BU121 Lecture Notes - Lecture 11: Variable Cost, Cash Flow, Operating Leverage
Document Summary
Key principle of entrepreneurial finance: while accounting is the language of business, cash is the currency. A company that is profitable can go bankrupt, need cash to pay bills otherwise you go bankrupt. 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. And need to do this on a cash basis. At survival/ cash flow breakeven ebdat (earnings before depreciation/ amortization and taxes) = 0. Two types of expenses/costs: variable (vc) therefore total $ amount varies with sales. But is constant as a % of sales venue: ebdat = ebit + depreciation interest. Costs of directly providing a product or delivering a service . For example costs of goods sold. Because total $ amount constant doesn"t fluctuate with volume of. Cash fixed costs only not including.
