Magnimetrics
Financial Modeling and Analysis
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Regression Analysis represents a set of statistical methods and techniques, which we use to evaluate the relationship between variables. These are one dependent variable (our target) and one or more independent variables (predictors).

We have three primary variants of regression — simple linear, multiple linear, and non-linear. However, most of the time, we use linear regression models. Non-linear models are helpful when working with more complex data, where variables impact each other in a non-linear way.

Regression Analysis has many applications, and one of the most common is in financial analysis and modeling.

In financial modeling, we can employ regression analysis to estimate the strength of the relationship between variables and subsequently forecast this relationship’s future behavior. It fits in any setting where we hypothesize there is (or not) a correlation between two or more variables. …


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In the modern world, reporting is an essential part of running a company. But reporting only allows management to react to what has happened. There’s no outlook for the future. If our business only does reporting, we are already lagging behind.

Business Intelligence can help us have smart reporting that gives insights about decisions that can positively influence the future. BI is a mix of technology and strategy within the company, which aids the data analysis of business information.

Business Intelligence uses the power of automation to transform your data into insights to support your decision-making process. …


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The Accounts Receivable Turnover ratio (AR T/O ratio) is an accounting measure of effectiveness.

It is also known as the Debtor’s Turnover ratio, and we use it to gauge how effectively the company manages credits they extend to customers and collection.

We calculate the ratio by dividing net sales over the average accounts receivable for the period.

Managers often pay more attention to sales and margins and not enough attention to their accounts receivable and collection. We can’t run a company on low cash flow, so it’s vital to have efficient debt management.

Generally, we prefer a higher ratio, which means the business is more efficient at collecting due amounts from its clients. …


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The Cash Ratio represents a measurement of the liquidity of a company. It evaluates the ability of the business to cover short-term obligations with cash and cash equivalents alone.

It is particularly useful to creditors when deciding how much money they are willing to loan to a company. Suppliers also consider the ratio when assessing the optimal credit terms to provide to a client.

The Cash Ratio indicates a business’s value in a worst-case scenario when it’s about to go out of business. …


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The Asset Turnover Ratio measures how efficiently management uses the company’s assets to generate sales revenue. The ratio compares the amount of net sales to its total assets. It’s a standard efficiency ratio, as it gives investors an idea of how well management runs the company.

What is the Asset Turnover Ratio

The ratio, also known as the Total Asset Turnover Ratio, can determine the company’s performance and an excellent indicator of management’s efficiency. We usually calculate it on an annual basis, but we can implement it for various periods.

The metric is a crucial part of the DuPont analysis, where we split the Return on Equity (ROE) into three components, one of which is the Asset Turnover Ratio. …


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When a company hires employees, they provide it with services. In turn, the company, as their employer, reimburses their time spent with a remuneration package.

This usually consists mostly of a salary but can include various other benefits, some of which may be mandated by law or local legislation. One of those benefits is the annual paid vacation.

IAS 19 Employee Benefits

IAS 19 provides guidance on the matter of accounting treatment for such benefits. It requires that we match the expense for employee benefits to the period where they earned the entitlements.

The standard stipulates the entity has to recognize an expense whenever the employee provides services in exchange for employee compensation. Companies also have to record a liability if they pay the benefits in the future. Keep in mind that, for this article, I will use liability, obligation, and provision interchangeably. …


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Accounting standards (IRFS and US GAAP) require that we apply a conservatism principle when we assess the value of assets and transactions.

The Net Realizable Value (NRV) is the amount we can realize from an asset, less the disposal costs. The most often use of the method is when we evaluate inventory and accounts receivable balances.

Companies usually record assets at cost (how much it cost to acquire the asset). Sometimes the business cannot recover this amount and must report such assets at the lower of cost and Net Realizable Value.

NRV is a conservative method as it estimates the real value of an asset, after deducting selling costs or costs of disposal. …


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Most companies in the manufacturing and retail industries have Inventory. Slow-moving and obsolete Inventory can have a severe adverse effect on the profitability of the business. When we can’t realize our goods on hand, they lose value and may become useless for the company.

To account for this decrease in value, we write down or entirely write-off such items in our accounting records and recognize a loss. Slow-moving and obsolete Inventory can become a significant problem for many businesses.

This article will show you how to identify and battle obsolete Inventory, also known as dead stock.

Sometimes no inventory is better than obsolete Inventory.


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The Receivables Aging (or Ageing, if you prefer British English) report is a tool that lists all unpaid customer balances by pre-defined date ranges (buckets). It shows the relationship between open invoices and their due dates.

It is the primary tool to determine overdue balances for collection. It’s useful for the company’s management, as it helps to evaluate the effectiveness of the credit control function.

Typically, we separate the outstanding balances in buckets, at multiples of 30 days. Doing so is not a requirement, and you can separate the buckets in a way that best fits your organization. …


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Gathering data in itself is meaningless unless we can analyze it and draw powerful insights. What makes data interesting is the ability to evaluate and interpret it.

Hypothesis testing refers to a term in statistics where we, as the analysts, evaluate an assumption related to a data set parameter.

Based on the purpose of the analysis and the specific characteristics of the data, we can use different methodologies. In general, the technique gives us a standardized way to assess the plausibility of an assumption based on sample data.

This sample data can originate either from a larger population or a data-generating process. …

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