THE CORPORATE LIFE CYCLE: GROWING UP IS HARD TO DO!

THE CORPORATE LIFE CYCLE: GROWING UP IS HARD TO DO!

Aswath Damodaran

The Life Cycle

$ Revenues/ Earnings The Lightbulb (Idea) Moment From idea to business

The Bar Mitzvah The Scaling up Test

The Midlife Crisis The End Game

Revenues

Earnings Time

Growth stage Stage 1 Start-up

Stage 2 Young Growth

Stage 3: High Growth

Stage 4

Stage 5

Stage 6

Mature Growth Mature Stable Decline

Description

Have an idea for a business that meets an unmet need in the market.

Create a business model that converts ideas into potential revenues & earnings

Build the business, converting potential into revenues.

Grow your business, shifting from losses to profits

Defend your business from new competitors & find new markets

Scale down your business as market shrinks.

ACCOUNTING VERSUS FINANCE ACROSS THE LIFE CYCLE

Accounting and Financial Balance Sheets

Variant 1: You estimate the values of assets

Variant 2: You let the market estimate it for your

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An Early Stage Comparison - Twitter

Accounting Balance Sheet

Cash PP&E Intangible assets Goodwill

$550 $ 62 $6 $ 47

Debt (leases) Preferred stock Equity

$21 $835 $202

Intrinsic Value Balance Sheet (post-IPO)

Cash Assets in place Growth assets

$ 1,616 $ 73 $ 9,631

Debt Equity

$ 214 $11,106

Market Price Balance Sheet (post-IPO)

Cash Assets in place Growth assets

$ 1,816

$

73

$ 26,444

Debt Equity

$ 214 $28,119

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