Growth model

**Correction** In this section, there is a small error from minute 17 to minute 22 (roughly) involving how Deferred Tax Assets are projected going forward on the balance sheet and cash flow statement. I’ve included a short correction lesson at the end of the Growth Model section. If you are following along with each lesson […]

FAQ: The model’s balance sheet no longer balances if I add new debt in the transaction. Why does this happen? If you use the model as currently set up to RAISE NEW DEBT in addition to the other stuff going on, then implicitly you are modeling a SHARE BUYBACK by the company. You are reducing

FAQ: What’s the difference between primary and secondary? The difference between primary and secondary share purchases lies in the stage at which the shares are bought and the parties involved in the transactions: In summary, primary share purchases involve buying newly issued shares directly from the company, providing capital to the company. Secondary share purchases,

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FAQ: How to go from ARR to Recognized Revenue? In the model walkthrough, recognized revenue is approximated as a % of Ending ARR. However, this is a simplifying assumption!   In reality, under the hood, it’s much more complex.  What’s really occurring is two processes at the same time: Below is a handy example tracking an

FAQ: What are employee options? Companies grant employees options as a means of giving them ownership in the company. They serve as an incentive for employees, aligning their interests with those of the company’s long-term success. At the time of investment (and sometimes more often), companies usually “refresh” their employee option pool. This means they

FAQ: Why are you counting the cash from options proceeds 3 times in the IPO scenario? Is that too many? First of all, just so that we’re clear, above we have 2 different scenarios: 1) M&A exit, 2) IPO exit. In the M&A exit, it’s clear that the cash from options proceeds should be factored in.

Why include this bonus section? Note, this is a bonus section. The prompt didn’t ask for this analysis; however, I wanted to give you a mental model for how to size potential dilution for businesses in the future. Sizing expected dilution can be helpful in these situations: FAQ: What is dilution? Dilution is the degree