Fin 419 - Mini-Case Biocom, Inc.

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- Explain what depreciation, cash flow, operating cash flow and NPV are and how they interact with business decisions.

- Depreciation – Depreciation is the reduction in the value of an asset due to wear and tear of said asset allowed to a company or business as a tax write-off.

- Cash Flow – Cash flow is all of the money that flows in and out of a business.

- Operating Cash Flow – Operating cash flow is, according to Investopedia (2017), a measure of the amount of cash generated by a company’s normal business operations.

- Net Present Value (NPV) – Net present value (NPV) explained by accountingcoach.com, states “. Net present value is a calculation that compares the amount invested today to the present value of the future cash receipts from the investment. In other words, the amount invested is compared to the future cash amounts after they are discounted by a specified rate of return.”

- Explain why these financial concepts are important for you as an employee, owner, or investor.

--As an Employee

As an employee these financial concepts are good to know so that the employee can know if the company they work for is a good company to stay with and grow with. If the company is productive and is making money, it would be good for an employee to stick with the company and grow with them. Just as if the company were not growing and was losing money consistently it may be prudent for the employee to start honing up his resume and start looking for another place to work.

--As an Owner

As an owner, it is important to understand these financial concepts so that you know how your company is doing and you are not being told one thing and seeing another by your bookkeeper or accountant. It is your responsibility, not only to yourself as the owner, but, to your employees, to know how your company is doing at all times and what you can do to make it better. By knowing these financial concepts it is a big step in the right direction.

--As an Investor

As an investor knowing these concepts is important so that you know what the company you are investing in is doing financially. By knowing the depreciation of the items the company owns, and knowing the cash flow as well as the NPV the investor can make an intelligent decision on whether or not to invest in the company or not.

References

Operating Cash Flow. (2017). Retrieved from http://www.investopedia.com/terms/o/operatingcashflow.asp

What is NPV. (2017). Retrieved from https://www.accountingcoach.com/blog/npv-net-present-value