BU121 Lecture Notes - Lecture 6: Operating Leverage, Variable Cost, Fixed Cost
Document Summary
Providing value (quality products at a reasonable price) Key principle of entrepreneurial finance: while accounting is the language of business, cash is the currency. Some new ventures show profitability during the startup stage, but . It is more common for a new venture to have losses survival stage. Need to know the level of sales (survival revenue) necessary to cover costs and break even. And need to do this on a cash basis . At survival/cash flow breakeven: ebdat (earnings before depreciation/amortization and taxes) = 0, ebdat = ebit + depreciation - interest. At cash breakeven ebdat = 0: when ebdat = 0, revenues = expenses, expenses can be variable (vc) or fixed (cfc) . Costs of directly providing a product or delivering a service therefore total $ amount varies with sales. But is constant as a % of sales revenue. Expected to remain constant over a range of revenues for a specific time period.
