The hottest Financial Metrics Substack posts right now

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How Do VCs Really Make Decisions?💡

The VC Corner • 459 implied HN points • 10 Sep 24
💼 Business Venture Capital Investment Strategies Entrepreneurship Market Analysis Financial Metrics
  1. VCs find deals through strong networks and relationships, not just random pitches. They carefully prune their opportunities, meaning a standout startup has a better chance of getting noticed.
  2. When it comes to choosing which startups to invest in, VCs place a big emphasis on the management team and the market potential. A great team can adapt and succeed, no matter how the market changes.
  3. Valuation is a delicate balance where VCs analyze exit opportunities and compare with similar companies. They aim for high returns, especially on early-stage investments, which comes with a lot of risk.

Is being data driven a fad?

benn.substack • 843 implied HN points • 18 Oct 24
💼 Business Data Analysis Financial Metrics Market Trends Investment Strategies Business Models
  1. The way we value companies might be changing. Instead of just looking at numbers, people are considering things like hype and public interest.
  2. Being data-driven used to be seen as a key to success, but now it seems less effective for some businesses. There are successful examples, but many companies struggle to use data well.
  3. Cultural factors, or 'taste', are becoming more important in the business world than just relying on data. This shift might mean that how people feel about a company matters just as much as the finances.
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Understanding Valuation Methods

DeFi Education • 1978 implied HN points • 30 Jun 21
🔮 Crypto Valuation Investing Decentralization Market Analysis Financial Metrics
  1. Having users is really important for a project's value. A company that has a lot of users is usually seen as more successful, even if it's not making money yet.
  2. Sales and profits are not the same thing. Just because a company makes a lot of sales doesn't mean it's actually earning money after paying all its costs.
  3. Quick valuation methods, like comparing sales and earnings, can help you understand a project’s worth. However, you should also consider user growth and how the project makes money.

What is EBITDA?

Concepts of Finance 🧠 • 299 implied HN points • 16 Mar 23
💰 Finance Corporate Finance Investment Analysis Financial Metrics Cash Flow
  1. EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortisation. It's a way to see how much cash a company makes from its regular activities, without debt and accounting effects.
  2. To calculate EBITDA, you add net income, taxes, interest, depreciation, and amortisation. This helps give a clearer picture of a company's financial health.
  3. Companies like EBITDA because it shows how well they're doing without the impact of financing and other expenses. It's a key metric when looking at profits or selling the business.

January 2017 Data Update 7: Profitability, Excess Returns and Governance

Musings on Markets • 0 implied HN points • 30 Jan 17
💼 Business Corporate Finance Investment Analysis Company performance Financial Metrics Governance
  1. Companies need to earn more than their cost of capital to be successful. Just making money isn't enough; they must create value for their investors.
  2. Return on Invested Capital (ROIC) is a common way to measure how well a company is doing, but it has its flaws. Investors should be careful when interpreting this metric for young or troubled companies.
  3. There are many companies that are not creating value for their shareholders, with a large number classified as 'value destroyers.' This can limit resources for better investment opportunities in the economy.

The Compressed Tech Life Cycle: The Investor Challenge

Musings on Markets • 0 implied HN points • 21 Dec 15
💰 Finance Investment Valuation Market Analysis Financial Metrics Corporate strategy
  1. Tech companies often look expensive when they're young and cheap when they're old, which can confuse investors. It's important to use the right methods for valuing these companies, instead of using outdated approaches.
  2. Just because a tech company seems good today doesn't mean it will still be a good investment tomorrow. Investors should regularly re-evaluate their tech stocks and sell if they become overvalued.
  3. Dividends might not be the best way for tech companies to return cash to shareholders. Stock buybacks can be more suitable for their changing needs and financial situations.

Pricing Country Risk - Pictures of Global Risk - Part III

Musings on Markets • 0 implied HN points • 29 Jul 15
💰 Finance Investing Risk Assessment Valuation Market Analysis Financial Metrics
  1. Country risk should be considered in investment strategies. Riskier countries generally have lower price-to-earnings (PE) ratios compared to safer ones.
  2. Comparing different equity multiples can help find good investment opportunities. However, you must be careful as some outlier countries can skew the results.
  3. Using enterprise value multiples can be less affected by country risk, but may still not fully account for it. A good approach is to value and price companies together to make informed investment choices.

Twitter's Bar Mitzvah! Is Social Media coming of age?

Musings on Markets • 0 implied HN points • 17 Nov 14
💼 Business Investing Social media Market Analysis Financial Metrics Company growth
  1. Social media companies are at a turning point where they need to focus more on making real money instead of just telling a good story. Investors are starting to look more closely at actual revenue and profits.
  2. The online advertising market is growing but is still limited, meaning social media companies have to compete fiercely for a share. As more players enter the market, it's going to get tougher for everyone.
  3. Social media companies must be honest about their growth strategies and spending needs. Clear and transparent accounting practices are important to keep trust with investors as they face this challenging shift.

