Sunday, 18 October 2015

Why the numbers matter

Vulpine is a new ECF pitch on Crowdcube - looking to raise £500k for 9%, so a healthy valuation for a company with only losses to show.

Nothing wrong that we can see with the product, with the market and with the potential - valuation aside.

However when companies try to raise money they really should understand the basic mechanics of business. We dont think Vulpine do.

For starters, take a look at their balance sheet and projections. Stock holding figures often give clues.

At YE 2013/14, the company had stock totalling £600,000 on its books in a year when it turned over £416k. This was up from £230k the previous year. The 2014/15 figure was £365k for turnover of £995k on a GPM of 31%. The projected stock holding for 2016-17 when the turnover is £2.5m is only £580k so not even as high as 13/14.

This is a fashion based business and they seem to be struggling to get rid of their old stock, which will impact new lines and cash flow. Poor buying - as the 2013/14 figures imply results in a quick death.

Another oddity is the fact that they state they have sales of their new Hoy brand of £335k for this its first year. Yet the total turnover for the whole business for 2015/16 (YE April 16) is only £1.35m or just about £350k above 2014/15. So the 'old' stock had a flat sales year which is not exactly encouraging.

Yet another strange figure is the accounts receivable for an online retailer - projected to stand at £275k for this year. Last year it was £32k and year before was £35k - more in line with what you would expect. The follwoing two years project receivables to be in the £80ks - so a very inconsistant picture. Dead stock can suffocate a business like this very quickly.

Variations in the GPM may be explained by stock dumping but if this is a regular need then the GPM growth from 31% to 53% seems very ambitious.

So you see the numbers do matter and if a business has either no clue what they are or has misunderstood how important they are, they can hardly expect investment.

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