This post will be a digression from my previous posts. Just that my recent passion for stock markets has made me think about what a company means to an investor. So my analogy is this- A company is like a goose that lays golden eggs. The analogy goes like this:
A goose (company) is typically reared (managed) by a farmer who takes care of it day to day. The goose requires to mate with other gander (customers) in order to lay golden eggs(Profits). To lay good eggs the goose should be healthy (Healthy company-operationally) and attractive (marketing/positioning). In order to ensure the same the farmer has to keep the goose in best condition through regular supply of fodder (working capital) and other upkeep(governance, processes etc.) to keep it attractive and healthy (day to day management). Also the gander are pretty finicky and unfaithful. The gander easily get bored and are ready to move to new goose(competitors) in the vicinity. To remain attractive the goose needs to stay healthy, take on new look (restructuring)etc. Goose may even find new ways to attract Gander (diversification). All this is a heavy task for the farmer and he needs money.
So to raise his goose the farmer can either borrow money (debt) or raise money by selling ownership of goose (equity). So a farmer goes to other people (investors) and says that he is willing to forgo a fraction of his future earnings to someone provided he gets reasonable money for it. Now these other people are supposed to make an assessment of the number of future golden eggs they can get and value the price they should pay (valuation).
This in short is my analogy of a company and the goose that lays golden eggs.
A goose (company) is typically reared (managed) by a farmer who takes care of it day to day. The goose requires to mate with other gander (customers) in order to lay golden eggs(Profits). To lay good eggs the goose should be healthy (Healthy company-operationally) and attractive (marketing/positioning). In order to ensure the same the farmer has to keep the goose in best condition through regular supply of fodder (working capital) and other upkeep(governance, processes etc.) to keep it attractive and healthy (day to day management). Also the gander are pretty finicky and unfaithful. The gander easily get bored and are ready to move to new goose(competitors) in the vicinity. To remain attractive the goose needs to stay healthy, take on new look (restructuring)etc. Goose may even find new ways to attract Gander (diversification). All this is a heavy task for the farmer and he needs money.
So to raise his goose the farmer can either borrow money (debt) or raise money by selling ownership of goose (equity). So a farmer goes to other people (investors) and says that he is willing to forgo a fraction of his future earnings to someone provided he gets reasonable money for it. Now these other people are supposed to make an assessment of the number of future golden eggs they can get and value the price they should pay (valuation).
This in short is my analogy of a company and the goose that lays golden eggs.
No comments:
Post a Comment