“I could do this all year”

“Run-Rate Basis” is a technical finance term that has almost nothing to do with the individual words in the phrase. But no matter, it’s a trope that sounds really cool and that Wall Street people use to reinforce the notion that they are of above-average intelligence.

The phrase simply means to take a given metric such as revenue or profits for a recent period of performance, typically a quarter, and annualize the result (for a quarter, times the number by four). The purpose of doing this is to extrapolate recent past performance into the future. The potential problems with such fortune telling should be obvious.

Junior bankers, called analysts, are known to develop multiple techniques in their work to save time and energy. Anything that can shorten the period between when “face time” ends (typically 9 or 10 PM.) and when the analyst can actually get through his meaningless work and go home for the night is a welcome device. Using a “run-rate basis” is one such technique to make life easier, if used with caution. Continue reading →

Another serving of those pro-forma results…

“Pro-forma” adjective, referring to financial statements this word describes the various “adjustments” to an actual, reported result (eg. revenue, income, costs, etc.) to show a hypothetical, expected or potential outcome that did not actually happen due to any number of factors. Companies and their bankers present pro-forma numbers in their attempt to get buy-siders and investors to ignore reality and believe their good story.  Perhaps the word, being Latin instead of plain English, was adopted so the smart finance guys could convey a sense of “it sounds complicated and it is… you wouldn’t understand.  Just trust us on this one.” Continue reading →

What’s wrong with cell (GF256)!?

“Bust in the Model” is a phrase that will strike utter terror into the heart of almost anyone who works in a financial capacity whether they be in investment management, research, banking, or corporate finance. Continue reading →

After the ‘swing by’

When working as a junior banker, one of the most dreaded questions directed at you is “Could you swing by?”  This seemingly innocuous request nearly always carries in its wake negative outcomes of greater or lesser degree.  Coming from an associate above you, it will typically mean “I’m going to ask you to do something so ridiculous, you won’t believe it”.  Of course, he will never say that exactly, but will insist that the frivolous task is critical to complete.

Take the case of George D., an associate who asked me this question one fateful night years ago.  Upon “swinging by” at about 9 PM, George instructed me to take a book of probably a thousand pages (an industry trade reference manual of some sort) down to the copy center to have it copied by morning- the whole thing.  When I reported back that they wouldn’t do it due to copyright law, he exploded hurling profanities at me then demanded I stand at the copy machine and do it myself.  When I kindly told George to “GFY- I won’t be standing at the copier all night”, another explosion ensued which was sure to quickly devolve into a melee had not a nearby MD stepped out of his office to query the cause of consternation.  When I explained what I was asked to do, the MD flatly told Georgie boy that “we pay these analysts too much to stand at a copy machine all night”.  George hated me ever after. Continue reading →