Magnimetrics
Financial Modeling and Analysis

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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. …


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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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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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Recently, we looked at how to Perform a One-Way Analysis of Variance in Excel. In today’s article, we will take that a step further and a look at a Two-Factor ANOVA.

The Two-Way Analysis of Variance (ANOVA) is a statistical test to evaluate the difference between the means of more than two groups.

It is also known as a Factorial ANOVA with two factors. …


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Photo by Philipp Birmes from Pexels

Capital Expenditures, or CAPEX for short, are cash or credit payments to acquire goods or services that we capitalize in balance sheet assets. From the company’s perspective, we consider those to be an investment. Here we include all expenses that are not shown on the Income Statement and do not affect profit and loss for the current period.

CAPEX is an important concept, as this is the way for the business to support and expand its operating capacity by investing in property, plant and equipment, and technology.

As financial analysts, we pay close attention to Capital Expenditures, as they are not part of the Income Statement, but may have a significant impact on the Cash Flow Statement. …


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Once you start delving deeper into valuation and especially in the premise of mergers and acquisitions, you notice that Enterprise Value is an essential term in this field.

A company’s value consists of its owned assets, but in reality, obtaining their market value can be tedious and resource-intensive. Following the accounting equation, we can value these by the shareholder’s equity and liabilities, which the company used to finance its assets. By considering the market value of the firm’s equity and liabilities, we can derive the current market value of the business.

It helps investment analysts to evaluate potential new investment opportunities. The EV metric is vital because it’s not affected by capital structure, but only by the core operations of the business. …


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Flux Analysis is a type of comparison technique that helps us understand the changes in a company’s financials from period to period.

It is shortened from Fluctuations Analysis and is also sometimes called Horizontal Analysis. We use the method to evaluate the fluctuations in accounts over time. We usually express such changes in both monetary units and percentages.

A useful Flux Analysis aims not only to identify the changes but also to explain the reasons causing them.

Why Prepare a Flux Analysis?

Investigating the changes in our accounts can be helpful for many reasons. In management accounting and general business management, it can help us understand and manage the operations of the company in a more effective way. The insights we get from evaluating the fluctuations in our accounts also provide us with better information to support our financial and operating decisions. …

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