Question

Question 19 1 pts John Alexios is the founder and CEO of a high-tech start-up company which produces drones for precision agriculture in the San Joaquin Valley. He is meeting with an investor, Dr. Juliette Kassandra, for venture capital support. Dr. Kassandra tells him that "When analyzing a start-up company like yours, we usually emphasize more on your firm's capacity to generate strong cash flows, rather than net income at this early stage." Based on the above information, answer the following two questions. According to the suggestion from Dr. Kassandra, John should try to improve which of the following financial indicators of his company to better attract investors? net profit total revenue total cost marginal revenue

Answer 1

Answer: 2^nd option.

There must be an attempt to improve total revenue (TR). By the formula, TR = Quantity × Price.

This is the true indicator of company’s capacity to grow – if TR is high, a company can generate cash (if it is a credit sale, today’s sale can generate cash in future) that improves liquidity of the firm to pay its debts. This attracts investors.

Other options are not correct:

1^st option: net profit or net income is not so important for a start-up business.

3^rd option: there may be high fixed cost for a start-up business; therefore, total cost is also not relevant since this is very hard to control.

4^th option: this depends on TR; therefore, not to be considered further.