business-haroun/mba/ch50.org

#+title: Section 9 | Lesson 50 - How to Value Private Companies and Growth Methods
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* Links
- [[./../mba-main.org][TOC | Business]]
- [[https://www.udemy.com/course/an-entire-mba-in-1-courseaward-winning-business-school-prof/learn/lecture/5805330#overview][S09:L50. How To Value Private Companies the Easy Way & Growth Methods]]

- tables: [[file:../_data/market share spreadsheet.numbers][Market Share Spreadsheet.numbers]]

* Notes

** Financial Table
| Year                              | 2015      | 2016       | 2017        | 2018        |
|-----------------------------------+-----------+------------+-------------+-------------|
| Revenue                           | 2,000,000 | 20,000,000 | 350,000,000 | 661,500,000 |
| COGS (Cost of Goods Sold)         | 1,800,000 | 16,000,000 | 175,000,000 | 264,600,000 |
| Gross Profit                      | 200,000   | 4,000,000  | 175,000,000 | 396,900,000 |
| Gross Margin %                    | 10%       | 20%        | 50%         | 60%         |
|-----------------------------------+-----------+------------+-------------+-------------|
| *Gross Profit = Revenue - COGS*   |           |            |             |             |
| *GM pct = Gross Profit / Revenue* |           |            |             |             |


** Financial Table: Operating Expenses

| Category                   |          2015 |           2016 |            2017 |            2018 |
|----------------------------+---------------+----------------+-----------------+-----------------|
| Sales & Marketing          |   ₪500,000.00 |  ₪4,000,000.00 |  ₪66,500,000.00 | ₪112,455,000.00 |
| % of sales                 |           25% |            20% |             19% |             17% |
| % YOY                      |               |                |                 |                 |
|----------------------------+---------------+----------------+-----------------+-----------------|
| General & Administrative   |   ₪500,000.00 |  ₪4,000,000.00 |  ₪66,500,000.00 | ₪112,455,000.00 |
| % of sales                 |           25% |            20% |             19% |             17% |
| % YOY                      |               |                |                 |                 |
|----------------------------+---------------+----------------+-----------------+-----------------|
| Research & Development     | ₪4,000,000.00 | ₪20,000,000.00 |  ₪24,500,000.00 |  ₪26,460,000.00 |
| % of sales                 |          200% |           100% |              7% |              4% |
| % YOY                      |               |                |                 |                 |
|----------------------------+---------------+----------------+-----------------+-----------------|
| *Operating Expenses Total* | ₪5,000,000.00 | ₪28,000,000.00 | ₪157,500,000.00 | ₪251,370,000.00 |


*** Operating Expenses
these can also be found in every company

- Sales & Marketing
- General & Administrative
- Research & Development

*** how to calculate
1. go see similar publicly traded companies and find out what percent of revenue/sales
   - security and exchange commision requires all publicly traded companies to put this up
2. from the initial point we make assumptions

** Operating Profit (EBIT)
- the company is breaking even when Total Operating Expenses equals or exceeds Gross Profit
- In the example, this occurs in year 2017

\[ \text{Operating Profit (EBIT)} = \text{Gross Profit} - \text{Operating Expenses Total} \]

*** Key Components of EBIT
1. *Revenue*: Total income from sales or services.
2. *COGS (Cost of Goods Sold)*: The direct costs of producing the goods or services sold by the company.
3. *Gross Profit*: Revenue minus COGS.
4. *Operating Expenses*: Costs not directly tied to production, such as:
   - Sales & Marketing
   - General & Administrative (G&A)
   - Research & Development (R&D)

*** Why EBIT Is Important
1. *Operational Focus*: EBIT shows how efficiently a company runs its operations without considering external factors like financing (interest) or tax obligations.
2. *Comparison*: Useful for comparing companies in the same industry, as it ignores the effects of different tax rates and financing structures.
3. *Profitability Analysis*: Highlights whether the core business is profitable.

** What is YOY?
*** Definition
YOY stands for *Year-over-Year*. It is a method of comparing data from one period (usually a year) to the same period in the previous year. YOY is often used in business, finance, and economics to evaluate *growth*, *performance*, or *trends* over time.

*** Formula
\[ \text{YOY % Change} = \frac{\text{Current Year Value} - \text{Previous Year Value}}{\text{Previous Year Value}} \times 100 \]

*** Why YOY Is Important
1. *Growth Analysis*: YOY highlights whether a metric (like revenue, profit, or expenses) is increasing or decreasing compared to the previous year.
2. *Seasonal Neutrality*: YOY comparisons help account for seasonality, as the same time periods are compared.
3. *Trend Insights*: Helps identify long-term trends and patterns by consistently comparing yearly changes.

*** Example
Calculate YOY for *Revenue*:

| Year | Revenue (₪)       | YOY % Change                                   |
|------|-------------------|-----------------------------------------------|
| 2016 | ₪20,000,000.00    | \((20,000,000 - 2,000,000) / 2,000,000 \times 100 = 900\%\) |
| 2017 | ₪350,000,000.00   | \((350,000,000 - 20,000,000) / 20,000,000 \times 100 = 1650\%\) |
| 2018 | ₪661,500,000.00   | \((661,500,000 - 350,000,000) / 350,000,000 \times 100 = 89\%\) |
| 2019 | ₪999,600,000.00   | \((999,600,000 - 661,500,000) / 661,500,000 \times 100 = 51\%\) |
| 2020 | ₪1,399,440,000.00 | \((1,399,440,000 - 999,600,000) / 999,600,000 \times 100 = 40\%\) |

*** Uses of YOY
1. *Revenue Growth*: Are sales increasing year over year?
2. *Expense Management*: Are costs growing faster than revenue?
3. *Profitability Trends*: Is the business becoming more or less profitable over time?
4. *Operational Insights*: Are marketing or R&D expenses increasing efficiently year over year?