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Define complementary assets and explain how they ensure that information systems provide genuine value to an organization?
Complementary assets are defined as assets or infrastructure that are needed in order to support a technological innovation. They ensure that a product gets good marketing and commercialization.
Why do assets lose value?
Some assets lose its value like plant and machinery as they lose its power and they are known as fixed assets
What is owner's equity?
Owner's equity is considered the source of the company's assets. Owner's equity is also referred to as the book value of the company, which include the reported assets minus the reported liabilities.
Difference between working capital and capital employed?
Capital EmployedTotal resources are also known as total capital employed and sometimes as gross capital employed or total assets before depreciation. Thus total capital consists of all assets fixed and current. In other words, the total of the assets side of the balance sheet is considered as total assets employed.While calculating capital employed on the basis of assets, following points must be noted.* Any asset which is not in use should be excluded.* Intangible assets like goodwill, patents, trademarks etc should be excluded. If they have some potential sales value, they should be included.* Investments which are not concerned with business, should be excluded* Fictitious assets are to be excludedWorking CapitalWorking capital is defined as the excess of current assets over current liabilities. Current assets are those assets which will be converted into cash within the current accounting period or within the next year as a result of the ordinary operations of the business. They are cash or near cash resources. These include:* Cash and Bank balances* Receivables* Inventory· Raw materials, stores and spares· Work-in-progress· Finished goods* Prepaid expenses* Short-term advances* Temporary investmentThe value represented by these assets circulates among several items. Cash is used to buy raw materials, to pay wages and to meet other manufacturing expenses. Finished goods are produced. These are held as inventories. When these are sold, accounts receivables are created. The collection of accounts receivables brings cash into the firm. The cycle starts again.Current liabilities are the debts of the firms that have to be paid during the current accounting period or within a year. These include:* Creditors for goods purchased* Outstanding expenses i.e., expenses due but not paid* Short-term borrowings* Advances received against sales* Taxes and dividends payable* Other liabilities maturing within a yearWorking capital is also known as circulating capital, fluctuating capital and revolving capital. The magnitude and composition keep on changing continuously in the course of business.Permanent and Temporary Working CapitalConsidering time as the basis of classification, there are two types of working capital viz, 'Permanent' and 'Temporary'. Permanent working capital represents the assets required on continuing basis over the entire year, whereas temporary working capital represents additional assets required at different items during the operation of the year. A firm will finance its seasonal and current fluctuations in business operations through short term debt financing. For example, in peak seasons more raw materials to be purchased, more manufacturing expenses to be incurred, more funds will be locked in debtors balances etc. In such times excess requirement of working capital would be financed from short-term financing sources.The permanent component current assets which are required throughout the year will generally be financed from long-term debt and equity. Tandon Committee has referred to this type of working capital as 'Core Current Assets'. Core Current Assets are those required by the firm to ensure the continuity of operations which represents the minimum levels of various items of current assets viz., stock of raw materials, stock of work-in-process, stock of finished goods, debtors balances, cash and bank etc. This minimum level of current assets will be financed by the long-term sources and any fluctuations over the minimum level of current assets will be financed by the short-term financing. Sometimes core current assets are also referred to as 'hard core working capital'.The management of working capital is concerned with maximizing the return to shareholders within the accepted risk constraints carried by the participants in the company. Just as excessive long-term debt puts a company at risk, so an inordinate quantity of short-term debt also increases the risk to a company by straining its solvency. The suppliers of permanent working capital look for long- term return on funds invested whereas the suppliers of temporary working capital will look for immediate return and the cost of such financing will also be costlier than the cost of permanent funds used for working capital.Gross Working CapitalGross Working Capital is equal to total current assets only. It is identified with current assets alone. It is the value of non-fixed assets of an enterprise and includes inventories (raw materials, work-in-progress, finished goods, spares and consumable stores), receivables, short-term investments, advances to suppliers, loans, tender deposits, sundry deposits with excise and customs, cash and back balances, prepaid expenses, incomes receivable, etc.Gross Working Capital indicated the quantum of working capital available to meet current liabilities.Thus, Gross Working Capital = Current AssetsNet Working CapitalNet Working Capital is the excess of current assets over current liabilities, i.e. current assets less current liabilities.This concept of working capital is widely accepted. This approach, however, does not reflect the exact position of working capital due to the following factors:* Valuation of inventories include write-offs* Debtors include the profit element* Debts outstanding for more than a year likewise debtors which are doubtful or not provided for are included as asset are also placed under the head 'current assets'* Non-moving and slow-moving items of inventories are also included in inventories, and* Write-offs and the profits do not involve cash outflowTo assess the real strength of working capital position, it is necessary to exclude the non-moving and obsolete items from inventories. Working Capital thus arrived at is termed as 'Tangible Working Capital.'
Explain why the book value of an asset is not necessarily the market value of that asset?
It is not same as market value because book value of assets derives from its cost and deduction of depreciation, while market value varies due to market conditions. That's why it may not be same.
What is net on return capital employed?
