Accounting

A=L+E
Financial accounting is based on the dual representation of the patrimony of a company.
Patrimony is formed by: assets, liabilities and equity.

ASSETS: ECONOMIC RESOURCES THAT ARE EXPECTED TO PROVIDE BENEFITS TO A

BUSINESS.
Assets may be tangible or intangible:
- Tangible means that it has physical substance, such as a building or a machine.
- Intangible means that it lacks physical substance, such as a copyright or a patent.
An asset has 3 vital characteristics :
1. It can provide future probable economic benefit. (if you have a machine you can use it to make
products that you can sell)
2. It must be under the control of the entity. (you may own a machine, or you may rent it with an
option, but you can use it to make products).
3. An asset is the result of a prior event of transaction. (if you have a machine it is because you
have bought it or because you have made it yourself.) if you want to account an asset you need to
express it in money.

LIABILITIES: AMOUNT PAYABLE (IF YOU MUST PAY ME $10 YOU ARE MY DEBTOR, AND I AM
YOUR CREDITOR)
Debtor = individual who has a legal obligation to pay money to another.
Creditor = individual who has a legal right to get money from another.
Assets are the Economic compound of patrimony: The means the company has to do its work.
Liabilities are the source of money that allows to have the Assets to work with.
Assets – Liabilities = Equity

EQUITY: is the net value of your company, if you have a machine with a value of $100 and you
have a liability of $40 the net value of your company is 100 - 40 = $60.
If the property of your company is represented in shares, you can say “shareholder’s equity” or
“stockholder’s equity”.
In every company it is always true that Assets = Liabilities + Equity

Under the double-entry system every business transaction is recorded in at least two accounts.
One account will receive a "debit" entry, meaning the amount will be entered on the left side of
that account. Another account will receive a "credit" entry, meaning the amount will be entered
on the right side of that account.

Debit is the left side, but also any record written in the right is a Debit
Credit is the right side, but also any record written in the left side is a Credit.

Assets Liabilities Equity

Increases Decreases Decreases Increases Decreases Increases

(+) (-) (-) (+) (-) (+)

Ending Ending Ending

Balance Balance Balance
Ending Balance = ∑ Debits - ∑ Credits
Ending balance is always positive >=0
- If Credits > Debits we say Creditor ending Balance and Calculate Credits-Debits
- If Credits < Debits we say Debtor Balance and Calculate Debits-Credits

The money you have in the bank account is your money or is the Bank’s money?
- For you its an Asset
- For the Bank it is a Liability

The journal is the initial recording of transactions in chronological order, while the ledger is a
collection of accounts, each with its own page summarizing all related transactions. The
information flows from the journal to the ledger, and together they form the basis for financial
reporting and analysis.
An 'account' is a specific location for recording transactions of a like kind. The dual aspect of
treating each transaction is then recorded in an account. An account shows us the 'history' of a
particular business transaction.
Accounts can be divided into three categories:

1. Personal Accounts – these are the accounts of your creditors (accounts payable) and debtors
(accounts receivable) // Accounts related to individuals, firms, organizations, or companies.

2. Real Accounts – are your tangible and intangible assets // Tangibles – Plants and machinery,
furniture and fixtures, computers and information processing equipment
Intangibles – Goodwill, patents, copyrights, trademarks

3. Nominal Accounts – these are income and expense accounts of your business // Sales,
purchases, utilities, dividends.

Accounts can be further divided into five types. The basic types of accounts for a business are:

1. 'Assets:' items of value that the business owns or has rights to. Examples include:
cash, real estate, equipment, money or services that others owe you (accounts receivables), and
even intangible items such as patents and copyrights.

2. 'Liabilities:' obligations that are owed to other parties (accounts payables).

Examples include: wages payable, taxes due, and borrowed money (also called debt).

3. 'Equity:' the ownership value of a business. It is the investment by an owner in the business.

4. 'Revenues:' the mechanisms where income enters the business (note that revenue and income
is not the same thing they are used here to describe each other in basic terms only. This will be
explained later).

5. 'Expenses:' the costs of doing business. Examples include: salary expense, rent, utilities
expense, and interest on borrowed money.
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 WHAT IS A BUSINESS?

A business can be defined as a commercial organization, which exists with a view to making a
profit. A business will generally fall into one of the following categories (depending on the country
you are establishing the business):

Sole Trader This is a business that is owned and operated by one person. He or she is solely
liable for all business debts but when successful, takes all the profits.

