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Chapter
Summary
Entrepreneurs build a financial plan to determine the economic potential for their venture. This plan provides an estimate of the potential of the venture. Of course, any estimate is based on a set of assumptions regarding sales revenues and costs. Using the best available information and their intuition, entrepreneurs calculate the potential profitability of the venture. Furthermore, they need to determine the flow of cash monthly to identify the cash investments that will be required over a two- or three-year period. Also, an income statement and a balance sheet are required to demonstrate profitability and liquidity. The best ventures grow sales consistently and provide positive cash flow and profit early in their life.
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ClubTools, Inc.
Discusses the development of an Internet start-up by a recent HBS graduate. Details the company's business plan, incubation, technology development, marketing strategy, and search for funding. Teaching Purpose: How to translate a business idea into a cash flow forecast.
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Preview Travel (A)
This case describes the evolution of Preview Travel's business plan and financing strategy and highlights a financial turning point that the company faced in August 1997. In August 1997, the company was in need of an additional cash infusion and had received strong indications of interest from a major U.S. media company. However, Preview Travel was disappointed with the offer the media company eventually made--$4.50 a share--since it was significantly less than the Series E round a year earlier ($9.00 a share). An investment bank advising Preview Travel believed that Preview Travel could garner a higher valuation in the public market and recommended that the company consider an IPO as an alternative means of raising capital. However, there were risks to this strategy.
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David Neeleman: Defining the JetBlue Experience
We spent 4.5 years defining the customer experience, and we tried to put our money into things that mattered to people. Food is one example: I have never heard a single soul say that they haven't had a good meal, and so they'll book an airline ticket. This year, we'll serve 10 million customers. If we'd spent $5 on a meal for each customer, we'd have spent $50 million of food that wasn't appreciated. So we use humor to inform people that there won't be full meals, and we provide snacks at 17 cents apiece. We knew that televisions would be memorable. I remember one of the happiest days when we were starting JetBlue was when we found the companie who installs direct TVs in planes. I wanted to give people control on an airplane. The cost of implementing the televisions was a fraction of the cost of serving full meals. Cleaning the airline was another example. And helping customers put bags away, to improve the gateway time.
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Merrill Lynch: How to Read a Financial Report
A straightforward guide on how to read a company annual report so that the reader may become a more informed investor. Includes in-depth explanations of financial reports (balance sheet, income statement and cash flow statement) and how to analyze them. |
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Introduction to Financial Ratios and Financial Statement Analysis
Introduces and describes meaning and uses for financial ratios to assess
profitability, activity, solvency and leverage, and returns to shareholders.
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Analysis for Financial Management by Robert Higgins
McGraw-Hill Higher Education, 7th edition |
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Financial and Economic Analysis for Engineering and Technology Management by Henry Riggs
Wiley, 2nd edition |
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