manager to consider the unsold products and obtain effective data on the company’s gross profit. That way, there is a better direction on how to control the production, storage or acquisition operations.
From the information presented, it’s clear that both COGS and COSS are essential to understand the cost of sales of goods or products, as well as the exact gains, optimizing and improving business processes.
How to control the inventory to calculate COGS?
As you can see, the information of what comes in and out of your stock is part of the COGS calculation, and it is very important to keep this sector organized and up-to-date. There are two ways to control your product inventory efficiently. See below what they are and learn more.
FIFO
First In, First Out (FIFO) is an assessment and way of controlling your inventory based on the assumption that the products that arrived first must be removed first. That is, the oldest batch is used, and the price will take into account the cost of when it was acquired, not when it was sold.
In order for this control to work efficiently, as the items are removed from stock, the people responsible should record that activity, however small it may be. This is essential because, the greater the accuracy of records, the better the control and knowledge of their demand will be.
LIFO
Last In, First Out (LIFO) is an inventory control method based on the theory that the last items that arrived in your stock will be sold.
To that end, the sales price is practiced according to the last batch that arrived at the warehouse, and the stock value is calculated based on the cost of the last price; therefore, it is usually more expensive.
For this reason, it is a method that leads to the overvaluation of an item, resulting in positive credits. It is important to emphasize that the LIFO method is not legal in Brazil. In other countries, such as Mexico, the United States and Germany, for example, it is a widely used and legally accepted method.
How can technology help?
Because they are indispensable tools for any manager, there is a number of management software that does these calculations, avoiding the manual process and decreasing the chances of obtaining false information.
In addition, the management routine of a business is bogged down with information that comes in and out at all times, making it difficult to control, track, and efficiently process data. In this scenario, the successful implementation of technology is not only an aid, but a necessity to enter all kinds of information, in a fast and reliable way.
After all, in order for COGS to be as faithful as possible to the reality of your company, it is imperative to use updated values. Given this, in addition to management software, which assists in performing the calculations, ERP systems register all data in all sectors in an integrated way, including stock inwards and outwards.
That way, there will be less work and more efficiency in controlling not only your inventory, but the other departments of your business. In a highly competitive market, technology is a distinguishing factor, so be sure to make that investment.
Did this article help you understand the importance of COGS and how to calculate it? Do you want to know other solutions and financial tips? Access now our content on how to correctly create and analyze KPIs!
Working capital is basically the financial resources that a company needs to continue functioning and performing its activities.
It’s responsible for keeping your company in business at various times, mainly when sales or service revenues are delayed and your company needs cash to cover its basic expenses.
In this article you’ll find out about the importance of working capital to a company as well as how to calculate it through a very simple, didactic explanation. Take a look!
The importance of working capital to a company
You already understand that working capital is the amount of financial resources that a company needs to keep a business running. This definition is already enough for you to understand its importance to your company.
It’s important when company management wants to make an investment that will generate returns in the future, because this money will cover the company’s costs until the moment this invested money begins to return to the firm in the form of revenues.
Working capital is also very important in terms of sales and services when payments for these operations will only be received at a later date.
Another important use for working capital is related to customers with overdue payments. When a company has to carry these burdens, it can use this capital to cover these sales that have been completed, but have not been paid for.
Working capital is a tool that ensures that your business will continue to operate, even when it faces a scarcity of resources to pay its basic expenses, and that’s why it’s crucial that you as a business leader know how to calculate and accumulate the working capital that’s essential for your business.
The difference between working capital and fixed investment
Despite having different functions and definitions, both working capital and fixed investment are concepts needed for the healthy operation of any type of company. Yet many managers still confuse them.
Fixed investment refers to the initial expenses needed for a business to operate, encompassing all the necessary goods such as equipment and machinery. Therefore, when a company is founded, one must estimate what fixed investment will be needed.
This should be one of the first steps of a business financial planning, even if the company already exists, since it is with this projection that all assets will be documented.
