Finance

AUDIT: The Process EVERY COMPANY Should Understand 🔍 When I first started my journey as an accountant, I thought accounting only consisted of 2 fields: Audit and Tax. While the world of Finance & Accounting indeed is much bigger than just these 2 fields, Audit still makes up a big part of Accounting. Today, I'm breaking down what audit means in plain English, but first... ➡️When do companies go through an audit? Different events in a company's journey can trigger the need for an audit—this is often the case whenever a large amount of funding is being invested or lent into a business. The concept is simple - investors want to ensure the financials accurately reflect the state of the company. As companies mature and eventually go public, they no longer have the "option" to complete an audit...it's a requirement thanks to Sarbanes-Oxley. ➡️What to Expect from a First-Year Audit Your first-year audit will be TOUGH. It requires a lot more time, effort, and resources than most companies realize. Here's what to expect: The auditors will dig deep into your financial records - examining everything from bank statements to contracts. They'll need to understand how your business operates from scratch, which means many meetings and explanations. Your team will need to provide years of documentation and answer countless questions. This often pulls staff away from their regular duties for weeks or months. Many companies underestimate this workload and don't allocate enough resources. First-year audits typically cost 25-50% more than subsequent audits because everything is being examined for the first time. The process can take 2-3 times longer than future audits. It's actually quite common for companies to abandon their first audit attempt when they realize the enormous commitment required (I've had this happen with several clients I've worked with). Here's an easy way to remember what the process of an A-U-D-I-T can look like: ➡️ ASSESS First, auditors scan your financial statements looking for oddities. ➡️ UNDERSTAND Next comes connecting your data to accounting rules. Good auditors don't just memorize GAAP or IFRS - they know how to apply those complex rules to YOUR specific business situation and industry. ➡️ DOCUMENT Paper trail, paper trail, paper trail. Working papers become the backbone of everything. ➡️ INSPECT Now comes the detective work... Auditors examine evidence, test controls, and look for inconsistencies. They'll inspect physical assets, review contracts, and evaluate your internal control systems. ➡️ TEST The final step involves verification. Auditors test samples of transactions, recalculate figures, and confirm balances with external parties to verify accuracy and compliance. === What's been your experience with audits? The good, the bad, or the ugly? Share your thoughts in the comments below 👇

Pay attention: this is the most important macro chart in the world. Foreign Central Banks have been sending a clear message to US policymakers: we intend to diversify away from the US Dollar. The chart below shows the % of total foreign exchange reserves held in USD (blue), EUR (white) and gold (orange). There seems to be an already ongoing diversification away from USD as the key currency for FX reserves into other alternatives – primarily into gold. But why, and should you be worried about it? 1️⃣ The weaponization of Russian USD FX reserves woke up several other Central Banks to the reality - reserves invested in USD assets are your assets only until the US says so, otherwise they are gone; 2️⃣ The Trump administration intends to change the global trade system, and policies like tariffs reduce the appeal of US assets. For decades, we lived in a world where foreign countries exported into a strong US consumer economy, and recycled back the proceeds into US assets - often T-Bills and US Treasuries. Some countries like Norway or Switzerland went as far as deploying their USD reserves into US equities: decision which led the Norwegian Sovereign Wealth Fund to deliver strong returns. But recently the winds have changed. Global Central Banks are rapidly diversifying their FX reserve buffers away from the USD and into Gold. And the EUR could be a winner too. Now that Germany and Europe have opened up their fiscal purse, there will be much more AAA-rated EUR bonds where foreign investors can park their excess reserves. Couple that with a growth impulse from fiscal spending, and more capital could flow towards Europe. In any case, this is a crucial macro trend to watch. Agree or disagree? 👉 If you enjoyed this post, follow me (Alfonso Peccatiello) to make sure you don't miss my daily dose of macro analysis.

