How to Tackle Open Enrollment with Confidence
How to Tackle Open Enrollment with Confidence
Open enrollment is just around the corner. Do you have what you need to make critical choices at this vital time of the year?
Now, while benefits elections might seem like a routine administrative task, the decisions you make during this crucial election period could significantly impact your finances for years to come.
But for many of you out there, open enrollment might feel like a maze of features and benefits that can leave you feeling so confused and overwhelmed that you resort to box-ticking just to get it over with.
And so, what if we could change the narrative this year?
What if this year was the year where you finally stepped off the default path, and made your benefits elections with confidence?
What if this year, instead of rushing through the enrollment process, you mindfully took your time and opted into coverages that align with your lifestyle needs?
And, so, how do you achieve this outcome?
Well, this approach begins with following a game plan for navigating the maze of healthcare choices, insurance options, and fringe benefits that are available to you.
More specifically, when you know how to approach your benefits book, which common pitfalls to avoid, and how to select your coverage options, you can make wise choices this benefits season without being overwhelmed.
Before You Open the Benefits Book
Alright, now the first step to making wise choices with your benefits this year so that you don't get overwhelmed is to take some time to evaluate your current needs. Now, it might be tempting to dive into your benefits elections, check the boxes, and just get the process over with.
With that said, and as counterintuitive as it may seem, taking time for reflection can make the process go faster than digging through the benefits book and making your elections as you go.
And so, why is this self-assessment so vital to the process? Well, it's pretty simple. And that's because, from one year to the next, your and your family's lives evolve, whether we're talking about changes in health statuses, family compositions, or retirement plans.
So then, from this perspective, ask yourself: How has my health fared over the past year? Have any significant health challenges reared their heads in my family? And because of these changes or other developments, am I anticipating any major life events, such as surgeries or pregnancies, in the coming year?
More specifically, let's say that you just discovered that you're about to become a parent. Now, this year's health plan might have sufficed for your individual or couple's needs, but with baby on board, now may be the time to make some plan changes.
Certainly, thinking down the road, having a baby is a qualifying event that would allow you to make changes to your plan after your child is born, but different health plans offer different maternity or pediatric benefits, which could be a more fitting choice for the year ahead before the baby arises.
Either way, it's essential to start by evaluating your needs for the year ahead. Indeed, without this self-evaluation, you could end up overlooking a pivotal shift in your needs and, as a result, in your benefits selection for the year ahead.
Review Your Usage
Now, another thing you'll want to do before cracking open that benefits book is to consider your past year's benefits usage. More specifically, this process involves taking the time to reflect on your interactions with various benefits providers over the past year or so. And as you do, ask yourself, "did my current plan meet my needs, or were there gaps?"
Here again, understanding your past usage is key to anticipating your future usage needs and hence, your insurance coverage needs. So then, take a moment to review how your existing benefits have performed and how you've utilized them.
For example, let's say that over the past year, you've seen several doctors and specialists due to the sudden onset of a chronic health condition. Now, in this case, your current plan may have burdened you with hefty out-of-pocket expenses.
So then, if you anticipate your health condition to persist for some time, then you might choose a plan with higher premiums but lower deductibles in the year ahead, which could significantly minimize your out-of-pocket expenses.
Either way, take some time to ask yourself whether there have been instances where out-of-pocket expenses soared due to inadequate coverage. Did your network of healthcare providers meet your needs, or did you have to go out of network? And were there any benefits you paid for but did not utilize, like your flexible spending account (or FSA)?
Indeed, a candid review of these and similar questions will likely shape your understanding of what worked and what fell short and likely equip you with insights for effective benefits elections decisions in the months ahead.
Don't Just Look at Costs, Consider Value
Okay, so now that you have a solid grasp on your health experiences over the past year and what you might anticipate with respect to medical needs in the coming year, it's now time to crack open that benefits book and begin reviewing your options.
So then, the first thing you're likely to do as you review your benefits choices is to look at costs. With that said, however, the process of selecting your benefits shouldn't be just a mere financial comparison. Indeed, you need to look beyond the dollar figures to appreciate each plan's holistic value.
And so, why shouldn't we look just at the cost of services offered? Well, the rationale here is simple: low cost doesn't always translate into the best value.
