So how is the cool new accounting cloud based software company Xero doing financially?
My favorite approach to looking at the big picture of a company’s financial performance is to “xero” in on the cash. I use the Cash Flow Focus Report to create a skinnied down version of the GAAP cash flow statement.
I provided a summary of Xero’s cash flow and financial results back in 2014.
Now let’s take a look at their most recent financial results (through the lens of the Cash Flow Focus Report) for the fiscal year ended March 31, 2016:
The Three Largest Drivers of Cash
Let’s look at each of the three largest drivers of Xero’s cash flow for the year.
Net loss – The company lost $82 million on $207 million in revenues. That’s a big percentage of revenues. (Don’t try that at home!!!) In deciding to label this either good or bad, I would normally look at the budget or the projections to see if it is line with expectations and strategy. In this case, I labeled it as good because losing money (at least for now) is part of their strategic plan to grow.
Capitalized development costs – A large portion of the money Xero is spending on the actual creation of their cloud-based software is being capitalized because it benefits future periods. In FY 2016, they put $48 million of those costs on the balance sheet and will amortize (expense) it over time. I labeled it as good since I doubt the dollar amount is a surprise to management.
Amortization – $23 million of previously capitalized development costs were amortized (expensed) during the year. I labeled it as good since the costs have to be amortized.
Three Year Cash Flow Summary
Here is a summary view of the three largest drivers of cash over the last three years:
Other Financial Highlights
- Revenues for the year were $207.1 million. $16.9 million of that was in North America.
- They have 717,000 paying subscribers. 62,000 of those are in North America.
- They have 1,454 employees. That is up from 1,161 in the prior year.
- They have raised a total of $380 million (or so) over the last four to five years.
- Their year-end cash balance was $184 million.
Stay tuned as we wait to see if cool accounting software, combined with a boatload of cash, can put a dent in the popularity of QuickBooks in the U.S.
Philip Campbell is a CPA, financial consultant, and author of the book A Quick Start Guide to Financial Forecasting: Discover the Secret to Driving Growth, Profitability, and Cash Flow and the book Never Run Out of Cash: The 10 Cash Flow Rules You Can’t Afford to Ignore. He is also the author of a number of online courses including Understanding Your Cash Flow – In Less Than 10 Minutes. His books, articles, blog and online courses provide an easy-to-understand, step-by-step guide for entrepreneurs and business owners who want to create financial health, wealth, and freedom in business.
Philip’s 30 year career includes the acquisition or sale of 33 companies (and counting) and an IPO on the New York Stock Exchange.
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