Valuation ratios are the only group of business ratios that are externally and not internally driven. The market dictates valuation ratios. All three core valuation ratios are determined by the market price of the stock. All three have the same numerator, the market share price or market capitalization value of the company.
Generally Accepted Accounting Principles
Generally Accepted Accounting Principles (GAAP) is a set of guidelines and rules related to financial reporting. The primary goal is to create a set of reporting principles for all publicly traded companies in which to compare similar financial reporting issues between companies. Smaller businesses are not legally required to comply with GAAP, but many financial lenders require compliance in order to properly evaluate a business when a loan is requested.
The next section of bookkeeping (advanced skill sets) introduces the bookkeeper to the different organizational methods and explains why certain kinds of transactions are handled differently than standard entry practices. In addition some tax knowledge is infused throughout as the tax code impacts much of how accounting is performed.
Accounting’s primary purpose is to measure economic activity. There are several different methods to determine the economic value generated in your business each year. In accounting this is referred to as sets of books. There are four basic sets of accounting books. Each has a different purpose and end goal.