That's because a seemingly cheap plan could leave you grappling with sizable bills for certain services later on, while a seemingly more expensive plan might offer better coverages, leading to lower out-of-pocket expenses over the coming year.
Indeed, making your benefits elections based on low premiums and thinking that you're making the most economical choices could leave you in a lurch if your plan offers limited coverage or a restrictive network of providers.
To be sure, because of your cost-effective choices, you could even find yourself burdened with high out-of-pocket costs for procedures not covered or for seeing providers outside of your network, which likely will negate your cost savings altogether.
So then, as you're reviewing your options this benefits season, don't get hung up on the upfront costs only to get caught with hidden expenses on the back end. Indeed, take a moment to think through the value of the services offered through each plan beyond its price when choosing your benefits options.
How to Avoid Common Potholes
Alright, so now that we've talked through the importance of understanding your current needs, reviewing your past benefits usage, and taking a comprehensive look beyond mere costs, let's take some time to talk through some ways to identify and avoid common pitfalls that you may encounter when navigating the benefits selection process.
Now, no matter how well-prepared you are, the road to choosing your benefits can be filled with unexpected twists and turns. For example, you could come into this benefits season and just stick with what's familiar.
Indeed, you might even think to yourself, "Well, why shouldn't I just renew my current healthcare plan? It's worked fine for me until now."
Well, maybe that's true, but there's an issue here.
More specifically, each open enrollment period brings with it not just an evaluation of changes in your own life, but also changes to your benefits as a whole! Keep in mind that employee benefits are one of the most significant costs many employers face outside of employee salaries.
And so, given changes in the marketplace, your costs and benefits coverages from one year to the next could experience changes ranging from minor adjustments to a major benefits revamp.
For example, let's say that you opt to click through the defaults this year, only to discover a few months later that a procedure that was covered in last year's plan is now a hefty out-of-pocket expense. In this situation, you'd likely be stuck with your current coverage until a qualifying event or next year's open enrollment period before you could make any changes to your plan.
So then, as you gear up for open enrollment, don't allow the allure of the known to blind you to the potential benefits of what's changed. That's why it's essential to take the time to dive deep into the specifics of each plan every year, even if you anticipate that nothing has changed.
The Hidden Treasures of Benefits
Now, the next thing you want to pay extra attention to is the not-so-obvious benefits that many employers offer. To be sure, your focus might naturally drift towards the big three coverages like medical, dental, and vision, and then you're done, right?
Well, it's critical to note that your employer's benefits package might offer coverages that could leave you with unnecessary lost opportunities.
How so?
Well, let's say that you decide to opt out of short-term disability insurance, only to face an unexpected incident that leaves you wishing you had that safety net as you burn through savings during your long-term disability waiting period.
Or maybe, as you approach this year's benefits season, you realize that your employer could have deposited thousands in free money to your HSA (or health savings account) had you simply taken a few minutes to participate in your plan's wellness programs.
And let's not forget about the legal assistance benefit that might seem irrelevant now but could prove invaluable during significant life events like buying a home or drafting a will.
So then, as you navigate through your benefits book this open enrollment season, take some time to expand your thinking beyond the conventional because you never know what you might miss.
The Clock is Ticking
And now, as we're thinking through common pitfalls and mistakes during open enrollment season, it's crucial to not miss out on the big one this year: get clear about your enrollment deadline.
Now, this might point seem like an insignificant administrative detail, but it carries significant consequences.
How so?
Well, imagine that you've invested significant time and energy into reviewing your options, weighing the benefits and costs, and finally landing on an ideal mix of healthcare and fringe benefits. But the trouble is that you spent all that time completing your analysis and yet missed your deadline, and now you're stuck with last year's choices.
Now, this might not be the end of the world, but it is a crucial point nonetheless.
And why's that?
Well, here again, outside of any qualifying life events like getting married, having a child or changing jobs, you'll likely be stuck with your benefits for an entire year.
So then, remember that open enrollment is, in a way, a race against time. And yes, while all those emails from HR reminding you of the deadline are annoying, they're there for a reason.
And, as you review your benefits options, take the time to make a note of key dates, set your own alerts, don't rely on management for reminders, and secure your chosen coverage without feeling overwhelmed this open enrollment season.
How to Evaluate Tradeoffs Between Various Benefit Options
Alright, so now that you have a basic understanding of some things to consider before diving into your benefits book, let's talk a little about an approach you can take to wade through the various options you have available to you.