Founders are turning down millions in venture capital. Their reason? "I don't need the money. We're already profitable." 10 years ago, unthinkable. Today, common. The Information wrote an insightful piece on "Seed-strapping"—raise once, focus on profitability: → $3.7M revenue per employee (10X industry standard) → 80% lower development costs → 90% less capital to reach profitability The uncomfortable truth for VCs: → Companies need just one funding round → SAFEs never convert → Founders keep 70-80% ownership → The traditional model breaks For investors, survival requires reinvention. New Fund Economics: → Smaller funds with more concentrated bets → Lower management fees, higher carry → Faster distribution timelines → Many smaller wins vs. few unicorn exits New Deal Structures: → Revenue-based financing with capped returns → Dividend rights if companies don't raise again → Profit-sharing without requiring additional rounds New Value Proposition: → Capital efficiency expertise over growth-at-all-costs → Customer connections & distribution support → Operational support over financial engineering → Alternative liquidity paths beyond traditional exits The era of "We'll figure out profitability later" is over. What comes next? Imagine a VC landscape dominated by smaller, specialized firms helping founders build profitable businesses from day one. In this new world, the winners won't have the biggest funds—they'll understand AI has fundamentally changed capital efficiency. For founders: Why dilute when you can profit after one round? For investors: How do you add value when capital isn't the constraint? The answer determines who thrives—and who vanishes in 24 months.

📣 Breaking Down Capital Structure in #ClimateTech Startups Understanding the capital structure in climate tech #startups, particularly those hardware-based, can differ greatly from digital startups. 👇 Hers’s an illustration of the evolution of capital types over time - equity, grants, and debt - with actual 💶 figures. Key takeaway: The name of the game is Non-Dilutive Capital ⭐ 1️⃣ Embrace Non-Dilutive Capital: Scaling with equity alone is a non-starter. There's insufficient climate-dedicated VC money out there and it's far from the most efficient way to finance CAPEX due to ownership dilution and the Cost of Equity. 2️⃣ Optimise Timing: With careful planning, each funding round can be delayed, allowing your company value to mature by achieving higher TRLs. Leverage grants wisely and delay equity funding rounds. 3️⃣ Strike a Balance with Grants: While grants are attractive, an overdose can divert you from your main focus of selling products and turn you into an R&D centre. Exercise caution! 4️⃣ Consider Debt Early: It's rocket fuel for growth. Proper measures can ensure you secure it even before hitting TRL9. 💡Tips for Raising Non-Dilutive Capital: General: - Begin early, it takes time - Build a solid funnel (4:1 ratio is a good rule) - Engage experts, it saves time and ups your chances Grants: - Be prepared to have some fresh equity to unlock certain grants - Participate in competitions - every sum counts and it's free exposure! Debt: - Sign off-takes to significantly boost your chances - Get in touch with your regional bank - they look at more than just ROI. It's time to rethink and redesign your capital strategy! #venturecapital #funding #innovation

Trade finance is the lifeblood of global #commerce and yet it is still largely based on decades-old, paper-based processes. Modernizing it is a colossal opportunity. Let’s take a look. #Tradefinance is essentially the financing of international trade flows and includes tools, techniques, and financial instruments to facilitate international trade by mitigating some of its inherent risks: 1) payment 2) delivery of goods and services. Some numbers: -   Studies converge that the global international #trade market is between $10 and $15 trillion (between 9.5% and 14.2% of global GDP) -   Around 80% of global trade uses trade finance (source: WTO) -   The global trade financing gap – which is the unmet demand from businesses that cannot facilitate imports and exports – exceeds $2 trillion    To understand the extent to which Trade Finance has not managed to modernize in decades (source: ICC): -   Trade parties, from importers and exporters to banks, customs and logistics institutions collectively create a huge amount of data -   Letters of Credit are the most complex: the end-to-end journey involves more than 20 players and more than 100 pages across 10 to 20 documents -   The interactions between these players and documents produce about 5,000 data field interactions The inefficiencies are unimaginable (source: ICC): -   Most of these interactions are duplicates of existing data and are not scrutinized or are sometimes ignored -   The share of this redundant data rises during the trade journey. In total only about 1% of data field interactions add value. Globally this is an estimated 200 billion data field interactions supporting trade finance All these translate into a huge potential to modernize, to digitize, to make use of #technology and to become more efficient. Some estimates: -   BCG estimates an integrated digital solution would save global trade banks between US$2.5 billion and US$6.0 billion on a cost base of US$12 billion to US$16 billion, with the potential to increase revenue by 20% -   A different ICC report commissioned for the G7 estimated that digitising the trade ecosystem could increase trade across the G7 by nearly $9 trillion or nearly 43% and create as much as $6 trillion in extra exports -   McKinsey estimates that adopting an electronic bill of lading could save $6.5 bn in direct costs and enable between $30 billion and $40 billion in new global trade volume These are some of the technologies to lead the disruption: -   Blockchain -   Artificial Intelligence -   Data Analytics -   Internet of Things -   Cloud infrastructure -   Smart contracts -   Modern banking and payments platforms The system is so complex and with so many stakeholders that change will be slow. However, simple wins based on interoperability, digitization and standardization could be the low-hanging fruits to start with. Opinions: my own, Graphic source & data insights: ICC 2018 global survey on trade finance

