Business Finance Basics

What I Would Do Differently If I Had to Learn Valuation Again! A roadmap for beginners (minus the confusion). Save this if you are just starting out. Valuation is often taught in a backward way—>formulas first, logic later. If I had to start over, I would do it like this: 1. Start with real businesses, not formulas>> Week 1 – Pick 5 companies you like – Ask: What makes this business valuable? – Understand their revenue model, margins, growth drivers Source: Annual Reports, Investor Presentations The goal is to understand the business before Excel formulas 2. Learn the 3 core valuation methods – in the right order >> Week 2 & 3 A) Trading Comps → easiest to grasp >> Week 2 – Learn valuation multiples: EV/EBITDA, P/E, EV/Sales – Compare competitors side-by-side – Build a sample comp table B) Precedent Transactions >> Week 3 – Analyze real M&A deals – What multiples were paid and why? – Source: CapitalIQ screenshots, public filings, PitchBook summaries C) DCF >> Week 4 & 5 – Revenue to FCF step-by-step – Drivers, growth assumptions, margin forecasting – Calculate WACC 3. Stop overcomplicating the DCF – No need to jump into terminal growth vs. exit multiple debates during early days – Focus on Free Cash Flow, WACC, and sensitivity analysis – Learn what moves the needle, and what doesn’t 4. Build, don’t binge-watch – Watching 10 valuation videos ≠ understanding – Build one model from scratch → revisit it → question every assumption 5. Tear down investor presentations – Pick deals from PitchBook, CapitalIQ, public filings – Deconstruct how they explain value creation – Build your own one-pager per deal (amazing portfolio habit) Don’t learn valuation in isolation. Valuation makes sense only when you understand: – Strategy – Financial statements – Capital structure – And how investors think Follow Pratik for investment banking career and education

I Studied 50+ Indian Startups and Found the Shocking Truth: Margins Beat Scale Every Time The data tells an uncomfortable story. While India's startup ecosystem chases growth at all costs, the real winners are building margin-first businesses in traditional categories. Here's what nobody's talking about: One: The Value-Add Premium Take Vahdam Teas. They export the same tea leaves as bulk traders, but by controlling packaging, branding, and direct distribution, they command 60-70% gross margins versus 8-10% in bulk trade. Their revenue per kilo is 15x higher than traditional exporters. Two: The Brand Advantage Look at Mamaearth. They didn't invent new ingredients - they just packaged ancient wisdom into modern formats. Their EBITDA margins touched 40% while competitors struggled at 15-20%. Why? They owned the story, not just the supply chain. Three: The Scale Trap I've watched countless startups burn cash chasing scale before margins. The pattern is clear: - Year 1: Growth at any cost - Year 2: More funding needed - Year 3: Painful restructuring - Year 4: Focus finally shifts to unit economics Meanwhile, brands like Yoga Bar built sustainable businesses by maintaining 45%+ gross margins from day one. They grew slower but never needed a down round. The Hard Truth India doesn't need more unicorns. We need profitable businesses that can: - Convert commodities into brands - Build IP around traditional knowledge - Control their destiny through margins The next wave of successful Indian startups won't be defined by valuation but by value creation. The metrics that matter aren't GMV or MAU, but gross margin per unit and customer lifetime value. I've seen this firsthand at Convanto, advising founders across categories. The ones who win aren't playing the funding game they're playing the margin game. The opportunity is clear: Build businesses that generate cash, not just headlines. Because in the end, margins beat scale every single time. #StartupIndia #Entrepreneurship #BusinessStrategy #ConsumerBrands #ValueCreation

Most leaders fear crises, but crises unlock growth. My 5-step framework shows how. I’ve spent over 20 years guiding founders through tough times - turnarounds, pivots, and moments when the future felt uncertain. I've learnt that chaos is not the end. It’s often the start of something better, if you have a system you trust. A client story stands out. They faced economic challenges that threatened their business. By using my 5-step framework, they went from survival mode to a turnaround in 6 to 12 months. No magic, just discipline, hard work and a repeatable system. Here’s the framework that made the difference: 1. Assessment ⇀ Take a clear look at what’s really happening.  ⇀ What are the facts? Where are the issues?  ⇀ Be honest about strengths and blind spots. 2. Alignment ⇀ Make sure everyone is on the same page.  ⇀ Get buy-in from your team and partners.  ⇀ Set the vision and share it often. 3. Action ⇀ Move quickly on what matters most.  ⇀ Build a plan and break it into steps.  ⇀ Start with the hardest task first. 4. Acceleration ⇀ Once you see progress, increase the pace.  ⇀ Remove slow parts, double down on what works. ⇀ Keep the team focused. 5. Assurance ⇀ Check results, and adjust your plan.  ⇀ Celebrate wins and learn from setbacks.  ⇀ Support your team. Reflect on these steps for your next business pivot: ➞ What is your real starting point? ➞ Who needs to be aligned for success? ➞ What action can you take today? ➞ Where can you speed up? ➞ How will you get assurance? Growth often hides behind a crisis and the right framework could turn your fear into clarity and momentum. I know economic times are tough for many business owners, but please keep going. Your next breakthrough could be closer than you think.

