ADPR5910 Exam 2 Notes (Siciliano 5)

ADPR5910 Exam 2 Notes (Siciliano 5) - Siciliano, Ch. 5:...

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Siciliano, Ch. 5: Profit vs. Cash Flow 1. The Cash Flow Cycle 1. The time between cash disbursement and cash collection 2. Cash Setup Assets Credit Production Sales Collection Cash 1. Starting Point: Cash 1. Central purpose of the business is to convert that cash into other kinds of assets, to leverage or extend it with liabilities, and to ultimately turn it back into cash again, but MORE cash than what it started with 2. The only real financial measure of success is the difference btw the amount of cash it started with and the amount it ended with 2. Setup: Renting facilities, getting phones and utilities 3. Assets: commence business operations 1. Office equipment and computers 2. Most important: People 4. Credit: main purpose is to enable the owners to increase the amount of capital they have working for them by using creditors’ capital in addition to their own 1. Leverage: putting more capital to work for the business 2. Cash is still going out at this point even though credit may allow some delay in payouts 5. Production: manufacturing 1. Using inventories of materials, adding the labor of workers, and other costs needed to complete product 2. This process consumed even more cash 3. Typically the period of greatest cash consumption, when company is in full production but not cash is coming in yet 6. Sales: selling to recover the cash that’s been invested 7. Collection: critical step needed to make all the rest pay off 1. A sale is a gift to the customer until the money is in the bank 2. The one that turns the entire effort back into cash again 3. Key Management tools 1. Raise prices to produce more profit sooner 2. Get accounts receivable financing to help get cash out of receivables sooner 3. Raise more capital for business from friends, family, or outside investors
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This note was uploaded on 09/07/2011 for the course ADPR 5910 taught by Professor Reber during the Fall '10 term at University of Georgia Athens.

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ADPR5910 Exam 2 Notes (Siciliano 5) - Siciliano, Ch. 5:...

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