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Posts Tagged Cash Flow

Corporate Finance – Some Key Terms

Aug 18

Posted by admin in Accounting | No Comments



Corporate finance in business is a general term used to describe anything in a monetary field to do with businesses. It is used to describe not just terms which involve the flow of money throughout a business e.g. revenue and costs, but also describes the tools which are used in order to calculate said figures, in order for data that has been collected to be analysed. This gives the numbers meaning, or better, an actual context which could be used in order to help a business keep on top of its cash flow and run more efficiently.

There are hundreds of different terms used in businesses to talk about money and each of them have different meanings, or just something minor which is different from the one before, in order to produce a totally different number all together.

The following are a few terms used within business to describe certain aspects of the business on a monetary basis: Assets (Current & Net), Stock, Shares, Costs (Total, Fixed, Variable), Profit (Gross & Net) and Price Elasticity. Price Elasticity is more to do with the running of a business, not as a whole, it is more aimed towards certain products themselves instead of the whole product portfolio. All of the other terms look at the business as a whole, or can be used to take a step back and look at it as a whole instead of smaller departments.

What is the point in knowing these numbers if you are not going to do anything with them? Well the answer is there isn’t really that much of a point. As the previous titles stand, they are pretty much meaningless, not giving a user any indication of what is what it is just there. Hence, why the handy tools known as formulas were invented, in order to turn that data which is gathered into some much needed knowledge and understanding.

Some of the following formulas are used within the business world: Profit, Contribution, Break Even, Investment Decisions, Company Accounts and many more. Each have their own contribution in telling a user how the company is doing and some are used to predict trends to give a possible snapshot of the future e.g. Profit and Loss accounts & Time Series Analysis. These simple predictions take into account the trends that have been developing, then keeps the trend going to give a brief outlook on what would happen if everything continued at the same pace. This can help give an excellent outlook into the future of your business and finances.

By: Barry Trevor

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The importance of having a corporate finance expert to work for you cannot be undermined for any business. See why you would need one.



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The Essential Contents of Finance Metrics

Oct 4

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Managing money is not always about cost cutting. It requires analytical approaches that will indicate which part of the expenses should be minimized or totally eradicated. As such, there has to be measurements in managing money; and in terms of report, this is translated into what is called finance metrics. One cannot just simply decide that a certain process or machine be removed as it is expensive. Decisions based on assumptions are more likely to cause financial damage than assistance or resolution.

There are many aspects in managing finance. There are several Key Performance Indicators or KPIs that need to be incorporated in the report when finances are measured. One of these is job costing. Whenever there are projects that has cost, especially for manufacturing, a job costing analysis should be made. It is in this principle or light that a job costing report should be prepared so the managers will get a picture of what is transpiring. This way, they can also see if the investment is earning or if there is much potential for expansion.

Job costing shows people the total accumulated costs of a certain project, and this should include overhead expenses, too. Full costs are calculated against the revenue, and this is more often than not measured by department or division.

The first part of the job costing report is the job ledger. This should contain accounting transactions in a specific order. Normally, this contains job orders and job numbers categorized in a specific way for easy tracking. This contains revenues, costs, indirect costs, and receipts for all the jobs done for a specific project. The job ledger may be sub-categorized in different buckets to easily identify the pain areas in expenses and lost revenues. This may include current cost, purged job cost, billing cost, and invoice ledgers.

Another metric that can be used in analyzing financial status and movement is discounted cash flow. This is a method in appraising a company and its financial assets. Perhaps the downside of this approach is that it is based on the estimation of future cash out flow instead of current expenditures. However, this estimation is backed up by historical data, which is the foundation of any statistical study. Normally, discounted cash flow is only applied in investments and real estate development industries. However, its effectiveness in gaging financial performance has led it to become one of the most used tools in financial studies.

Discounted cash flow may be confusing to some. The problem is that this is not based on simple addition and subtraction. There are a lot of financial formulas that need to be used because one has to factor in the value of treasury notes and the span of time that has elapsed since the assets were purchased.

In general, people who want to manage their finances should consult an expert in finance management, whether this is personal or corporate finance. It is always best to consult experts when developing finance metrics, to be sure that the things being measured are ultimately aligned with the goals of the company.


By: Sam Miller

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The Difference Between Debt And Equity Financing

Sep 10

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There are two main types of financing for a business, debt or equity financing. Debt financing tends to be the type of financing you receive from a traditional bank loan and equity financing tends to be financing you receive from venture capital into your business from outside investors. The benefit of debt financing is that it is finite and you will pay down the debt over time to a zero sum balance without any further obligation to the lender. The down stroke to debt financing is that traditional lenders will take a hard look at your business including how long it has been in existence, income from operation, expenses and will require hard assets for collateral for the loan. Additionally, lenders will most certainly want you (and any other principals of the organization) to personally guarantee repayments of the loan. Another disadvantage of debt financing is that your organization will be burdened with some other type of regular payment (usually a monthly payment) depending on the terms and conditions of the financing and this can absorb critical cash flow, especially with small business.

The benefit of equity financing or venture capital is that you will be receiving money in exchange for equity in your business in the form of stock or some other form of equity like percentage of income or gross/net sales. A primary benefit of this type of financing is that typically there is no monthly payment requirement to investors. Instead, you are giving up ownership interest, most often, permanently.

Traditional lenders, banks for example, will look at your business much differently than venture capitalist. Bankers want a zero-risk or near-zero risk position when they provide financing and will rely almost completely on the operating economics of the business with little regard for “potential future growth”. They want to see strong cash flow backed up by hard assets before they do a deal—the ingredients that most small business lack or they wouldn’t be seeking financing, right? Venture capitalist, on the other hand, tend to consider the management team and the potential future growth of the business more heavily than actual operating numbers, especially for small business with large potential but few sales and little or no operating history. Although these two lender types vary in their approach to analyzing a business for funding, you can be sure that careful scrutiny of you business will be conducted…

Besides the actual operating economics and pro forma analysis, both types of lenders will look closely at two particular documents: 1. Your business plan. 2. Your bank or loan request package. These two documents, if assembled correctly, can make the difference between success and failure when dealing with either lender type.

There are plenty of free SBA related materials that tell you how to create blue-chip, boiler plate business plans but they tend to be written for perfect businesses and not the average Joe who is less than picture perfect. If you are seeking some type of financing for your business I strongly suggest that you visit our site and check out our business e-books. We have several that cover a variety of topics and there are specifically two that will be a real treasure for you to own. One is called Power Planning (a powerful report on writing a wide variety of business plans) and How To Raise Money For You Business (teaches you how to assemble professional loan requests packages). They are priced at $5 each and can be worth millions in the hands of the right person. I am not trying to hype product, I am simply giving you a heads up.

The secrets to getting financing from either type of lender is a closely held secret by financial and business brokers for a number of reasons. Chief among them is it forces people like you to do business with them and they earn commissions. The SBA materials, while good, do not have the street savvy to get the job done in most cases. The proof is in the pudding—what has the SBA ever done for you? The SBA is just another government back bureaucratic nightmare for most. We also have some links for venture capital firms in our business links area located on our site on the Smart Link Zone page—it’s all-free.

Give it some thought…. Your future may depend on it.

To your success! Copyright © 2006 James W. Hart, IV All Rights reserved


By: Jim Hart

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