Relevant Cost Definition Formula and Strategic Impact

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Relevant cost is a managerial accounting term that describes avoidable costs that are incurred only when making specific business decisions. The concept of relevant cost is used to eliminate unnecessary data that could complicate the decision-making process. As an example, relevant cost is used to determine whether to sell or keep a business unit.The opposite of a relevant cost is a sunk cost, which has already been incurred regardless of the outcome of the current decision.

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Internal Rate Of Return

IRR, or internal rate of return, is a metric used in financial analysis to estimate the profitability of potential investments. IRR is a discount rate that makes the net present value (NPV) of all cash flows equal to zero in a discounted cash flow analysis.IRR calculations rely on the same formula as NPV does. Keep in mind that IRR is not the actual dollar value of the project. It is the annual return that makes the NPV equal to zero.Generally speaking, the higher an internal rate of return, the more desirable an investment is to undertake. IRR is uniform for investments of varying types and, as such, can be used to rank multiple prospective investments or projects on a relatively even basis. In general, when comparing investment options with other similar characteristics, the investment with the highest IRR probably would be considered the best.

Internal Rate Of Return

IRR, or internal rate of return, is a metric used in financial analysis to estimate the profitability of potential investments. IRR is a discount rate that makes the net present value (NPV) of all cash flows equal to zero in a discounted cash flow analysis.IRR calculations rely on the same formula as NPV does. Keep in mind that IRR is not the actual dollar value of the project. It is the annual return that makes the NPV equal to zero.Generally speaking, the higher an internal rate of return, the more desirable an investment is to undertake. IRR is uniform for investments of varying types and, as such, can be used to rank multiple prospective investments or projects on a relatively even basis. In general, when comparing investment options with other similar characteristics, the investment with the highest IRR probably would be considered the best.

Sensitivity Analysis

Sensitivity analysis shows how different values of an independent variable affect a dependent variable under a given set of assumptions. Companies use sensitivity analysis to identify opportunities, mitigate risk, and communicate decisions to upper management.Sensitivity analysis is deployed in business and economics by financial analysts and economists and is also known as a "what-if" analysis.

Sensitivity Analysis

Sensitivity analysis shows how different values of an independent variable affect a dependent variable under a given set of assumptions. Companies use sensitivity analysis to identify opportunities, mitigate risk, and communicate decisions to upper management.Sensitivity analysis is deployed in business and economics by financial analysts and economists and is also known as a "what-if" analysis.

Gross Working Capital

Gross working capital is the sum of a company's current assets (assets that are convertible to cash within a year or less). Gross working capital less current liabilities is equal to net working capital, or simply "working capital;" a more useful measure for balance sheet analysis.

Gross Working Capital

Gross working capital is the sum of a company's current assets (assets that are convertible to cash within a year or less). Gross working capital less current liabilities is equal to net working capital, or simply "working capital;" a more useful measure for balance sheet analysis.

Gross Income Multiplier

A gross income multiplier (GIM) is a rough measure of the value of an investment property. It is calculated by dividing the property's sale price by its gross annual rental income. Investors can use the GIM—along with other methods like the capitalization rate (cap rate) and discounted cash flow method—to value commercial real estate properties like shopping centers and apartment complexes.

Gross Income Multiplier

A gross income multiplier (GIM) is a rough measure of the value of an investment property. It is calculated by dividing the property's sale price by its gross annual rental income. Investors can use the GIM—along with other methods like the capitalization rate (cap rate) and discounted cash flow method—to value commercial real estate properties like shopping centers and apartment complexes.

Gross Margin Return On Investment

The gross margin return on investment (GMROI) is an inventory profitability evaluation ratio that analyzes a firm's ability to turn inventory into cash above the cost of the inventory. It is calculated by dividing the gross margin by the average inventory cost and is used often in the retail industry. GMROI is also known as the gross margin return on inventory investment (GMROII).

Gross Margin Return On Investment

The gross margin return on investment (GMROI) is an inventory profitability evaluation ratio that analyzes a firm's ability to turn inventory into cash above the cost of the inventory. It is calculated by dividing the gross margin by the average inventory cost and is used often in the retail industry. GMROI is also known as the gross margin return on inventory investment (GMROII).

Statement Of Retained Earnings

The statement of retained earnings (retained earnings statement) is a financial statement that outlines the changes in retained earnings for a company over a specified period. This statement reconciles the beginning and ending retained earnings for the period, using information such as net income from the other financial statements, and is used by analysts to understand how corporate profits are utilized.The statement of retained earnings is also known as a statement of owner's equity, an equity statement, or a statement of shareholders' equity. Boilerplate templates of the statement of retained earnings can be found online. It is prepared in accordance with generally accepted accounting principles (GAAP).

Statement Of Retained Earnings

The statement of retained earnings (retained earnings statement) is a financial statement that outlines the changes in retained earnings for a company over a specified period. This statement reconciles the beginning and ending retained earnings for the period, using information such as net income from the other financial statements, and is used by analysts to understand how corporate profits are utilized.The statement of retained earnings is also known as a statement of owner's equity, an equity statement, or a statement of shareholders' equity. Boilerplate templates of the statement of retained earnings can be found online. It is prepared in accordance with generally accepted accounting principles (GAAP).