Can Shares Rise Without Profit?

For larger companies looking to sell up, share prices are everything. Share prices indicate how much an investor stands to gain from ploughing money into your company, so they’re an important indicator of your value. This leads us at RTA Business to ask, can shares rise without profit?

Shares are a crucial measure of wealth for a business that has floated on the stock market (making shares available for investors). That means that you need to ensure that your share prices are as high as possible, so that a buyer will know that your business is valuable.

The most obvious factor in share price rise is profit margins. The amount of money you make is a direct reflection of the value of your business. However when profit margins don’t rise, is it possible for share prices to rise anyway?

Share Prices Rise at Yahoo

In fact, it really is possible to increase share price without profit and all you have to do is look at the latest market activity at search engine corporation Yahoo to see how.

At the moment profits at Yahoo are actually falling. There was a 20% fall in first quarter profit. It measured $312 million (£187 million). It still beat expectations, but it wasn’t exactly fantastic. However share prices, at the time of writing, had jumped 9%. How is this possible?

The company came out with a raft of facts of figures to assure investors that Yahoo is on its way up in the world. Apart from the fact that profits still beat expectations, overall revenue was actually at its highest since 2010. Yahoo raked in $1.1 billion in the first quarter, with display advertising revenue rising by 2% to stand at $409 million.

Yahoo’s share price was also spurred on by the fact that Chinese internet monolith, Alibaba, of which it  owns a whopping 24% stake, saw revenue rise 44% in the last quarter of 2013. Of the situation, Yahoo Chief Executive, Marissa Mayer said that she “is really pleased by our first-quarter performance."

What RTA Business Has to Say

So at RTA Business we remind you that share prices aren’t as simple as how much profit you’ve got in the bank. Investors, whilst they are certainly interested in profit, also use the long term likelihood of business success to measure a company’s worth on the international market.

On a wider scale, Yahoo’s impressive share price rise should remind those looking to sell their business right now that buyers look at the long term viability of your business. It’s not enough to have a strong profit margin.

UK Interest Rates Fall in March

The UK economic recovery seems to be gaining momentum at the moment, as this month that rate of UK inflation fell. What does this mean for those of you are there who are thinking of putting your business up for sale right now?

Inflation is the rate that consumer prices for goods and services goes up against real wage rises. If there’s a rise in inflation, it means that customers have less purchasing power. A fall, therefore is advantageous to the business community, as it means that customers have more purchasing power to the pound, stimulating spending.

The Rate of Inflation

So what does this latest fall in the rate of inflation mean and what are the specifics? According to the Office of National Statistics (ONS), UK inflation, as measured on the Consumer Price Index, slipped from 1.7% in February to 1.6% in March.

This figure actually further establishes an ongoing statistical trend running through UK inflation right now; it’s fallen for the third month in a row. Furthermore, inflation is sitting well below the Bank of England’s 2% target and it has done so for some time.

This latest Consumer Price Index figure is the lowest recorded since October 2009 and it isn’t the only inflation news coming through right now, as the nation’s other significant measure of inflation, the Retail Price Index, slipped from 2.7% to 2.5%.

Specifically, experts are suggesting that the biggest reason for the fall of inflation across the board came from petrol prices. They actually (and quite unusually for petrol) stayed level between February and March. In contrast they rose 2.2p per litre the month before.

However Petrol Prices weren’t the only reason that inflation fell across the country, clothing prices also contributed and so did food prices. So what does this mean the business sales industry?

What This Means at RTA Business

Because this is the sixth consecutive time inflation rates have fallen rather than risen, the gap spanning average wage growth (they rose by 1.4% in three months to January) and price rises for consumer goods continues to shrink, it means that consumer purchasing power has strengthened.

That’s really good news if you’re looking to sell your business right now. This is because if consumers are spending more, there’s more money to go around. It means not only that you are earning more, which makes your business look more attractive to a potential buyer, but that this buyer is more likely going to want to expand their business by buying yours. RTA Business knows now is a good time to sell.