20 years of Financial Modeling Learnings in One single post... SAVE this I have been building financial models for the past 20 years. I have also been learning something new about this every day over the past 20 years! Here are my top learnings! 1) Always understand the business before approaching valuation modeling. Without understanding the business, the model is meaningless. - What does the company do? - How does it make money - What is the value chain? - Are their any competitive advantages that it has? 2) Complex is NOT equal to better Make granular models, but don't make them unnecessarily complicated. 80% of the business value will come from 20% of the key drivers. Focus on them. Too much granularity on every component does not help. 3) Revenue projections and business projections are to be based on your understanding of the business, and not on history. If we use history, companies that are growing will keep growing, and those that haven't grown, will never grow 4) Conceptual clarity on corporate finance concepts is key - Cost of Debt has to be lower than Cost of Equity - Cost of Debt cannot be lower than risk free rate - How to project growth? - How to work with terminal value? 5) Ensure consistency in your assumptions For example, revenue cannot grow without consistent capex assumptions, or working capital assumptions. 6) Always make the models READABLE Your financial models are to be used by teams in organizations. Make them readable. If you follow steps 1 and 2, the model will automatically tell a story. But help others understand the model. Keep decimals consistent. Use color coding where needed. Arrange data neatly. 7) ALWAYS project a balance sheet, and a 3 statement model This ensures consistency, and the fact that the business model can be evaluated across the 3 statements in the future. A model without a projected balance sheet is half done. 8) Build in scenarios, or sensitivity analysis A model includes various inputs, and they can be wrong. So this helps us understand the range of probable outcomes. 9) Last, but not the least, don't take your model too seriously. The model depends on inputs, so if inputs are not correct, the output will also be not correct. The financial model is a tool to help you as an analyst. It is not the other way round. Focus on the business, and points 1 and 2. Use these the next time you build a financial model! And do not forget to SAVE and SHARE the post! ----- Peeyush Chitlangia, CFA I help you build better valuation models Do reach out if you are looking to learn the practical aspects of valuation!

Agency owners: You don’t have a sales problem. You might have a profit one. I’ve seen it too many times → You land a big contract. → Revenue goes up. → You celebrate. → Six months later, cash flow’s still tight. → You’re working longer hours and wondering where the money actually went. Because here’s the truth: Growth has hidden costs. More projects = → More freelancers → More tools → More revisions → More time managing people → And eventually... more stress. If you’re not tracking your margins, those new deals might look like wins - but they’re actually eroding profit. We worked with a creative agency recently who jumped from £12k/month to £23k/month in 6 months. But their profit? It stayed the same. Because they were scaling without structure. Once we got under the hood, we found: – Software subscriptions they weren’t using – Freelancers billing double what they should – Zero clarity on VAT owed – And pricing that hadn’t been reviewed in over a year Profit isn’t what’s left in the bank. It’s what you plan for. 📌 Start with your margins. 📌 Track your tax and VAT in real time. 📌 Don’t scale chaos - scale smart. Need help making sense of it all? Let’s talk. This is what we do every day at EA Accountancy.

