BU121 Lecture 8: BU-121 Lecture 8
Document Summary
Key principle of entrepreneurial finance: while accounting is the language of business, cash is the currency. O(cid:449)(cid:374)e(cid:396)"s e(cid:395)uity cash to use for business. Its more common for a new venture to have losses survival stage. Some new ventures show profitability during the startup stage. Need to know the level of sales (survival revenue) necessary to cover costs and break even. And this needs to be done on a cash basis. At survival/cash flow breakeven: (cid:1831)(cid:1828)(cid:1830)(cid:1827)(cid:1846)((cid:1831)(cid:1853)(cid:1870)(cid:1866)(cid:1866)(cid:1859)(cid:1871) (cid:1854)(cid:1857)(cid:1858)(cid:1867)(cid:1870)(cid:1857) (cid:1856)(cid:1857)(cid:1868)(cid:1870)(cid:1857)(cid:1855)(cid:1853)(cid:1872)(cid:1867)(cid:1866),(cid:1853)(cid:1865)(cid:1867)(cid:1870)(cid:1872)(cid:1853)(cid:1872)(cid:1867)(cid:1866),(cid:1853)(cid:1866)(cid:1856) (cid:1872)(cid:1853)(cid:1857)(cid:1871)=(cid:882) Ebdat = ebit + depreciation interest. At cash breakeven, ebdat = 0: revenues = expenses. Expenses can be variable costs (vc) or fixed (cfc) Variable: costs of directly providing a product or delivering a service amount varies with sales, example: cost of goods sold, but it is a constant % of sales revenue. Fixed: expected to remain constant over a range of revenues for a specific time period, because total amount is constant this does(cid:374)"t cha(cid:374)ge (cid:449)ith (cid:448)olu(cid:373)e of sales, example: rent.
