Comments on: The real reason why Domenic Carosa’s Future Capital Development Fund has launched a pre-IPO capital raise

By: Erik Unger

Erik Unger — Sun, 14 Mar 2010 10:49:24 +0000

I think there is a distinction between a country being practically broke (can’t pay its liabilities) and declaring itself bankrupt. In later case the international banks would take over public owned property and industries. Not unfamiliar in Africa.

By: James Tuckerman

James Tuckerman — Fri, 12 Mar 2010 06:04:19 +0000

Thanks Paul. Indeed, you picked up on an area that concerned me post publication, being a business owner and SME commentator (rather than a ‘shares & finance’ writer). Your input is invaluable! BTW… I’m looking for someone to explain current account deficits and how a country can go broke. Know anyone?

By: Paul D Hauck

Paul D Hauck — Fri, 12 Mar 2010 01:26:55 +0000

There are a couple of simplifications in there, that you should watch out for. First, EBIT multiples are based on pre-tax (and pre-interest expense) profits, while Price/Earnings multiples are based on post-tax (and post-interest expense) earnings – so here, loosely, an EBI Multiple of 7 equates to a P/E of 10. P/E multiples are also calculated on the last reported earnings figure (often last year’s result) while EBIT multiples in common usage may be more current, or may involve extrapolated or forecast earnings. A P/E for a company that had a bad year last year, or is growing quickly can be inflated by it. Lastly, both valuation multiples reflect risk, and smaller private companies generally have much higher risk profiles, so applying a P/E multiple from a large public company to your coffee shop is not reasonable.
All that said, there is a real equity strategy in this – one we spend a lot of time explaining and working through with many SMEs who are surprised to find that they have access to it.
Great article – more, please!
Cheers,
Paul.Hauck@ICTStrategicServices.com.au
Principal