BU121 Lecture Notes - Lecture 6: Quick Ratio, Nopat, Profit Margin
Document Summary
Real human, and financial capital must be rented" from owners. A venture"s financial objective is to increase value. Different analytical measures are important to different users at different stages . Need to know how fast using cash as will need more (cash burn rate) The venture"s ability to meet short-term financial obligations (pay bills) How liquid you are shows how fast you can pay bills. The length of the operating/working capital cycle. Operating cycle: how long does it take to convert inventory to recievables to cash, how quickly can stay liquid. Working cycle: the capital we work with to operate business. The venture"s potential to employ and repay debt. When we can take on more risk to earn a bigger return (bigger fixed costs) Borrow assets to make more profit, risky as need to make more to cover borrowing. Taking on debt to try and make a bigger return on equity, debt less expensive.