With this, it is possible to note the main difference between the two concepts, since the working capital is the monetary amounts in cash, in accounts payable and receivable, in stock or in the current account; and the fixed investment is the assets. Thus, although different, the two must be together in the financial management planning of your company.
Net working capital
Going deeper into the subject, you will find the term: net working capital (NWC). This concept refers to the amount you need to fulfill all your financial commitments in the short term.
Also known as net circulating capital, this concept is used as an indicator to manage and know all the payment capabilities of the business, allowing the management of relationships with suppliers and customers.
It is known that every type of company needs resources (money) to maintain the fluidity of its activities and, consequently, to ensure that it remains active in the market. Therefore, the NWC can be considered as a financial “slack” that allows the company and its stock to operate efficiently. In order to calculate it, it is necessary to take into account the current assets (CA) and the current liabilities (CL), which are concepts that the working capital and net working capital have in common.
Own working capital
Own working capital (OWC) is defined as the variable that indicates the amount of the company’s own resources. Therefore, it will depend on the behavior of the accounts of Shareholders’ Equity and Fixed Assets.
With this concept, the amount of the company’s own capital that is completing the current and long-term assets will be revealed. However, it should be noted that it will not strictly identify all the resources of the company.
The elements of the working capital calculation
The working capital calculation is quite simple; however, it does require some level of control of your company’s finances.
You will need some essential elements of expenses and costs to determine the minimum amount of working capital for your business. For example:
In summary, all expenses and costs that will happen whether or not your company receives a payment in a certain period. With this information, we will move on to the next step: the calculation.
The working capital calculation
Once all the company’s expenses have been collected, it is time to actually calculate the working capital, which is quite simple.
To illustrate, we will create a hypothetical situation for a service provider company that will determine the working capital needed for a specific year. From this, the following amounts of monthly expenses were calculated:
Thus, the amount of working capital that this company will need to remain active is R$ 18,500.00 per month.
Some companies that receive recurring payments may include such amounts in their working capital calculation in order to reduce expenses. That is, suppose that the same company receives monthly the amount of R$ 5,000.00 from some customers. In that case, it may deduct the monthly payment estimate in the calculation of its working capital. Thus, the amount would be R$ 13,500.00.
However, it is important that this payment is recurrent and guaranteed. You cannot consider for this calculation the payment of customers who are usually defaulters.
The net working capital calculation
The net working capital is the result of the amounts of current assets by those of current liabilities. So, to calculate it, just follow the formula: NWC = CA – CL.
Current assets refer to cash on hand, financial investments, accounts payable and receivable, stocks, expenses, raw materials, securities, bank deposits, bank transactions and prepaid expenses. Therefore, they are the assets and rights that can be converted into cash in the short term.
Current liabilities are all obligations that should normally be payable within one year, such as bank loans, debts to suppliers, provisions and certain accounts payable.
The own working capital calculation
Although it seems a bit more complex, the own working capital can be easily found with this formula: OWC = CA – CL – LTL.
LTL or Long-Term Liabilities are the debts that your company has that must be settled after the following financial year, which refers to a calendar year. Duplicates payable, taxes to be collected and other obligations to third parties are considered.
The working capital is an important indicator of your resources. With it, you will know the amount needed for your company to operate and grow in a healthy and linear manner.
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A concept that has recently been drawing the attention of business leaders is business intelligence. To provide an example of this kind of analysis, let’s take a look at the work processes of a doctor.
The word “diagnosis” normally is used in medical vocabulary. When a patient goes to a doctor’s office complaining of pain, he or she gives this professional some information. The doctor, in turn, may ask for clinical exams which will provide even more information. After this, the professional interprets the data and arrives at a conclusion to resolve the patient’s problem.
Can you imagine what it would be like if your business could use an information analysis process with this quality and organization? This is what business intelligence has to offer your company: a precise diagnosis.
What is Business Intelligence?
Your company’s processes can be optimized, which will generate savings and improve quality as well as productivity, but to do this it’s important to have access to the data that they generate.
