Deduction refers to the amount of money which is deducted from salary of an employee. Generally deductions are done in the form of PF, ESIC, PT and TDS as mentioned below:
Provident Fund: 12% of basic and Dearness allowance (DA).
Employee State Insurance Corporation (ESIC): 1.75% of gross salary.
Professional Tax (PT): Vary state wise.
Tax Deducted at Source (TDS): According to tax slab.
Accounts receivable refers to the amount of money which a company has to collect from its debtors. The money so owed by customers is assumed to be collected within a financial year. Thus account receivable is part of current assets of a company.
Usually accounts receivable occurs as a result of credit sale policy adopted by the company.
Return on equity (ROE) is one of the profitability ratios used to measure the efficiency of a company to generate profit for its equity shareholders. This ratio indicates the relationship between net income and shareholder’s fund.
Return on equity is also known as ‘Return on net worth’.
Return on equity is used to compare the efficiency of a firm to generate profit, with other companies in same industry. If a company uses more debt instruments to raise funds, this ratio results in higher value however does not shows the true picture.
ROE is calculated by dividing the amount of net income by shareholder’s fund. The formula which is used in this calculation is:
Return on equity = Net income / Shareholders’ fund
Net income refers to the amount of money remained after subtracting COGS, operating expenses, interest, taxes and preference shareholder’s dividend (not equity shareholder’s dividend) from total revenue.
Shareholder’s fund refers to equity share capital.
For a better picture, average shareholders’ equity is used instead of total shareholders’ fund. In this case formula is
Return on equity = Net income / Average shareholders’ fund
Average shareholders’ fund is calculated by adding the amount of equity capital at the beginning of financial year and equity capital at the end then the result is divided by 2.
Average shareholders’ fund = (Equity capital at the beginning + equity capital at the end) / 2
Working capital turnover ratio shows the relationship between net sales and working capital of a company. One of the important sales ratios, working capital turnover ratio is used to gauge the efficiency of management to increase sales by using working capital of company.
The higher degree of this ratio reflects better usage of working capital.
Working capital turnover ratio = Net sales/ Working capital
Here:
Net sales = Gross sales – sales return
Working capital = Current assets – current liabilities.
One of the important sales ratios, Capital turnover ratio shows the relationship between net sales and capital employed. It is used to measure the efficiency of management to generate revenue from companies’ capital.
The higher degree of this ratio is better for a company in sense that capital is being used in effective way.
Capital turnover ratio = Net sales/ Capital employed
Where
Net sales = Gross sales – sales return
Capital employed = Share capital + reserves + long term borrowings
