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Papers: Idiosyncratic Risk A Function of the Time Interval

In perhaps one of the most rigorous academic research projects ever undertaken to test the validity and effectiveness of a wide universe of financial metrics, Carton and Hofer, 2006 make the following concluding remark, “Very few non-public companies monitor the change in their Altman’s Z-score. However, the findings of this research indicate that this is the single most powerful measure for monitoring shareholder returns for both annual and three year time frames. Since this is a survival measure that is also important to creditors, management should pay particular attention to this financial performance metric”. Indeed, it only makes sense that this important measure once again outperforms every metric that it is compared against for the Z-score touches nearly every critical dimension of financial performance. While leveraging the benefits of this important metric makes perfect sense, it is the notion of capturing its change that is most meaningful. This article examines the challenges associated with capturing change and puts forth one solution to help make the process of measuring change useful from a practical perspective.

Papers: A Useful Perspective for Evaluating The Risk and Creditworthiness of Private Companies

This paper offers a fresh perspective from which to gauge the ongoing viability of a firm. While investors, lending institutions and trade creditors share common concern with respect to risk, they differ according to both the time horizon and their interest in the ongoing viability of the firm. Using a synthetic credit score and the time tested Altman’s Z-score, this paper presents both measures along a simple X, Y axis plot that aims to provide a perspective of risk that is both straightforward and intuitive.

Papers: Venture Capital & Private Equity – A Changing Model Requires Changes in Practice

Providing transparent and accurate financial performance data to investors, partners and auditors is becoming increasingly important, if not critical for those engaged in the business of private equity and venture capital. In the recent past, this complex environment was tied together with a myriad of Excel® spreadsheets that served to aggregate, consolidate and report portfolio-company performance, making this task extraordinarily inefficient, costly and fraught with error. This paper will frame the problem in some detail and will offer several solutions designed to meet the needs of capital providers that seek to provide more accurate and consistent financial reporting to those that depend on it most.

Papers: Financial Reporting Challenges for Capital Providers

Providing transparent and accurate financial performance data to investors, partners and auditors is becoming increasingly important, if not critical for those engaged in the business of private equity and venture capital. In the recent past, this complex environment was tied together with a myriad of Excel® spreadsheets that served to aggregate, consolidate and report portfolio-company performance, making this task extraordinarily inefficient, costly and fraught with error. This paper will frame the problem in some detail and will offer several solutions designed to meet the needs of capital providers that seek to provide more accurate and consistent financial reporting to those that depend on it most.

Papers: Valuation Techniques and the Economics of Software as a Service

A significant amount of literature favors the notion that a real-options approach to capital budgeting is superior to the conventional discounted cash flow technique when uncertainty is present in the investment opportunity. Unlike traditional licensed-based software, SaaS inherently provides the buyer with the flexibility to change the course of the investment as uncertainty related to the product or service is resolved. In this respect, SaaS changes the game with regard to the economic benefits provided by the product or service. The SaaS model builds management flexibility into the investment decision and that same flexibility may be valuable when uncertainty is present. With that said, the question at hand is whether or not conventional valuation techniques such as DCF can be counted on to make accurate SaaS capital budgeting decisions. And if such methods cannot be counted on, do OPM techniques such as binomial lattices or modified Black Scholes models provide a more accurate picture of their value? The final and perhaps more important question seeks to understand which of the two methods is most likely to be used by finance professionals when making SaaS capital budgeting decisions. This paper will show that a considerable gap exists between those that intend to use conventional DCF models versus more sophisticated OPM techniques when making capital investment decisions that involve SaaS. This gap should be a concern for those that buy or sell products and services delivered via SaaS for the value of flexibility may go unrecognized.