Tudor Girba’s Post

Tech debt is the most peculiar kind of debt I've ever seen. Very different from a financial debt. It's fascinating how it interacts with the world: 1. We're used to taking it daily, in small portions. It's surprisingly easy to take. 2. Other people can take this kind of debt on behalf of us/our team, and it directly impacts us. Paying the debt by other people, though, is harder. 3. In happy cases, you don't have to pay the debt because e. g. the piece of architecture where you took it can get deprecated/removed. Or it "just works", and there's no need to realize we have the debt there. 4. The amount of interest is rarely known up front, and it can skyrocket within days. Usually paying it off is many times more expensive, however we quantify it. 5. A piece of tech debt in one place can force us to take another portion of debt in another place. 6. It's almost impossible to have no tech debt, like "pay cash". Otherwise, the product could die. Do you have any interesting stories or lessons learned about tech debt in your projects that you could share? 😊

Financial Debt vs. Technical Debt Many of the terms and concepts we use in Software come from other domains such as Engineering, Finance, Mathematics, Languages, etc. The word for today is “debt”.. What is Debt? We borrow money to meet a current need, knowing we have to pay interest for it. This is Financial Debt. vs. In software, we borrow time as there is no real money. We do something the easy way to satisfy an urgent need, but it might make us spend more time (or resources) later to fix or improve it. This is Technical Debt. How is it measured? The interest, principal and taxes constitute the Financial Debt measurement metric. vs. We can’t see or measure technical debt well enough because it is implicit and may not be even known. It is very subjective and hard to quantify generically. Who pays the Debt? The borrower must pay off the debt. vs. The team on the project will have to pay off the technical debt, but it can make things worse if it is not done. When do we pay the Debt? We can pay it back early (foreclose) or regularly (EMI) vs. We don’t have a regular time for these things like we do for paying money back. Some teams do, most don't until a point things become hard to make progress. The longer the time taken to pay off the debt, the bigger is the “interest”. It applies to Technical Debt too, The longer we keep the technical debt, the more it costs us and the more it affects how our system works and how fast we can deliver on it. So, why don’t we have a timeline for paying tech debt? Can’t we dedicate one day per month to pay off the tech debt? Ideally, you want to be debt free, it’s hard but you could reduce it to a minimum. Focus on every commit you make, spare a thought on the debt. We need a “Tech Credit Score” too, it will give a good indicator to the project’s tech discipline and the borrowing capacity. What do you think? #technicaldebt #debtfree #techcreditscore #techdiscipline

Financial Debt, Credit Card Debt, Education Loan Debt, Medical Debt, Technical Debt. Crux of the matter is whether it is Good debt or Bad debt. "Good tech debt can be described as the debt incurred to foster growth and innovation without significantly affecting your business. Conversely, bad software debt hinders business performance as it impedes the innovation, agility, and growth your software underpins, whether developed recently or years ago." Addressing the matter starts with the how ? Read about the the 8% approach....vis a vis the capability of "mapping" the Software landscape Worth a read , courtesy of author Vincent Delaroche

Issuance of debt. Big 111 So you own 100% and 100% is 15 billion. You issue an IPO that is 15 Billion. You already recieved your issuance of debt as an owner. You no longer have debt. 15 billion is 50% of 30 billion of corporate equity. So you still get dividends based on your percentage of ownership. 5 billion is paid out in dividends after the IPO. 2.5 billion goes to the owners equity that have financial leverage even without debt. 2.5 billion goes to stake holders that do not have a large enough amount to have a strong financial leverage. It is understood that financial leverage is not just a number. It is the skill of the owners such as being a finance and accounting major and one owner has an engineering major and it is a engineering corporation so they would have financial leverage that is considered relatively equal. Back to why owners that have no debt should be paid. It is to understand that this is the simplest form in documentation that is fair. That all dividends paid out that year is paid by percentage of ownership. Formula “Equity Ownership and Dividends” 100% owned + 100% from IPO = 50% owners’ equity and 50% stakeholders’ equity. 100% of equity - stakeholders’ equity = owners equity ratio and stake holders ratio. That is to pay dividends. This will be regulated, I know so. This is how IPOs will be because it is transparent. The owners have to issue 100% of what the company is valued at and I say this because it is important and makes sense and an even split for that moment in time is made. Does not mean owners cannot buy shares back.