Partnership This type of business is owned by several individuals, some of which will actively be
involved in the business.

Companies (or Public Corporations) This type of business is owned by

shareholders and is operated on their behalf by a nominated board of directors.

Non Trading Organizations (or Non Pro t Corporations) Clubs, associations and other non
profit making organizations are normally run for the benefit of their members to engage in a
particular activity and not to make a profit. Their financial statements will take the form of income
and expenditure accounts.

Cooperative Society A legally constituted business entity formed for the explicit purpose of
furthering the economic welfare of its members and that of the wider society by providing them
with goods or services.

THE ACCOUNTING CYCLE

This is a series of steps that are repeated on every reporting period. The process starts with
making accounting entries for each transaction and goes through closing the books. This is the
name given to the collective process of recording and processing the accounting events of a
business. It is a methodical set of rules to ensure the accuracy and conformity of financial
statements.

The accounting cycle is a series of steps that is followed to ensure that the records of a business
are true and fair. Each business transaction goes through these steps.

1. Collecting &
analyzing source
9. Post Closing Trial documents. 2. Journalizing
Balance Transactions.

3. Post to the
8. Closing Entries
Accounting ledgers

cycle

7. Financial 4. Unadjusted Trial

Statements Balance

6. Adjusted Trial 5. Prepare

Balance adjustments
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 Step 1 Collecting and analyzing data from source documents.
When a transaction occurs, a document is produced. Most of the time, these documents are
external to the business (e.g. purchase orders, sales slips, etc.), however, they can also be internal
documents, such as inter office sales, cheques, bills from providers, etc. These documents are
referred to as source documents. Some additional examples of source documents include:
· The receipt you get when you purchase something at the store.
· Interest you earned on your savings account which is documented in your monthly bank
statement.
· The monthly electric utility bill that comes in the mail.
· The telephone bill.
· Invoices from other service providers, contractors, etc.

Step 2 – Journalizing transactions.

The source documents are recorded in a Journal. This is also known as a book of first entry.
The journal records both sides of the transaction recorded by the source document. These write
ups are known as Journal entries.

Step 3 – Post to the Ledgers.

The Journal entries are then transferred to a Ledger. The group of accounts (described earlier) is
called ledger. A ledger is also known as a book of accounts. The purpose of a Ledger is to bring
together all of the transactions for a similar activity. For example, if a business has one bank
account, then all transactions that include cash would then be maintained in the Cash Ledger. This
process of transferring the values is known as a posting.
(Remember if using a computer this is automatically
Done)

Once the entries have all been posted, the Ledger accounts are added up in a process called
Balancing. Balancing implies that the sum of all Debits equals the sum of all Credits. (Also
automated)

Step 4 – Unadjusted Trial Balance.

A particular working document called an unadjusted trial balance is created. This lists all the
balances from all the accounts in the Ledger. Notice that the values are not posted to the trial
balance, they are merely copied.

At this point accounting happens. The accountant produces a number of adjustments, which
make sure that the values comply with accounting principles (Regulations).

These values (such as depreciation of equipment) are then passed through the accounting system
resulting in an
adjusted trial balance. This process continues until the accountant is satisfied.

Steps 5 – Prepare adjustments.

Period end adjustments (usually quarterly or yearly) are required to bring accounts to their proper
balances after considering transactions and/or events not yet recorded. Under accrual accounting,
revenue is recorded when earned and expenses when they are incurred.
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 An entry may be required at the end of the period to record revenue that has been earned but
not yet recorded on the books. Similarly, an adjustment may be required to record expense that
may have been incurred but not yet recorded.

Step 6 – Prepare an adjusted trial balance.

This step is similar to the preparation of the unadjusted trial balance but this time the adjusting
entries are included. Correction of any errors must be made.

Step 7 Prepare Financial Statements.

Financial statements (Annual Accounts) are drawn from the trial balance and are presented in the
following forms:

· Income statement: prepared from revenue, expenses, gains and losses.

· Balance sheet: prepared from assets, liabilities and equity accounts.
· Statement of retained earnings: prepared from net income and dividend information.
· Cash flow statement: derived from the other financial statement using either the direct or
n. indirect method.

Finally, all the revenue and expense accounts are closed.

Step 8 – Closing entries.

