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Financial Misstatements

blog.samaltman.com

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Re: Financial Misstatements

#181

Post by Havoc »

waterlesscloud wrote: post #170
Havoc wrote: post #167

Earlier quoted context omitted.

>It's a term of the trade in the retailing No its not. I've seen dozens of retailing operations in multiple countries. None use this term, which brings me smoothly to my next point... >It refers to the value of the goods sold. aka CoGS (Cost of Goods Sold) (or CoS in some regions). Unlike GMV you'll actually find that on the financial statement of major retailers. As I said: >Must be some type of startup slang so to…

Wait... I thought COGS referred to the production costs of goods sold. The direct material and labor costs. For example, in a restaurant it would involve food costs and wages for cooks. GMV sounds like it refers to what in this example would be revenue from the finished food. A burger COGS is meat+bun+cook, a burger GMV is the menu price. Am I wrong in my understanding?

No. Its a bit of a regional difference. UK affiliated people prefer "cost of goods sold" while the rest of the world uses "cost of sales". They're essentially interchangeable with CoGS leaning towards enterprises that produce physical goods.

>GMV sounds like it refers to what in this example would be revenue from the finished food.

GMV was pulled out of thin air & means nothing at all, aside from CoGS/CoS with a lick of startup paint. Anyone that reckons otherwise please step forward with a coherent argument...

Re: Financial Misstatements

#182

Post by sumanthvepa »

Havoc wrote: post #167
sumanthvepa wrote: post #160

Earlier quoted context omitted.

It's a term of the trade in the retailing (and by extension e-commerce) industry. It refers to the value of the goods sold. If a retailer sells a widget for $100 at 50% margin, then the GMV is $100 and revenue to the retailer is $50.

>It's a term of the trade in the retailing No its not. I've seen dozens of retailing operations in multiple countries. None use this term, which brings me smoothly to my next point... >It refers to the value of the goods sold. aka CoGS (Cost of Goods Sold) (or CoS in some regions). Unlike GMV you'll actually find that on the financial statement of major retailers. As I said: >Must be some type of startup slang so to…

You would be right, if the goods sold were purchased by the retailer and then resold. In that situation, you would have revenue and CoGS. However, often retails do not own the goods they sell. In that situation the price paid for the widget is not the revenue of the retailer. It counts as the GMV, and the revenue is the portion that goes to the retailer.

Re: Financial Misstatements

#183

Post by npalli »

Havoc wrote: post #155
kevin wrote: post #8

Here's the biggest offenders I see when talking to founders: revenue vs GMV (if you give GMV, give me your cut/margin) contract vs LOI burn vs expenses users vs customers (customers pay) signups vs users vs active users (you should give active with time interval and measurement of active. eg. logged in last 30 days) profitable vs cash flow positive Others people should know: diff between retention rate vs churn rate…

>“GMV” (gross merchandise volume) Interesting...been in finance all my life & dealt with pretty much every industry out there...never heard this one before. Must be some type of startup slang so to speak.

Pretty standard usage in online marketplaces that connect buyers and sellers and take a commission/cut on the transaction. The first official use was probably in the ebay IPO prospectus from 17 years ago (they call it gross merchandise sales which is the same concept). So I wouldn't call it startup slang.

https://investors.ebayinc.com/secfiling.cfm?filingid=1012870...

Re: Financial Misstatements

#184

Post by rahimnathwani »

liyanchang wrote: post #158
kevin wrote: post #8

Here's the biggest offenders I see when talking to founders: revenue vs GMV (if you give GMV, give me your cut/margin) contract vs LOI burn vs expenses users vs customers (customers pay) signups vs users vs active users (you should give active with time interval and measurement of active. eg. logged in last 30 days) profitable vs cash flow positive Others people should know: diff between retention rate vs churn rate…

I am not an accountant - I was looking most of these up so do let me know if I got something wrong and I'll edit as needed. Just trying to compile things in one place. Gross Merchandise Value is how much money flows through your system while Revenue is how much lands in your bank account. For instance, a payments processor like Stripe might have a GMV of $100 million while their revenue would only be the 3% commissio…

This is a nice summary, and mostly correct enough. One part I'd like to correct. Revenue is not characterized by whether or not it hits your bank account. Its amount is about who is the principal in the transaction, and its timing is about when the seller has done the activity to earn the money.

So, let's say I'm a payment processor, and my business model involves me collecting money on behalf of my customers. My customer makes a $100 sale, and it all goes into my bank account. That's still not my revenue, as I received the whole $100 on behalf of my customer. Separately, I charge my customer $2, for the work I did to process the transaction. That part is my revenue.

Re: Financial Misstatements

#185

Post by rahimnathwani »

matthewrudy wrote: post #176
liyanchang wrote: post #158

Earlier quoted context omitted.

