A Corporate Soap Opera: Unraveling the Drama in Six Acts
A Glimpse of Business Magic: Unveiling the Basics of Growth and Decline.
Hey there!
It’s a pleasure to pop up on your screen again. This week we’re delving into the world of stage diving.
If you’re new here, welcome aboard!
I’m Michael, your friendly stock guy, and I’m on a mission to make stock evaluation as easy as choosing your favorite ice cream.
Last year, I embarked on a wild journey to create a program that does the heavy lifting when it comes to stocks. Curious about my wild escapades? Read the full story here.
Let’s talk about business stages
Last week, we dabbled in ratio numbers and their significance in understanding a company’s stock. I hinted these numbers are only useful for specific stages in a company’s life, and sometimes, they’re just plain useless.
Companies, much like humans, go through a life cycle filled with ups and downs. They start off as fragile little babies, gradually gaining strength and confidence as they grow.
At times, they’re happily married to their customers, while other times, they face heartbreak and divorce. In the end, they inevitably meet their demise. It’s like a soap opera, but with stocks!
It’s like a Blockbuster
Now, picture the life of a publicly traded company as a movie, with financial reports serving as the screenplay. You’ll find action-packed blockbusters, heart-wrenching dramas, and even spine-chilling horror flicks.
Through it all, two main characters steal the spotlight: Revenue and Profits. They’re the heroes, the villains, and everything in between.
Revenue is the dashing, ever-charming protagonist, always beaming with optimism and a can-do attitude. Think of Revenue as the guy who’s the life of the party, effortlessly bringing in cash by convincing people to buy the company’s products.
On the other hand, Profits must tackle multiple roles, a minimum of four, to be precise. You see, Revenue is the high-roller, demanding a hefty salary and hogging the spotlight.
This leaves little wiggle room in the budget for anything else, forcing Profits to juggle various responsibilities, such as cutting costs on raw materials, preventing extravagant team events, and saying “no” to private jets for lunch meetings.
One can’t live without another
Despite their contrasting personalities and goals, Revenue and Profits are bound together like an old couple, taking us on a whirlwind adventure through the six stages of a business’s life.
Their dynamic relationship, filled with both harmony and tension, shapes the twists and turns in the corporate narrative as they strive to balance their individual aspirations and the company’s overarching objectives.
Together, they navigate the highs and lows of the business world, from exhilarating growth to the struggles of staying alive when faced with challenges.
The six stages:
Stage one: The hero is born - increasing sales at breakneck speed.
Stage two: The hero gets stronger - boosting revenue like there’s no tomorrow.
Stage three: The hero gets his own mansion - becoming profitable and self-funding.
Stage four: The hero flexes muscles like a bodybuilder - optimizing profit margins and streamlining operations.
Stage five: The hero kicks back and enjoys the good life.
Stage six: The hero suffers a heart attack and fights death, attempting a turnaround - the end is uncertain.
Can you see the cliffhanger?
Five key numbers shape these six stages:
Revenue
Gross Profit
Operating Profit
Net Profit
Share Count
That’s why the famous P/E Ratio from my last article falls short in Stages 1-3, as there’s no net profit to be found.
Phew!
We covered a lot today.
Next time, we’ll dive into these five numbers and more.
Weekly update
Days until the end of 2023: 256
Progress:
Database woes led to a reorganization, but now it’s running smoothly. Dived into AI and statistics with a few hiccups along the way.
This week was a smooth sail, or so it seemed. You see, if I had penned this article just a couple of days ago, I would have regaled you with tales of my AI and database escapades, which I’d have dubbed “challenges.”
But then I stumbled upon a quote that hit me like this:
“This is how hard looks like.”
And it all clicked into place when I watched this eye-opening reel.
I realised that challenges are like a sassy feedback loop, winking from afar, playfully reminding you there’s always room to improve.
It took Dr. Kashey and his infinite wisdom to help me embrace this final perspective shift. If you’re craving some enlightenment, go ahead and give him a follow – you won’t be disappointed!
Plans:
Write the stage engine
Finish AI homework
Date night with my lovely wife
Write next weeks article
Where is my head?
Rediscovering the “joy” of mathematics and its real-life applications.
Remember, life is all about stages and phases.
Enjoy it!
That’s all for now.
Catch you next week!
Michael
Disclaimer:
The information in this article is my personal opinion. It is not consulting, nor does it constitute investment recommendations.
I do my research carefully and follow my personal investment strategy.
The stock market is a complex building with its own rules. They are no rules set in stone, like the rules of physics.
Therefore, use the contents of this newsletter at your own risk. Investing in the stock market can always lead to a total loss of the capital invested.
Thanks for a great overview 🤓