Author: Helen Barklam

People refer to the stock market as a ‘bull market’ where share prices have been rising consistently over a period of time. Conversely, a bear market is the opposite, where the stock market has consistently decreased for a period of time. On a related note, a ‘bullish’ investor is one who believes a share price (or the market) will rise, whereas a ‘bearish’ investor believes a share price (or the market) will fall. A bear market is typically announced where the market has moved downwards by 20 percent between quarters. It should not be confused with a ‘stock market correction’…

Financial due diligence (‘FDD’) is a review of a Target company’s financial information prior to a proposed transaction. FDD is often used to support deal rationale, confirm that the purchase price agreed for the Target remains appropriate, and to identify the appropriate enterprise to equity value adjustments for the share purchase agreement. In this article, we focus on the type of financial due diligence performed during an acquisition of a private business in the UK. Such FDD work is commonly conducted by ‘Transaction Services’ (also known as ‘Transaction Diligence’) teams within accountancy firms such as the Big 4 (EY, PwC,…

Price Volume revenue bridge Price volume revenue bridges allow you to determine what has driven revenue increases or decreases between two or more financial periods. In order to create a price volume bridge, you just need to know revenue and volume information for the relevant periods. From this information, you can calculate average sales price and ultimately the price and volume movements. In the above example, revenue has increased from £1,000 in FY01 to £1,200 in FY02 (£200 or 20% growth). Volumes have increased from 100 to 105 (5 unit or 5% increase) whilst average sales price has increased from…

Compound annual growth rate (‘CAGR’) is a measure of growth (in percentage terms) from one period to another. It is a very useful metric when looking at investment growth over time, or when comparing forecast growth rates to historical trends during due diligence. For example, if 15% revenue growth is forecast compared with 4% CAGR historically, this is an indicator that the forecast may be fairly challenging. CAGR is measured in percentage terms. Whilst revenue might have fluctuated between Y1, Y2 and Y3 (e.g. from £400k Y1, to £375k in Y2 and £500k in Y3), CAGR represents the consistent return…

Discounted Cash Flow (‘DCF’) is the most common valuation method employed by those in private equity or investment banks. The technique involves calculating the present value of expected future cash flows. It’s useful to initially think about this concept in the context of a publicly listed businesses. An investor acquiring 10 shares in ABC PLC is doing so in order to hopefully profit from future dividend receipts and/or any capital appreciation via the ultimate sale of those 10 shares to another investor. The price of the 10 shares today therefore depends on the present value of all future dividends that…

As a buy-to-let landlord in the UK, there are a number of rules and regulations that you must adhere to. Before making any investment in buy-to-let property, its important to read and digest these rules to become fully aware of the legal responsibilities. This article outlines the key rules applicable at the time of writing. However, the landscape is forever changing and you should always check the official Government website for the latest guidance. Deposits and fees As a landlord, you must: Safety As a landlord, you must: Maintenance As a landlord, you must: Property access As a landlord, you…

Customer acquisition cost, or CAC as its commonly known, is an important metric frequently used by many businesses, particularly in SaaS and other web based businesses. CAC is effectively a calculation of how much it costs to acquire a new customer. It is often compared to customer lifetime value (LTV) because a strong understanding of how much it costs to acquire a customer vs. how much profit that customer will generate on average is powerful. Not only is this powerful for the Management team, but also to potential external investors. Management can use the CAC and lifetime value metrics to…

Plenty of smart people get confused by the deferred tax concept, which is understandable because if you’ve not come across it before, it can be a bit confusing to get your head around. In this article we seek to demystify deferred tax assets and liabilities by breaking down what drives deferred tax with numerical examples. What is deferred tax? Deferred tax is an accounting construct and can be both a liability or an asset on the balance sheet. It arises where differences arise between accounting and taxable profits. More specifically: Deferred tax liabilities represents corporation tax payable in future periods…