BU121 Study Guide - Final Guide: Asset, Wilfrid Laurier University, Operating Leverage
Document Summary
Analytical measures of financial performance: cash burn rate. The rate at which a venture uses cash. Cash burn = cash operating expenses + interest + taxes + increase in. Inventories changes in payable and accruals + capital expenditures. Net cash burn looks are how cash burn and cash build are related: cash build rate. How quickly a venture builds cash through sales collections: liquidity. The ventures ability to meet short term financial obligations. The ability of a venture to maintain a build rate high enough to meet its financial obligations: conversion period. The length of the operating capital cycle. Time to convert an asset into cash (affects liquidity) The ventures potential to employ and repay debt. It also gives us an idea of the extent at which a firm uses debt and whether it can meet its debt obligations. A low degree of leverage means there is a lower risk, but also a lower return.
