There are several differences in the expectations of lenders and investors. Whereas lenders usually get repaid from a company’s ongoing cash flow, investors usually get repaid at the time of company sale.
It’s not surprising then that investors look to certain sales and profitability measures of financial performance that contribute to a growing business valuation.
Percentage sales growth = (current period sales / last period sales) / last period sales
Gross profit margin = (sales - cost of goods sold) / sales
Net income margin = net income / sales
Companies that deliver profit margins that are consistently greater than their industry competitors can get a valuation bonus from investors and business buyers. Go for it!
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