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  • Leverage and Excess Risk Acivity Based Costing: Business

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    javier apodaca
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    This document discusses business finances and managing cash flow. It covers topics like matching costs to revenues, periods of negative cash flows that construction and farming businesses face, the difference between profit and cash flow, calculating return on equity, off-balance sheet risks, leverage-buy-outs where companies are acquired using borrowed funds, and how this can focus too much on short-term performance over other areas.

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    Leverage

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    This document discusses business finances and managing cash flow. It covers topics like matching costs to revenues, periods of negative cash flows that construction and farming businesses face, the difference between profit and cash flow, calculating return on equity, off-balance sheet risks, leverage-buy-outs where companies are acquired using borrowed funds, and how this can focus too much on short-term performance over other areas.

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    © All Rights Reserved
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    Download as pdf or txt
    10 views1 page

    Leverage and Excess Risk Acivity Based Costing: Business

    Uploaded by

    javier apodaca
    This document discusses business finances and managing cash flow. It covers topics like matching costs to revenues, periods of negative cash flows that construction and farming businesses face, the difference between profit and cash flow, calculating return on equity, off-balance sheet risks, leverage-buy-outs where companies are acquired using borrowed funds, and how this can focus too much on short-term performance over other areas.

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    © All Rights Reserved
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    Download as pdf or txt
    of 1

    Needs to manage its finances

    well enough to avoid


    UNIT 2 FINANCES
    Business EX: + construction companies
    +farmers buying livestock
    Periods of negative cash flows

    Concept based on matching costs to the revenues


    Profit generated within a period of trading Working capital and investment funds
    LEVERAGE AND EXCESS Cash Flow
    cash flow FIRST and profit LATER
    RISK ACIVITY BASED Profit
    COSTING Return on equity
    ROE --------------------------------- X 100
    Average shareholders
    Equity

    In reality not all of the company´s liabilities


    appear in the balance sheet

    Off Balance Sheet Risk Unconsolidated losses Do not have to appear in the
    Short-Term
    annual account
    Performance
    unacceptable
    Theory indicates that forces managers to perform
    Private Equity Leverage- Buy- Out (LBO) Focus on just one area
    better

    Practice by which a
    Model based on debt
    company is acquired Favors Short- Term
    using a high percentage Profits
    of borrowed funds

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