company finances 101 for junior agency people
TRANSCRIPT
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Company finance 101
Ged Carroll renaissancechambara.jp
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In this presentation• Finance lifecycle• Financial health• Burn rate• Cashflow• Profitability• Efficiency
• Growth versus value
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Finance lifecycle
The idea
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Finance lifecycle
The idea bootstrapping
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Finance lifecycle
The idea bootstrapping
angel fundingseed fundingincubation
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Finance lifecycle
The idea bootstrapping
angel fundingseed fundingincubation
venture capital
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Finance lifecycle
The idea bootstrapping
angel fundingseed fundingincubation
venture capital
exit:• IPO• acquisition• merger• liquidation / bankruptcy
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Finance lifecycle
The idea bootstrapping
angel fundingseed fundingincubation
venture capital
exit:• IPO• acquisition• merger• liquidation / bankruptcy
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Why does this matter?
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Financial health
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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
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What kind of news hooks could come from this data?
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Burn rate
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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
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Cashflow
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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
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What does burn rate and cash flow mean?
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Profitability
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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
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Efficiency
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Efficiency
Many other measures to consider:• ROI• Revenue / employee• ARPU / basket size• Competitor benchmarking• Market sentiment• Dividend
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What kind of information do you think market analysts will care about?
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Growth vs. value
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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
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Thanks for your time
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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
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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
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Keeping on top of your clientPublicly listed clients• Stocks.app on iPhone• Yahoo! Finance• Google Finance
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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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