Updated: Jul 1
When the market continues a losing streak of decreasing stock values. Generally, this is considered as occurring when the market decreases by more than 20% over a previous market high within 12 months.
As the market proceeds into a sustained Bear Market often there are short run rallies where some investors believe they have bounced off the market low and thus ‘Buy the dip’. The market itself doesn’t share the same consensus, and the market continues back into a bear market slide.
When the market continues a winning streak of increasing stock values. Generally, this is considered as occurring when the market lifts by more than 20% over a previous market low within 12 months.
When cash outflows exceed inflows there is a calculable period of time at the current rate until the business essentially becomes insolvent. A further injection of funds will be required or the business will cease. A classic example is start ups that are cash flow negative at the outset and will given their current forecast deplete their cash reserves in X period of time which will need to be covered through a new series of funding.
Cash flow forecast
A projection of cash balances in future periods. Cash balances will be affected by outflows and inflows that aren’t reflected in the same time period as the income statement (profit & loss) of the business. As examples consider purchasing stock, equipment, changes in balances of Debtors and Creditors, tax payments and even the owners dividend they may wish to pay themselves. The cash flow forecast is important to ensure the business is sufficiently liquid to pay for costs and outflows as they arise.
When a customer is sold additional, and normally complimentary items to their current purchase. It is generally far less costly to sell additional items to a current customer than generate new sales from new customers, a standard generally referred to is 7 times less costly. An example is buying a laptop, what about a prompt to buy a mouse? A mouse pad? Software?... the list of complimentary items goes on.
Assessing the validity of the proposition offered. The price offered is based on underlying or future performance/potential of the business. A buyer therefore needs to assess and validate those elements which justify the acquisition price. Another aspect will be to assess the risk with respect to any assumptions of the future performance of the business.
Fear Of Missing Out. Generally, an expression directed at less sophisticated and more emotionally driven investors, who buy near the top of the market when previous performance of the market is such that it overcomes their Fear, Uncertainty and Doubt.
Fear, Uncertainty, Doubt. Essentially the person is risk adverse or unsure with the knowledge or evidence they possess.
Key performance indicators. These are metrics that measure key criteria, highlighting the material aspects of the business performance at a glance. KPI’s are normally limited to 5 to 10. As some basic examples, in a professional services business this may be net clients gained/lost. In a business selling stock this may be Sales this month relative to last year and margins for the same periods. KPI’s can be prepared generally on a very timely basis and be advantageous for managing the business.
A term used mainly in property financing. An owner may incur greater outflows from financing the purchase, than inflows from rents. This is undertaken on the projection that future capital appreciation and consequential rents will lead to eventual inflows.
Payback - Period
The time taken for initial funds extended to be returned, normally considered in years. It is a very simple metric of cash/resource outflow(s) recovered by subsequent inflows. There are no additional considerations or adjustments, such as inflation. E.g., Purchase of equipment for 45,000, returns 15,000 per annum. Payback is therefore 3 years.
PEST – PESTLE
Political, Economic, Societal, Technological, - Legal, Environmental.
Used more for larger multinational entities looking at the conditions of different geographic regions, primarily nation states. For smaller entities, it does have some relevance even at the local level, given different cities have differing conditions and attributes.
To deconstruct a product or service down into its constituent elements and then rebuild it with efficiencies or improvements. In terms of products this may be less component parts or improved/low cost manufacturing.
Skin in the game
The person or entity has exposure to the performance of the undertaking or investment. Normally, it simply refers to having invested money that is at risk if the business fails. They have a vested interest to ensure performance of the business. Their money is on the line.
Costs in a business are not often linear, they do not increase exactly with demand. A basic example is office space, once you have a requirement to employ more staff than it is capable of seating, then a decision needs to be made about larger premises (A stepped up cost). Servicing new geographic areas, new product/service lines also often require a step up in initial costs not covered by an offsetting increase in revenues.
In business those that succeed are most likely to talk of their success. Given the perceived wisdom of 90% of new businesses failing, there isn’t the same balanced proportion of discussion in the media. This can lead to a distortion of the likelihood of success.
Strengths, Weaknesses, Opportunities and Threats. This is a situational awareness assessment which highlights areas for improvement. Should the business (or person) focus on improving a specific Strength or reducing a Weakness? Should we pursue identified Opportunities or mitigate highlighted Threats? Time and resources are often limited, so trade-offs and constrained allocations need to be made.
Where a customer is enticed to purchase a higher quality product version. As examples, this could be additional features or extended warranties. Most forms of product personalisation or options is upselling. Upselling shouldn’t be confused with cross selling which entails complementary products and services as part of the purchase.
USP – Unique Selling Proposition
Effectively what differentiates your offering from your competitors? What is Unique? The logic is when a customer is faced with a purchasing decision why would they select your product or service rather than a competitors’ offering?