Roel Capital reposted this
I’ve alluded in previous posts that as the cost of capital increases, the necessity to optimize the deployment of capital into a business also increases. For those corporate finance aficionados out there, let me rehash the difference between ‘accounting profit’ and ‘economic profit’. (1) Accounting profit is where revenue exceeds expenses. (2) Economic profit is where the return on invested capital exceeds the cost of capital. Q: What's the difference? A: The second is a benchmarked metric, whereas the first is not. Let’s say you make $10 profit, that’s good business, right? What if the business where that $10 profit is derived has an unlevered balance sheet with $100 equity capital invested. If the opportunity cost of equity is 15% p.a. is that still good business? Recently we’ve settled several transactions for our commercial clientele who have been experiencing cash lock up from working capital. Usually this is where: (i) Inventory is paid for in cash, held for sale, then converted to cash from sales; or (ii) Sales are on payment terms, and they require additional liquidity between making a sale and receiving payment. In these recent transactions, lenders have not required first mortgage property as collateral. We specialize in partnering with our clients on their business and personal growth journey, through providing tailored lending solutions. #workingcapital #corporatefinace #businesslending #commercialbroker Anthony Nocon Roel Capital Note: This is general information only and has been prepared without taking into account your objectives, financial situation or needs. It does not constitute legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances.