Hi guys:
I was wondering if someone could comment on modeling convention on the job for growth equity please? (I've only reviewed growth equity examples from breaking into wallstreet, so not sure how it is on the job). It seems that, many growth equity businesses could be in post-revenue, pre-positive cash flow stage; for these earlier types of business, do you model on cash flow and balance sheet on the job too, or is income statement the primary focus? How much emphasis is put on understanding CFS and BS on the job in growth equity?
Thanks!
Bump.
No modeling convention.
Typically in these businesses, balance sheet not as important, but can happen, and I like to do full 3 statement (albeit with vvv simple BS) just from sheer habit. Admittedly, the BS is not very important or informative.
In growth equity and most investing in general, the emphasis is on understanding the key drivers of profitability (the unit economics, the cost structure, the revenue build, etc.) - not so much having the cutest Excel model ever. I don't mean that pejoratively. I like cute Excel models ;-)
Agree with heyitsg Your focus should be on RONIC, so movements in profitability versus capital invested. Split expansion capex (which you fund) and maintenance capex (which will continue after the growht projects) to have a better view on valuation after holding period. Often working capital plays important role with growing companies too and keep an eye on seasonality and liquidity (but not in your model per se).
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