BU121 Lecture Notes - Lecture 7: Cash Flow, Operating Leverage, Weighted Arithmetic Mean
Document Summary
The difference between cash and profit and why that matters. How to create and use a cash budget, and how to use it to determine the amount of financing needed. Ho(cid:449) to (cid:373)easu(cid:396)e a (cid:448)e(cid:374)tu(cid:396)e(cid:859)s (cid:272)ash (cid:271)uild a(cid:374)d (cid:271)u(cid:396)(cid:374) (cid:396)ate a(cid:374)d (cid:449)hat it (cid:373)ea(cid:374)s. How and when to determine breakeven for a business, and how to use it: what drives breakeven and why and how you would tradeoff risk for return. Providing value: quality products at a reasonable price. Gaining employee commitment (numbers will be challenged, must be prepared to defend them, be able to justify your sales forecast) Key principle of entrepreneurial finance: while accounting is the language of business, cash is the currency. Can a company that is profitable go bankrupt: sales revenue accounts receivable, expenses accounts payable, depreciation/amortization not cash. Tool to forecast and manage cash flows. Interpretation ask, cash burn rate & runway.
