BU121 Lecture : BU121 week 7.docx
Document Summary
How can an income statement look profitable but the company can still go bankrupt. Adjust profit to show impact on cash. Cash (survival) breakeven is when ebdat = 0. Driving breakeven (how can you influence breakeven) Developing worksheet to manage timing of cash inflows and outflows. Format (aren"t given formats or equations on the exam) Ebdat level of earnings before depreciation (when ebdat = 0 that is breakeven) Ebdat doesn"t drive breakeven; the variable cost revenue ratio and the contribution margin drive breakeven. Don"t include depreciation because it isn"t cash; it"s 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. Revenue vc = contribution margin (to change the contribution margin you have to focus on. If a company has cash fixed costs of ,000, revenue of ,000, and cost of goods sold of.
