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  • Writer's pictureMatt DeLong

What are the key pieces to look for to get a basic understanding of a company's financial health?

You will get a mixed bag of answers…this is my simplified version.

Below is my personal opinion having been a startup founder, serial entrepreneur, CEO, angel investor, now a stock trader / fund manager.

  1. Revenue growth (increasing or decreasing over the past 8 quarters). This is also the #1 driver of business valuations. Revenue growth covers up a multitude of sins. The higher the “run rate” using annualized MRQ, the better the valuation “multiple”.

  2. Cashflow, which is the life-blood of any business — is this company printing cash like a machine or burning cash like the Hindenburg?

My personal opinion when I review financial statements, is that I want consistent earnings/profits -OR- I want revenue growth w/ moderate losses. I mentally sort various companies into one of these 3 buckets:

  • 20%+ EBIDTA consistently over years. (**this attracts Private Equity) Companies like Berkshire Hathaway or AT&T would be in this bucket.

  • 35%+ revenue growth with moderate losses. (**this attracts Venture Capital)

  • NONE of the above. If you aren’t profitable and you aren’t growing, you are a sitting duck.

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