BU121 Lecture Notes - Lecture 6: Cash Flow, Accounts Payable, Variable Cost
Document Summary
Entrepreneurial finance: cash vs. profit, contribution analysis, cash breakeven, new venture financing, cash budgeting, cash burn, new venture valuation, strategies for growth/exit. Critical success factors: establish how the finance connects to the csf. Leverage: often a company must trade off, accepting higher fc to get lower vcrr. They must increase operating leverage: example: have the option to buy a more expensive but highly automated machine, higher fc, lower vc, because of the lower vc we get higher contributions. Return (ebadt) is higher above break even: key principal of entrepreneurial finance, risk-return trade off (risk trumps reward) Recap: profit isn"t cash, break even is ebdat=0, ebdat= ebit +depreciation - interest, cash survival break even = cfc/contribution, lower vcrr to increase contribution and lower break even. Contribution analysis: most important part of decision making is contribution, often called cvp (cost or volumes on profit) analysis, a decision making tool to, determine break even, assess return, fine tuning a strategy, profit calculations.