This and the next chapter are based on material previously published in Clark (2009) and were specifically requested by reviewers of the original outline of the present book.
Measures of Worth
Cash is the lifeblood of a business, so a proposed investment is best evaluated by how it contributes to the flow of cash. Cash is defined in a business context as after tax profits plus depreciation. These terms will be discussed in more detail. The objective is not to duplicate more extensive treatments elsewhere, but rather to enable the engineer to understand and communicate with his colleagues in finance, accounting, and management (Clark 1997a, Valle-Riestra 1983).
A business such as a food company uses fixed assets, such as buildings and equipment, and less tangible assets, such as patents and trade secrets, to produce items for sale. The company pays for its assets with a mixture of equity and debt,where equity represents money invested or accumulated by the owners and debt represents...