Now, for many of you out there, the mere thought of looking through your benefits could fill you with a sense of dread as you consider all the options available.
In fact, you might take one look at that benefits book and be tempted to go with the default options from last year instead of working through this seemingly arduous process.
And yes, you likely already know how not being mindful of your options can either cost you money or mean leaving money on the table.
So then, what can you do to explore all of your options without getting bogged down in analysis paralysis?
Well, this year, you can try using a four-step approach to help you more effectively decide on benefits that best match your needs.
And, so, what does this look like?
Step 1: Prioritize
Well, at a high level, this means starting by prioritizing your key healthcare needs and preferences so that you can focus on what matters most to you.
Now, this might mean identifying plans that offer lower monthly costs, flexibility in choosing your healthcare providers, or ones that allow you to gain access to a wider network of medical facilities.
Either way, knowing your priorities ahead of time can help you find a plan that aligns with your specific needs and circumstances.
Step 2: Evaluate
The next step you'll want to take in our four-part process is to evaluate your options and compare features like costs, premiums, deductibles, and out-of-pocket expenses for each healthcare plan.
For example, a high deductible health plan (HDHP) gives you the ability to contribute to an HSA that offers a triple-tax savings. Now, this option might be a solid choice if you're in good health, but if you're dealing with a pre-existing or chronic condition, then the long-term savings advantage might not outweigh the out-of-pocket costs from a high deductible health plan.
Either way, this approach is critical because it can allow you to strike a balance between short-term affordability and long-term protection while, at the same time, allowing you to make sound financial decisions while safeguarding your health needs.
Step 3: Research
And whether you're starting out at a new company, your benefits have changed recently, or you simply have never explored your benefits before, then the next thing you'll also likely want to consider is your provider network.
Now, the objective of this step is to allow you to gain some insights into the various healthcare options available to you to ensure that your preferred doctors and medical facilities are covered under the plan you choose.
And why is this important?
Well, this approach likely will minimize the risk of surprises or inconveniences when it's time to get medical care or work with a specialist down the road.
Step 4: Select
And finally, now that you're armed with your priorities, evaluations, and research, you can confidently choose a benefit that best suits your needs and financial situation.
Now, it's one thing to think about the coverage you need. Ultimately, you'll need to select your coverages. So then, take the time to go back and review your selection to ensure that you're not leaving money on the table.
The Four-Step Approach in Practice
Alright, so now that we've talked through this four-step approach, what exactly does it look like in practice? Well, let's take a look at it from the perspective of choosing a healthcare plan.
Healthcare Plans
For example, during open enrollment, you'll likely have the opportunity to choose from different healthcare plans, such as HMOs, PPOs, HDHPs, and others.
So then, the big question for you here is, which one should you choose?
Well, here again are the four points you may want to consider as you go through the election process:
- Step 1 - Prioritize: Identify your key healthcare needs and preferences. Are you looking for lower monthly costs, greater flexibility in choosing providers, or a plan with a more extensive network of medical facilities?
- Step 2 - Evaluate: Compare the costs, premiums, deductibles, and out-of-pocket expenses for each plan. Balance short-term affordability with long-term protection.
- Step 3 - Research: Examine the provider networks to ensure your preferred doctors and medical facilities are covered under the plan you choose.
- Step 4 - Select: Make an informed decision based on your priorities, evaluation, and research, and don't forget to select the plan that best suits your needs and financial situation.
**Now, it's essential to note here that this is just one example of options you may want to consider. We offer more detailed guidance on how to use prioritize, evaluate, research and select various coverage options in this month's FI Mastery journey, available at https://app.fimastery.com.
Tackle Open Enrollment with Confidence
Now, as the open enrollment period kicks off this year, it's crucial to remember that picking your benefits isn't just a routine, administrative task. In fact, it's an opportunity to shape the foundation of your financial wellness for the entire year ahead.
That's why, as you go about reviewing your benefits book this year, it's vital to be deliberate and proactive throughout the process. And to do this, you can start by assessing your current and future needs, understanding the options available, and then making informed decisions.
Now, if you've avoided giving this critical process your attention in years past, then overcoming the inertia and confronting the complexity of employee benefits might seem daunting at first, but the payoff can be significant if you put in the effort.
