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Chapter 8 - Debt financing (2)

B

BhatiaI

Member
Hi All,

I have come across this paragraph in acted notes, question bank and the mock exam too but not able to follow what it means. Could someone please help me understand this?

'The analysis becomes more complicated once we allow for the possibility of repeat
orders, particularly if past credit history is itself an indication of creditworthiness.
The problem now becomes one of assessing the value of a new (or retained) client,
rather than just the expected profit from an additional sale.'

Thanks in advance for your help.

Kind Regards
Ishita
 
Hi, I think it simply means that a company would have to consider the profitability of future orders that it might get from the customer when assessing the profitability of the first order. So the first order may be break even or loss making, but if the company is going to get a whole stream of orders as a result of the first, they whole basket of deals may be very profitable.
 
Thank you Colin that makes sense now. :)

I have a question or two on Tax ans shall post that soon.

Thanks again for your help.
 
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