Section 9 | Lesson 50 - How to Value Private Companies and Growth Methods

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Notes

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

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
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

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

Why EBIT Is Important

Operational Focus: EBIT shows how efficiently a company runs its operations without considering external factors like financing (interest) or tax obligations.
Comparison: Useful for comparing companies in the same industry, as it ignores the effects of different tax rates and financing structures.
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

Growth Analysis: YOY highlights whether a metric (like revenue, profit, or expenses) is increasing or decreasing compared to the previous year.
Seasonal Neutrality: YOY comparisons help account for seasonality, as the same time periods are compared.
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

Revenue Growth: Are sales increasing year over year?
Expense Management: Are costs growing faster than revenue?
Profitability Trends: Is the business becoming more or less profitable over time?
Operational Insights: Are marketing or R&D expenses increasing efficiently year over year?

6.1 KiB Raw Blame History