Net Margin * Asset Turnover = ROA (can’t maximize both, so one will tell you what your business is)
Financial leverage
- Financial leverage metric (he wrote on the board)
- If more assets than equity fundmantela acocunting tells us that we have some debt
- High or low turnover / high or low margin (usually inverse) … and how much debt do we want to hold? More debt = high ROE, but too much leverage = risk
- Levers:
- Profit margin + turnover
- Financial leverage
AR will be lower for consumers (unless BNP later is huge) so you can segment between consumer businesses and b2b
Dell example and their former business model
There are no economics if there are no constraints
AM #2
What you need to finance the operation is the assets and all the Liabilities are the right hand side of your blance sheet (debt and equity, and the fraction is financial leverage)
- Sources = where $ comes from and Uses = assets
Line of credit = credit card for company
Match the maturity of the assets with the liabilities
A house is equity and it’s an asset that you split between equity (value of the home you own) and what you finance by debt
Macy’s
Short term invesmtent = cash you won’t use now and need to invest
Don’t want excess cahs b/c it could gain more return elsewhere AND we want to enforce discipline
AP and AR uses of working capital and how they can use that in financing, Amazon example
Tiffany just needs a liquidity strategy
