MAFundamentals defines the foundation of Management Accounting from cost concept, classification and analysis. It provides general discussion on COST, VOLUME, PROFIT, VARIANCE and other information necessary for performance measurement, decision making and pricing.

Price Level Changes and Inflation

The two effects of changing price levels are:
  1. Inflation - an increase in the general price level
  2. Deflation - a decrease in the general price level
The general price level is inversely related to the purchasing power of money.

The Price Indices used in the calculation of price level changes are:
  1. Consumer Price Index (CPI) - measures the price level by a monthly pricing of a specific set of goods/services purchased by a typical urban consumer.
  2. Gross Domestic Product Price Index (GDP Deflator) - includes the prices of all goods and services produced in the country. It includes investment, government purchases, exports, as well as consumer goods and services.
  3. Producer Price Index - measures the prices of specified commodities at the time of their first commercial sale.
The impact of Inflation on Financial Management are:
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Valuation Ratios

One method of Financial Ratio Analysis, Valuation Ratios is a measure of shareholder value as reflected in the price of the firm's stock.


  1. Book Value Per Share
    FORMULASIGNIFICANCE
    Equity
    Shares Outstanding     		Measure the amount of net assets available to the share holders of a given type of stock.

  2. Market to Book Ration or Price to Book Ratio
    Market Price per Share
    Book Value per Share     		Measure how high is the share's market price in relation to book value. Well managed firms should sell at high multiples of their book value.
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