🛠️ 𝗢𝗽𝗲𝗻-𝗔𝗰𝗰𝗲𝘀𝘀 𝗧𝗼𝗼𝗹𝘀 𝗳𝗼𝗿 𝗰𝗹𝗶𝗺𝗮𝘁𝗲 𝗮𝗻𝗱 𝗱𝗶𝘀𝗮𝘀𝘁𝗲𝗿 𝗿𝗶𝘀𝗸 𝗺𝗼𝗱𝗲𝗹𝗹𝗶𝗻𝗴 𝗳𝗼𝗿 𝘁𝗵𝗲 𝗶𝗻𝘀𝘂𝗿𝗮𝗻𝗰𝗲 𝗶𝗻𝗱𝘂𝘀𝘁𝗿𝘆 The Insurance Development Forum’s Risk Modelling Steering Group put together a hub of free, open-access risk modelling tools covering exposure data, catastrophe model catalogues, parametric insurance design, and risk pooling.  A few worth highlighting:  🌍 Oasis Risk Explorer, a step-by-step guide to parametric insurance solutions  📋 CatRiskTools, a full catalogue of country-peril catastrophe risk models  🌊 Risk Pooling Tool, explores pooling risk effects on multi-peril or multi-region losses  💡 Parametric Insurance Case Studies, demonstrating applied structures and modelling They’ve also included links to the The World Bank Group’s Disaster Risk Financing (DRF) analytics tools and United Nations Office for Disaster Risk Reduction (UNDRR)’s Risk Information Exchange, an immense collection of data entries, sources and selected metadata useful for national and sub-national risk information systems. This is a fantastic collection of tools for anyone looking to spot and act on risk early!  Access the tools here: https://lnkd.in/eaGviKyb Insurance Development Forum #riskmanagement #insurance #climaterisk #parametricinsurance  

This time Is different We don't often say that about the Fed, but after yesterday's FOMC meeting, we think it may actually be true. In fact, we believe yesterday's meeting ushered in a new era of monetary policy in the United States.    For the better part of two decades, monetary policy has followed a familiar playbook: extensive forward guidance, frequent communication, data dependence and the  Federal Funds rate as the primary policy tool. While leadership has changed, the broader framework has remained remarkably consistent.   What we heard yesterday suggests the possibility of a meaningful evolution.   We believe the Fed may be moving toward a framework that places less emphasis on signaling every move in advance and more emphasis on assessing where inflation, employment and broader economic conditions are heading. In a world of real-time data and increasingly sophisticated analytics, that could prove to be a healthier and more effective approach.   We also continue to hear indications that the policy toolkit could broaden beyond the overnight policy rate, with greater consideration of balance sheet policy, liquidity conditions, money supply dynamics and longer-term interest rates.   Importantly, change does not automatically mean more volatility. A broader set of tools and a more forward-looking approach could ultimately increase confidence in policy outcomes rather than diminish it.   For investors, the near-term message remains straightforward: inflation is still above target and remains the Fed's primary focus. While rate hikes are far from certain, they remain a possibility that markets need to respect.   That's one reason we continue to favor income-oriented fixed income opportunities over pure interest-rate expressions. And when markets overreact to uncertainty around policy change, we think there may be opportunities to sell volatility rather than buy it.   This time may indeed be different, and it will be fascinating to watch how this evolution in monetary policy unfolds. The real question is whether less signaling creates more uncertainty, or ultimately more confidence in the Fed's ability to achieve its objectives.