Growth and Value: Thoughts on Google, Groupon and Green Mountain

Musings on Markets • 0 implied HN points • 19 Oct 11
💼 Business Investment Strategies Market Analysis Financial Metrics Business Models
  1. Growth is not always sustainable. Companies like Green Mountain Coffee have to consider how big their market really is and how long they can keep growing.
  2. As companies grow, their growth rates usually slow down. Even successful companies like Google face challenges in maintaining high growth as they get bigger.
  3. Investing for growth can be tricky. Companies need to spend money to grow, but if they don't manage investments wisely, it can hurt their overall value.

Alternatives to the CAPM: Part 2: Proxy Models

Musings on Markets • 0 implied HN points • 29 Apr 11
💰 Finance Investment Theory Market behavior Statistical Analysis Financial Metrics Investing Risk management Economic Theory Market Analysis Quantitative Analysis
  1. Proxy models move away from traditional finance theories like CAPM, focusing instead on how markets actually price investments. They try to explain returns based on observable factors rather than assumptions about investor behavior.
  2. Research by Fama and French found that factors like market capitalization and price-to-book ratios are better at explaining stock returns than the original CAPM betas. This means smaller companies and those with lower price-to-book ratios tend to have higher returns.
  3. While proxy models can improve expected return calculations, they come with risks like data mining and standard error problems. This means the results may not always be reliable or may misrepresent the true risk involved.

How do you measure profitability?

Musings on Markets • 0 implied HN points • 15 Mar 10
💰 Finance Profitability Investments Health care Financial Analysis Market Trends Profitability Investments Health care Market Analysis Financial Metrics
  1. Dollar profits can sound impressive, but they don't tell the whole story. A big profit number doesn’t mean much if it’s tiny compared to total revenue or investment.
  2. Profit margins provide insight by showing profits as a percentage of revenue. However, comparing margins between different businesses isn't easy due to varying pricing strategies.
  3. Returns on investment, like return on equity, give a clear view of how well a company uses its money. This measure helps to evaluate profitability across different industries.

Alternatives to Regression Betas

Musings on Markets • 0 implied HN points • 15 Feb 09
💰 Finance Risk Assessment Investment strategy Market Analysis Statistical Methods Investment Risk Assessment Market Analysis Valuation Methods Financial Metrics
  1. You can use relative standard deviations instead of regression betas to measure risk. This method looks at how a stock's volatility compares to the average volatility of other stocks.
  2. Option-based methods provide a forward-looking estimate of risk by using prices from traded options. However, this approach only works for companies with those options and bonds available.
  3. Accounting betas are calculated by looking at changes in a company's earnings compared to the overall market. They can be a stable alternative, especially for private companies, but their lagging nature can be a drawback.

Insights on VC Pricing: Lessons from Uber, WeWork and Peloton!

Musings on Markets • 0 implied HN points • 17 Sep 19
💼 Business Venture Capital Market Valuation Corporate Governance Financial Metrics
  1. Companies often exaggerate their market potential to attract investors. They use fancy terms to describe their business, which can make their market claims seem less credible.
  2. Many of these companies focus heavily on scaling their user base and revenue, but not enough on developing solid business models. Sometimes they grow so fast that their financial foundations get ignored.
  3. A lot of these newly public companies have poor earnings and complex ownership structures, making them feel unstable. Investors should be cautious as they might not have a clear plan for profitability.

January 2018 Data Update 10: The Price is Right!

Musings on Markets • 0 implied HN points • 06 Feb 18
💰 Finance Investment Valuation Market Analysis Financial Metrics Corporate Finance
  1. Value and price are not the same. Understanding this helps investors make better decisions since market behavior can reward actions that don't create real value.
  2. Pricing an asset involves finding similar traded assets, choosing a good pricing metric, and scaling correctly. These steps are important for accurate valuations.
  3. Investors should be aware of the global differences in pricing multiples, like PE ratios and book value ratios, as they indicate how markets value companies in different regions.

A DIY (Do-It-Yourself) Valuation of Zomato

Musings on Markets • 0 implied HN points • 03 Aug 21
💰 Finance Valuation Investment Market Analysis Company analysis Financial Metrics
  1. Valuation is more about common sense than expertise. Anyone can learn to value a company by understanding the basics and using a straightforward approach.
  2. Investing requires personal responsibility. You should make your own decisions based on your evaluation rather than just following what others say or do.
  3. Gather diverse opinions and stay open to feedback. Engaging with different viewpoints can improve your understanding and lead to better investment decisions.

January 2018 Data Update 1: Numbers don't lie, or do they?

Musings on Markets • 0 implied HN points • 05 Jan 18
💰 Finance Market Data Investment Analysis Corporate Finance Risk management Financial Metrics
  1. Collecting and analyzing data from a large number of companies helps in gaining a better perspective for making investment decisions. It allows for comparison against industry and geographic averages.
  2. It's important to question common investing rules of thumb and understand whether they still hold true in today’s market. Examining actual data can reveal if these rules are outdated.
  3. Trends and changes in corporate finance can significantly impact investors and the economy. It’s useful to track how companies evolve over time and how that affects various financial metrics.