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BU121 week 7.docx

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Wilfrid Laurier University
Laura Allan

BU121February 26 2013 Key Concepts so FarCash is the currency of businessHow can an income statement look profitable but the company can still go bankruptCreating a statement of Cash Flows Adjust profit to show impact on cash Cash survival Breakeven is when EBDAT0 Calculating EBDATCalculating BreakevenDriving Breakeven how can you influence breakevenCreating a cash budget Developing worksheetto manage timing of cash inflows and outflowsFormat arent given formats or equations on the examProcessOperating incomeEBITEBDATlevel of earnings before depreciation when EBDAT0 that is breakevenEBDAT doesnt drive breakeven The variable cost revenue ratio and the contribution margin drive breakeven Dont include depreciation because it isnt cash its just an accounting thing The Variable Cost Revenue Ratio affects the contribution margin higher the contribution margin the lower the breakeven but if you want to change the contribution margin you need the VCRR RevenueVCcontribution margin to change the contribution margin you have to focus on reducing VC If a company has cash fixed costs of 100000 revenue of 400000 and cost of goods sold of 200000 what is its cash breakevenCFC100000200 000 VCRRVC 200000 50 1VCRR 150RX 100400000 X100 If a company has revenue of 500000 cost of goods sold of 300000 fixed costs of 150000 including depreciation of 10000 and interest of 20000 what is its EBDAT 500 000 300 000 150 00010 000 20 000 40000 You forecast your sales revenue for January at 100000 Historically 20 of your sales are in cash and the remaining 80 are on credit 60 of credit sales are from customers that pay in the month following sale and the remainder is received in the 2nd month following sale Which of the following would be correct with respect to your cash budget worksheet 1
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