It’s not very efficient to talk about “improving processes” when you don’t know what needs to be improved. To do this, the first step is to correctly analyze information related to your production activities and cross-reference this data with other analyses such as: the market and the cost of each process or even the impact that it has on the product’s final price. All of this is possible with Business Intelligence.
The language of entrepreneurship is written in numbers, and the most important thing is to understand them. Automating this task means that precise reports are always in the hands of business leaders, helping them make changes with a minimum chance of making a mistake.
How does it help your company?
Systems such as Business Intelligence can help different aspects in a company. Here we selected the main benefits of this tool. Learn about it!
Foreseeing trends
ERP software, which monitors a company’s processes, can offer a forecast of market trends. This is because this data is analyzed together with a collection of information, including market data.
That being so, your business can foresee, for example, the need to invest in the hiring of employees, because it already has information that includes a forecast of an increase in sales.
Create realistic targets
Market analysis which ignores internal factors will not deliver results for your company. In this scenario, a business leader will question why his or her business has had little growth if the sector has done well overall.
To help a company establish efficient targets, Business Intelligence presents reports that take into consideration your business’s real situation, giving the entrepreneur the chance to prepare the company for the current market scenario.
Take advantage of transparent data
Credibility attracts investors and ensures solidity for any company, but to establish this, it’s very important that the organization receives reliable data.
Business Intelligence, through its automated systems, considerably diminishes the risks of human error and fraud in the generation of information, giving it credibility in the eyes of decision makers and leading to a more reliable and prosperous company environment.
This information can ensure that subordinates will have confidence in their leaders’ judgment when faced with complex decisions, because these leaders will be able to convince them that these decisions are necessary.
What to consider when choosing Business Intelligence?
There are several Business Intelligence tools in the market, so it is crucial to know which one is the best. For this, we must consider some factors, which we will discuss below.
Agility
This type of tool needs to be agile when it comes to processing your company data, and thus, helping to define strategies. Without this capacity it will be very difficult to put the strategies into practice.
Cost-benefit
When looking for this type of tool, it is essential that it is in accordance with what the company can afford. However, understand that this does not mean hiring a service that is cheaper and has fewer functions. It is important to have a balance between the features offered and the price of the tool.
Usability
The user cannot have difficulties in using the tool; the system must be accessible so that no time is wasted when performing the functions. Of course, even in a simple system, the support from experts on the operation will still be needed.
What are the examples of Business Intelligence?
As there are different types of Business Intelligence in the market, we have chosen some examples for you to know. Check it out!
Google Data Studio
Developed by Google, Data Studio is a free tool that anyone with a Gmail account can access. Its user, beyond the system reach, can link it to other Google tools, such as Sheet and AdWords.
Its features include creating up to 5 reports with unrestricted editing or sharing, and quickly collecting and converting raw data into reports and dashboards.
Adobe Analytics
One of the great advantages of Adobe Analytics is that it provides the installation of all marketing channels, diagnostics and segmentations in real time. This entire process is rich in detail, and it is even possible to determine the target audience for the campaign.
It also offers a system designed for automation, so it is possible to create alerts at any time. In addition, it features basic functionality such as reporting, sharing by email and mobile devices.
Microsoft Power BI
The main highlight of this Business Intelligence system is its ability to quickly develop dashboards and reports. To get an idea, it is possible to generate one in five minutes.
In addition, it is a system that authorizes the connection with other tools, such as Excel, Google Analytics, Mailchimp, SharePoint, and even Facebook. Microsoft Power BI provides users with broad access to company metrics, as well as real-time updates and accessibility across devices such as PCs and smartphones.
Tableau
With the purpose of making data accessible, Tableau offers a system that values usability. As such, it is a tool compatible with sheets, Hadoop, SQL database and cloud.
However, despite all this compatibility, the main highlight is its VizQl system, a service that allows dragging and dropping any existing information into the reports or dashboards produced. Thus, the user can easily organize the information at any time. In addition, it offers an online platform that allows access to data from anywhere.
