BU121 Lecture Notes - Lecture 9: Cash Flow, Variable Cost, Free Cash Flow
Document Summary
Cash vs profit: cash is more important for entrepreneurs. 7 principles of entrepreneurial finance: real, human, and financial capital must be rented" from owners, everyone wants something in return. Principle 3 of entrepreneurial finance: while accounting is the language of business, cash is the currency. Yes: sales revenue accounts receivable, expenses accounts payable, depreciation/amortization not cash. Owners" equity cash to use for business: is not cash or profit. Some new ventures show profitability during the startup stage, but . It is more common for a new venture to have losses survival stage. Need to know level of sales (survival revenue) necessary to cover: depreciation is not a cash item. Include tax (subtract it) costs and break even. And need to do this on a cash basis . Ebdat = ebit + depreciation interest. Ebdat (earnings before depreciation/amortization and taxes) = 0. When ebdat = 0, revenues = expenses. Expenses can be variable (vc) or fixed (cfc: cash fixed cost) .