Revenues and expenses are accumulated and reported by period, monthly, quarterly, or yearly. To
prevent them not being added to or co mingled with revenues and expenses of another period,
they need to be closed out that is, given zero balances at the end of each period.

Their net balances, which represent the income or loss for the period, are transferred into owners’
equity. Once revenue and expense accounts are closed, the only accounts that have balances are
the asset, liability, and owners’ equity accounts. These balances are carried forward to the next
period.

Step 9 – Prepare post closing trial balance.

The purpose of this final step is two fold: to determine that all revenue and expense accounts
have been closed properly and to test the equality of debit and credit balances of all the balance
sheet accounts, that is, assets, liabilities and owners’ equity.
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BUSINESS ACCOUNTING PROCESS AND PROCEDURES

Accounting processes and procedures are usually based on the basic accounting cycle. The
accounting process outlines how financial information flows through a business. It also identifies
which individuals are responsible for the information. In order for the owners of a business to
make sound decisions, they will need financial information that accurately reflects the "true and
fair view" of the financial performance and position of the business.

ACCOUNTING ASSUMPTIONS, PRINCIPLES AND CONVENTIONS

Assumptions Principles Conventions

Separate Entity Historical Cost Materiality
Going Concern Matching Cost Benefits
Money Measurement Realization of Income Conservatism
Time Period Full Disclosure Consistency
Dual Aspect

Accounting is used to communicate financial information. It is based on twelve fundamental

concepts that form the basis for all the General Accepted Accounting Principles (GAAP). Once
these concepts are used as the foundation, readers of financial statements and other accounting
information do not need to make assumptions about what the number means.
The concepts and conventions were adopted to support the “true and fair view” approach of
preparing financial statement for a business.

ACCOUNTING ASSUMPTIONS
Separate Entity – this convention states that the business is an entity separate from its owner.
Therefore, business records should be separated from the records of the owner.(Knol, 2009)

Going Concern – assumes that the entity will continue to operate indefinitely. It implies that the
business will continue to operate for an indefinite period of time in the foreseeable future. This
concept allows business to spread (amortize) the cost of fixed assets over its expected useful life.
(Knol, 2009)

Money Measurement assumes that items are not accounted for unless they can be quantified in
monetary terms. (Knol, 2009)
Financial statements show only a limited picture of the business. They do not consider the
business’s other valuable resources (workforce, brand recognition, quality of management)
because they cannot be quantified in monetary terms.
(Think of Environmental, Social and Governance information ESG)

Time Period – allows the performance evaluated of a “Going Concern” business to be broken up
into specific period of time such as month, a quarter or a year. (Knol, 2009)

ACCOUNTING PRINCIPLES
Historical Cost – requires that business assets be recorded at the actual price paid to acquire
them. No account is made for the changing value of these assets. (Knol, 2009)
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 Transactions are recorded at cost and not at its market value.

Matching – to avoid overstatement of income in any one period, the matching principle requires
that revenue and related expenses be recorded in the same accounting period
(moneyinstructor.com).
Accountants should prepare accruals at the end for the reporting period to account for expenses
incurred but for which there is no source document.
Realization of Income – revenue are recognized when they are earned. This occurs when the seller
received cash or claim to cash in exchange for goods and services. (moneyinstructor.com)

Full disclosure – requires financial statements provide sufficient information to assist users of the
information make knowledgeable and informed decisions about the business. (Knol, 2009)

Dual Aspect – is based on the accounting equation (A=L+E). All transactions must meet the
equation in balance. Financial transactions are allocated both a debit and credit entry in the
accounts. (Knol, 2009)

ACCOUNTING CONVENTIONS
Materiality – Individual events are only recorded if it’s significant enough to justify the usefulness
of the information. (Moneyinstructor.com)

Cost Benefits – since the value of assets change over time it would be impossible to accurately
record the market value for the assets. There it is recorded at the price paid to acquire it.
(Moneyinstructor.com) (I disagree with this definition it is more about the utility of information to
record and related cost of obtaining it)

Conservatism – requires that profit should not be taken into account unless it’s actually realized in
cash while all possible losses must be fully provided for (i.e. Winning the lottery is a different thing
than buying a ticket).
This ensures that your financial statement does not overstate the business financial position.
(Moneyinstructor.com)

Consistency – The same method of reporting should be used to ensure that any differences in the
financial position between reporting periods is as a result of change in operating and not changes
in the way items are accounted for. (Moneyinstructor.com)

- Observe events.
Observe, identify &
- Identify those events that are economic events.
measure events - Measure economic events in nancial terms.

