🪴 Maixnor WU

Finances

Nov 04, 20253 min read

Liquidity and Sufficient Financial Resources

  • Do I have enough cash (or equivalents)

  • Can I repay my debts

  • Short term assets and liabilities

  • Working capital = current assets - current liabilities

  • current ratio (working capital ratio): current assets / current liabilities → should be between 1.5 and 2

  • Acid Test ratio: (current assets - stocks) / current liabilities

  • positive Cash Flow

  • EBIT is important

Sufficient Financial Resources

  • Businesses need money for their activities
  • Initial capital needs to be present
  • wontfix get additinal points from UBBP slides

Hyrid Bond

  • Combination of a Bond and a Share
  • Borrower receives money
  • Investor receives shares of the business and
  • Investor receives interest
  • Similar to Liquid Bonds → Bond first, converted to Share after

Equity and Debt Finance

  • Equity finance
    • fund provided by investors
    • share capital
    • retained earnings (interest)
    • mostly not repayed directly
  • debt finance
    • short term credit (bank overdraft, trade credit)
    • long term credit (bank loan, bonds)

Internal sources of finance

  • retained profit
  • reduce working capital
  • sale of assets

External sources of finance

  • long term
    • share capital
    • loan capital
    • venture capital
  • short term
    • bank overdraft / bank loan
    • trade credit
    • leasing
    • Debt Factoring (selling your trade receivable)

Examining Stability and Wealth of a Business

  • Equity is very important
  • Equity Ratio important as well
  • Wealth is sufficient to sustain the business

Share vs Venture Capital

  • Share Capital is usually not repaid
    • dividends are used more often
    • rise in stock price is also used for compensation
    • long-term or permanent capital
  • Venture Capital are repaid
    • investments in small businesses (mostly startups)
    • after 5-7 years it is usually paid back (if company still exists)

Share vs Bond

  • Share rather volatile
  • Bonds are more stable, yet potentially less profitable
  • if the company goes bankrupt, holders of a Bond are repaid before holders of a Share

Choise of Source of Finance

depends on cust, use of funds, financial situation and status/size of business

wontfix get rest from UBBP slides

Cost Awareness

Cost-Unaware businesses can be endangered greatly by rising costs or falling sales. They may not be able to adjust their cost management quickly enough to meet the new requirements.

Why is it important to know your costs?

  • decide on starting your business
    • will you be ever able to cover all your costs?
  • decide on expanding your business/production
  • decide on the opportunity cost being worth it

Why is it important to know the nature of your costs

Break-Even Analysis

  • total costs = total revenues
  • minimum output a company needs to meet
  • wontfix get more from UBBP slide 53

Weaknesses

  • Assumption that all output is sold
  • does not account for change in costs
  • some fixed costs are stepped (e.g. insurance)
  • difficult to allocate allocate fixed costs for a range of products.

Compound Interest

Interest on Interest Exponential Growth

Funds

A Fund is a collection of Stocks, therefore the risk is lower than picking stocks yourself.

Soft Euro

USD stays the same. EUR drops. Therefore… more EUR for the same amount of USD

People that receive USD and give away EUR benefit the most.

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