Indeed, the process, while seemingly meticulous, not only offers you immediate benefits that help align your needs with benefits offered, but the process itself can also help you build a habit of mindful financial decision-making that ultimately can help you tackle open enrollment with confidence and take you one step closer to becoming the master of your own financial independence journey.
What Drives the Value of Your Employer’s Stock?
If you contribute to your employer’s 401k or receive equity awards, you may occasionally find yourself struggling with understanding how the value of your employer’s stock can affect your wealth and overall financial independence plans.
And, if you do, then know that you’re not alone.
In fact, this was an issue that Craig, a highly-skilled software engineer, faced as he was considering his overall financial situation.
Now, Craig worked at a cutting-edge technology company called IniTech, which specialized in developing innovative software solutions for a wide range of clients. And, in addition to a generous salary, Craig received a sizable portion of his annual income in the form of equity compensation, a common practice among tech companies, to attract and retain top talent.
Although Craig was handsomely compensated, he found himself perplexed by the complexities of equity-based compensation. While he knew that the value of his company stock played a significant role in his overall wealth, he lacked a clear understanding of all the factors that drove the stock’s value. As a result, Craig felt indecisive about whether to hold onto his concentrated company stock or whether to diversify his holdings to reduce his investment risk exposure and preserve his wealth.
Finally, one day after a watercooler discussion with a coworker that left him baffled about what was happening with his equity compensation, Craig decided that he needed to take control of his financial future by gaining a deeper understanding of what was happening with his company stock.
He believed that by comprehending the dynamics of the industry, he could better predict the near- and long-term value of his wealth. Through diligent research, Craig discovered that several factors impacted IniTech’s competitive landscape, including market share, barriers to entry, and disruptive technologies. That’s when he realized that by staying informed about these factors, he could make more informed decisions about his company stock.
Craig also learned that evaluating his employer's earnings releases was essential in understanding the financial health of IniTech. That’s why he began to closely follow the company's quarterly and annual reports, paying particular attention to key data points such as revenue growth, earnings per share, and executive guidance for future performance.
And as Craig dug deeper into his company’s financials, he realized that it would be beneficial to seek the expertise of third-party research to obtain an objective perspective on the value of his company stock. That’s because Craig understood that being an employee of IniTech might inadvertently introduce bias into his analysis, making it difficult for him to impartially assess the stock's value.
In the end, Craig's efforts to educate himself about IniTech's competitive environment and financial health, coupled with the objective insights provided by third-party research, empowered him to make well-informed decisions regarding his equity compensation. With a clearer understanding of the factors driving the value of his company stock, Craig could now confidently decide whether to hold onto his concentrated stock position or diversify his holdings to reduce risk exposure and preserve his wealth.
Internal Drivers of Company Value
Now, what Craig’s story is meant to drive home is that, all too often, individuals receive an equity award with the hope that their company's stock will simply go to the moon.
But what if it doesn't?
That’s why if you’re serious about leveraging your company stock to create your own path to financial independence, you’ll need to understand what your company stock is worth and the critical factors that can drive its price either higher or lower.
So, what is a stock worth?
Well, the value of a stock ultimately comes down to what a buyer is willing to pay for the ownership of a given firm. Over the long term, the price of a stock is primarily driven by future earnings expectations of the underlying company. And in the near term, it can be influenced by company-specific factors, like corporate leadership, industry developments, and broader changes in laws and the economy.
So, with so much space to cover regarding stock valuation, where should a newly initiated do-it-yourself stock analyst begin? Well, if you know nothing else about the value of your company stock, the very least you can do is begin by understanding your company from the inside-out.
Understanding the Role of Corporate Leadership
To start, take the time to better grasp the vision and values of your company and how your leadership team intends to take you there. This approach is essential because even the most well-funded, well-positioned firms can experience a slow death when executives fail to crystalize a vision for their organization, eventually leading to costly near-term tactics at the expense of a profitable long-term strategies.
And, so, how do you gain this understanding? Well, as a corporate insider, one of the most essential ways for you to gain insight into your company's vision and direction is by attending corporate town hall meetings.
Indeed, attending a corporate town hall can be an excellent way for you to better understand market conditions and industry trends that can impact your firm and ultimately your stock’s value. That’s because during a town hall, leadership within the organization will likely provide updates on your company's financial performance, growth initiatives, and market positioning.