Record, classify & - Record measurements.

summarize -Classify measurements.
measurements -Summarize measurements.

Report economic
- Report economic events in nancial statements.
events & interpret
- Interpret the contents of nancial statements.
nancial statements
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FINANCIAL STATEMENTS ANALYSIS (FSA)

Aims of FSA
FSA must provide utility to guide and support decision making for both internal and external
users.
• Apply techniques to promote useful reading of Financial Statements.
• Enabling decision making, reducing uncertainty and diagnosing the situation.
• Aim of FSA is to create an opinion about different aspects related to the company, according to
main interests of stakeholders related in any direct or indirect way with the company.
• Accounting info is employed by different users and based upon their different interest. The
focus of the analysis will depend on particular interest of the analyst.

Sources of Information
– Balance Sheet.
– Income Statement (PL account).
– Notes on the accounts
– Statement of changes in Equity.
– Statement of Cash Flows.
– Managers report.
– Audit report.

To consider:
• Characteristics of the company to analyze.
• Macroeconomic variables of the country
• Evolution of the economic and financial system of foreign countries. (Observe international
framework)

Instruments for Analysis

• Ratio, a relation (quotient) between two different values. A numerator and a denominator
(A=5 B=2 A/B=2,5=250%)
• Index, the percentage that represents the temporal and comparative evolution of a variable,
based on a reference value(A=5 B=2 A-B/ B=1,5=150%)

Typical categories of ratios for FSA:

• Profitability
• Indebtedness
• Liquidity
• Assets efficiency

Limitations of Ratios
• Lack of harmonization in FSA preparation
Enterprise concentration and multiactivity
• Lack of standardized terminology

Why to use Ratios: motivations

• To Express functional relations between financial variables related by some kind of economic link
• To Reduce the complexity of information enclosed in FSA to a few variables.
• To Transform and adapt accounting information to make it
 Horizontal percentages analysis
To compare de value of every item in Balance Sheet and Income statement
with a base or referencing values.
Horizontal analysis discloses trends for every item in FSA.
Vertical percentages analysis
To check the relative weight of any item or group of items related to some one
f else in FSA
Ratio analysis
Utilization of key relationships between elements of the financial statements

Comparing Ratios and Indices:

- Intra business analysis
- Sectorial analysis
- Comparing standards

Areas of Analysis
Depending on aims and sources of information employed for analysis
1. Patrimonial analysis and short term solvency (liquidity)
• Assets and Liabilities evolution.
• Level of indebtedness.
• Level of funding of Noon Current assets.
• Hedging Ratios , etc.
• Solvency Ratios.
• Capacity for self-generation of liquid financial resources.

2. Financial Analysis:
• Profitability of investments.
• Profitability of paid financial resources
• Return (profitability) on Equity.
• Shareholders return.

3. Economic Analysis:
• Evolution of different elements in results and margins.
PATRIMONIAL ANALYSIS

Wealth or patrimony: Set of goods, rights and obligations that allow an economic unit to satisfy its
needs or carry out a productive activity.
Equity: Residual part of the company's assets, once all its liabilities have been deducted. It
includes the contributions made, either at the time of its constitution or at subsequent times by its
partners or owners, that are not considered liabilities, as well as the accumulated results or other
variations that affect it.

Economic and Financial Structure of the Company:

Components of Patrimony:

Goods + Rights - Obligations = Equity

Economic Financial
structure structure

ASSETS
- LIABILITIES = EQUITY

= represents the source of funds

Liabilities + Equity = Financial Structure employed to make investments
(Debt) (Ownership) represented in Assets

Elements in a company:
ASSETS L+E

Provided by shareholders
Assets of the company,
Non Current Own resources to be used for its activity,
and wealth self
generated
Assets not for sale
=
L.T. External L.T. Payables to fund the
resources Assets in the company to
Assets of the company
develop its ordinary
Current Assets S.T. External activity: S.T. Payment obligations,
inventories, receivables, to fund the asset of the
resources cash company

L.T. = long term

S.T. = short term

Non Current Assets:

- Assets whose destination is to keep the company working.
- Recovered by the amortization process. (An expense not to have that large profit).
- NCA must be funded mainly with self generated equity (reserves) and L.T. liabilities.
Current Assets:
Assets easily converted into cash (liquidity) within a short timeframe (S.T.).
- Includes short-term investments.
- Constantly in movement (Current), supporting the activity of the company (Money
Cycle - Investment - Cash).
Current Assets are transformed into cash through the sale and collection of proceeds from
products and services.

