Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com Basic Business Concepts.

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Presentation transcript:

Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com Basic Business Concepts Income – EBITDA, Pre-Tax, Net Cash Flow – Financial statement tie-ins Liquidity Ratios – Current ratio and quick ratio Costs – Fixed, variable, opportunity Economy of scale – scalability and capital needs Debt Leverage – ratios and limits Return on equity and assets Capitalization rates and income multipliers Goodwill and going concern value

Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com

Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com

Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com ABC Inc. Current Ratio: $10,413,185 / $4,410,407 = Quick Asset Ratio: ($10,413,185 - $3,128,897) / $4,410,407 = Debt-to-Equity Ratio: $10,809,183 / $5,657,905 = 1.91 to 1 Return on Equity: $2,008,361 / $5,657,905 = 35.59% Return of Assets: $2,008,361 / $16,467,088 = 12.19%

Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com ABC Inc. Equity Value Based on 12.5% capitalization rate on EBITDA: $4,122,554 /.125 = $32,980,432 Percent of Stock Issued to New Investors: $5,000,000 / ($32,980,432 + $5,000,000) = 13.16%

Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com ABC Inc. - Debt vs. Equity Factors Cash flow impact of interest and principal payments on debt Debt-to-equity ratio impacts Opportunity costs of more debt now Enhanced return on existing equity with more debt Control impacts of more stock Future dividend and take-out pressures with more stock Reduced income impacts with more interest expense Tax impacts of debt vs. equity