Are European leveraged borrowers rated ‘CCC’ most at risk from higher-for-longer interest rates? Under a scenario of flat interest rates in 2024-2025, Fitch Ratings estimates the median ‘CCC’ rated borrowers' interest cover would fall to 0.9x in 2024, from an already tight 1.3x in its Base Case forecasts. > The Base-Case forecasts incorporate three rate cuts totalling 75bp by both the ECB and the Bank of England (BoE) in 2024, and a further 75bp worth of cuts by the ECB and 100bp by the BoE in 2025. However, recent economic news in Europe has caused some investors to push back their expectations of rate cuts. > For issuers rated at ‘B-’, the median coverage ratio would remain 1.7x in 2024 and 2.0x in 2025. > At these levels there is still room for most businesses to navigate short-term working-capital movements and make needed investments. > As interest cover ratios approach 1.0x, companies face tougher choices regarding the use of discretionary cash flows after debt service, and below 1.0x - the ability to simply pay interest on debt obligations may be called into question. > This further reduces the likelihood of market-based refinancing solutions for these entities, increasing the risk of distressed debt exchanges or payment defaults. > The high leverage taken on by some issuers during the period of low interest rates is unworkable when borrowing costs are 8% or above. > Such companies have come under pressure in the last 2 years to cut leverage to obtain market access when they refinance debt at higher rates. > Interest rate pressure has been more immediate for leveraged-loan borrowers exposed to floating rates. Going forward: > Both floating-rate loan and fixed-rate bond borrowers will have to contend with increased base rates and margins on refinancing. > Gradual improvements in coverage ratios are driven by better operating performance and deleveraging, which is expected across the ‘B’ category. > A hurdle for ‘CCC’ issuers is their persistently high borrowing spreads on interest rates – which makes achieving a workable balance sheet structure even more difficult. > In contrast, for issuers rated in the ‘BB’ and ‘B’ categories, spreads are among the lowest since the global financial crisis. > Strong market supply and demand dynamics, and expectations that interest rates have at least peaked have addressed refinancing pressures for many 'BB' and 'B' rated issuers, and helped them make inroads into refinancing their 2024 and 2025 debt maturities. > Progress has been greater for loan refinancing than for high-yield bonds, with only 40% of loan maturities for each year still outstanding vs. May'23. > For high-yield bonds, 55% of 2024 maturities and 86% of 2025 maturities are still outstanding vs. May'23. Slower Interest-rate cuts a risk to Europe’s ‘CCC’ corporates while ‘B’ rated borrowers remain resilient. Krishank Parekh | LinkedIn | LinkedIn Guide to Creating #leveragedfinance #refinancing #FitchRatings

Most people think valuation is just DCF + multiples. It’s not. Valuation is a decision-making tool, not a formula. This cheat sheet captures what many students miss Valuation exists because real decisions depend on it: • Litigation, restructuring, partnerships • Fundraising and investor negotiations • Buying or selling a business • Internal strategy decisions At the core, there are 3 valuation approaches: 1. Income Approach Value comes from future cash flows. Best for businesses with predictable earnings. 2. Market Approach Value comes from comparison. What are similar companies trading at? 3. Cost Approach Value comes from assets minus liabilities. Most useful for asset-heavy businesses. Then comes the engine of valuation: Discount rate & WACC. Get this wrong, and your entire valuation collapses. Get it right, and your assumptions finally make sense. DCF isn’t just a model. It’s a story built on: • Revenue growth • Cost structure • Terminal value assumptions • CAPEX • Working capital • Financing decisions And multiples aren’t shortcuts. They’re context checks. P/E, EV/EBITDA, P/B each works only when used in the right industry for the right reason. Valuation is not about memorizing methods. It’s about judgment, assumptions, and logic. If you understand why a method is used, you’ll never struggle in interviews or real deals. Save this. Revisit it often. This is the foundation of corporate finance. ----- Jeetain Kumar, FMVA® Founder, FCP Consulting Helping students break into consulting and finance PS: If you’re serious about consulting and want a clear, honest roadmap, the link in the comments is for 1:1 guidance. #finance #investment #valuation #consulting #impact

"Should we hire or should we cut?" is a question I'm hearing often from small business owners right now, which is fair given the mixed economic signals. Some clients are seeing their best quarters ever. Others are watching pipelines thin out. Everyone seems to be asking, "How do we plan for what we can't predict?" This is where scenario planning becomes your survival tool; not just hoping for the best, but modeling the reality of different futures. Here's what we walk our clients through: 🌳 The Growth Scenario: For example, if revenue is expected to be up, we’re looking at potential team expansion and higher overhead. Looking at what that does for cash flow given the changes to expected expense changes. 🌱 The Steady Scenario: Where flat growth is expected and we plan to maintain current team, we’ll want to optimize margins and prepare for inevitable per team member increases. There will likely be some percentage increase YOY but we expect the core costs to stay the same. 🍃 The Contraction Scenario: On the other hand, if revenue is expected to go down, we want to look at strategic cuts that allow the team to run efficiently while preserving cash. For our clients, this is usually a mix of team, professional services, and travel. We also want to ensure that the resources kept are used efficiently. Each scenario gets its own financial mode where we map out cash flow, runway, and break-even points for 3, 6, and 12 months ahead. The command center for this? Fathom. We've been using Fathom since the beginning of Little Fish Accounting and it lets us build the scenarios in real-time with clients, showing exactly how each decision ripples through their financials. No more spreadsheet gymnastics or gut-feeling guesses. Ultimately, the founders who survive uncertainty aren't the ones with crystal balls—they're the ones with clear models and decisive action plans. And we're glad to be the builders 🧱