Main difference: their liquidity and expected holding period.

PATRIMONIAL ANALYSIS
A = L+E

Equity (Not exigible)

Non Current Assets Shareholders Equity Self
Generated funds

Current Assets
Realizable C.A.
(inventories) External resources
Exigible C.A. (Exigible)
(Debtors and Receivables) Long Term Liabilities
Available C.A. Short Term Liabilities
(Cash and other
equivalent liquid assets)
What is in the asset side?

Registered marks, Patents,

Intangible
Copy right

Real state investments Land, buildings

NON CURRENT ASSET
↑, machinery, equipment,
Material/tangible
Transport vehicles

Long Term Financial

Financial
investments

NCA kept for sale NCA for sale

Merchandise/Trade goods, Raw

Inventories Materials, Finished/ In process goods
CURRENT ASSET
Customers receivables, Debtors
Debtors receivables, Public Administrations

Cash
Financial
S.T. financial inv.
Elements in Financial Structure

EQUITY EQUITY

Shareholders funds Self generated funds Long term Short term

Debts with credit institutions

Reserves Result
Emission of obligations and bonds
Capital (retained (Profit/
Trade Debts
earnings) Loss)
Non-trade debts

PATRIMONIAL ANALYSIS

Study of the economic and financial structure, and its variations with the time.
• To know the situation of a company (patrimonial, financial and economic).
• Explain motivations behind current situation.
• Advise corrective decisions to recover the lost balance.

Purpose:
Improve decision making for users
Internal: top managers, intermedium managers, internal auditors
External: shareholders, banks, lenders, customers, analysts

Basic advices:
- Current assets have to be double than current liabilities
- Exigible CA + Available CA (CA Exigible + Debtors and receivables) must equal Current
liabilities (at least).
- Debtors and Receivables + Cash and Cash Equivalents = Current Liabilities
- Equity 40/50% of Total liabilities

Working Capital:
Volume of investments that the company covers with permanent funding.
Working capital = CA - CL. // E + NCL - NCA
Stable balance: NCA + WK = E + NCL —> CA > CL & WK > 0
Potential financial problems: CA = CL ; WK = 0
Payment suspension/Bankruptcy: WK < 0
 Realizable
Patrimonial analysis Availability Ratio = (CA - =Existencias
Inventories - Exigible) /CL (Inventories)
= available / CL Exigible = clientes
Current Ratio = CA/CL
The closest to 1 the better y cuentas a cobrar
At least >1 best close to 2
Disponible =
Available
(tesorería y activos
Acid test = (CA - Inventories) / CL líquidos
At least >0,8 ; the bigger the better equivalentes)

Total solvency
The capacity of a company to face its Long Term and Short Term Liabilities, using all the Current
and Non Current assets
—> Must be >1 and recommended to be closed to 2.
If Total Solvency is < 1, means:
– Equity < 0
– The company can not face its debts

Analysis of nancial statements

ANALYSIS OF SOLVENCY AND INDEBTEDNESS
Solvency analysis: It evaluates the company's equity situation, both in terms of financing and
investment, in order to analyze its overall equilibrium position. It enables to assess whether the
company will be able, in the long term, to meet/face all its debts.

Liquidity vs Solvency:
While liquidity deals with immediate cash flow management, solvency evaluates the overall
financial stability and ability to sustain operations over an extended period, considering both
assets and liabilities. Solvency = LT+ST // Liquidity = ST

Important aspects:
- Correct correlation between technical and financial depreciation of non-current assets.
- Company policies regarding depreciation and impairment (Deterioros).
- Assessment of the age level of the assets —> Too old, soon will need to be replaced

WARRANTY AND FINANCIAL AUTONOMY RATIOS

Total Solvency Ratio: Indicator of the overall capacity of the company’s assets to meet all debts
with third parties (does not
take into account LT/ST maturity). Total assets CA + CNA
Values at least above 1,5 TS = ————————- = ——————
∼ Warranty/Distance to Bankruptcy/Total Solvency Ratio Total liabilities CL + NCL
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Financial Autonomy Ratio: The degree of dependence the Equity Equity
company has on creditors. FAR = ————————- = ——————
Normal value about 1. Acceptable between 0.7 and 1.5. If Total liabilities CL + NCL
it is too high, it is not optimal since
shareholders would bear all the financial risk of the
company.

