I read a paper talking about the Operating Cycle. On page 6th, they said:

Sales of assets, no matter how disguised, are one-time events. In contrast, cycling capital through the cycle and generating cash contribution margins from operations hopefully is a repeatable event and the event of economic consequences that justifies the existence of a firm. It is the well of economic returns

From my understanding, sales of assets above mean that the company sells the timber, or oil, or cash equivalents, and they are one-time events. Then,"cycling capital through the cycle" means dollar leaves cash and go through other asset account, and $1.05 comes back into cash after a number of days. Then "contribution margins" means selling price per unit minus variable cost per unit.

I am wondering why they hope it is a repeatable event, and what does "event of economic consequences" mean in this sentence?


This text is basically about the use of assets. They can be sold once generating some cash or they can be put to use generating cash. The latter can be done multiple times (which is what the repeatability phrase is about), and in the long run should generate more cash than just selling it.

When writing that the latter is the event of economic consequence, the authors mean that this is the process that generates the most money.

Incidentally you seem to be thinking of natural assets, but the authors are thinking of man-made capital assets such as machines or buildings. Those can be put to use.

  • $\begingroup$ Thank you very much for your clarification, But where in the passage means "the authors mean that this is the process that generates the most money". I mean, my focus in the word "most", where it is from then? $\endgroup$
    – Louise
    May 25 '21 at 0:16
  • 1
    $\begingroup$ Not sure if I understand your comment. The economic consequences (in this case the cash generated by putting the asset to use) justify the existence of the firm. Therefore they must generate more money overall than selling the asset, otherwise the firm would simply sell the asset and stop doing business. $\endgroup$ May 25 '21 at 9:16

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