Why is it important to be careful with Business Intelligence?
While Business Intelligence is very useful in your company data organizations, you need to be very cautious about using this technology. Contrary to what many people say, BI cannot and should not be viewed as the only analytical technology available in organizations because, despite its efficiency, it can provide misleading data for decision making.
In this circumstance, a deep analysis of the data origin is essential before making decisions based on what the Business Intelligence presents. Information on costs, expenses, and their impact on processes, products, services, channels, and customers are good examples of information that is not available in organizations.
Therefore, they require special treatment by pre-modeling, that is, an efficient cost and result treatment is necessary in a system apart from BI, so that the analyzes are actually effective.
Thus, an efficient modeling has its own nuances and requires special treatment before generating reports and analyzes. After all, many of these documents may even contain untruthful information and jeopardize the opinion of managers at the time of decision making.
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Entrepreneurs and managers need to have extensive knowledge about indicators that are useful to evaluate their businesses’ performance. Among this knowledge, knowing how to calculate the shareholders’ equity stands out.
Based on these data, it is possible to check important information, such as an organization’s ability to honor its commitments. Indicators also allow comparisons to be made between two or more companies in the same industry, which makes it possible to identify the most productive among them.
Therefore, it is not an exaggeration to say that it is essential for managers and entrepreneurs to know how to obtain the shareholders’ equity of their companies. Keep reading and find out how to do this calculation!
Everything your company owns is an asset, right? Informatics equipment, vehicle fleet, bank account balance, financial investments, real estate, etc. If for any reason you decide to close down your business, could the assets of your company pay its debts? The calculation of the shareholders’ equity gives us that answer.
Logically, no business has the goal of ending its activities. Every enterprise works by acquiring debts that stimulate its activities, generating assets that pay for such debts. Even so, it is very important to know the result of this calculation, since the shareholders’ equity is an indicator of the company’s financial health.
A negative shareholders’ equity can suggest to the partners that this is not the right time for the company to make investments, for example – instead, the priority for that period is to invest in strategies aimed at saving resources.
The shareholders’ equity is the result of the following calculation: assets – liabilities. The assets are on the left side of the balance sheet, representing all the rights that the company has to receive.
To the right of the balance sheet are the liabilities, which reveal the amounts of debts and obligations of the company. This calculation includes several amounts, such as employee payroll, financing operations, loans, suppliers, etc.
A balance sheet showing the amount of $ 100,000 as shareholders’ equity indicates that, if the company were to close down at that moment, the entrepreneur would pay all debts and still go out of business with that amount.
Since the shareholders’ equity indicates the company’s financial health, it is among the factors that influence banks to grant, or not, loans to the business. This would be one more reason to focus on a positive result; after all, the company may lose access to the credit lines if the shareholders’ equity result is too negative. This can jeopardize your growth.
Suppliers can also rethink the partnership if the balance sheet indicates that the company has already incurred many debts. It is not a rule, but it is possible. Accountants cite this calculation as one of the crucial analysis information when reading a balance sheet.
The best way to accurately observe information on any area of a company is to have access to its financial statements. The same rule applies to shareholders’ equity. It is possible to check your transactions through a Statement of Changes in Shareholders’ Equity, also known as SCSE.
The SCSE is nothing more than a report prepared based on all the changes made in the shareholders’ equity of a company in a predetermined period of time.
The purpose of the report is to provide secure information regarding the company’s financial health to the manager. Based on them, they can check what measures should be adopted in the next fiscal year, and even assess if there is any emergency action. Due to this agility, problems can be identified and solved more easily.
Considering the importance of the financial statement, it is essential to carefully prepare it so that it can clearly express all the capital inflows and outflows in the company’s cash.
