Company finance 101
Ged Carroll renaissancechambara.jp
In this presentation• Finance lifecycle• Financial health• Burn rate• Cashflow• Profitability• Efficiency
• Growth versus value
Finance lifecycle
The idea
Finance lifecycle
The idea bootstrapping
Finance lifecycle
The idea bootstrapping
angel fundingseed fundingincubation
Finance lifecycle
The idea bootstrapping
angel fundingseed fundingincubation
venture capital
Finance lifecycle
The idea bootstrapping
angel fundingseed fundingincubation
venture capital
exit:• IPO• acquisition• merger• liquidation / bankruptcy
Finance lifecycle
The idea bootstrapping
angel fundingseed fundingincubation
venture capital
exit:• IPO• acquisition• merger• liquidation / bankruptcy
Why does this matter?
Financial health
Organisations measure their financial health in a number of ways depending where they are in their lifecycle:• Burn rate – how fast they are going through
money invested in them• Cash flow – are they getting in enough money
quickly enough to keep going and growing• Profitability – how much money do they make
for investors• Efficiency – how well are the businesses run
Financial health
What kind of news hooks could come from this data?
Burn rate
Burn rate
Before businesses are profitable they ‘burn through’ cash reserves. The business is running at a loss. It becomes bankrupt when it doesn’t have enough money to pay for its liabilities. It is often expressed as a burn rate:• How much they are going through over time
(month/ year)• How much time they have left before going
under / needing additional funding• In 1997, Apple was within 3 months of
bankruptcy
Cashflow
Cashflow
Cash flow is not the same as profitability• How much money does the
company have on hand to pay expenses
• Having too much business too quickly can be bad
What does burn rate and cash flow mean?
Profitability
Profitability
You think that you would know how much money you make? Businesses look at this differently• Measures of profitability that take
out the cost of business investment EBITA, EBITDA – looks at operating profitability
• How do they book sales? When is a sale a sale
• What are third-party expectations versus reality – The Number – predicted EPS
Efficiency
Efficiency
Many other measures to consider:• ROI• Revenue / employee• ARPU / basket size• Competitor benchmarking• Market sentiment• Dividend
What kind of information do you think market analysts will care about?
Growth vs. value
Growth vs. value
• It used to be that the technology sector was full of companies that were growth companies – an expanding market and ever expanding horizons
• Most traditional technology businesses (Microsoft, Oracle, IBM) are now value businesses – steady income slow growth rate
Thanks for your time
More reading• The Number: How the
Drive for Quarterly Earnings Corrupted Wall Street and Corporate America by Alex Berenson • The Economist guide to Fi
nancial Markets by Marc Levinson
• Reuters Glossary – really good guide to financial and business terms
Jargon buster• EBITDA - earnings before interest, taxes, depreciation
and amortisation (which is a posh word for regular payments to reduce debt like a mortgage)
• EBITA – similar to EBITDA without depreciation – both are measures of a company’s earnings from ordinary operations
• EPS – earnings per share • Market captialisation – total value of a company’s shares
quoted on the stock market• Credit rating – measure of a borrower’s creditworthiness• Bull – someone who thinks an item or market will
increase in value• Bear – the opposite of a bear• Bond – corporate or government IOU – legal document
offers to pay back lender at a X interest rate for Y time• Share – part ownership in a company and right o share
profits• Share class – affects voting rights, order of payout, level
of payout
• VC / venture captialist – high risk investment in start-ups or expansion of existing private companies
• Angel investor – provides backing for start-ups before VC money
• Private equity - firms which invest pools of capital raised from financial institutions in a wide range of commercial projects managed by investment professionals
Keeping on top of your clientPublicly listed clients• Stocks.app on iPhone• Yahoo! Finance• Google Finance
About meAmazon author page: amzn.to/1SeO5IlLinkedIn page: linkedin.com/in/gedcarrollAbout: renaissancechambara.jp/aboutBlog: renaissancechambara.jpEmail address found here: scr.im/renaissanceTwitter account: @r_cSina Weibo: renaissancechambara
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