Finance Flashcards
What is cash vs. Profit and why does it matter
Cash is the engine that drives a small business
Companies financial success is contingent on its ability to manage cash
Not always successful if have profits
Profit is amount of money after expenses paid
Cash is amount of available cash in a business at any given time
What drives breakeven and how to adjust
VCRR: The total amount of VC in a %
What is left over once VC is covered is contribution margin
Less sales are needed at a higher contribution
Lower fc
Raise prices
Lower VC
What is operating leverage
Often a company has to trade off accepting higher FC to get a lower VCRR so they must increase operating leverage
RISK- higher FC means more to be sold to overt it which increases breakeven
RETURN- lower VC means higher contribution margin
Risk return trade off
Decide whether acceptable risk
What are the 5 stages in a venture life cycle
Development stage Start up stage Survival stage Rapid growth stage Early maturity stage
What are the sources of financing in development stage
Seed financing:
Entrepreneurs assets
Family and friends
What is source of financing in startup stage
Startup financing: Entrepreneurs assets Family and friends Business angels VC
What are sources of financing in survival stage
First round financing: Business operations VC Suppliers and customers Government Commercial banks
What are sources of financing in rapid growth stage
Second round financing
Mezzanine financing
Liquidity stage financing:
Business operations, suppliers and customers, commercial banks, investment banks
What are sources of financing in early maturity stage
Bank loans, issue bonds, issue stocks:
Business operations, commercial banks, investment bankers
What are approached to valuations
Income approach
Market approach
Cost approach
What is the income approach and problem with it
Assumption that value of business is sum of present values of any expected future benefits
Too many unknowns
What is market approach and problem with it
The value of similar companies
Market multiple
Might no be similar companies for which values are known
What is cost approach and problem with it
Net cost of assets/ original amount invested or ‘cost to duplicate’
Neglected subjective values
What are the subjective factors (3Ms)
Market
Management
Moat
What is the market subjective factor
Value proposition and industry sector
