Predictability of Performance of A Company
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Transcript of Predictability of Performance of A Company
Placing a Value on a
Company: Predictability
of Performance of a of Performance of a
Company
� When you apply for a bank loan, the loan officer at
the bank wants your last three paycheck stubs or
your income tax returns for the past two years.
Predictability of Performance of a Company
� They want to be able
to project how much
income you will income you will
generate based on
your past
performance.
� If you have been in and out of work for the past two
years, then a bank will not be able to accurately
predict your future earning, because you are
inconsistent. Therefore, you are a financial risk.
� Similarly, a business is a start-up, you cannot
reasonably predict its future performance, which
Predictability of Performance of a Company
reasonably predict its future performance, which
makes it a financial risk.
� Predictability of Performance of a Company
involves evaluating how the company has done over
the past five or more years. When evaluating the
performance of a company, you are looking for
trends:
Predictability of Performance of a Company
• Are the company’s sales steadily • Are the company’s sales steadily
increasing year after year?
• Or are sales on the decline?
• Are they showing steady improvement
in profit year after year?
• Are sales up and down, no
consistency?
� After you identify these trends then you need to be
able to quantify the increases or decreases.
Predictability of Performance of a Company, cont’d
Example of a trend:Example of a trend:
Starbucks has a steady increase in net profit over
the last 5 years. I then find out what the percent
increases are between each year and come up with
an average increase of 5%. Now, I can reasonably
predict that the net profit for next year will be a 5%
increase, at least.