A company acquires another existing company when it takes over or buys it. Generally, a larger company with more resources buys a smaller company, but that isn’t always true. Smaller companies may acquire larger businesses, as well. The terms merger and acquisition differ in certain respects, but the two terms are often used together as “M&A” and are often considered synonyms.
Explanation:
Often, acquisitions are the result of friendly discussions between two firms, whose target company accepts the acquisition. The two companies then negotiate and ultimately agree on the terms of the acquisition. However, the acquisition may have taken place against the will of the factory management obtained from the so-called “hostile take.” By malicious takeover, a foreign company gains control interest on a targeted company by purchasing more than 50% of the target company’s shares.
This doing so by giving existing shareholders a higher value of their shares than they can now earn in the open market, thus enticing them to sell. Whether acquisitions are friendly or hostile, acquired firm shares are usually bought above their current market value. The differenсe between the сurrent mаrket рriсe оf а stосk аnd the рriсe оffered fоr аn asset is саlled а рremium.
Example:
Vodafone acquired Mannesmann, a German-owned industrial conglomerate, for a total of $203 billion in January 2021. Vodafone, a mobile operator in the United Kingdom, acquired Mannesmann for a total of $203 billion.
Vodafone became the world’s largest mobile operator after this deal, which paved the way for dozens of mega deals in the telecommunications space in the years following. It is the largest mergers and acquisitions transaction in history.
Types:
Several methods can be used to pay for an acquisition, including cash, a security payment (such as a stock-for-stock exchange), a leveraged buyout, or a combination of these methods. The simplest way to purchase shares of another company is to pay cash to the existing shareholders of the target company. By exchanging assets and securities with the target company, the acquiring company makes a secure payment.
In a Nutshell:
- The process of taking control of a company happens when one company buys the majority of shares of another company.
- If a firm controls more than half of its target company, the firm effectively controls the company.
- A merger joins together two existing companies to create a brand new company. An acquisition is typically friendly, whereas a takeover can be hostile.
An account receivable (AR) is an amount that is due to a firm for goods or services that have been delivered or utilized but have not yet been paid. An account receivable is any amount owed by a customer for goods or services. AR is included in the balance sheet as a current asset.
As a result of credit risk, losses always occur and it is usually possible to estimate bad debts based on experience and history. The allowance for doubtful debts is deducted from accounts receivable. Each estimate is reviewed and updated regularly. For detailed information on the processing amounts, often references are provided.
Explanation:
Accounting for receivables refers to the invoices that are outstanding and the money that clients owe to the business. The phrase refers to accounts the company has the right to collect after delivering a product or service. Generally, receivables are a line of credit extended by a company and require payments to be made within a relatively short time period, ranging from a few days to a year.
Accounts receivables are assets on the balance sheets of businesses since they are legally obligated to be paid. Additionally, accounts receivable are current assets because they are owed back by debtors within one year. A receivables account indicates that the company is yet to collect payment from a customer it sold on credit.
In a nutshell:
- Companies generate accounts receivable when they allow their customers to pay for goods or services on credit.
- The accounts payable are similar to the accounts received, but instead of the money received, the amount owed is paid to the recipient.
- Money due to a business in the short term is represented by accounts receivables on a balance sheet.
- The company’s AR power can be assessed on the basis of the account revenue earned or the remaining sales number.
- Profit rate analysis can be done to determine when AR will actually be acquired.
Accounts Payable (AP) vs Account receivable (AR)
Simplest of all, accounts payable and accounts receivable represent the same thing. Accounts payable shows how much you owe suppliers, whereas accounts receivable shows how much you owe customers.
For example, a distributor may buy a refrigerator from a manufacturer, which creates an account payable to the manufacturer. The distributor then sells the refrigerator to a customer on
credit, which results in an account receivable from the customer. The result is an account receivable from the customer.
A Zero Coupon Bond is a debt security that is sold at a discount and does not pay any interest payments to the bondholder. In other words, it’s a bond that sells for less than its face value and does not make coupon payments or periodic interest payments during its life. At maturity, it can then be redeemed at its face value allowing the bond holder to make a profit.
Explanation :
Companies, schools, and governments use bonds as a way to finance expansions and other long term projects. Usually the decision to issue a bond starts with a proposal for new projects. When the board or governing body approves the plans, a bond can be issued. Unfortunately, it isn’t that easy. Sometimes it can take a few months for the bond to be drafted and actually issued to the public. This presents a problem. The interest rate and terms of the bond are set when the bond is initially drafted up. By the time the bond actually hits the public, interest rates have usually changed. That is why most bonds are either issued at either a premium or a discount. Since the stated interest rate of the bond can’t be changed at this point, the sales price of the bond is changed. A bond issued at a premium sells for more than the stated value. In other words, a $1,000 bond might sell for $1,100. A discounted bond is the opposite. The sale price is actually reduced lower than the stated price. A $1,000 bond might only sell for $900.In an effort to get away from this problem, some companies don’t issue bonds with stated interest rates or zero-coupon bonds.
In a nutshell :
- A zero-coupon bond is a debt security instrument that does not pay interest.
- Zero-coupon bonds trade at deep discounts, offering full face value (par) profits at maturity.
- The difference between the purchase price of a zero-coupon bond and the par value indicates the investor’s return.
Year-to-date (YTD) is the period between the first day of the calendar year and the current date. It is generally used for the calculation of
investment returns on a security or a firm’s income to the current date.
