Cost of Trade Credit Financing

When early payment discounts are offered by suppliers, the cost of trade credit needs careful consideration as the effective interest rate can be very high compared to other forms of finance.

Last modified September 17th, 2019 by Michael Brown
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Free Cash Flow

Free cash flow is the cash flow available after the business has paid for all of its operating needs including providing working capital, and invested in property, plant, and equipment (capital expenditure) necessary to maintain its current growth rate.

Last modified September 20th, 2019 by Michael Brown
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Inventory Purchases Budget

The inventory purchases budget shows a business how much inventory it needs to purchase each period to maintain the required inventory levels and ensure the availability of products in appropriate quantities and costs to meet anticipated demand.

Last modified September 17th, 2019 by Michael Brown
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16 Things To Know About Creating Financial Projections

Financial projections are made up from three financial statements, the balance sheet, the income statement, and the cash flow statement. Here are sixteen things to know about creating financial projections which should give you a better understanding of what’s included in the three financial statements, and how they relate to each other.

Last modified October 15th, 2019 by Michael Brown
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Cash vs Accrual Accounting in Financial Projections

It is important to consider both the cash basis and accrual basis of accounting when preparing financial projections.

Cash basis accounting records revenue and expenses when cash enters and leaves the business, and the accrual basis of accounting records revenue when earned and expenses when the benefit of them is received.

Last modified October 15th, 2019 by Michael Brown
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Budget vs Forecast vs Projection vs Pro Forma

The terms financial budget, financial forecast, financial projection and pro forma financial statement are often used to refer to the same thing. However, while they have a very similar format, normally comprising a balance sheet, income statement, and cash flow statement shown over a period of months or years, they are each based on a very different set of assumptions.

Last modified October 9th, 2019 by Michael Brown
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Pro Forma Financial Statements

The terms pro forma financial statements, financial projections, financial forecasts, and financial budgets are often used interchangeably, but they are not the same thing.

Pro forma financials simply refers to a set of financial statements in the usual format (balance sheet, income statement, and cash flow statement), which have been prepared in order to show the effects of a transaction on the historical financial statements prior to the transaction actually taking place.

Last modified October 9th, 2019 by Michael Brown
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Product Lifecycle

All businesses develop products which have a limited economic life and defined product life cycle. Each year a business will develop new models of a product and introduce them to the market to replace older models which are starting to become obsolete.

It is important that the financial projections and the business plan make allowance for these product life cycles, as any errors in the timing of product development can lead to revenue, net income, and cash flow shortages, ultimately resulting in the failure of the business.

Last modified July 16th, 2019 by Michael Brown
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Working Capital

Business working capital is an important concept, and one often referred to by investors and lenders.

An increase in working capital results in a corresponding decrease in cash flow and additional funding is therefore required to finance it.

Last modified July 16th, 2019 by Michael Brown
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Startup Financial Projections Checklist

The financial projections checklist can be used at any stage, but is particularly useful for startup businesses preparing financial projections for first time. The checklist provides a listing of some of the most common items to check for when reviewing financial projections.

Last modified July 16th, 2019 by Michael Brown
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Operating Cycle Calculation

All businesses have an operating cycle, it is the time in days between purchasing inventory and receiving the cash from the sale of that inventory on credit to customers.

Last modified July 19th, 2019 by Michael Brown
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