10.22Evaluate revenue growth, profitability, debt and cash flow
1What is it?
Check 3 years of restated financials in the RHP: revenue growth, profit (or losses), margins, debt and operating cash flow.
2Why does it exist?
Strong, consistent numbers before an IPO are a good sign; a sudden jump just before the IPO can be window dressing.
3Diagram
| Check | Good sign | Warning sign |
|---|---|---|
| Revenue | Steady 15%+ growth | Erratic or sudden spike |
| Profit | Profitable, improving margins | Losses with no path to profit |
| Debt | Low or falling | High and rising |
| Cash flow | Positive CFO | Negative CFO despite profits |
4Quick revision
- 3 years of financials in the RHP.
- Beware window dressing.
5Knowledge check
Q1. What is window dressing?Show answer
Making numbers look unusually good just before the IPO.
Q2. Where are financials in the RHP?Show answer
"Restated Financial Information".
Q3. Losses + negative cash flow: what do you need?Show answer
A very convincing path to profitability, or avoid.