Companies normally use ratios to judge its performance for current year by comparing with previous years. The ratios used are usually current ratio, net profit ratios, price earning ratio, earning per share, etc.

current ratios is the quotient of current assets divided by current liabilities. It shows the capability of a company to pay its debt over one year. The higher the current ratio, it’s more able for a company to pay its obligations. In addition, if any company has a current ratio that is below 1, it is a warning that the company is not in a safe situation.

Net profit ratio is calculated as the formula: net profit/ net sales* 100. It displays the capital left after paying expenses, so the larger the net profit ratio, more stable the business will be.

Earning per share illustrates the profitability per shareholder; thus, it’s a key factor to determine the share price, and this is an important component to calculate the price earning ratio.

Price earning ratio is calculated by dividing earning per share from market price. It shows how much a shareholder is willing to pay when they earn one dollar, and can reflect the potential dividend will gain for the business. The higher the P/E ratio is, the greater value creation for future.

(Source is provided by http://www.investopedia.com)

Cash flow statement shows the cash inflows and outflows of a business from three aspects: operating activities, investing activities and financial activities. The net cash flow from the operating activities is generally the total sum of the change of assets and liabilities for adjacent two years; therefore, the assets and liabilities influence the cash flow in a business. Furthermore, the increase of trade receivables will do harm to cash flow of companies because trade receivables are the money that customers pay on credit when purchasing a good from them, which means the customer owe the money. If the customers don’t pay the companies, they will not able to collect more money, and then results in the stumble of cash flow in business. The other assets like inventory, prepaid expenses perform the same way like trade receivables, they hurt the cash flow when there is a rise. In the contrast, depreciation will help the cash flow of a business if there is an increase in it. Depreciation is the item that subtracted from the non current assets, so it reduces the net book value of assets. In this case, it recovers the amount lost from the conversion of fixed assets to cash, and hence it is a positive factor in cash flow statement. The current liabilities work in same pattern like depreciation does.

(Source is provided by

http://www.dummies.com/how-to/content/how-assets-and-liabilities-affect-your-businesss-c.html )

According to AccountingCoach, “Buildings, machinery, equipment, furniture, fixtures, computers, outdoor lighting, parking lots, cars, and trucks are examples of assets that will last for more than one year, but will not last indefinitely. During each accounting period (year, quarter, month, etc.) a portion of the cost of these assets is being used up. The portion being used up is reported as Depreciation Expense on the income statement.” But there is one exception. It is land which is assumed that can be used forever, so it will not be depreciated.

The depreciation methods can be divided into two: straight-line depreciation and accelerated depreciation. The straight-line method uses the formulea that refers to costs minus the scrap value of that asset over the useful life of the asset. This method gives same depreciation expense  every year until “the value is listed as $0 on the books”(James Collins,eHow Contributer). Compared to straight-line method, accelerated method provides the companies with more depreciation in the previous years but less in the later years; therefore, the accelerated method is very attractive to  companies for income tax returns due to the immediate income tax savings in the early years. There can be many different types of accelerated methods that depend on the declining percentage.

(Source provided by

James Collins,eHow Contributer, http://www.ehow.com/info_7759900_depreciation-occur.htm

AccountingCoach,http://www.accountingcoach.com/online-accounting-course/11Xpg02.html )

The rapid development of internet and more convenient online tools has resulted a new business field—Ecommerce. Ecommerce contributed a lot of advantages to companies and customers, but it also brought many problems.

As it is an advantageous way of business, customers can find what they exactly need easily. At the same time, it provides with faster buying and selling procedures. Through my analysis, it highly increases the market demands according to the ratio of buying and selling, which is 24:7(data provided by eSalesTrack). In theory, we all know that online services have no geographic limitations, so it has more available channels that the products can reach to the customers, as well as customers can easily choose the products they wanted from distinct suppliers without walking around the shops one after another.

However, we must understand that anyone who is moral or not can start the ecommerce. If you encounter a bad site or an unhonest business, your money may be “eaten up”. On the contrary, because of  no real interaction and contract between the customers and the companies, there can be doubts on the consumers’ loyalties. For the companies themselves, their owners can take a great risk of bankrupt because mechanical failure may result in unpredictable impacts on the entire process, and the companies may suffer from a huge loss.

(Source provided by

http://www.esalestrack.com/blog/2008/09/advantages-and-disadvantages-of.html )

Business environment is combination of all external factors which have great impact on the business functions. These factors include customers, competitors, suppliers, government and the social, political, legal and technological factors. The business environment keeps changing and we can’t even predict it. In addition, different business models may be surrounded by different environments.

Business environment can assist the business develop itself in many ways. The first step is to determine the four elements in SWOT diagram: strength, weakness, opportunity, and threats. The strength and weakness can help the business solidified the superiorities of the firms and help the business allocate itself in a reasonable position, while the opportunity and threats may give the business a direction to work towards when confronting the challenges. Then, by communicating with these factors, the business can discover somewhere else, a suitable area that can be expanded for further growth. Furthermore, with the assistance of the environment, the business can establish their own strategies which best fit their functions and also can be competed with the competitors. It contributes the business a better social image if the business shoulders the responsibilities and be sensitive to the environment. Additionally, managers can learn through the environment by gaining new ideas about the current market tendency from the society, and then refresh their knowledge and skills that work on their functions.

(Source provided by download.nos.org

http://download.nos.org/srsec319new/319EL3.pdf)