Given that the statement of changes in shareholders’ equity aims to measure all the financial changes it goes through, some information should not be overlooked at the time of its preparation. Among these we can mention:
Just as important as knowing how to calculate a company’s shareholders’ equity is to have the knowledge needed to evaluate it, and from that, check whether the company in question has had a satisfactory performance. To this end, using ROE (Return on Equity) is recommended to make an effective verification. Learn about it!
ROE is a methodology created with the purpose of measuring the profitability of companies, based on their shareholders’ equity. The idea behind it is simple: it boils down to the premise that, the lower the capital used by a business to make a profit, the more efficient it is.
Therefore, based on the ROE, it is possible to put two or more companies side by side and, using the method, define which has the best return on equity. It is also useful for managers to assess whether their organizations are indeed profitable.
The calculation of Return on Equity is simple; it calculates the company’s net income in its last fiscal year and divides it by the shareholders’ equity accumulated in the same period. These data can be verified in the institution’s balance sheet or calculated taking into account the average of its last 12 months.
Although the efficiency of ROE is evident, it should not be the only indicator used by entrepreneurs or managers when assessing the company they manage. Using other methods and systems is critical to have a realistic overview of the business.
In addition, using the methodology to compare companies that operate in different fields can affect the accuracy with which the data are presented. This is because, given that these companies operate in different areas, they will have different expenses and results, which means that they cannot be assessed with the same metrics.
By evaluating the shareholders’ equity of a company, the manager has access to a powerful indicator of its financial situation. If the information is incorrect or misinterpreted, the organization in question will face problems and may even go bankrupt.
Taking into account the importance of this data, and the weight it has on the financial health of companies and institutions, it is obvious that it must be observed with great care and attention.
Understanding rectifying accounts is as important as knowing how to calculate the shareholders’ equity. They are essential for shareholders to have access to the correct data of a business, such as gross profit.
Basically, they are a group of accounts used to adjust the balance of the same group of accounts in the balance sheet. Therefore, at this point, it is important to know how to calculate shareholders’ equity. These accounts can be inserted in both liabilities and assets, or even directly in the organization’s equity.
Rectifying accounts are also commonly referred to as reducing accounts. This is because they affect the balance of the group in which they are inserted, decreasing it. As a result, when the amount in this account increases, the total amount of where it is grouped decreases. Next, learn about the most recurring reducing accounts.
This account model is among the current asset rectifying accounts. It refers to default, which is very common in sales paid in installments. In this sense, the ADA was created with the goal of including this amount, which represents a costly loss to the company’s results.
Thus, it is opposed to the field of accounts receivable and, based on its sum, it is possible to generate the net balance of current assets.
This account is among a company’s fixed assets. Basically, its role is to calculate the loss of value of a good, resulting from wear and tear, normal obsolescence or nature’s action. It usually includes real estate and machinery.
Therefore, depreciation is the record of the organization’s loss of materials. It occurs only in the assets classified in property, plant and equipment and in the income assets in the investment or non-current asset groups.
In order to understand how to calculate the shareholders’ equity, it is important to know the asset reducing accounts. Among them are the capital to be paid in and the duplicate discounted.
The former includes the amounts that will be paid by the company’s partners to the organization itself. The latter – which is a liability reducing account – has a credit balance. As a result, the amount of the duplicate paid by the debtor will be included in the balance of the business. Thus, its increase decreases the enterprise’s expense accounts.
This adjustment is part of the group of accounts that make up the shareholders’ equity. Therefore, it is essential to understand it in order to know how to calculate your company’s shareholders’ equity. This adjustment relates to the result of the valuation of the assets compared to their fair value.
Its purpose is to ensure that the fair value stipulation can occur in such a way that the elements that drive the settlement of the transaction do not interfere with the value’s final result.
Therefore, the Equity Valuation Adjustments are the results of the decrease or increase of the components of the asset, or the liability – which were not added to the calculation of the fiscal year due to revaluation.
Once you understand how to calculate and monitor the shareholders’ equity, what the rectifying accounts are and how equity valuation adjustments work, it is possible to use your results to measure your business’s financial health. That way, you ensure a secure financial future, as this calculation shows the real situation of a company. In addition, it is very useful for planning future investments.
