WHAT IS THE DIFFERENCE BETWEEN AN INCOME TAX AND A CORPORATE TAX? Corporate (or corporation) tax is paid by companies.

Depending on the law of the nation concerned, it is charged on profits, on turnover or on certain sales - or of course a combination. Income tax is paid by individuals and is a portion of their earnings and other income taken by the state. Since a trading company must make a profit to survive and when setting prices will include their taxes as an essential expense, all these taxes (plus any others governments dream up such as duty on petrol, tobacco and alcohol)) are, in the end, paid by the individual citizens. There is no free lunch: you cannot spare the citizens by taxing the businesses. That is the weak point in the current policy of punishing the banks by taxing them. The banks are in a strong position when faced with the ordinary customer, and will recover the money by taking it out of our skin. In the end the common man is, has always been, and (I am afraid) must always be Jack-pay-for-all. For ever at the bar buying, but never tasting the beer. FINANCIAL ANALYSIS

Accounting Ratios for Financial Statement Analysis

U.S. GAAP Codification, U.S. Tax Code by Section, Securities Law Library Financial Accounting, Intermediate Accounting, Advanced Accounting ASC Accounting Standards, IFRS International Standards

Liquidity Analysis Ratios

financial metrics that is used to determine a company's ability to pay off its short-terms debts obligations. Generally, the higher the value of the ratio, the larger the margin of safety that the company possesses to cover short-term debts.
Current Ratio Current Ratio = Quick Ratio Quick Ratio = Quick Assets ---------------------Current Liabilities Current Assets -----------------------Current Liabilities

Quick Assets = Current Assets Inventories Net Working Capital Ratio

Net Working Capital Ratio =

Net Working Capital -------------------------Total Assets

Net Working Capital = Current Assets - Current Liabilities

Profitability Analysis Ratios Return on Assets (ROA) Return on Assets (ROA) = Net Income ---------------------------------Average Total Assets

Average Total Assets = (Beginning Total Assets + Ending Total Assets) / 2 Return on Equity (ROE) Return on Equity (ROE) = Net Income -------------------------------------------Average Stockholders' Equity

Average Stockholders' Equity = (Beginning Stockholders' Equity + Ending Stockholders' Equity) / 2 Return on Common Equity (ROCE) Return on Common Equity = Net Income -------------------------------------------Average Common Stockholders' Equity

Average Common Stockholders' Equity = (Beginning Common Stockholders' Equity + Ending Common Stockholders' Equity) / 2 Profit Margin Profit Margin = Net Income ----------------Sales

Earnings Per Share (EPS) Earnings Per Share = Net Income --------------------------------------------Number of Common Shares Outstanding

Activity Analysis Ratios Assets Turnover Ratio Assets Turnover Ratio = Sales ---------------------------Average Total Assets

Average Total Assets = (Beginning Total Assets + Ending Total Assets) / 2 Accounts Receivable Turnover Ratio Accounts Receivable Turnover Ratio = Sales ----------------------------------Average Accounts Receivable

Average Accounts Receivable = (Beginning Accounts Receivable + Ending Accounts Receivable) / 2 Inventory Turnover Ratio Inventory Turnover Ratio = Cost of Goods Sold --------------------------Average Inventories

Average Inventories = (Beginning Inventories + Ending Inventories) / 2

Capital Structure Analysis Ratios

The capital structure ratio shows the percent of long term financing represented by long term debt. A capital structure ratio over 50% indicates that a company may be near their borrowing limit (often 65%).

Debt to Equity Ratio Debt to Equity Ratio = Total Liabilities ---------------------------------Total Stockholders' Equity

Interest Coverage Ratio Interest Coverage Ratio = Income Before Interest and Income Tax Expenses ------------------------------------------------------Interest Expense

Income Before Interest and Income Tax Expenses = Income Before Income Taxes + Interest Expense

Capital Market Analysis Ratios Price Earnings (PE) Ratio Price Earnings Ratio = Market Price of Common Stock Per Share ------------------------------------------------------

Earnings Per Share Market to Book Ratio Market to Book Ratio = Market Price of Common Stock Per Share ------------------------------------------------------Book Value of Equity Per Common Share

Book Value of Equity Per Common Share = Book Value of Equity for Common Stock / Number of Common Shares Dividend Yield Dividend Yield = Annual Dividends Per Common Share -----------------------------------------------Market Price of Common Stock Per Share

Book Value of Equity Per Common Share = Book Value of Equity for Common Stock / Number of Common Shares Dividend Payout Ratio Dividend Payout Ratio = Cash Dividends -------------------Net Income

ROA = Profit Margin X Assets Turnover Ratio

An indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. Calculated by dividing a company's annual earnings by its total assets, ROA is displayed as a percentage. Sometimes this is referred to as "return on investment".
ROA = Profit Margin X Assets Turnover Ratio Net Income ROA = ------------------------ = Average Total Assets Net Income -------------- X Sales Sales -----------------------Average Total Assets

Profit Margin = Net Income / Sales Assets Turnover Ratio = Sales / Averages Total Assets

on Business Decisions
Interest is the cost to borrowers of borrowing money. When a lender, such as a bank, lends to a borrower, the borrower agrees to pay back the amount borrowed, plus an extra amount. This amount is known as interest and represents the lender's profit on the loan transaction. Interest is typically expressed as an annual percentage rate. Interest rates rise and fall, and these changes or anticipated changes in interest rates can have an effect on businesses' decisions with regard to their borrowing requirements.

1. Capital Projects
o

When a business considers borrowing money to finance capital projects, it may postpone these projects during times when interest rates are rising and are anticipated to continue rising. This is because the cost of borrowing may increase. The additional earnings anticipated from completing a project such as the building of a new factory may be eroded by the extra costs of borrowing associated with rising interest rates. The business will still have the debt on its balance sheet, but will not be enjoying extra profits anticipated by the output from the new factory, as this will be absorbed by the additional interest rate payments. Many businesses would not go ahead with capital expenditure during times of rising interest rates because the risk could outweigh the potential reward.

Employment
o

Because most businesses are interested in maximizing profits, rising interest rates may affect their employment decisions. Many businesses finance projects aimed at growing the business by borrowing. When interest rates rise, the cost of new and existing borrowing rises, and this affects the business's profits. In the short term, hiring additional employees in order to increase output adds a further cost to the business that also eats into profits, so businesses may decide to postpone new hiring while interest rates are rising or are high. Some businesses may decide to improve profitability during these times by laying off existing employees.

Community and Environmental Projects

o

Businesses who engage in environmental or community projects that add goodwill but do not immediately affect the balance sheet, may scale back or postpone these projects when interest rates are rising. A business may choose to make savings in these areas rather than lay off skilled staff that it will need when circumstances change and it needs to increase output.

Falling Interest Rates

When interest rates are falling or are already low, consumers have more money available to spend. This is because interest rates affect consumers who have loans and mortgages. The fact that consumers have more money to spend can increase demand for goods and services, and a business may decide to borrow at low rates of interest. The borrowing can be used to fund an expansion in productivity, needed to satisfy the anticipated increase in demand from consumers.

INTEREST RATE RISK The possibility of a reduction in the value of a security, especially a bond, resulting from a rise in interest rates. This risk can be reduced by diversifying the durations of the fixed-income investments that are held at a given time.
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