From the course: Financial Accounting Part 2

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Basic idea: Cash flows, timing, and risk

Basic idea: Cash flows, timing, and risk

From the course: Financial Accounting Part 2

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Basic idea: Cash flows, timing, and risk

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- Let's say that our mutual friend has asked me or you to become a partner in an online retail business. The major cash outflows for this business are the compensation for the employees and the costs of the physical assets, the servers, the regular computers, and the office cost, rent, utilities, insurance. The major cash inflow for this business is the commission fees received from the suppliers, who pay the online retailer for attracting the buyers online. So our friend has asked me or you to become a partner by investing $100,000 of my hard-earned cash into the business. With my $100,000 investment, will I now be a 5% owner, a 20% owner, a 75% owner? Of course, it depends on what the business is worth. So before investing my money in our friend's business, I need to value the business. A quick note. This discussion is merely intended to give you an idea of the process involved in such a business valuation. If you…

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