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Evaluating Financial Performance.doc

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Wilfrid Laurier University
Roopa Reddy

Evaluating Financial Performance Monday, February 18, 2013 9:06 PM Cash is currency of business • Businesses that show profit can still go bankrupt (profit doesn't equal cash) Creating a statement of cash flows: adjust profit to show impact on cash) Cash (survival) breakeven is when EBDAT = 0 • Calculating EBDAT, breakeven, driving breakeven (contribution margin and VCRR) Creating a cash budget • Developing worksheet- to manage timing of cash inflows and outflows • Format and process Evaluating Financial Performance • Why evaluate financial performance? • Principle 1: real human, financial capital must be 'rented' from owners • Principle 5: venture's financial objective is to increase value • Different analytical measures are important to different users at different stages Analytical Measures • Development and Startup Issues: • How quickly ventures uses cash- cash burn rate • Venture's ability to meet short term financial obligations (pay bills)- liquidity • Length of operating/working capital cycle- conversion period (from receivables to cash) • Survival Issues • Venture's potential to employ and repay debt- leverage • Venture's ability to provide return on invested capital - profitability/efficiency • Financial Ratios • What are they? - interpretation instead of calculation • What do they tell us? - which area to look further into • Key Ratio Groupings  Liquidity- ability to meet short term obligations  Conversion period- time to convert asset into cash (affects
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