For example, if your company is investing in new technologies or expanding into new markets, this may indicate an expectation by leadership of growth in those areas. And if your company is cutting back on its workforce headcount, or exiting markets altogether, it could be a sign of potential negative developments to watch.
What’s more, attending a town hall can provide you with an opportunity to ask questions and engage with company leadership. This can help you better understand the factors driving the company's performance and growth prospects. And by engaging with company leadership, you can also gain insights into the company's culture and values, which can have a long-term impact on earnings performance and stock value.
Now, attending a corporate town hall is just one way to get an insider’s view on the direction of your company and its earnings potential. So, if your company doesn’t host town halls, or does so infrequently, what you should do is pay attention to the specific messaging that your leadership is communicating during your weekly or bi-weekly team meetings.
Indeed, by staying informed and engaged with company leadership, you can be better equipped to make more informed decisions about your equity awards. That’s because, at a basic level, this knowledge can help you understand the company's strategic vision, growth prospects and more crucially, potential changes coming down the pipe.
Influence of Large Shareholders
Now, another critical component to understanding the driving value of your company’s stock is knowing who the largest shareholders are. This knowledge is essential because large shareholders can often have a significant influence over your company's decision-making processes.
Indeed, if you understand who these shareholders are, you may be able to better anticipate the direction your company will take and how it might affect your overall equity compensation.
How so?
Well, large shareholders may have a significant impact on the stock price of your company because they have a vested interest in the company's performance.
For example, if your company is a poor performer, a large shareholder may push for significant changes that could affect not just your compensation but your job security as well. And if a large shareholder decides to sell their shares, it could cause the stock price to drop and the value of your net worth along with it.
Finally, understanding who the largest shareholders of your company are can be essential if you are considering your own exit opportunities. That’s because if a potential buyer or investor is looking to acquire your company, then understanding who the largest shareholders are, and what their priorities may be, can help you make more informed decisions about whether to divest your own shares or to hold on for the long-term.
External Drivers of Company Value
So, now that you have a basic idea of how the value of your company stock is influenced by company leadership and by large stakeholders who have a direct or indirect say in the direction of your firm, let's take a moment to discuss the external factors that influence the earnings potential of your firm, and hence the potential value of your stock award.
Porter’s Five Forces
Now, one way to understand how external factors can influence the value of a company is through the lens of Porter's Five Forces.
So, what is Porter's Five Forces?
Well, it's a model that helps businesses understand the five critical factors that affect the competitive landscape they operate in and was developed by Michael Porter, a Harvard Business School professor.
Now, while there is much to be said about each of the five factors individually, at a high level, it's critical to understand that the value of your company’s stock can be affected by these forces in a few ways.
For example, if you work for a company that operates in an industry with high barriers to entry, then it likely can reduce the threat of new entrants and increase your firm’s profitability, which, in turn, can increase the value of your stock award. In a similar way, if your company operates in an industry with strong bargaining power over and buyers and suppliers, it can increase profitability and the value of your company's stock.
On the other hand, if your company operates in an industry with high rivalry among existing competitors or many substitute services exist, it can reduce profitability and the value of your company's stock.
What’s more, if your industry faces disruptive changes or the emergence of new technologies alter the dynamics of your industry, it can have a significant impact on your firm’s bottom line.
That’s why a company's success or failure to navigate these forces can have significant implications for the value of your company's stock and ultimately your equity compensation.
Understanding the Core Product and Offering
Now, while there is much that can be said about how a firm positions itself in an ever-changing competitive landscape, two areas where your company leadership has some control in how they drive earnings include 1) how they position their product and services in the marketplace and 2) the clients they choose to serve.
By understanding the trends in these two factors, you can get a high-level sense of where your company may be headed and, more importantly, the future value of your company's equity.
Indeed, from a product and services perspective, understanding your company's core offerings is essential because it can help you gain an insight into whether your firm is delivering on its vision, values and goals.
That's because a firm's vision, values, and goals serve as the foundation for its product positioning strategy. As you’ll likely recall, a vision statement outlines your firm's long-term aspirations and defines what it wants to achieve in the future. A firm's values, on the other hand, reflect its principles and beliefs, which can guide its actions and decisions. And goals provide a clear roadmap for the firm to achieve its vision.
