Part 3 | Analyzing Operating Risks
Financial risk managers know that firms do not declare bankruptcy because they fail to make accounting profits. The name of the game is liquidity. Do not run out of cash. The term burn rate refers to the negative cash flow when a company starts operations with shareholder capital and maybe also debt financing. It is a measure of how much time can pass before the firm must either generate a positive cash flow, raise additional funds, or cease operations. It is an appropriate term, as it is painful to “burn.” It highlights the role of cash.
Having pointed out the importance of cash, we immediately emphasize that profits pave the road to liquidity. If a firm is not profitable, sooner or later it will not be liquid. ...
Get The AMA Handbook of Financial Risk Management now with the O’Reilly learning platform.
O’Reilly members experience books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.
