Financial Course Blog

Angel investors are people who invest in startup businesses. The term "angel" comes from the practice in the early 1900's of wealthy businessmen investing in Broadway productions. Angels usually provide both money and knowledge to companies who are either starting up or expanding, and generally they want a higher rate of return from the companies due to the fact their type of investment is generally riskier.

Angel investors invest various sums, ranging generally from $25,000 to $100,000, but they can also gather in angel groups which can invest more in deserving companies, or in more companies at a time, thus dividing risk between various companies.

Angels often have similar financing criteria as venture capitalists, and they fill in the gap between money provided by family or friends, and venture capitalists. Angels want to see proprietary intellectual property, a large market size, management team members with expertise and experience and a current valuation that gives them a good return on investment.

Companies that want to find and attract angel investors should seek angel groups that are located in their region. When seeking individual angels it is very important to network in order to create personal connections between the yourself and the angel. It is a big plus if the angel has experience in your field so he/she can provide you with contacts and operational expertise besides the capital.

Useful links:
http://en.wikipedia.org/wiki/Angel_investor

This is one of my articles in the line of financial ratios and this time I'll write about what's the Enterprise Value Financial Ratio. It's not about the Enterprise Starship from Star Trek hehe :p

Enterprise Value is a value that theoretically can tell you how much would and should someone pay for a company in order to buy it. It's what the name says. Enterprise Value is a quite accurate estimate of buying cost and is a better indicator of value than the other financial ratio called Market Capitalization because it takes into consideration more factors than the latter.

How is it calculated?
The calculation is very simple(first the theory :p)

Enterprise Value = Market Capitalization + Preferred stock + Outstanding Debt - Cash and Cash Equivalents

in other words, enterprise value is the amount of money you would pay to buy every single share of a company's common stock, preferred stock and outstanding debt. The reason the cash and cash equivalents is subtracted is after you buy the company you own the cash too. Sounds a little silly to buy cash with cash, but the cash that you pay goes to the owner/owners of the company, and the cash in the company is the cash needed for the company to run. You wouldn't want your newly bought company to have cash problems in the first day :p

What is the Market Capitalization(aka market cap, mkt cap or capitalized/capitalised value) ?
Market Capitalization is simply the result of the multiplication between the number of outstanding shares of common stock and the current price-per-share. Sounds complicated? Because of the terms used...

Try to follow this example: Company X has 1 million shares of stock outstanding and the current stock price is $130 per share, the company's market capitalization is then $130 million( 1 million shares x $130 per share = $130 million market cap).

What is the Preferred Stock ?
One definition is that Preferred Stock is the opposite of the common stock described above in the Market Capitalization calculus. Preferred stock is the participation of a larget investor in the company, investor which could require a fixed dividend or a share of the profits of the company.

What is Debt ?
If you acquire a business, you acquire it's debt also. If for example Company X has a market cap value of $130 million and a debt of $20 million, then you spend $150 million. $130 million needs to be paid now and you are now responsible to pay the $20 million in debt from the cash flow of the business or from other sources. That can affect the strategy of the company on short term or longer term. Preferably is for the debts to affect as little the company as possible and for as short of a term as possible.

What are Cash and Cash Equivalents ?
Once you acquired the business you own it's cash legally. After you own it, you can do whatever you want with it, take it and put it in your pocket, reinvest it in the company, pay the employees a bonus for buying the company, etcetera. Ofcourse the best thing to do is to use it to invest in the company further, but this varies from case to case. Basically it can also serve to reduce your acquisition price and because of that reason it is subtracted from the other components when calculating enterprise value.

What's the importance of Enterprise Value ?
There are investors who look at the enterprise value in relation to the cash flow to see if they're generating a lot of cash flow because that would mean there's little need if any to invest in the company, the company is moving alot of money from left to right on the products it sells and things run smoothly. These investors would then not be forced to reinvest the profits back into the company and they could use these profits to finance other investments.
Also a good application of Enterprise Value in relation with other ratios is to see if a company is overevaluated, evaluated properly or underevaluated.

External links:
Enterprise Value on Investopedia

Enterprise Value Gets Into Gear

Enterprise Value on Wikipedia(Very nice article but more technical)

If you are a stock market investor then you should know about indices and financial ratios,if not, still they're a good read and a good thing to know especially financial ratios and especially if you have a company. Some say if you are a prudent stock market investor, then you will not invest in a stock without understanding it's company financials. I'd say if you don't understand the company's financials then you shouldn't invest in stock market.

It's so important to know what a balance sheet is, and a cash flow statement or a profit & loss account that many investors base their investment decisions only on these statements. They do not bother to calculate the financial ratios, but I believe that is a mistake because financial ratios can indicate business trends and profitability. Also it's very useful to compare these financial ratios with the industry's standards to give some pretty good predicaments about where the company is going, to success or to bankruptcy.

The bottom line is that you need to work out financial ratios before you invest in a stock. For that you will find on this site, starting this week, some articles about financial ratios with short easy to grasp descriptions about how they can be calculated if they're missing and what purpose they can serve.

One very good external source for reading about financial ratios is wikipedia and you can find the page here:

http://en.wikipedia.org/wiki/Financial_ratio

or you can find an index of financial ratios here:

http://en.wikipedia.org/wiki/Category:Financial_ratios

Good Luck!

While I was surfind the net for nice interesting financial sites on the internet and interesting financial courses I found this movie in a squidoo lens and subsequently on youtube:

While this has the aura of a motivational movie and of an advertising movie to Robert Kiyosaki's programs(and it is) it's still a nice informational movie. Robert always gave me nice inspiration and gave me alot of ideas and he taught me a better way to think about money, and for that I'm grateful. Out of my appreciation for Robert I have an ad to his book "Rich Dad Poor Dad" on the left side of this blog. I highly recommend you go get it and read it through and start thinking what you learn from him and after that tell me what you think :)

I think in my current situation of striving to financial freedom I need to identify the possible passive income sources and to work towards them.

They are the following:

1. Adsense advertising revenue: While this is not as it would be at the current moment, it is a good almost passive source of income, because sites do need work and subsequently this source of income is related to the amount of work you put into.

2. Stock market income/dividends: Given the current situation, an investment in the current market is a risk and noone knows if it's a win or a loss, but I believe that in the longer term it is a good source of income especially with the companies that offer you dividends.

3. Creating a business: This is not passive at all, I know. At least it's not passive at the beginning, but if you play your cards right and you manage your business right, in the long term this is the best source of passive income there could be because you're very likely to succeed no matter what you do and you're very likely to get employees that will work for you.

4. Real estate: I'm quite interested in this subject even though I am not able to buy real estate at the moment but I'm sure in the future I will so I already started my education in this field.

5. MLM networking: This seems to be quite a big business and good passive income but it requires more energy and time that is advertised. Basically once you get into a MLM scheme, if you wanna do it right and be sure you get real passive income and your structure will evolve without you in the future, you need to invest alot of your time and possibly quite alot of the income you get from the MLM business keeping in touch with the people you get into the business. It is a rewarding business but as a normal business, it's not passive at the beginning, and possibly not passive later due to the amount of work you will be requested to do to train your people and hold seminars and motivate people.

These are my five top passive income sources at the moment, maybe in the future things will change and will reorder themselves, who knows :)