I am not an accountant - I was looking most of these up so do let me know if I got something wrong and I'll edit as needed. Just trying to compile things in one place. Gross Merchandise Value is how much money flows through your system while Revenue is how much lands in your bank account. For instance, a payments processor like Stripe might have a GMV of $100 million while their revenue would only be the 3% commissio…

I think stripe is the perfect example of GMV. A clear distinction between the transaction volume they handle and the revenue they take from that volume. There are more confusing examples though. If Uber accepted cash payments, and the driver post paid just the commission, would the whole trip cost be GMV or just the commission? eg Regular Uber: Ride Cost: $20.00 GMV (goes through ubers payment system) Commission: $4.…

For a marketplace, GMV is GMV regardless of how the funds flow. eBay and PayPal are separate. eBay still has GMV, and this number is useful to investors.

Re: Financial Misstatements

#186

Post by stevewepay »

patmcc wrote: post #157
stevewepay wrote: post #152

Earlier quoted context omitted.

I think this is vastly over-exaggerating. Unless you specifically state that you are using the GAAP term "revenue", revenue could mean anything, just like "made" could mean anything, like saying "we made $1M last month". I highly doubt if you were making a presentation and you said "We had 1M in revenue last month", and it wasn't actually GAAP revenue, I find it hard to believe you would be subject to lawsuit or arre…

If someone invests in you because of a revenue claim when no one else in the room would agree with your definition of revenue, you might end up getting sued. That's pretty reasonable. If it's in a casual conversation, they should have plenty of time to look over the books later, so it's not a big deal. That said, why not use appropriate GAAP values? You should already know them, assuming you're keeping proper books,…

You could get sued, but in the US you can get sued for anything. But you would win the lawsuit.

"Revenue" can mean anything. Look up the term online, for example http://dictionary.reference.com/browse/revenue, and you'll see 6 different definitions. One of them is: "an amount of money regularly coming in". How is this definition of revenue wrong, or how could it result you getting sued? The answer is you won't.

Sure it could cause misunderstanding, but that happens all the time. As long as you don't misrepresent it as "GAAP revenue", you're perfectly fine using it in any reasonable way. Unlike what Sam Altman says, it's not a felony. My wife is a CPA and she laughed out loud when she read that.

Re: Financial Misstatements

#188

Post by dboreham »

pen2l wrote: post #119
dboreham wrote: post #117

Earlier quoted context omitted.

Um. I've emptied the trash cans at my company, but we still had an accountant (external). And lawyers.

Why didn't you hire people to empty the trash? Would save your time, and another soul out there who is struggling to find a job get something. Personally, I love the fella who empties our trash. He's become a close friend of ours, with his heavily accented "Hello friend!" message he greets us all with and everything!

Hiring anyone to do anything carries a (quite significant) cost both financially (not their hourly wages -- all the other fixed costs) and in management time, and in the cost of added risk (perhaps they steal employees' stuff, set the place on fire...). In that case it wasn't worth all those costs vs just emptying the @&^#& trash myself, which took all of 5 minutes at the end of each work day with the added bonus of giving me some brain-idle time to wind down.

The accountant and lawyer examples have the opposite characteristics : lots of risk from not hiring someone competent and experienced.

Re: Financial Misstatements

#189

Post by odonnellryan »

Havoc wrote: post #167
sumanthvepa wrote: post #160

Earlier quoted context omitted.

It's a term of the trade in the retailing (and by extension e-commerce) industry. It refers to the value of the goods sold. If a retailer sells a widget for $100 at 50% margin, then the GMV is $100 and revenue to the retailer is $50.

>It's a term of the trade in the retailing No its not. I've seen dozens of retailing operations in multiple countries. None use this term, which brings me smoothly to my next point... >It refers to the value of the goods sold. aka CoGS (Cost of Goods Sold) (or CoS in some regions). Unlike GMV you'll actually find that on the financial statement of major retailers. As I said: >Must be some type of startup slang so to…

This also applies to `burn`, no?

Re: Financial Misstatements

#190

Post by odonnellryan »

sumanthvepa wrote: post #182
Havoc wrote: post #167

Earlier quoted context omitted.

>It's a term of the trade in the retailing No its not. I've seen dozens of retailing operations in multiple countries. None use this term, which brings me smoothly to my next point... >It refers to the value of the goods sold. aka CoGS (Cost of Goods Sold) (or CoS in some regions). Unlike GMV you'll actually find that on the financial statement of major retailers. As I said: >Must be some type of startup slang so to…

You would be right, if the goods sold were purchased by the retailer and then resold. In that situation, you would have revenue and CoGS. However, often retails do not own the goods they sell. In that situation the price paid for the widget is not the revenue of the retailer. It counts as the GMV, and the revenue is the portion that goes to the retailer.

Maybe you have this switched? Many major retailers (supermarkets) to not own much of their product.
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