BSBR Educational Resources

Capitalization of Earnings

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Capitalization of Earnings

Dictionary Definition

This method is used to value a business based on the future estimated benefits, normally using some measure of earnings or cash flows to be generated by the company. These estimated future benefits are then capitalized using an appropriate capitalization rate. This method assumes all of the assets, both tangible and intangible, are indistinguishable parts of the business and does not attempt to separate their values. In other words, the critical…

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What is Beta?

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Beta

Dictionary Definition

Beta is a factor used to measure systematic risk. Systematic risk is the uncertainty of future returns owing to the sensitivity of the return on the subject investment to movements in the returns for a composite measure of marketable investments.


Plain English

Beta refers to the volatility or riskiness of a stock relative to all other stocks in the market.


Why it Matters to You

This is used in calculating the WACC.  Generally, we are using public company beta…

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What is the Equity Risk Premium?

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Equity Risk Premium...AKA ERP

Dictionary Definition

Equity Risk Premium (ERP) is defined as the extra yield that can be earned over the risk-free rate by investing in the stock market. 


Plain English

The equity risk premium is based on the idea of the risk-reward tradeoff. As a forward-looking quantity, the equity-risk premium is theoretical and cannot be known precisely, since no one knows how a particular stock, a basket of stocks or the stock market as a whole will perform in the future…

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What is the Risk Free Rate?

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Risk Free Rate

Dictionary Definition

The risk free rate is the return that can be earned by investing in a riskless security, e.g., U.S. Treasury bonds.


Plain English

The risk free interest rate is the rate of return of a hypothetical investment with no risk of financial loss, over a given period of time.

The 20 year treasury yield curve rate is the most widely used metric for the risk-free rate.  


Why it Matters to You

This is used in calculating the WACC.  

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PTSC

ft bragg

During May’s Rising Tide Mastermind we had an interesting discussion about surviving Covid with your mental health intact.  The discussion made me think about a case I worked on when I was a paralegal in the army. 

Here is a little back story: 

In the early morning of October 27,1995 1,500 members of 2nd Brigade, out of Fort Bragg, NC, assembled on the field for a fun run. A change of command was happening later in the week and the exiting commander wanted to share some camaraderie with his un…

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What is Weighted Average Cost of Capital?

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Weight Average Cost of Capital...AKA WACC

Dictionary Definition

A firm’s Weighted Average Cost of Capital (WACC) represents its blended cost of capital across all sources, including common shares, preferred shares, and debt.  The cost of each type of capital is weighted by its percentage of total capital and they are added together.

The purpose of WACC is to determine the cost of each part of the company’s capital structure based on the proportion of equity, debt, and preferred stock it has. …

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What is a Bolt-On Company?

SDE Definition (1)

Bolt-On Company...AKA Tuck-In or Add-On

Dictionary Definition

A bolt-on acquisition refers to a company that is added by a private equity (PE) firm to one of its platform companies, usually in the same line of business, that presents a strategic value.  


Plain English

This is a smaller investment for a PEG and could be of any revenue or EBITDA size, as long as it presents a synergistic value to the platform company.

 

Why it Matters to You

For a smaller company, we would target PEGs tha…

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What is a Platform Company?

Lower Middle Market Definition (2)

Platform Company

Dictionary Definition

A platform company is a company that a Private equity group (PEG) views—when investing through acquisition in a new industry or market space—as a starting point for follow-on acquisitions in the same area


Plain English

This is the first investment a PEG makes in certain industry or market.  Depending on the PEG, the typical platform company has EBITDA of approximately $2M and must be scalable.

 

Why it Matters to You

This is relevant to business …

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What is a Private Equity Group?

BMVA Definition

Private Equity Groups..AKA PEGs

Dictionary Definition

Private Equity Groups are an investment management companies that provides financial backing and makes investments in the private equity of startup or operating companies through a variety of loosely affiliated investment strategies including leveraged buyout, venture capital, and growth capital.


Plain English

A group of investors who use other people’s money to purchase businesses.  They generally do not operate the business themselves…

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Goal, Plan, Challenges, Timeline

Plan

The Blue Sky team embraces the Kaizen approach. One way we live Kaizen is through reading articles and books to improve ourselves and our company in order to best serve our clients. Many of our team members all read the same books once someone gives a recommendation.  This has resulted in some really interesting discussions and improvements to our internal processes.

One book we recently read was The Sales Acceleration Formula by Mark Roberge. Mark joined HubSpot during its startup and grew sal…

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