Part 3: Strategy Shift: We Took a Risk and Didn't Regret It, and Greed Awoke in Us 👋 Hello everyone! Alexander Selivanov here) We continue the story of our first experience working with debt portfolios. In the last post, we stopped at how we faced the first difficulties. The strategy developed by the collection agency was not yielding the desired results, and we were significantly behind schedule. ☑ Radical Measures After consulting with other market experts, we decided to change the collection agency. Even after several rounds of discussions on possible measures to rectify the situation, we did not see a positive outcome. This is a normal practice for the market, so we started looking for new collection partners. The strategy turned out to be bold but correct; the new agency quickly made up for the lost ground. After a few more months of joint work and ensuring the satisfactory performance of the collection plan, we decided to purchase two more portfolios. 💼 Appetite Awoke: Acquisition of New Debt Portfolios In June 2023, we bought a portfolio with a total debt of 1,132 thousand euros for 64.8 thousand euros, and in August another one with a total debt of 808 thousand euros for 45 thousand euros. The purchase of the portfolios cost us about 4% more, making up 18% of the initial debt. The increase in debt costs in the market was the cause, but we were prepared for this. The market is constantly changing, and price fluctuations are inevitable. 📈 Return on Investment or Not All Portfolios Are Equally Profitable? Now, let's move on to the most interesting part. By the time we acquired the last two portfolios, the situation with the return on investment was significantly different. Of the first three portfolios we acquired, the third showed the worst profitability. We managed to return only 30% of the invested funds. The results for the first and second portfolios were 61% and 85%, respectively. This is a decent result. In total, we now have five debt portfolios. They all belong to the microcredit category and are unsecured debts. Also, all the portfolios were pre-litigation at the time of purchase. ❓ Why did the profitability of portfolios of roughly the same type and structure, collected by the same collection agency, differ so much? Have we reached the break-even point for our portfolios? What is their current profitability? We will answer all these questions next time. Stay tuned for our posts! :)

✏ Profitable Portfolios: Achieving Positive Returns Exactly two years ago, Casas Finanzas acquired five debt portfolios totaling €3.6 million under its management. After 22 months from the purchase of the first portfolio, the company has successfully recouped all its investments, excluding collection costs. We previously updated you on the portfolio's status, and now, after another month, the statistics have been refreshed. How are things as of November 1, 2024? The first three portfolios, acquired in September-October 2022, have already covered collection costs and are generating net profits. However, the collection rate for these is slightly lower compared to the last two portfolios acquired in June-August 2023. This highlights why DPD (Days Past Due) is one of the most crucial factors impacting debt portfolio valuation—older debt is always harder to collect. Here are the numbers in detail: 🔹 For the first portfolio, approximately 4% of the debt was collected in October, and the ROI reached 149.23%. 🔹 The second portfolio shows a record ROI of 187.78%. 🔹 The ROI for the third portfolio increased to 131.18%. 🔹 For the newer fourth portfolio, returns amounted to 6.5%, reaching 90.84% of the invested funds. 🔹 The fifth portfolio’s ROI is close to that of the fourth portfolio—90.67%. 📊 Overall, the ROI grew by 5.5% in October and now stands at 117.15%. However, the high collection costs under the agency scheme reduce the project's net yield to 93.73%, a figure that increased by 4% over the past month. We expect to achieve a net positive investment yield within approximately two months. To minimize the negative impact of collection costs, we are in discussions with several collection agencies. One proposal could raise the net yield by two percentage points. We continue to search for effective partners. ✅ The project’s business plan remains unchanged: each portfolio is based on a three-year investment cycle from acquisition to secondary sale. The average net target yield (ROI) is 145%, or around 15% per annum. Outside of this activity, Casas Finanzas is involved in the selection, purchase, and sale of debt portfolios, including those for collective investments. The company provides full support at all stages and significantly simplifies access to the Spanish debt market.