How to Do Financial Due Diligence Before Selecting Stocks? Stock picking isn’t just about looking at charts and following trends—it’s about understanding the financial health of a company. Before investing, a structured Financial Due Diligence (FDD) process can help you avoid bad bets and spot strong opportunities. Here’s a framework to follow: 1. Understand the Business Model & Industry - What does the company do? - Who are its competitors? - Is it in a growing or declining industry? 2. Analyze the Financial Statements - Income Statement (Profit & Loss) – Revenue growth, profitability (Gross, Operating, Net Margins), EPS trends - Balance Sheet – Debt levels, cash reserves, working capital position - Cash Flow Statement – Operating cash flow vs. net income, free cash flow trends 3. Check Key Financial Ratios - Profitability: ROE, ROA, Gross & Operating Margins - Liquidity: Current Ratio, Quick Ratio - Leverage: Debt-to-Equity, Interest Coverage - Valuation: P/E Ratio, P/B Ratio, EV/EBITDA 4. Assess Management & Governance - Background & track record of leadership - Insider buying/selling trends - Transparency in disclosures & corporate governance 5. Review Competitive Position & Moat - Does the company have a sustainable competitive advantage (brand, network effect, patents, cost advantage)? 6. Industry Trends & Macroeconomic Factors - Economic cycles, inflation, interest rates - Global supply chain, geopolitical risks - Market trends affecting revenue streams 7. Cross-Check with Analyst Reports & News - Read Equity Research Reports, Investor Presentations, Credit Reports - Stay updated on company news, regulatory changes 8. Look at Historical Performance & Future Guidance - Compare past financials vs. projections - Evaluate management’s growth expectations 9. Risk Assessment & Downside Protection - What’s the worst-case scenario? - How resilient is the business in a downturn? 10. Compare with Peers & Make an Informed Decision No company operates in isolation—compare financials and valuations with competitors before buying. Smart investing is about discipline, not hype. By doing thorough due diligence, you increase your chances of picking winners while avoiding pitfalls. What’s your go-to method for analyzing stocks? Let’s discuss.

This week’s FOMC decision was not an easy choice. Our goals are in conflict. Inflation is above target, the labor market is softening, and there are risks to both sides of our mandate—maximum employment and price stability.   Two charts explain why I ultimately favored a rate cut.   The first shows the damaging cost of high inflation. It has chipped away at real earnings and weakened household purchasing power. Many Americans are still trying to catch up.    So, the FOMC must continue to bring inflation down. Anything other than 2% is not an option. But it matters how you get there. This means we cannot let the labor market falter.   Real wage gains come from long and durable expansions. And the current expansion is still relatively young, as shown in the second chart. Holding policy too tight can cause undue harm to American families and leave them with two problems: above-target inflation and a weak labor market.   Congress gave us two goals. And our job is to meet both of them. The recent policy decision puts us in a good place to achieve that.

The Fed has taken a significant step by officially initiating its cutting cycle, which holds profound implications for the financial world. ⚠️The #FOMC has cut the FFR by 50 Basis Points to a 4.75%-5% Range. ⚠️The latest projection of the Neutral Rate, R*, came in at 2.8% versus the previous estimation of 2.9% A cutting cycle might affect other central banks' stance on monetary policy because the US Dollar could devalue considerably going into 2025, making exports from other countries like Japan more expensive. For the past two weeks, business media has made a huge story out of a 25—or 50-basis point cut, but in my opinion, today's decision on the magnitude of the cut is meaningless. Financial conditions have eased considerably since July, so it should not be a surprise that the US economy might have already started to re-accelerate. The Atlanta Fed GDPNow is flashing a Real Growth Rate of 3% for the US Economy. If that materializes, it would mean that the US #Economy is already running 1% above its potential. Why financial conditions have already started to ease? Here are some examples: ✍️Mortgage Rates decreased from 7% in July to 6.15% today ✍️The 2-Year Yield decreased from 4.75% in July to 3.63% today ✍️The 5-Year Yield decreased from 4.06% in July to 3.47% today ✍️Housing Starts have picked up momentum What market participants have priced out is a resurgence of inflation during 2025. That scenario is entirely possible if the Dollar Index drops below 100. A cheaper dollar will make commodities and import prices more expensive for the US consumer, and a reduction in real income could squeeze even more of the low to middle class into the USA. Considering the decrease in US Treasuries for the past two months, I find US Government Bonds expensive across the yield curve at these levels. I think R* is well above what the Fed estimates because of factors like de-globalization, the reshoring of strategic industries, and increased protectionism. The terminal rate post-pandemic is between 3.5% and 4%, in my opinion, and that is where I think this cutting cycle will end. If I am proven right, bond investors must reprice government bond yields higher. How do we play a potential increase in inflation in a no-landing scenario? I tilted my portfolio as I outline here below: 👉Tilt the portfolio to over-weight energy and miners. 👉Have a marginal exposure to Gold and Silver. 👉Favor TIPs over US Treasuries 👉Increase allocation to US Value Stocks and International Stocks. 👉Lock-In US Investment Grade Credit at the belly of the yield curve where we can still get 4.8% to 5% yields, especially on issues at the Single-A Rating Enjoy the ride! #Finance #InterestRates #Economy #Investing