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Lecture 12

BU121 Lecture Notes - Lecture 12: Investopedia, Cash Flow, Accrual


Department
Business
Course Code
BU121
Professor
Laura A.Allan
Lecture
12

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Cash Burn Rates & Liquidity
Cash Burn Rate: How quickly a venture ‘burns through’/uses cash
oThe rate at which a new company uses up capital to !nance overhead before
genera$ng posi$ve cash %ow from opera$ons.Investopedia
oDetermine weeks of cash remaining
Cash Build Rate: How quickly a venture builds cash through collec$ons on sales
Liquidity
oThe ability of the venture to maintain a build rate high enough to meet its
obliga$ons as they come due
Measuring Burn and Build Rates
Cash Burn = the cash a venture expends on its opera$ng and !nancing expenses and its
investments in assets
Cash Burn
= Cash Opera$ng Expenses + Interest + Taxes
+ increase in Inventories
oIf inventories have gone up, you must have spent some money in exchange for
that increase
– changes in Payables and Accruals
oIf you have not paid any bills, you s$ll have the cash remaining at hand
+ Capital Expenditures
oAny money you have spent on new equipments. You have spent cash on it
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