𝗡𝗼 𝗱𝗲𝗯𝘁 𝘃𝘀. 𝗺𝗮𝗻𝗮𝗴𝗲𝗮𝗯𝗹𝗲 𝗱𝗲𝗯𝘁: 𝘄𝗵𝗮𝘁’𝘀 𝗯𝗲𝘀𝘁 𝗳𝗼𝗿 𝘆𝗼𝘂𝗿 𝗯𝘂𝘀𝗶𝗻𝗲𝘀𝘀? Discover how smart debt management can fuel your business growth. We break down the balance between no debt and manageable debt, and how the right approach can propel your business forward in our latest blog: https://bit.ly/4amKtTj #PSA #privatelending #growyourbusiness #debt

Have you heard of technical debt? What about process debt? Unless you're the US government 😬, debt will creep up on you and often at the worst time. Technical debt is easy to point to as a blocker, as there are typically "good" reasons for prioritizing functionality that delivers near-term value; that is opposed to focusing on reducing complexity and deprecating systems that are net zero or incur some cost, yet have long-term benefits. Process debt is sinister, because it's harder to spot and can have a much larger impact. As organizations grow, they swap or upgrade systems, and the teams that are involved in the process are typically already chomping at the bit to have something new and better. When this swap happens, organizations often gravitate to one of these approaches: 1️⃣ Lift and shift: every step in the process has to be exactly the same 2️⃣ Shove it in: get as much of the process to work and figure out workarounds for the rest Both of these approaches make a dangerous assumption: the process still makes sense as is. It's especially dangerous because there are typically misaligned incentives. The organization wants the swap to be done quickly and cheaply; and, if there is an external party involved, they are often specialists in the system, either as a onboarding specialists from the vendor, or a consulting firm (read: systems implementer) that specializes in the vendor's product/platform. Before you embark on a new initiative, check your organization's credit score for both systems and process. Figure out where your technical debt and process debt is, and how it will impact what you're doing. 🤕 Have you encountered technical and process debt? Tell me about it in a comment below👇🏼 ♻️ If you enjoyed this and don't want to drop a comment, please give this a repost 🙏🏼

SATS has a significantly higher debt-to-equity ratio (2.31), indicating a heavier reliance on debt financing. This could reflect its strategy to leverage its capital structure for expansion or operational needs while maintaining low equity. Singapore Airlines (SIA) maintains a balanced approach with a debt-to-equity ratio of 1.64, showing moderate reliance on debt. This aligns with its position as a major player in the airline industry, allowing for financial flexibility. SIA Engineering has a notably low debt-to-equity ratio (0.23), suggesting a conservative capital structure focused on stability and lower financial risk. CAPM results indicate different expected returns based on beta and risk exposure. SATS has the highest CAPM at 14.63%, reflecting greater risk and volatility, possibly due to operational exposure in the competitive airline support industry. Singapore Airlines follows with a CAPM of 12.81%, while SIA Engineering shows the lowest at 10.39%, indicating lower risk and a stable operational model. The WACC values reflect similar trends. SATS has a WACC of 7.20%, Singapore Airlines at 7.34%, and SIA Engineering at 9.22%. A lower WACC indicates a cheaper cost of financing, which can provide competitive advantages in capital-intensive industries. The airline industry, including both Singapore Airlines and SATS, is capital-intensive, leading to a tendency towards higher debt levels for financing aircraft and infrastructure. Conversely, SIA Engineering, while still part of the aviation sector, operates with a more conservative approach as a service provider, favoring equity financing for stability. Singapore Airlines operates a full-service model, likely leading to higher equity to maintain service quality and customer satisfaction. In contrast, SATS focuses on support services, where leveraging debt can enhance growth without compromising operational capacity. Different sectors may react differently to economic cycles. Companies in stable industries, like utilities, often carry higher debt l

Leveraging Debt: Using Other People’s Money. Debt often gets a bad reputation as a financial burden to be avoided. However, when used strategically, debt can be a powerful tool for amplifying your returns and accelerating wealth creation. This chapter will explore using leverage wisely, understand the associated risks, and ensure you borrow for assets that generate income and appreciation. Leverage involves using borrowed capital to increase the potential return on an investment. The Concept of Leverage Leverage allows you to magnify your investment returns by using borrowed funds. For example, if you invest $100,000 of your own money and earn a 10% return, you make $10,000. But if you borrow an additional $400,000 and invest a total of $500,000, a 10% return yields $50,000, of which $40,000 is profit from leveraging debt. Leveraging Debt for Wealth Creation When done wisely, strategically using debt can be a powerful tool for wealth creation. By borrowing for income-generating and appreciating assets, maintaining a financial cushion, and understanding the risks involved, you can leverage debt to amplify your returns and accelerate your path to financial independence. Remember, the key to successful leverage is prudent management and a clear understanding of the potential risks and rewards. Embrace the power of leveraging other people’s money to build wealth and achieve financial goals.