What Is Your Favourite Quote?

“The objectives of every business are to endure and grow” — Erik Bienhocker, The Origin of Wealth.

I have been teaching business finance to entrepreneurs, managers, and executives for nearly two decades. This quote has been my opening slide since I created my first slide pack. The simplicity of the quote hides the complexity of the execution.

I ask students, what comes to mind when they think of the word endure? The following replies are common: survive, resilience, and overcome. My follow up question is “do you think a business must be profitable to survive?” Invariable the answer is yes. The next question is, “how has Tesla survived so long?”

Most people are ignorant of the fact that if it were not for environmental subsidies Tesla would not be profitable. Tesla’s survival has been from cashflow, not profits…this leads to a conversation about the difference between profit and cashflow. A conversation that opens the door to exploring the dynamics of the income statement and how accountants record and recognise revenue and expenses.

Assuming a business has achieved a sustainable state or has sufficient cashflow, the desire for growth is inevitable. It is a natural human instinct. My question to students… “how can you tell if a business is growing?” These are their answers: “they are employing more people”, “they are buying more assets”, “their revenue is growing”, and “they are generating more profits”. All great answers. My skill is showing them how this is reflected in the financial data.

It is quite a common understanding that for a business to grow, capital is required. Capital in the form of equity and or debt. These may be sources of cashflow, just like in the case of Tesla. Tesla did three equity raising deals in 2020 and sourced $12 billion of capital. On the back of its incredible stock price growth Tesla has been filling its boots with cash, all in the interest of being able to “endure and grow”.

There is no doubt that Tesla is growing…the question is…will it endure?

Justin Spencer-Young Twitter: @fastforwardjsy

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Daily content creator at Fast Forward Business. Chief Valueologist. Fast Forward Business Podcast…look out for my daily podcast…a shot of value in your day

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Justin Spencer-Young

Daily content creator at Fast Forward Business. Chief Valueologist. Fast Forward Business Podcast…look out for my daily podcast…a shot of value in your day