Turning Dream Into Reality

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Financial Modeling

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Turning Dream Into Reality

  1. 1. K V Ramesh © 2010 K V Ramesh
  2. 2. Documenting the dream  Dreams are like vaporware – they evaporate over time  Dreams facilitate out of the box visualizations  E.g., Benzene Ring  Documenting them is the first step towards realization Problem Design Document Validate
  3. 3. Configuring the Solution  Freeze the dream with ICE (Investor-Customer- Enterprise) synergy → A win-win for all  Customer needs define the configuration size Customer  Enterprise delivery defines the Needs operations , logistics, and efficiency Dream Solution  Investor funding defines the Investor Enterprise financial structure for capital Financing Delivery efficiency
  4. 4. Assess the EBITDA at time t0  Price the product/service competitively to arrive at the annual revenue in t0 for the best of the solutions  Optimize the operations including logistics to arrive at the annual costs in t0  Study the annual growth/escalation rates for revenue & costs Revenue - Costs = EBITDA  Tune the operations to reduce the divergence in the escalation rates (harmonized is ideal)
  5. 5. Investment Decision  Study the investment for the best of the solutions – include the working capital and initial cash needs  Determine the viability (DCF, IRR etc) of the investment against the EBITDA and escalation rate – arrive at the minimum window of operation  The Asset Life beyond the minimum window influences the valuation  Design a finance structure to maximize the valuation over the desired window of operation & the asset life
  6. 6. Designing the Finance Structure Investment = Equity + Debt Ordinary Preferred Debentures Term-Loan High Cost Low Cost Design the mix to: 1. Reach a cash position that would cover the replacement cost 2. Retire the debt and the preferred equity as early as possible 3. Expand or move to a new paradigm with the excess cash
  7. 7. The Financial Statements Income Statement EBITDA A good design should eliminate Interest (Term-Loan/Debenture) Depreciation/Amortization negative cash flow Taxes PAT Cash Flow PAT + Depreciation/Amortization ∆ Net Working Capital Term-Loan/Debenture Repayment Preferred Payment/Redemption Capex (to remain the best) Free Cash Generated Balance Sheet Liabilities Assets Debt Cash Reserves NWC & NFA
  8. 8. Communicate the Big Picture Everyone needs to understand and believe in the Beast
  9. 9. Balance the 4Es Ethics Emotions Enterprise Environment Economics The eco-balance is the key for success & sustenance
  10. 10. I can be reached at the.kvr@gmail.com

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