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- serve as the foundations of Financial Decision Making. Every decision to be made in finance could all be related to
these 10 Axioms of Finance.
Imputed Cost – hypothetical cost/income - is a cost that is incurred by virtue of using an asset instead
of investing it or undertaking an alternative course of action. An imputed cost is an invisible cost that is
not incurred directly, as opposed to an explicit cost, which is incurred directly.
Inflation Rate - is a measurement of inflation, the rate of increase of a price index (in this case:
consumer price index). It is the percentage rate of change in prices level over time. The rate of
decrease in the purchasing power of money is approximately equal.
3. Cash is King
You cannot entirely spend “profit” or “net income”. These accounts are only paper figures and includes both
realized and unrealized gains, cash and receivables. Cash is the primary asset of an entity that can be reinvested or
used to pay bills.
Cash flow could be more vital than the income statement because it shows the actual amount that could be used in
the regular business operations. Cash flow does not equal net income. This is due to the timing differences in
accrual accounting between the recording of a transaction and the receipt or disbursement of cash. In finance,
cash is king.