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Financial Modeling and Analysis

We all know happy customers come back to do more business with our company. They also provide priceless word-of-mouth marketing by sharing their experience with others.

Clients who rate our products and services as highly satisfactory are usually the ones that promote us to their colleagues, friends, and family. This improves both our conversion rates and profitability margins.

To fully grasp the importance of Customer Satisfaction, we need to understand that keeping an existing client happy usually costs much less than converting and onboarding a new prospect.

One way to track such performance is the Customer Satisfaction (CSAT) score. By…

When we are trying to optimize the experience for our customers, there are many metrics we can track and aim to improve.

The Customer Lifetime Value (CLV) shows us how much money a customer will bring to the business on average over the entire time they remain a paying client.

Whether we decide to refer to the metric as CLTV, LTV, or the most popular CLV, it helps us calculate the overall value a customer has to the business, showing us their worth to the company.

Knowing this metric is instrumental in planning how much we can invest in customer…

Customer Churn is one of the most essential metrics for any company with a subscription-based model. It shows the rate at which customers are leaving and switching their subscriptions to someone else.

It’s paramount to understand and analyze churn, as even a slight increase in the churn rate can have devastating effects on our business.

Customer Churn Rate

We can also refer to Customer Churn as ‘customer attrition rate.’

Churn is very costly for the business. It results in the need to onboard new customers at a higher rate to compensate. Usually, it’s more expensive to find new prospects and convert them than…

One of the reasons businesses fail is a wrong estimate of how much it will cost to acquire customers. If the cost ends up too high and exceeds the monetization of the customers, the business cannot operate sustainably.

It is essential to understand how much a customer will generate for the business, as knowing this will let us figure out our acceptable level of CAC per customer. Companies that do not fully understand their CAC can quickly end up failing.

Customer Acquisition Cost shows us the resources we need to grow sales.

This is a crucial concept, as any business…

The EBITDA Multiple is the most common method venture capitalists, and financial analysts use to value businesses as investment opportunities.

If we plan to acquire a company or sell our own, EBITDA can be a great starting point for measuring the potential value in a sale.

When we enter negotiations to sell or purchase a business, it’s common to perform a due diligence process. The acquiring party will aim to reason a lower valuation by adjusting EBITDA down. On the other hand, the seller will try to justify as many add-backs to EBITDA as possible. They will aim to show…

In my current job in Mergers & Acquisitions, I have to prepare many complex folder structures for targets’ data rooms. It’s a tedious but straightforward process that can take up to an hour, as each Request For Information letter is almost the same but contains slight differences. For example, we may need detailed information of the shareholder structure and various related documents for a specific company we are looking to acquire. On the other hand, for a smaller, one-person organization, such a request is irrelevant.

I’ve struggled to create said data room folder structures for about a month now and…

More and more companies are offering stock options as part of the compensation package when recruiting new talent.

Employee Stock Options are a type of equity compensation that companies can grant to their employees. Instead of giving the stock directly, the company awards derivative options on the stock.

These are regular call options that give the employee the right to buy company stock at a set price for a specified period.

The Employee Stock Options terms can either be a part of an employee stock options agreement or included in the employment contract itself.

Equity Compensation

Employee stock options are one form…

Game Theory is a method of modeling the interaction between two or more players in a situation with particular rules and expected outcomes.

It is helpful in many fields, but mainly as a tool in economics. Game Theory helps with the fundamental analysis of industries and the interactions between two or more companies.

Theoretically, games can have an infinite number of players, but we usually look at them in the context of two players. A simple example is a two-player game with sequential turns.

What Is Game Theory?

Game Theory is a theoretical framework to simplify social interactions between two or more competing players…

The First In First Out (FIFO) is a method for asset management that ensures assets we produce or acquire first are the ones we use or sell first.

Under FIFO, we include the oldest assets’ cost in the Cost of Goods Sold (COGS) line item on the Income Statement.

How does FIFO work?

FIFO supports our assumptions for the cost flow within the company. When we use parts and raw materials in the production process and then sell the finished goods, we must recognize the relevant costs. …

Costing is an essential aspect of operations for companies that want to understand how their production absorbs costs. Only by gaining a solid understanding of the company’s cost structure can we start to control and optimize it.

We can often divide the production process into specific jobs and apply the job costing method to them. However, job costing is less appropriate when production is a continuous flow through processing departments, resulting in large quantities of homogenous products.

It’s crucial to pick the right costing method that best reflects the manufacturing process within our firm. For large manufacturing operations, the right…


Financial Modeling and Analysis

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