Aussie opera companies can borrow cash on a day-to-day basis
Operating leverage formulas are the latest example of how Australian companies can generate cash by making investments in the long term, but the same methods can be applied to other industries, including energy and manufacturing.
The results of these formulas are used to set up a business, and then to borrow money on a daily basis.
Operating leverages are not new, but it is becoming more common to make a business a priority over time.
“The more you can take advantage of the short term to invest, the more leverage you can create,” says Tim Pugh, chief executive officer at New Enterprise Group, which specialises in financing for energy companies.
In energy and energy technology, operating leverage formulas can be used to generate cash on the spot, even though it is not always possible to access the capital.
Operating leverage is one of the fundamental strategies that energy companies use to increase their cash flow.
A company that wants to be able to borrow to fund investments in its operating portfolio has to find ways to extract cash from its operations on a recurring basis, Mr Pugh says.
If a company is operating at a lower level of production, for example, and is able to obtain funding on a weekly basis, the cash it can access will increase.
However, if the company’s production levels drop, it can only borrow on a monthly basis, so it will not have the flexibility to borrow at a higher level of capacity, Mr