Читать книгу The Value Equation - Christopher H. Volk - Страница 12

Number 1 of the Six Variables is business investment. To determine it, simply net accounts payable, accruals, and other unsecured, non-interest-paying cash obligations against the cash assets at cost. A short version of the business investment variable is shown below. Later on, I will expand this important variable to show its components.

While the accounting profession may have difficulty determining what business investment is, entrepreneurs generally can zero in on the number. One thing they know is that a lower business investment is better than a higher investment because it requires less funding. Certainly, the growth in global supply chain technology sophistication has played a role in the rise of “asset light” as a business term. If you can have less inventory, have extended trade credit terms, outsource your manufacturing, and then sell your product with fast payment terms, your required business investment can be substantially reduced. Had Daymond John been more “asset light” at the outset, his business investment requirement would have fallen materially, his liquidity would have substantially risen, and his risk of business failure reduced. As I learned a long time ago when I started out in banking, “Companies do not go out of business because they lose money. They go out of business because they run out of cash.”