Illustration for a hypothetical case study
A hypothetical software company has returned to THB 1.52 million of net profit after a THB 3.60 million loss in the previous period, yet operating cash flow is still negative THB 480,000. That difference is where I want to begin its valuation. Which work drove the recovery? When will receivables be collected? What cash remains after interest and continued investment?
The company, figures, and periods A and B in this part are fictional learning examples, not the accounts or history of any business. THB 1 million in annual subscription revenue is a starting case, not a guarantee of renewal or future cash. Amounts exclude VAT unless stated otherwise.
Part one, From Revenue to Company Value, established earnings quality, revenue recognition, cash, and valuation methods. This part follows the same hypothetical software company across four articles to examine what aggregate sales cannot tell us.
One company may contain several different businesses
A software house may build systems for clients, license its own product, provide ongoing support, and integrate AI into client workflows. Those activities can share people and technology, but their revenue timing, costs, and risks differ.
| Type of work | What the customer pays for | What to check |
|---|---|---|
| Project development and implementation | Delivering work under agreed scope and acceptance criteria | Budgeted hours, rework, billing rights, and undelivered obligations |
| Subscription to the company's product | Using software and receiving contracted services | Software rights, actual renewals, and support cost |
| AI integration and managed support | Connecting data, permissions, and decision steps with AI | Usage scope, model charges, human review, and responsibility |
| Resale of another party's software or services | Rights or services under the original provider's terms | Principal or agent role, resale rights, and gross or net revenue presentation |
To compare the ideas across this part, the example uses full TFRS. A real company must check its own reporting framework; not every software house uses the same one. Putting AI in a service name does not turn the work into a product that scales with almost no added labor. If each client needs data rebuilt, connectors rewritten, and answers checked by a dedicated team, additional revenue may consume nearly proportional work hours. Valuation must reflect that cost before expecting economies of scale.
What makes up THB 16.80 million in total revenue?
- THB 15 million in projects
- THB 1 million in subscriptions
- THB 0.8 million in continuing supplemental services
Recovering profit calls for separating revenue sources and costs
In fictional period B, the company has THB 16 million of core revenue, already including THB 15 million of projects and THB 1 million of subscriptions. Ten customers each pay THB 100,000, receive a full year of service, and have active contracts at period-end, giving THB 1 million of ARR as well. Beyond core revenue, assume another THB 800,000 of continuing supplemental services, making THB 16.80 million of operating revenue. Supplemental services have their own delivery cost and are not subscriptions added a second time.
| Item | Period A | Period B |
|---|---|---|
| Project revenue | 5.600 | 15.000 |
| Subscription revenue | 0.800 | 1.000 |
| Continuing supplemental-service revenue | 0.400 | 0.800 |
| Total revenue | 6.800 | 16.800 |
| Total delivery cost | 4.200 | 7.000 |
| Amount remaining after delivery costs | 2.600 | 9.800 |
| Operating expenses, including depreciation | 5.400 | 7.100 |
| Depreciation included in the preceding expense row | 0.800 | 0.800 |
| EBIT | −2.800 | 2.700 |
| Analytical EBITDA (EBIT + depreciation) | −2.000 | 3.500 |
| Interest | 0.800 | 0.800 |
| Profit before tax | −3.600 | 1.900 |
| Assumed tax | 0.000 | 0.380 |
| Net profit | −3.600 | 1.520 |
The THB 7.10 million operating-expense row already includes THB 800,000 of depreciation. The THB 6.30 million before depreciation is assumed to comprise THB 800,000 for someone doing the owner's work, THB 1,200,000 of research, THB 800,000 for review and customer help, and THB 3,500,000 for other sales and administration. "Before depreciation" separates accrual expenses; it does not mean the company paid all that cash in the same period.
Projects leave about 57.33% after direct costs: THB 15 million of revenue less THB 6.40 million of cost. Subscriptions leave 75%, or THB 750,000, under the illustrative cost classification. That subscription amount has not yet borne the customer-review and support work in operating expenses. Allocate THB 500,000 of pre-depreciation expense and THB 30,000 of depreciation to subscriptions, and this segment has THB 220,000 of EBIT. The remaining company EBIT belongs to projects and supplemental services together; they have not been priced as separate businesses.
Recovery is the start of an inquiry, not a promise of lasting profit
The table shows higher revenue and profit in fictional period B. It does not say whether a particular customer, staff cuts, an asset sale, or an unusual event caused the change. Before pricing the business from those earnings, separate the cost of delivering current work, any rework or unpaid service obligations, and whether the team can sustain this workload after the recovery.
The example treats the THB 800,000 of supplemental service as recurring operating work and carries its revenue and cost into forecasts. A line called "other income" in real statements is not enough to classify it that way. Read the notes and actual events first. Interest income, foreign-exchange differences, grants, and asset-sale gains can have different causes and cash timing.
Period A assumes zero tax and recognizes no deferred tax asset. Period B assumes tax at 20% of profit before tax, fully paid in that period. An accounting loss does not establish that it can reduce tax in a later period, and tax expense may differ from actual cash paid. Review the tax base and conditions separately. [IAS 12]
Three statements tell different sides of one story
Profit measures performance under accounting rules. The statement of financial position shows resources and obligations at a date; the cash-flow statement explains receipts and payments over a period. In period B, the company earns THB 1,520,000 of net profit while cash falls by THB 2,000,000. Operating cash is negative; the company also invests, adds a deposit, and repays loan principal. The final article will reconcile those amounts in a table.
Another distinction is company cash versus cash available to owners. Some of the balance may be needed for payroll and system costs. Valuing operating cash flows does not permit adding every baht of cash to the company price again. Separate necessary cash from excess based on the actual operating plan.
Why value can differ even when revenue is the same
Two companies may each have THB 1 million in ARR. One may have diversified customers, renewals that do not depend on its owner, and known support cost per customer. The other may rely on one customer, have quickly cancellable contracts, and offer unlimited AI use without knowing its cost. Their values can differ because of expected cash and risk. The letters ARR do not make sales certain.
Good intellectual property (IP) may cut delivery time or persuade customers to pay more. A large codebase may instead need rewriting for every sale. A repository alone does not answer whether code is reusable, documented, dependent on one person, or legally usable after an acquisition. Some firms have economic value even with little recorded intangible assets; an expensive development project may also have no willing buyer.
| Question | Evidence that helps answer it |
|---|---|
| What are customers actually buying? | Contracts, proposals, acceptance criteria, and services owed after payment |
| Which profit can be sustained? | Profit by project, rework hours, and staff costs that must continue |
| How often do subscribers renew? | Contract register, revenue from the same customer cohort, and cancellation history |
| Who owns the software, and can the rights transfer? | Employment contracts, customer terms, component rights, and delivery records |
| Where is cash tied up? | Receivables aging, advance receipts, service obligations, and investment still needed |
I would put more weight on the ability to deliver and collect while retaining enough budget to maintain the product than on the label SaaS or AI company. To get to an explainable value, start by breaking down this THB 16.80 million of revenue: which customer pays for what, and what must the company deliver in return?
Part two will examine software rights, economic value, and intangible assets in the accounts before we return to how much cash a subscription leaves.
