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Company Finance 101: Understanding Burn Rate, Cashflow and Profitability
- 1. Company finance 101 Ged Carroll renaissancechambara.jp
- 2. In this presentation • Finance lifecycle • Financial health • Burn rate • Cashflow • Profitability • Efficiency • Growth versus value
- 4. Finance lifecycle The idea bootstrapping
- 5. Finance lifecycle The idea bootstrapping angel funding seed funding incubation
- 6. Finance lifecycle The idea bootstrapping angel funding seed funding incubation venture capital
- 7. Finance lifecycle The idea bootstrapping angel funding seed funding incubation venture capital exit: • IPO • acquisition • merger • liquidation / bankruptcy
- 8. Finance lifecycle The idea bootstrapping angel funding seed funding incubation venture capital exit: • IPO • acquisition • merger • liquidation / bankruptcy
- 9. Why does this matter?
- 10. Financial health
- 11. 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
- 12. What kind of news hooks could come from this data?
- 13. Burn rate
- 14. 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
- 15. Cashflow
- 16. 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
- 17. What does burn rate and cash flow mean?
- 18. Profitability
- 19. 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
- 20. Efficiency
- 21. Efficiency Many other measures to consider: • ROI • Revenue / employee • ARPU / basket size • Competitor benchmarking • Market sentiment • Dividend
- 22. What kind of information do you think market analysts will care about?
- 23. Growth vs. value
- 24. 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
- 25. Thanks for your time
- 26. More reading • The Number: How the Drive for Quarterly Earnings Corrupted Wall Street and Corporate America by Alex Berenson • The Economist guide to Financial Markets by Marc Levinson • Reuters Glossary – really good guide to financial and business terms
- 27. 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
- 28. Keeping on top of your client Publicly listed clients • Stocks.app on iPhone • Yahoo! Finance • Google Finance
- 29. About me Amazon author page: amzn.to/1SeO5Il LinkedIn page: linkedin.com/in/gedcarroll About: renaissancechambara.jp/about Blog: renaissancechambara.jp Email address found here: scr.im/renaissance Twitter account: @r_c Sina Weibo: renaissancechambara WeChat
- 30. thank you | 谢谢 | míle buíochas! | 감사합니다 | danke | ありがとう | merci | спасибо | cám ơn | whakawhetai | takk | ขอขอบคุณคุณ | terima kasih | σας ευχαριστώ | grazie | |شكرا þakka þér | დიდი მადლობა | kiitos | நன்றி | gracias
Notas del editor
- Source: http://www.internetworldstats.com/stats.htm Internet population has reached 1 billion in Asia.
- Source: http://www.internetworldstats.com/stats.htm Internet population has reached 1 billion in Asia.
- Source: http://www.internetworldstats.com/stats.htm Internet population has reached 1 billion in Asia.
- Source: http://www.internetworldstats.com/stats.htm Internet population has reached 1 billion in Asia.
- Source: http://www.internetworldstats.com/stats.htm Internet population has reached 1 billion in Asia.
- Source: http://www.internetworldstats.com/stats.htm Internet population has reached 1 billion in Asia.
- Source: http://www.internetworldstats.com/stats.htm Internet population has reached 1 billion in Asia.
- Source: http://www.internetworldstats.com/stats.htm Internet population has reached 1 billion in Asia.
- Source: http://www.internetworldstats.com/stats.htm Internet population has reached 1 billion in Asia.
- Source: http://www.internetworldstats.com/stats.htm Internet population has reached 1 billion in Asia.
- Source: http://www.internetworldstats.com/stats.htm Internet population has reached 1 billion in Asia.
- Source: http://www.internetworldstats.com/stats.htm Internet population has reached 1 billion in Asia.