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These days we know that employees make a great competitive difference for any business. That’s why one has to keep them engaged, informed and committed to the company’s results. Endomarketing plays a crucial role in this process.
Thinking of this, we’ve created this content for you. Keep reading to understand endomarketing, its advantages and how a company can apply it efficiently. Enjoy your reading!
What is endomarketing?
Marketing has always been synonymous with activities focused on end clients and seeking to engage buying decisions and loyalty. But this has changed, and it’s more and more common to see companies implementing marketing with an internal focus.
Endomarketing is the best example of this. In rough terms, it’s a group of marketing strategies that focus on a company’s internal environment, especially its employees. Its objective is to make people generate results.
Main associated advantages
A successful internal marketing strategy, as it is also known, benefits a company in a variety of ways on all levels and in all areas. In this way it’s possible to construct a solid and prosperous business that’s attractive to investors. Take a look at its advantages:
Endomarketing can be translated as activities that involve incentives (awards) or even activities that appreciate employees. An example of this is Fiat’s program. The company’s employees are always the first to take test drives of new models. It costs the company nothing, but it makes all the difference!
How can you implement this in your company?
It’s not always easy to create an endomarketing activity, and that’s why many people seek help from specialists in this area. However there are a few steps that can be taken to facilitate this process. Take a look:
First, it’s important to know your company’s current employees. Try to understand their needs, talk with them and pay attention to their main complaints. This way you’ll be able to create a new creative activity that will offer real results for your organization.
Like everything in life, endomarketing strategy should be developed with a clear goal in mind. This way, it’ll be easier to channel creativity and achieve your objectives. Among the main goals we can highlight:
The third step is the moment when you structure the plan that will guide your entire strategy. To do this, you need to answer three main questions: what will be done? why will it be done? and how will it be done? Take a look at some tools you can use:
Finally, it’s important to follow the results you achieve. That’s why you need to establish a few key performance indicators. These indicators function like a thermometer, measuring an activity’s results. Here are a few main indicators:
By applying these tips, you’ll be able to design your internal marketing strategy and obtain great results, keeping your employees happy and motivated.
Now that you are up on this subject and understand endomarketing, take this opportunity to keep up with other subjects. Sign up for our newsletter and receive new content directly in your email. Let’s get started!
A company’s patrimony goes far beyond its results and its profitability. Its assets include, for example, machinery, real estate, investments, etc. All of this can be transformed into capital, which can help your company invest or pay creditors. Knowing this, it’s very important for a business leader to know how to calculate the liquidity ratio for each of your company’s investments.
This article will explain more about this topic, which is fundamental to the financial health of any company. Let’s get started?
What after all is a liquidity ratio?
It’s a financial indicator that shows how many resources a company has. This makes it possible to understand how much debt your business can withstand. Every investment has a different degree of liquidity. A building, for example, has low liquidity, or in other words, it isn’t possible to transform it into capital quickly.
In order to calculate a liquidity ratio, a business leader needs to consult the sum of a company’s resources. This way it’ll be clear whether the company has enough assets to honor its obligations. A company can perceive that it doesn’t have enough solvency to expand its operations, for example.
The greater a company’s liquidity, the greater it’s financial health. For example: if the result is greater than 1, this means that the business has a good capital margin, and can pay its debts without compromising its investments.
If the result is very close to 1, this means that the company has just enough to honor its debts, and will not have any resources left over after eliminating them.
If the result is zero — or lower— this means that the company doesn’t have enough to pay its creditors. This is a preoccupying situation.
How do you calculate the different types of liquidity ratios?
There are basically 4 types of liquidity ratios; here we will explain how you can calculate them. Continue below!
Current ratio
The current ratio focuses on the short term. That’s why to calculate it you need to consult the company’s current assets and its immediate financial obligations.
The formula is as follows: current assets / current liabilities.
