Finance Flashcards
Direct revenue models:
- Freemium
- Sales
- Pay-per-uses
- Ads
- Subscriptions
Ancillary revenue models:
- Referrals
- Affiliates
- Email list
More revenue models:
- Asset sales
- Rental
- Usage fee
- Licensing
- Intermediation
(Value Proposition)
Why would anyone want to invest/innovate?
« To reduce costs.
« To increase revenue.
« To be exclusive, to enhance their reputation.
« To increase employee satisfaction.
« To reduce risk.
« To build a circular economy
7 key strategic financial questions?
- What are the costs of this investment?
- Who is financing it?
- Who runs, and pays for the operation?
- Who are we selling to?
- How do we calculate the benefits and costs of the investment?
- How do we price?
- How do we model the outcome?
Key financial indicators; Payback period
Accept: If calculated payback period is less than established criteria.
Reject: If calculated payback period is more than established criteria.
Key financial indicators; Net Present Value (NPV)
Accept: If NPV > 0
Reject: If NPV < 0
Key financial indicators; Profitability Index (PI)
Accept: If PI > 1
Reject: If PI < 1
Key financial indicators; Internal Rate of Return (IRR)
Accept: If IRR > WACC
Reject: If IRR < WACC
Key financial indicators; Breakeven
IRR = WACC
NPV = 0
Key financial indicators; WACC
WACC = (E/(E+D)Re) + (D/(E+D)Rd) * (1-Tc)
E = equity
D = debt
Re = return on equity
Rd = cost of debt
Tc = tax rate
Key financial indicators; for non-profit
Social discount rate (SDR) is the discount rate used in computing the value of funds spent on
social projects. EU commission recommends 5% for major projects. US recommends 7%. SDR
reflects the opportunity cost of capital that affects society.
Risk assessment; scenario planning
Make two scenarios: expected and breakeven and state your assumptions for both.
The difference between expected and breakeven = safety margin!
« Include in your forecast and analysis what underlying assumptions have been used.
« Adjusting these assumptions provides different scenarios
3 building blocks for viability analysis:
- Revenue
- Costs
- Investments
What do Revenue models do?
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