Return on capital employed is a ratio used in finance, valuation, and accounting.The formulaROCE compares earnings with capital invested in the company. It is similar to Return on Assets (ROA), but takes into account sources of financing. Operating IncomeIn the numerator we have pre-tax operating profit or operating income. However, it is also possible to adjust the EBIT by deducting the sum of the income and taxes. In the absence of non-operating income, operating income agrees with Earnings before interest and taxes (EBIT); otherwise, it can be derived from EBIT by subtracting non-operating income. Capital EmployedIn the denominator we have net assets or capital employed instead of total assets (which is the case of Return on Assets). Capital Employed has many definitions. In general it is the capital investment necessary for a business to function. It is commonly represented as total assets less current liabilities or fixed assets plus working capital. ROCE uses the reported (period end) capital numbers; if one instead uses the average of the opening and closing capital for the period, one obtains Return on Average Capital Employed(ROACE).ROCE is return on capital employedROCE is pronounced rocky not rosceApplicationROCE is used to prove the value the business gains from its assets and liabilities, a business which owns lots of land but has little profit will have a smaller ROCE to a business which owns little land but makes the same profit. It basically can be used to show how much a business is gaining for its assets, or how much it is losing for its liabilities.Drawbacks of ROCEThe main drawback of ROCE is that it measures return against the book value of assets in the business. As these are depreciated the ROCE will increase even though cash flow has remained the same. Thus, older businesses with depreciated assets will tend to have higher ROCE than newer, possibly better businesses. In addition, while cash flow is affected by inflation, the book value of assets is not. Consequently revenues increase with inflation while capital employed generally does not (as the book value of assets is not affected by inflation)
What is market value of capital employed and how is the evaluation?
the market value of capital is a company's to market value minus is liability
Define capital reserve?
Capital reserve is the amount created to increase in market value of assets at the time of revaluation of assets.
How does A higher rate of return on capital employed implies that the firm is managed efficiently in every situation?
The return on capital employed is used to measures the profitability of a company and how its capital is obtained. Simply stated it is ROCE=Earnings before interest and tax divided by capital employed. Capital employed is a total of debt and equity, or assets and liabilities). The return on capital employed if high will always show that the company is operating well because it will usually be higher than the company cost. Once it is lower than the company cost, something is not being done right, and the company begins to lose money and value.
What is capital revenue?
Capital RevenueProceeds from the sale of non-financial capital assets, including land, intangible assets, stocks, and fixed capital assets of buildings, construction, and equipment of more than a minimum value and usable for more than one year in the process of production, and receipts of unrequited transfers for capital purposes from non-governmental sources.http://www.treasuryota.us/ust100/lessons/glossary.htm
What is Unrestricted Net Assets in your audited Financial Statement?
The difference between assets and liablities are net assets. Per new reporting requirements it is necessary to further distinguish this value. The new reporting standards require that net assets be separated into 3 catagories. Invested in capital assets, net related debt, restricted and unrestricted. The section of invested in capital assets starts with your capital asset value less accumulated depreciation. The capital assets have to be further reduced by the debt held related to those assets. This could be bond issues or donations for capital assets. It is important to remember that other balance sheet items realted to your investment, unamortized prem or discount on the bonds and issuance costs shoud be included in the value. Accrude interest payable is exclude here because its a current liability, and thus will require current assets to retire. Any part of the debt not yet expensed to purchase capital assets should be moved to the second section, restricted for capital projects. Another element of the restricted area includes items retricted "legally" for payment. This would included accrude interest payable on the bonds outstanding. Per the standard if your debt exceeds capital assets acquire the value should be zero. Only positive amts, or zero will be shown in all sections accept for unrestricted. If the amt of restrictions on net assets exceeds net assets the value of unrestricted will be negative or deficit. Conversly, if net assets are greater than restrictions the unrestricted will be positive. When seen on the the balance sheet the deficit indicates legal restrictions in a long term sense. It does not speak to the ability of the company to meet current obligations.
How do you figure out the value of assets in place?
Value of assets in place = Value of investment in existing assets + Net present value of assets in place
Explain wealth maximization and value maximization objectives of financial management?
Wealth maximization of financial management focuses on increasing fixed and current assets while value maximization focuses to strengthen intangible assets.
Where can one contact Intellectual Capital?
Upon extensive research it has been found that there is no physical company by the name of Intellectual Capital and therefore there is no contact information available. Intellectual capital is a term that refers to the difference in value of financial and physical assets and the actual market value.
Define complementary assets and explain how they ensure that information systems provide genuine value to an organization?
Complementary assets are defined as assets or infrastructure that are needed in order to support a technological innovation. They ensure that a product gets good marketing and commercialization.
What is water capital?
Watered capital is the value of the eroded capital on account of a company continuously incurring losses. The accumulated losses and other intangible assets are viewed as a percentage of the paid-up capital and watered capital is the residual part of the paid-up capital after accounting the amount of losses
What are the seven value drivers of Alfred Rappaport?
the seven value drivers are: sales growth operating margin taxation inc investment in fixed assets inc investment in working capital planning horizon cost of capital (usually WACC)
