TAILIEUCHUNG - How to Understand Business Finance, Second Edition_5

Tham khảo tài liệu 'how to understand business finance, second edition_5', tài chính - ngân hàng, tài chính doanh nghiệp phục vụ nhu cầu học tập, nghiên cứu và làm việc hiệu quả | 62 How to Understand Business Finance business it may be possible to go back to the owners and ask for more money ie appeal to relatives . In a large company with shares quoted on the stock exchange appealing to shareholders is much more difficult. In a large company selling more shares to your shareholders is known as a rights issue. Normally you need a good reason to ask shareholders to put more money into a business. Asking for a cash injection because of cash flow difficulties is not considered a good reason but rather a sign that the company is being run badly. Get more business While getting more business will not ease an immediate cash flow problem it should help in the coming months as the cash starts to flow in once more. It is essential though that this business is profitable. In other words the sales income must eventually generate more cash than the costs going out or this will just become a greater drain on your cash. Of course getting more business has a cost - there is the new sales effort the promotional spend - and in the short term this will make your cash flow problems even worse. Spending your way out of cash flow problems can work but is high risk - not what your accountant would call prudent. 63 5 Measuring business performance - financial ratios Table gives a summary of the financial performance of six different companies. Which company is the best It is difficult to say and that is why accountants have invented financial ratios - to allow us to compare one company s performance with that of another. When doing this we ought to be sure that we are comparing like with Table Financial performance Ace Company First Best Cool Demon Excel Annual sales revenues 100 120 150 160 180 200 Gross margin gross profit 80 80 75 90 100 140 Profit earnings 10 12 18 18 18 18 64 How to Understand Business Finance like those famous apples and pears - a pharmaceuticals business compared to a chemical company may well not be considered a fair or useful .

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