Capital Table For Determining Value of the Shares
A Capitalization Table is basically a table giving an accurate analysis of the percentages of ownership, total equity, dilution of debt, and net worth of an organization in all future rounds of financing. Capital tables are widely used in organizations to facilitate decision making as well as provide information for the funding of venture capital, working capital, and acquisition loans. The table shows the potential growth of the business and the effect on earnings and net worth from different financing rounds. The effect of raising additional funds would either depreciate the value of the business or increase the value depending on the type of financing raised.
The capital table shows the value of shares that new investors will be willing to purchase with current stock holders as well as new investors who will purchase shares after a period of time. The number of shares outstanding provides an indication of the amount of dilution of debt that may occur. Two12 of dilution is bad news for potential new investors. However, the better news is that if the holding period goes to zero then the new investors will have little or no risk.
There are many indicators on the capital table that can help one to arrive at the appropriate holding period depending on the current shareholding pattern of the organization. The size of the capital can be easily seen on the left hand panel. This indicates the current market cap of the organization. The size of the operating profit margin can also be seen on the right hand panel. The average sales per quarter and the net sales per quarter can also be seen on the bottom panel of the table.
The net worth of the organization is calculated as net worth per shareholder as it deducts the current assets from its liabilities. The capital structure is shown on the top panel of the capital table. It indicates the types of ownership such as common shares, preferred stocks, preferred dividend shares, common equity holders, preferred stockholders, preferred debt members and paid-in capital. Dividends paid to shareholders are represented by the figure in the denominator of the ratio. Net worth per shareholder is expressed as net worth divided by the total number of common equity shareholders. All these figures should be adjusted to average daily dividends paid to all shareholders during a particular period of time.
The PEG ratio measures the ability of an equity market leader to attract new investments as well as the ability to retain existing ones. On the left side of the table there are bars that show the growth rate of the company during the past five years. At the bottom of the scale there are two bars that represent year end retained earnings of the company. At the top left corner there are two Bars that show the stock price fluctuations; this shows the fluctuation of stock prices when compared with the overall economic environment.
One can see how some companies have capitalization strengths while some have capitalization weaknesses. For instance, a mining company with low cost raw materials and high demand for the finished product may be able to sustain its market share without experiencing any significant amount of reinvestment. This means that even though they may be a market leader, their balance sheet may not look too good due to the fact that they spend most of their profits on operations and reinvestment. If you are going to use a capital structure analysis, capitalization table or cap table to identify potential problem areas, you have to make sure that the company has enough cash flow to support the growth and profitability.
Capitalizing on good equity ratios is very important in determining the health of an organization. However, it is equally important to understand that just because an organization has a very high equity rating, it does not always mean that it will be profitable. There are Two12 as operating profit margins, the number of years the company has been in business, as well as customer returns that determine profitability. To get a good idea of a companies' potential profitability, it is advisable to use the supplemental services of a financial analyst or an accountant. However, if you are going to perform your own supplemental analysis, there are several free stock analysis tools on the Internet that can provide you with very reliable information. Once you have determined the health of the company, you can then use the appropriate free stock analysis tools to identify potential buy or sell candidates for you to buy into.
A cap table shows investors the price and book ratio of the company's equity. Price is usually determined by the EPS or Net Earnings, while book ratio is usually determined by the Price to Earnings ratio. A cap table is designed to show new and prospective investors the accurate values of the shares. It is very important to remember that the stocks being displayed on the screen are the actual stocks. Before you purchase any shares, you should verify the liquidity of the company and the overall performance of the company.
