News

Xero share price slump but reporting focus shift to new “Rule of 40” metric

I have to admit that I do like reading Xero’s annual reports. They are just like their software, graphical and full of simple graphs and images.

Their share price took a hit recently even though their revenue and subscriptions grew and it’s because they recorded a larger loss than they have in the past. When you read through the report though you realise that they are using a new metric to measure their success.

Could be this be a way of reporting on the profitability of your own business or where you work?

One of the most important Xero courses is our Advanced Certificate in Xero which includes 4 advanced Xero subjects. The Xero Cash Flow course sums up a full half year or financial transactions using Jerry Lame as our messy business owner case study. Jerry makes all sorts of transactions including buying capital assets like a factory and car as well as changes in business model and strategy.

Cash flow is critical in running a business in this high interest rate world we’re currently living in. Xero’s share price has suffered in the past because they have focused on growth not profitability and this trend looks like it’s going to continue into the future.

Xero are so focused on continuing their growth trajectory that most of this annual report seemed to centre around the US market and what they are going to do to try to take market share away from the big competitor there, Intuit and their QuickBooks Online software.

It seems that they are so focused on trying to win over the US market that they have created a new financial reporting metric that is aimed at keeping growth a major factor in their results.

The Rule of 40 is defined as the sum of annual revenue growth percentage and annual free cash flow margin percentage (free cash flow as a percentage of revenue).

If you already use Xero for Beginner level tasks like:

daily transactions,
data entry,
Accounts payable,
accounts receivable,
credit management, and
bank reconciliation

then the Advanced Certificate in Xero will give you the advanced bookkeeping skills to master the rest.

Steve Slisar

Steve Slisar has been training people how to use computers since 1994, opened a training centre in 1999 in Dee Why and by 2005 had 3 training centres and created over 35 individual courses that include Screen videos with audio commentary, training workbooks for those who prefer to read to learn, and exercise files that are used with the tasks in the workbooks so you get practical experience in the software you are trying to learn. Now the creator of 5 of the most popular online MYOB training courses in Australia.