Butler Part 1: Summary Points

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Butler Part 1 Summary Points

• Three simple ways to analyze
• Sources and Uses
• Common Size Financials
• Financial Ratios
• Use what works for your client
• Seasonality Don't compare the incomparable
• Cash Cycle A Crude Guide
• Sustainable Growth ROE x Retention
  Growth in needs v. growth in capacity

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Cash is King! (In UK, Queen)

• Profits arent cash
• Cash is better!
• Markets value cash flow.
• Small business Survival orientation
• Heavy emphasis must be placed on cash

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Butler Part 2 Summary Points (2)

• Margins, Turnover, Leverage
• The levers of sustainable growth
• Some examples of success
• Microsoft, others
• If the opportunity is right
• Venture capital, merger, public offering
• But control the expansion

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Butler Part 2 Summary Points (1)

• Growth Consumes Cash
• Faster Growth Consumes Cash Faster
• A Generic Point It Holds Irrespective of the
  Industry
• Estimate of needs Pro Forma
• Sensitivity, what-if?
• Powerful tools to show the effects of policies
• Sustainable growth
• Assumes target capital structure
• ROE x Retention Sustainable Growth

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Be Careful of Over-Relianceon Short-Term Sources

• Two major problems with using short-term sources
  to finance continual needs
• Providers of short-term debt may make a
  surprising decision not to renew
• Interest rates can be highly volatile
• Thats true in the US and other developed
  countries
• See chart for example
• But its even worse in emerging markets
• An example from my youth

Cottonmouth Moccasin, Copperhead, Rattlesnakes
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