UK Growth Largest of the G7 in 2014

The International Monetary Fund (IMF) recently made British business owners week as they announced that of the G7 countries, the UK is set to record the largest rate of economic growth over the current year. What are the obvious benefits for those people looking to sell their business?

It’s no secret that we’re in the middle of an economic recovery; in fact at this point, it’s practically gospel truth. Every set of data we’re presented with right now, whether it be about manufacturing, business confidence, the property market, GDP etc. is positive and most financial experts have suggested that by summer 2014, we’ll be recording pre-recession levels of growth.

However these latest figures hammer home just how strong the UK is right now in relation to everybody else, and this means that if you’re looking to sell your business to an international buyer, then there is never a better time to do so. Let the RTA Business Consultants blog break it down for you.

The G7 countries are the world’s seven most wealthy economies. Between them they hold 63% ($241 trillion) of global net wealth. The countries are the UK, the US (the world’s largest economy), Canada, Japan, France, Germany and Italy.

The fact that the UK is forecasted to grow more than any of the world’s other wealthiest nations, especially the US, is a testament in and of itself to the power of British industry right now. The numbers speak for themselves here.

According to the IMF, the UK economy is set to grow by 2.9% this year. This figure has been revised form the initial prediction the Fund made in January. At that time they predicted that the UK economy would grow by 2.4%. It also predicted that the UK economy would grow by 2.5% in 2015.

In contrast, the IMF said that the US economy will grow by 2.8% over the current year and that the Canadian economy will grow by 2.3%. Basically, at this point there is more potential for expansion in the UK economy than anywhere else. Potential for expansion will make your business look very attractive to international buyers dealing with less favourable circumstances.

Finally, the IMF predicted that the global economy is set to grow by 3.6% this year and an impressive 3.9% next year. Again, at RTA Business, we see this as good news for people looking to sell their business. Basically, more global economic growth means more money to go around meaning more people will be looking to buy.

At RTA Business, we recognise that the writing really is on the wall here. If you are looking to sell your business there really has never been a better time to do so. 

Small Business Lending Scheme: Just What Your Business Needs?

Growing a business with the intention to eventually sell it off is a complex process and one of the most difficult parts of that process is raising the capital to get it off the ground. That may no longer be a concern if a new small business lending scheme comes to fruition.

This week officials representing the UK government have announced the creation of a new scheme that will offer to share the financial cost of losses on some small businesses loans. This scheme will take place through a concerted effort to convince banks to lend more to these borrowers.

This scheme has been designed to facilitate the growth of the small business sector – a pivotal part of UK industry – which would in turn boost economic growth, which would benefit everybody. It’s the brainchild of the British Business Bank.

The British Business Bank was launched last year by the Conservative led coalition government and since its creation it has focused efforts on improving lending rates to small and medium sized businesses, a sector of the market that has found it difficult to generally secure lines of credit in the wake of the economic crash. This is seen as the latest attempt to do so.

Marketed as a pilot “wholesale guarantee” scheme, the plan would offer a government backed assurance to lenders that would act to cover the burden of a degree of net credit losses they build up on their SME portfolio.

The government’s goal here is to lessen the amount of capital lenders have to hold against their SME loans, so they can provide loans to small and medium sized businesses in a way that will cost them less. Naturally this has been put in place so that banks are more willing to lend to those businesses, which will give said businesses funds to use to expand, which will in turn inspire economic growth.

Reinald de Monchy, managing director for wholesale solutions at the Business Bank said of the scheme that: “Our aim is to incentivise new SME lending by making it a more capital efficient activity for regulated banks, thereby enhancing its commercial attractiveness.” 

The potential benefits for business sales ere are obvious. It will be easier to secure a loan for a small business with this policy, which will make it easier to grow. This in turn will make your business look more attractive to potential buyers when the time is right to sell. At RTA Business we believe this will have positive effects for those who eventually want to sell their businesses.