Quick liquidity ratio
With an even greater focus on the short term, the quick liquidity ratio excludes your product inventory, because this calculation just considers the resources that your company already possesses. The quick liquidity ratio is therefore lower than the current liquidity ratio.
Its formula is: (current assets – inventory) / current liabilities
Cash asset liquidity ratio
Unlike the other liquidity ratios that we’ve cited, this calculation doesn’t take into account current assets, but just the financial resources that the company already has, or in other words: the company’s bank balance, cash and financial investments with immediate liquidity.
We calculate it by using the following formula: available assets / current liabilities
Caution must be used to analyze this index. Having more money in your bank account than your current liabilities is not always a positive thing. Depending on external factors such as inflation, these resources can lose their value.
Overall liquidity ratio
With a focus on the long term, the overall liquidity ratio takes into account the resources that the company already has, as well as those that will come. The same is done for the liabilities. The data necessary to calculate this index is found in the balance of your company’s patrimony.
Calculating it is simple: (current assets + long-term assets) / (current liabilities + long-term liabilities).
As we have seen in previous topics, liquidity ratios are extremely useful tools to understand if the enterprise has sufficient resources. However, attention must be paid when monitoring them so as not to make mistakes.
In addition to knowing what they are and how to calculate them, you must understand well the methods behind this type of evaluation. In many cases, the financial department is responsible for doing this initial analysis of the ratios. It will also create the financial reports that will help complement the monitoring.
What is important at this time is to group this information with the data taken from the ratios, always focusing, of course, on the indicators that are related to the company’s current goal. For example, if it is a short-term goal, current liquidity ratio, if long term, overall liquidity ratio.
Thus, with the data grouped and organized, it is time to make comparisons with old information and with established goals. Here is the chance to assess whether the company is better than before or if it has achieved its growth goals.
An important point of this monitoring is that the more automated the process, the better. Using management software is the most appropriate alternative if the goal is to make this monitoring mechanism more intuitive and practical, including in data collection and comparison of indicator results.
In general, business management software, including indicator management, can bring several benefits to the company. In this topic, we list the three main ones.
Imagine a company that has a considerably great pace of inputs and outputs. Now think that the monitoring of its finances is done only by employees, without any technology.
It is undeniable that there is a great probability of errors occurring in the collection and analysis of information. It is also an activity that will take up unnecessary time that could be used for another activity.
With management software, in addition to the time optimization, as everything is done in a programmed way, the possibility of errors is null. After all, the efficiency in collecting and monitoring data is done in an automated way, saving employees’ energy and directing them to pay attention to what really matters.
For a company that does not have software to aid in its financial management, the cost of taking care of its management while also monitoring its behavior is very high. This is because it will need to hire more manpower to manage and collect data, in addition to dealing with employees.
However, by acquiring software, in addition to automating this process, there is a reduction of expenses, since it is no longer necessary to hire people. After all, it will do all the activities quickly and efficiently.
By acquiring management software, the company will have access to different data. As we explained earlier, it will be crucial for the correct collection and management of this information.
That way, it is possible to be aware of how the business behaves and to understand what needs to change for the enterprise to improve, knowing exactly what are the strengths and weaknesses of company’s strategies.
Well, this article has tried to shed light upon what the liquidity ratios are and how you can monitor and calculate them. Do you want to keep learning with our exclusive content? Then subscribe now to our newsletter!
Choosing cost management software is an important investment for any company given the various advantages that access to this technology can provide to your organization, such as better information access and analysis.
However, you need to devote some time to deciding which company is best prepared to meet your needs. Should you try a spreadsheet implementation? Should you customize an ERP? Can BI help you tackle this? In this post we’ll suggest a few questions that businessmen should ask before choosing cost management software.
Implementing a Cost Management and Profitability solution requires full-time dedication to this subject. The supplier should be a company that’s 100% dedicated to dealing with all the individual complexity that an implementation of this type requires. All of the services should be executed by the company’s own team and not by partners who may not have the necessary commitment to a successful implementation.
