Revenue before cost

How can you make money before spending money? An example is Dell: the computer manufacturer developed an assembling-on-order model based on direct sales. By earning before spending, a company can reduce tied up cash (e.g. due to inventory costs), leading to a lower or even negative net working capital (= a cash surplus).

When and how to apply Revenue Before Cost:

Working capital can impact the effectiveness of a company's longer-term investments and its ability to meet its short-term obligations. Working capital is what a business has available to meet its immediate operational needs, such as obligations to its suppliers, inventory, and accounts receivable.

Prepaid expenses are included in working capital as well. Certain investment professionals, when conducting valuations, consider adjusted non-cash working capital, which excludes cash and cash equivalents, short-term investments, and loans and debt payments due within a year.

Working capital is determined by subtracting total current liabilities from total current assets, but the resulting amount is not always positive. It can be either zero or negative. Consequently, varying amounts of working capital can have varying effects on a company's finances.

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