I've been fielding lots of questions, both on the road and in client calls, about the likelihood of a pending #recession. People are hearing and seeing a lot of conflicting information and #data on this topic, and rightfully want to understand what the impact will be for them. My response depends on the industry, company, and individual asking the question. Some industries, such as #manufacturing and housing, are already in contraction territory and have been for some time. Others, such as nonresidential construction and retail are still up but slowing. And then there are those sectors that are booming, such as defense and pharmaceuticals. I recently came across an infographic (see below) by Visual Capitalist, a great source of data visualizations, that really caught my attention. The chart highlights the discrepancy between sources when it comes to #forecasting the recession in the US in the next 12 months. Here's a quick breakdown: ☑ Federal reserve staff believe there is a 0% probability of recession in the next 12 months. ☑ The Yield Curve (inversion), Consumers, and CEOs of companies believe there is a greater than 50% probability of recession in the next year. CEOs are most pessimistic at 84% likelihood of an economic downturn. ☑ Economists and Banks believe there's less than a 50% chance of recession in 2024. Goldman Sachs is most optimistic at just 15% likelihood. Alex's Analysis: I believe it's less important to ask IF there will be a recession, and more important to consider WHAT you'll do in a variety of scenarios. General Douglass MacArthur, who was instrumental to US success during both World Wars once said, "Preparedness is the key to success and victory." I fully believe in that concept. As such, my advice to those trying to figure out their #strategicplanning initiatives for next year would be to think about the different levers that you could pull in a variety of outcomes, and be prepared with a plan that you could put into action no matter which of these scenarios unfolds: 🔼 If you're in a sector of the economy that is typically well-insulated from cyclical downturns, and believe that there's growth ahead, what will you do? ⏸ If you believe that business will be flat next year, what kind of action will set you up for success in 2025 and beyond? 🔽 If you expect your performance will be negative, but mildly so (<5%), what can you do to mitigate the decline and position yourself to come out charging when the pressure eases? Market share gains anyone? ⏬ If you're expecting a more challenging year (down 5% to 10%), which levers will you pull to deal with the contraction? 🔻 Finally, if your expectation is for a more severe decline (Down 10%+) how will you cope with the situation without hurting you prospects in the long run? Major permanent staff cuts, for example, are not advised in this labor market. Take the time to think about it now so you can be prepared no matter what comes your way in 2024.

Profit is not a report. It is a constraint. Most businesses treat profit as an outcome to analyse. - A number on a dashboard. - A line on a P&L. - A summary at month end. But profit is not something you discover. It is something you design for. A pilot does not check fuel after landing to decide if the route worked. Fuel calculations shape the flight path before take-off. Profit should do the same for spend. When margin is only reviewed after campaigns run, stock is ordered, discounts are applied, and budgets are spent, the control point has already passed. By the time finance highlights an issue, the commercial decisions that caused it are weeks old. That is not a reporting problem. It is a decision architecture problem. High-performing teams do something different. They treat profit as a constraint that shapes upstream decisions: • Which products deserve budget • Which channels can absorb spend at target margin • When to protect contribution instead of chasing volume • How discounting impacts blended margin, not just conversion rate • Whether customer acquisition cost aligns with lifetime value Profit becomes part of the operating model, not just the review meeting. In retail and ecommerce especially, this matters. Revenue is visible. ROAS is seductive. Volume feels like momentum. But if margin is not embedded into bidding logic, forecasting, and promotional planning, growth becomes fragile. Discovering margin erosion at month end means control was already lost earlier in the chain. Sustainable growth does not come from chasing revenue spikes. It comes from building systems where every major decision is made inside a profit guardrail. Profit is not the final slide in the board deck. It is the rule that shapes every slide before it. #digitalmarketing #ecommerce #retailstrategy #profitability #growthstrategy #performancemarketing #decisionmaking #businessstrategy