NCA
Firmness/Consistency Ratio: A higher consistency ratio indicates that the
Consistency = ———
company's NCA are greater relative to its NCL, suggesting a stronger
NCL
financial position in the long term.
Optimal value = 2; this implies that ideally, a company's non-current
assets should be twice the value of its non-current liabilities
(The mortgage should not be worth more than the house)

Soundness Ratio: indicates the ratio of Equity to Non-Current Assets. It Equity

is an indicator of the proportion of Non-Current Assets that are financed Soundness Ratio = ———
with own resources. NCA
Optimal value = 0,5

Fixed assets stability or coverage ratio: This suggests that the

company's non-current assets are adequately financed by its
NCL + Equity
non-current liabilities and equity.
Stability Ratio = ———————
Optimal value = >1
NCA

DEBT AND CAPITAL (EQUITY) STRUCTURE RATIOS

Debt to Equity Ratio: Used to assess the proportion of a company's debt

relative to its equity. It shows how much debt the company has for every
unit of equity. CL + NCL
Optimal value = 1 (Suggested but not universal) Debt to Eq = ——————
If it is very high: higher indebtedness, greater risk and less creditor Equity
protection.
If it is very low: excess equity, excellent solvency, but it would adversely
affect shareholder returns.

Debt to Assets Ratio: This version is the inverse of the TS = A/L CL + NCL
Optimal value = 0,5 Debt to As = ——————
CA + NCA

LT & ST Debt Ratios: Debt split to know its maturity period. A

higher long-term debt ratio suggests a larger portion of the company's debt is in the form of
long-term liabilities, indicating a more stable financial structure. A higher short-term debt ratio
may signal financial instability if the company is unable to meet its short-term obligations.

CL CL NCL
Debt = ——— = ——— + ———— CL = ST
Equity Equity Equity NCL = LT
Bank Debt Ratio: assesses the proportion of a company's bank debt relative to its equity. It helps
analyze the company's reliance on bank financing and the associated financial risk. A higher Bank
Debt Ratio indicates a larger portion of the company's financing is sourced from banks, which may
signify higher financial leverage and risk.A lower Bank Debt Ratio suggests a smaller reliance on
bank financing, which may indicate a more conservative financial strategy and lower risk exposure.

- Commercial Debt (Spontaneous Funding): This refers to debts owed to suppliers or creditors
that typically do not carry explicit interest costs. Instead, they are incurred as part of normal
business operations, such as trade credit. Since there is no explicit interest, it is considered
spontaneous or free funding.
- Bank Debt (Negotiated Funding): This includes debts owed to banks or financial institutions,
which typically involve negotiated terms and carry financial costs in the form of interest
payments.
Negotiated funding implies greater financial risk and greater financial burdens than the
spontaneous.

Interest Coverage Ratio: Importance of financial expenses in the company’s accounts.

Part of the profit that creditors take in the form of interest.
Indicator of creditors' margin of safety as a guarantee for the Interest financial expenses
collection of agreed interest. ICR = ————————————
Maximum value: less than 1 EBIT
Ideal value: Lowest possible. Suitable less than 1/3
EBIT = Earnings Before Interest and Taxes

Capitalization of the Period Ratio: How much Reserves

have grown in the last year. Indicator of the company's New reserves
ability to generate reserves. CPR = —————————
Maximum value: 1 Earnings after Taxes
Minimum value: 0
Rves N – Rves N-1

Level of Capitalization Ratio: Indicator of the relative importance of Total reserves

self-financing (Reserves) in Equity. The higher the value, the higher LCR = ———————
the level of reserves. If it goes down, most of the Equity has been Equity
provided by the partners/Shareholders, there would be hardly any
reserves.
Value <1
Rves N

Capitalization Growth Ratio: It indicates how much the Reserves emerged in the period
company’s capitalization (Reserves) has grown in the CGRc = ——-————————————
year. Total reserves
(Rves N – Rves N-1) / Rves N