Economic exposition on revenue, cash flow, and firm structure

revenue = collective gross cash flow = collective earned revenue (6.4) from all contributors to revenue together. Then revenue and earned revenue would be the same if there are no other claims. Earned Revenue and Cash Flow A classical illustration of revenue generated collaboratively is the firm. The firm proper can be interpreted as a single asset of physical capital. Its typically many owners agree to hire outside management, meaning outside themselves, to contract and trade on their behalf. The firm through its managers hires the other employees, contracts with suppliers, and generates a joint product representing all its own gross cash flow plus any contributed parts of gross cash flow of others. The product is sold for revenue in the collective sense. Revenue is first applied to satisfy claims on it by those outside contributors. Claims recovered include current purchases from suppliers realized in sales. Others are pay to management and other employees, along with rent, interest, utilities, other services, and whatever is due to the tax man. The principle is to include all outlays by the firm needed to secure revenue now, as distinct from outlays invested for the sake of more revenue later. The share of revenue due the firm proper is any residue after all those prior claims are met. Then gross cash flow = revenue - prior claims = earned revenue (6.5) gives the contribution of the firm proper. Earned revenue may or may not be passed to owners. Management is typically authorized to plow back any part as reinvestment, say in replenishing inventory or cash or in buying new plant and equipment. Any revenue left over after that plowback is transferred out to owners as dividend yield. Chapter 6: Parallels with the Firm 2/4/16 4 HOUSE_OVERSIGHT_011038