| You make the sale to a business by | | | | raising money through selling stocks by an IPO |
| understanding what kind of business that you're | | | | (Initial Public Offering). The owner then becomes |
| dealing with. This means looking at the operating | | | | beholden to stock holders, but there is no faster |
| cash flow, the free cash flow, the sales, the | | | | way to raise new capital. |
| financing debt capital and financing equity capital. | | | | Companies do not occur in isolation. You have to |
| A company's operating cash flow tells us how its | | | | look over their industry and how they relate to |
| operations can finance the business. Remember | | | | and compare to other companies in their industry. |
| that available cash is a key parameter. A | | | | Is the company's executive's profit margin being |
| company's free cash flow is the operating cash | | | | squeezed tighter and tighter? Or does he have |
| flow less cash invested in capital expenditures. | | | | new products that because of their novelty can |
| Another key parameter is how long is a | | | | command a wide profit margin? |
| company's cash cycle is. That is the amount of | | | | Once you have identified the specific industry, you |
| time from the production and investment in new | | | | want to understand the competitors that the |
| inventory, to its sale and the collection of the | | | | company faces in that industry. The information |
| cash for that. Sales and profit margins tell us | | | | that you can gather from publicly traded |
| about the company's ability to attract new | | | | companies allows you to map several competitors |
| investment and their ability to expand the gross | | | | to investigate. You can look at the public |
| amount of their sales. We want to see how much | | | | information, and guess similar parameters for |
| the company is spending on new business, | | | | privately owned, closely held companies. It is |
| through hiring new sales people and offices, and | | | | important to understand how specific companies |
| making available to itself necessary plant and | | | | line up in the competitive space as well as on a |
| equipment. If companies are not raising enough | | | | corporate level. Are companies in that field able to |
| cash through the operating cash flow to cover | | | | have local production, or are they forced to |
| their investments, they will have to go to | | | | "globalize" and get the cheapest price available in |
| financing. This means going into debt. Another | | | | the world? Are they sacrificing quality in order to |
| way that companies can raise cash flow is to go | | | | get the greatest quantity of cheap production? |
| to the capital markets through venture capital, or | | | | |