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The simple cap table is one of the first things you learn in your introduction to penny stocks trading. It is a common practice for investors to treat this as a fundamental analysis tool when determining their short and long positions. Unfortunately it is often used incorrectly. Penny stocks are priced below their true market value, and the incorrect use of this type of analysis can cause some investors to lose significant amounts of money. Keep in mind that this article is not about technical analysis per se, but the use of a simple cap table.

A cap table, sometimes called an equity quality valuation, waterfall or EQVista, is a spreadsheet application that calculates and displays the equity market value of a particular company using key valuation factors such as company price, dividend yield, market cap, book value, free cash flow and other such factors. Basically it’s just a series of complex mathematical equations where you apply all the deal terms to the given cap table in order to flow through to the results you want. This type of table can be used for many different purposes. It is most commonly used as an illustration in presentations and graphs, or used to calculate the potential return on investment for any given investment.

However, there are other uses as well. Simple cap tables are also frequently used by funding rounds as part of their due diligence. Investors may view these applications as providing a “raw” number representation of potential upside and downside to an investment, which investors in a round may not be able to quickly interpret on their own. Investors in a round will often discuss the reasons for investing in a company at length, and due to this level of detail, simple-to-use cap tables can make it much easier to clearly see the value of the round’s prospective return. They can also provide an outline of what could happen if investors fail to exercise their option to purchase shares.

Simple cap tables are also very useful when the goal is simply to make decisions about investment. Investors who have never made this type of investment before may find it difficult to understand the complicated concepts and underlying assumptions behind such numbers. This can make it difficult to make decisions. However, simplified cap tables can make decisions about funding rounds much easier to understand in general.

A cap table can be used to represent one or more common stock options on a particular company. In the simplest types of these applications, investors choose which option they want to buy from among the available. They can then make a single payment to this option pool, or they can make multiple payments for different options within the table. Regardless of how they make these payments, they must provide information on which option is the highest priced and which one is the best potential gain.

startups to understand how a cap table works is to think about the ownership structure of a typical S & P 500 index fund. Fund investors typically own 100% of the shares in the fund. Fund managers decide how much they are willing to invest in each asset and in each class of equity on a regular basis. In most cases, this decision is made with regard to how much of the portfolio value is currently earning investors income and how much of that portfolio value is tied up in preferred stocks.

Many small business funding rounds do not allow for early investors and most standard cap tables do not take this into account. Investors must submit information about their expected earnings and cash flow during startup, at the earliest indication of an investment plan. This often includes only the year that the business will begin operation as well as a range of forecasted years for its revenue and expenses. Thus, investors must calculate the value of their total retained value (as determined by their pro forma net worth) and divide it by the number of years they expect to operate the business and use that number in their investment projections. This numbers game is then used to determine the valuation of the business.

The value of startup assets will differ depending upon whether the business has retained certain amount of its original capital (the “intangible assets”), if new investors are joining the ownership structure, and whether new capital is being issued to fund the business. One of the main benefits to using a cap table is that the numbers are set in stone, so to speak. They are easy to understand, transparent, and can be used as part of the financial reporting process when necessary. While initial public offering accounting may seem complicated, using a simple cap table can make it clear and help entrepreneurs focus their attention on what is really important: ensuring their businesses are valued for their real value.