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Summary - Entrepreneurial Finance
1 introduction and overview
1.1 Characterize the entrepreneurial process
What does the entrepreneurial process comprise?developing opportunities, gathering resources, and managing and building operations, all with the goal of creating value.
What resources are needed to move from opportunity to entrepreneurial venture?gathering physical assets, intellectual property, human resources and financial capital.
What are the three steps of the entrepreneurial process?1) developing opportunities
2) managing and building operations
3) gathering resources
1.2 describe entrepreneurship and some characteristics of entrepreneurs
Entrepreneurship is?entrepreneurship is the process of changing ideas into commercial opportunities and creating value.
What is an entrepreneur?an entrepreneur is an individual who thinks, reasons, and acts to convert ideas into commercial opportunities and to create value.
recognizeand seize commercial opportunities.
successful entrepreneurs tend to be doggedly
Successful entrepreneurs are not consumed entirely with the
Successful entrepreneurs are able to anticipate and overcome the business risks that cause others to fail.
1.3 indicate three megatrend providing waves of entrepreneurial opportunities
What are entrepreneurial opportunities?entrepreneurial opportunities are ideas that have the potential to create value through new, repackaged, or repositioned products, markets, processes, or services.
What are megatrends?Megatrends are large societal, demographic, or technological trends or changes that are slow in forming but, once in place, continue for many years.
What are the megatrend categories?- Societal trends or changes
- Demographic trends or changes
- technological trends or changes
- crises and 'bubbles'
1.4 list and describe the seven principles of entrepreneurial finance
what are the seven principles of entrepreneurial finance?1) Real, human, and financial capital must be rented from owners
2) risk and expected reward go hand in hand
3) while accounting is the language of business, cash is the currency
4) new venture financing involves search, negotiation, and privacy
5) a venture's financial objective is to increase value
6) it is dangerous to assume that people act against their own self-interest
7) venture character and reputation can be assets or liabilities
Real, human and financial capital must be rented from owners:
You must compensate the use of real capital, financial capital or human capital.
A founder's on financial capital invested in the firm deserves a fair compensations. The seed money used to start the center could have been put to use elsewhere.
A venture's financial objective is to increase value:
if a venture is profitable, but has to reinvest so much in assets that no return is available to pay the owners for the use of their money, profits don't thrill the owners as much as you might think.
At some point, profit has to give rise to free cash to be returned to investors in a timely manner
What is free cash?free cash is the cash exceeding that which is needed to operate, pay creditors, and invest in the assets.
What is free cash flow?free cash flow is the change in free cash over time.
1.5 discuss entrepreneurial finance and the role of the financial manager
What is entrepreneurial finance?entrepreneurial finance is the application and adaptation of financial tools, techniques, and principles to the planning, funding, operations and valuation of an entrepreneurial venture.
When does financial distress occur?Financial distress occurs when cash flow is insufficient to meet current debt obligations.
Anticipating and avoiding financial distress is one of the main reasons to study and apply entrepreneurial finance
Financial management in an entrepreneurial venture involves record keeping, financial planning, monitoring the venture's use of assets, and arranging for any necessary financing.
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why is she-term financial planning important during a venture's rapid growth stage?
cash shortages during this stage frequently derive from the lack of operating profits to fund the investments in working capital and fixed assets necessary to continue on the growth trajectory.
Why is short term financial planning critical in the survival stage?
because operations are not yet turning a profit and the associated cash burn often lead to a venture's inability to pay its maturing liabilities.
ROE= Net profit margin x asset turnover x equity multiplier
return on equity?
return on equity = net income / average owners' equity
return on assets = (net income / net sales) * (net sales / average total assets)
return on assets?
return on assets = net income/ average total assets
operating return on assets?
operating return on assets = EBIT / average total assets
Sales to total assets ratio?
sales to total assets ratio = net sales / average total assets
NOPAt margin = (EBIT*(1- tax rate)) / net sales
net profit margin?
net profit margin = net income / net sales