Explanation :
Year-to-date is widely used by financial analysts to provide details about a firm’s performance during a specified period or to compare the return of a portfolio during a specified period. By calculating YTD results, managers can perform a comparison between the firm’s current performance and the performance of past years. For instance, the fiscal year for most companies is on January 1. The YTD results for company A to the current date (April) are $500,000 revenues in January, 250,000 revenues in February, 356,000 revenues in March, and $485,000 in April, a total of $1,591,000 YTD. Comparing YTD results with the results of the previous fiscal year allows the firm’s manager to identify areas that may need improvement. On the other hand, YTD comparison should be performed on companies with a common fiscal year start date to avoid distortion of results due to seasonal or other factors.
In a nutshell :
- YTD refers to a period of time beginning the first day of the current calendar year or fiscal year up to the current date.
- Some governmental agencies and organizations have fiscal years that begin on a date other than Jan. 1.
- YTD analysis is useful for managers to review interim financial statements in comparison to historical YTD financial statements.
A wage is compensation paid to employees for work for a company during a period of time. Wages are always paid based on a certain amount of time. This is usually an hourly basis. This is where the term hourly worker comes from. Other forms of compensation include salary and commissions.
Explanation :
Lower level employees are paid based on the amount of time worked. These employees usually have a timesheet or time card to keep track of the hours worked per week. Most modern employers have computerized systems to keep track of hourly employee hours.Employees must log into the system and log out to record their hours worked. Depending on the state, these employees are then paid once a week or once every other week. Hourly employees must receive overtime benefits if they work more than 40 hours each week.
In a nutshell :
- A wage expense is the cost incurred by companies to pay hourly employees.
- The wage expense line item may also include payroll taxes and benefits paid to the employee.
- Wage expenses are variable costs and are recorded on the income statement.
- Under the accrual method of accounting, wage expenses are recorded when the work was performed as opposed to when the worker is paid. Under cash accounting, wage expenses are reported only when the worker is paid.
- Wage expenses that are not yet paid are recorded as wages payable on the balance sheet, which is a liability account.
- Salary expenses differ from wage expenses as they are not hourly but rather quoted annually. Wage expenses can incur overtime whereas salaried jobs do not include overtime pay.
Value added time is the processes and activities in the production or manufacturing process that improve the product or add usefulness to it.
Explanation :
Most manufacturers try to eliminate all unnecessary production costs and wasted time. This makes their production lines leaner and also makes customers happier. Companies can provide better products at a cheaper price if they run production operations smoothly and efficiently. One way managers measure the efficiency of the production line is by looking at the cycle time.
Cycle time measures the amount of time it takes to produce a product. Cycle time includes process time, inspection time, move time, and wait time. All of these processes are part of producing one product. Inspection time, move time, and wait time are considered to be non-value adding time processes. Inspecting a computer for flaws or moving it to the loading dock does not improve the computer. In other words, these processes don’t add value to the product.
In a nutshell :
- Value-added is the additional features or economic value that a company adds to its products and services before offering them to customers.
- Adding value to a product or service helps companies attract more customers, which can boost revenue and profits.
- Value-added is effectively the difference between a product’s price to consumers and the cost of producing it.
- Value can be added in several different ways, such as adding a brand name to a generic product or assembling a product in an innovative way.
Unavoidable expenses are costs that will not be eliminated if a department is closed. Unavoidable expenses are also called inescapable expenses for this very reason. They will remain no matter what the company does.
Explanation :
In a down economy,
management is often faced with the decision of cutting branches, departments, and even products. In order to save the company money, managers tend to look at the departments or products that are losing money or not turning a profit. A lot of times shutting down departments simply because they are losing money is not always a good idea.
In a nutshell :
- Unavoidable expenses are costs that will not be eliminated if a department is closed.
- Unavoidable expenses are also called inescapable expenses for this very reason.
- They will remain no matter what the company does.
Tangible assets are physical, measurable resources; like property, plant, and equipment, used in a company’s operations to produce a profit. These assets include anything with a physical nature that is used within a company.
Explanation :
These resources can be divided into two main categories: current and fixed. Current
assets are resources that will be consumed in the current period like inventory. Fixed assets are long-term resources that will provide value for future periods to come. Some examples include machinery, vehicles, and buildings. These resources can be damaged, repaired, stolen, and purchased because they are real items that get used in the normal course of business. Management must ensure these resources are guarded and maintained properly in order to preserve their usefulness. Tangibles can also be used as collateral for loans. All tangibles are reported on the balance sheet at their historical cost, but some have special reporting requirements. Long-term fixed assets must be depreciated over their useful lives with the accumulated depreciation reported on the front of the balance sheet.
In a nutshell :
- Comprehensively, companies have two types of assets: tangible and intangible.
- Tangible assets have a real transactional value and usually a physical form.
- Tangible assets usually account for the majority of a firm’s total assets.
- Tangible assets can be recorded on the balance sheet as either current or long-term assets.
A sale is a transaction between a company and a customer. The company usually sells inventory for a larger amount than what it paid for it, so the company can recognize a profit. The word “sales,” on the other hand, has a slightly different meaning.
Explanation :
In the accounting world, the word “sales” is usually associated with total company revenue rather than a single sale. The sales or revenue account is an equity account that increases when a sale occurs. When a company sells a product, it debits cash for the sale price and credits revenues for the same price.
In a nutshell :
- A sale is a transaction between two or more parties, typically a buyer and a seller, in which goods or services are exchanged for money or other assets.
- In the financial markets, a sale is an agreement between a buyer and seller regarding the price of a security, and delivery of the security to the buyer in exchange for the agreed-upon compensation.
- If the item or service in question is transferred by one party to the other party with no compensation, the transaction is not considered to be a sale, but rather a gift or a donation.
