What is Job Costing in Management Accounting?

Job Costing is a technique from management accounting. It is a part of the internal accounting process to facilitate strategic planning and data-driven decisions. Management accounting goes down to the business’s basic units to understand profitability and help evaluate how successful management is in running the company. One of the most critical decisions for businesses is how to set prices and quote prospective customers. Job Costing helps us track costs on a per-project basis to analyze our pricing and profitability Read more…

Add Rounding to Multiple Cells in Excel – VBA Tool Dev

Lately, I’ve been working on a side project, modeling some financial statements. When I do those, I like to work with full numbers, as I get a better feel of the material items. However, when it’s time to prepare the final deliverables, I always round in thousands. What I have been doing so far is going in and wrapping the formulas by hand. I like using Excel’s round formula with -3 decimal places. This means that it rounds it to Read more…

Forecasts with the Polynomial Regression Model in Excel

Regression analysis aims to model the expected values for a dependent variable (y) based on independent variables (x). The polynomial regression is a statistical technique to fit a non-linear equation to a data set by employing polynomial functions of the independent variable. We can use the model whenever we notice a non-linear relationship between the dependent and independent variables. The first publication on the polynomial regression originated in the early 19th century. The model played an essential role in the Read more…

Understanding the Cost of Debt Ratio

Research in the SME sector shows that around 40-50% of companies seek debt financing at least once in their life cycle. It’s essential to understand the actual cost of Debt to make informed decisions within the business. The Cost of Debt represents the effective interest rate the business pays on its debts. Generally, the ratio refers to pre-tax cost. However, interest expenses are deductible for tax purposes, so we apply a tax shield on the Cost of Debt when we Read more…

Cohort Analysis Explained with an Excel example

It’s relatively easy for most businesses to analyze the day-to-day operational marketing and sales metrics like conversion rates, cost of sale, and others. However, when it comes to customer retention, it proves to be a more challenging task. Many companies struggle to define customer retention within their business model, let alone calculate and analyze it. Cohort Analysis is a form of behavior analysis on groups of users with similar characteristics in a given time frame. We refer to these groups Read more…

What was the Labor Theory of Value?

The Labor Theory of Value was one of the early attempts to explain how market prices form. It followed the idea that the main driver for goods’ value is the labor necessary to produce them. Under the theory, the labor hours it takes workers to produce a commodity is the source of its value. The underlying concept argues that we can determine the economic value of a product or service by the total hours of labor it takes to produce Read more…

The Value-Added Concept in Economics

The term value-added represents the enhanced value a company adds to its products and services. You probably notice that products sell for more than it costs to produce them, and services charge more than it costs to render them. This is what value-added represents. The essential purpose of any business is to create value that we can capture and utilize. Popular Opinion Adding value is how businesses get clients to buy their products and services, contributing to revenues and results. Read more…

Trial Balance Mapping for Financial Reports

Most ERP and accounting software solutions out there can generate decent standard reports. However, we often need more than that. One way to approach the preparation of more specific statements is to do it in Excel. We can export the data from our systems and prepare a template for the Excel statement, where we will aggregate this data. This is a common approach amongst many accountants. But it’s a time-consuming exercise, prone to errors. Once we prepare our statements manually, Read more…

Understanding the Gordon Growth Model for Stock Valuation

Understanding the Gordon Growth Model for Stock Valuation The Gordon Growth Model (GGM) is a method for the valuation of stocks. Investors use it to determine the relationship between value and return. The model uses the Net Present Value (NPV) of future dividends to calculate assets’ intrinsic value. It’s the most popular variation of the Dividend Discount Model (DDM). Myron J. Gordon (alongside other academicians) published the model in 1956. A strong influence was the work of John Burr Williams Read more…

Multiple Linear Regression Analysis in Excel

In a previous article, we explored Linear Regression Analysis and its application in financial analysis and modeling. You can read our Regression Analysis in Financial Modeling article to gain more insight into the statistical concepts employed in the method and where it finds application within finance. This article will take a practical look at modeling a Multiple Regression model for the Gross Domestic Product (GDP) of a country. Before I start, let me add a short disclaimer. I am not Read more…