The company should also have proven international experience in specific cost management and profitability projects with companies of all shapes and sizes – which benefits interested buyers because implementation time should thus be diminished at the same time as the quality of the modeling should be enhanced.
Here it’s important to know the business consulting companies that create the conceptual modeling for these solutions. These companies possess valuable know-how in terms of international best practices for the implementation of cost models ranging from the most simple to the most complex and won’t risk recommending a solution that’s not the best.
The solution should have received a positive evaluation from a formal market publication published by a renowned institution (Gartner, IDC…), a Big 4 Consulting Firm (Deloitte, KPMG, PwC and EY), Accenture or a large independent consulting firm.
The solution should be installable in local environments like notebooks that facilitate the prototyping of cost models in an independent manner so that they can be later uploaded to a production environment or scalable hardware with very sophisticated infrastructure. It obviously should also be possible to run it on a 100% web environment with absolutely no local installation necessary.
The user should have the autonomy to run the model and manage costs and profitability independently of the suppliers; the solution should contain specific functionality for this, facilitating the modeling, analysis and the execution of basic and advanced business simulations – all of this with adequate data security, data access levels and performance.
The solution should permit quick and easy analyses through advanced reports or even dashboards or gauges that can be developed by the user. The more functionality and the better the quality the solution offers, the better your monthly and final work results will be.
No one imagines that it’ll be necessary to type out the account list or do manual work. The data that feeds the cost and profitability model should come from existing systems, whether it’s an ERP, spreadsheets, payroll, BI and/or or any other system responsible for a part of the system’s input data.
The solution should have its own ETL (extract, transform and load) mechanisms that will enable it to transform source table data to a format that the software recognizes, making it even possible to take a critical look at the source table data before importing it. The goal is to gain efficiency and avoid rework.
This is a very common question on the part of managers. Let’s begin with spreadsheets: modeling in Excel can be very simple in principle (and it really is), but it’s natural with the first few times you go through the figures and draw conclusions based on your cost modeling that new needs arise. This isn’t even considering the issue of data security and integrity. According to EY, “it is possible to model using spreadsheets, but only with very simple cost models, and even these simple cost models have severe limitations in terms of extracting data for subsequent management analysis.”
ERPs offer the false impression that “they already contain everything required for a cost model,” but this isn’t true: accounting information, technical specifications, revenues and volumes are just some of the data needed to begin modeling costs and profitability. Various other types of data such as process and activity data, capacity, indicators, details of administrative costs and specific business rules aren’t found within an ERP, meaning that the system will have to be customized to meet the needs of an efficient cost model. And we all know how complicated, expensive and time consuming it is to customize any ERP. The supplier can even argue that “the cost model already is included in the package ‘for free,’ but it will require many customizations and adaptations that will often take more than a year to complete. Even when this occurs the model may rapidly become obsolete because, as we know, organizations are becoming more and more dynamic with new products and services, departments, cost centers, processes, channels, and clients appearing continually and there may eventually even be mergers and acquisitions. Unfortunately many companies still believe that ERPs can handle this and continue using compromised modeling which no longer reflects neither what’s present in the ERP nor the reality of the company’s operations.
Trying to accomplish costing within a BI is another innocuous challenge. Professor Bala Balachandran of Kellogg always says that “these systems make it possible to extract extremely wrong data in a simple manner.” A BI will always present data that already exists within an organization. It doesn’t transform data or take into consideration the demands of modeling such as reciprocal cost assignments, the prevention of double counting and the understanding of received costs and costs themselves. Modeling basically represents the effort made in transforming data for subsequent presentation/analysis, not the opposite!
Try to find out if other clients are satisfied with the service provided. Never wait until some unforeseen event occurs to find out if the company’s customer service meets your needs.
As we’ve seen in this article, there are many doubts that arise when you’re thinking of acquiring cost management software. If you’re interested in this technology, get in touch with us! It will be our pleasure to clear up any of your doubts!