So, how do these three elements fit together? Well, without a clear alignment between your firm's offerings and its vision, values, and goals, your employer may struggle to identify its target market and develop an effective product roadmap that meets customer needs.
That's why if your firm positions its products and services in a way that contradicts its values, it can damage its brand image and reputation. And, ultimately, a misalignment between your firm’s offerings and its vision, values and goals, can lead to poor earnings performance.
For example, a company that prides itself on sustainability and environmental responsibility should not offer products that harm the environment. And so, if a firm positions its products and services in a way that does not align with its vision, values, and goals, it risks losing customers and damaging its brand image. That’s because customers are more likely to be loyal to a brand that aligns with their values, and a misalignment can cause customers to ultimately lose trust in the firm.
Another way that a misalignment can lead to poor earnings performance is by a lack of differentiation from its competitors. What this means is that if the company you work for positions its products and services in the same way as its competitors, then it likely will struggle to stand out in the marketplace.
And that’s because differentiation is crucial in a competitive landscape, and a firm that does not differentiate itself through its vision, values and goals risks losing market share. And, a decline in market share can lead to lower corporate earnings, and hence, threaten the value of your company's stock.
Who are the largest clients?
Now, another factor to consider when it comes to the earnings ability of your employer and hence the value of your stock award is your firm's target market and its largest clients.
So, why should you care about who your company’s largest clients are?
Well, understanding who your biggest customers are can help you gain better insights into the competitive landscape, your company's strengths, and weaknesses, as well as how your employer is positioning itself in the marketplace.
Indeed, the biggest customers of a company often generate a significant portion of its revenue. Therefore, if you understand who your biggest customers are, then you may be able to better understand your company's financial stability and prospects for growth.
From this perspective, having some insight into who your biggest customers are can help you better understand their needs and preferences. This perspective can be a critical insight because it will tell you whether internal product development, marketing, or customer service initiatives are aligned with what your most valuable clients want, and your firm's ability to deliver products and services that meet their needs.
Again, when there's misalignment, there's a chance that a new entrant into the marketplace could entice your firm's largest customer away to their firm, potentially dealing a blow to future earnings and revenue growth.
Financial Metrics and Your Company’s Stock Value
A final component for understanding your company's value and how it may affect your stock award is actually taking a deep dive into its financials.
That’s because looking into the financials can help you know if your company is well-funded and has rising revenues, or on the other hand, whether your company is underfunded and revenues are in decline. And central to this insight is understanding corporate earnings.
So, what are corporate earnings?
Well, a company's corporate earnings refer to its profits after all expenses and taxes have been paid. When a company's earnings increase, it usually means the company is doing well and its stock price may increase. On the other hand, if a company's earnings decrease, its stock price may also decrease.
Evaluating Your Firm's Financials
As you're evaluating your employer's corporate earnings from one quarter to the next, there are a variety of fundamental factors that you should consider, the first of which is revenue growth.
Revenue growth is the lifeblood of a company. If your firm's revenues are consistently increasing, it's a good sign that the company is on a solid growth trajectory. However, if revenue growth is stagnant or declining, it may indicate that the company is facing challenges in growing its sales metrics.
And while revenues are important, as the old saying goes, it doesn’t matter how much you make, but how much you keep. And this is where profitability comes in. Now, this metric can be challenging to evaluate at times, especially if your company is still pre-IPO or in an early-growth phase. Even so, it's essential to look at your company's net income and gross margins over time to evaluate whether these metrics are growing.
That’s because if your company is consistently profitable, it's a good sign that your firm is well-managed and has a sustainable business model. If operating expenses are increasing faster than revenue, it may indicate that the company is not managing its expenses effectively, which could impact future earnings. However, for early-growth companies, if profitability is low now due to increased expenses, you'll need to evaluate whether this comes from investment outlays in the present that may set your company up for future growth down the road.
Another key factor to consider from a financials perspective is how your firm is funding its operations. For example, when a company issues new shares of stock to large investors to fund operations, it can dilute the firm value to existing shareholders. This means that the value of your stock award may decrease if the company issues new shares. However, if your company's earnings increase as a result of issuing new shares, the value of your stock award may also increase as well.
And, finally, as you're evaluating your firm's financials, what you'll want to consider is the trends in these key metrics. Ask yourself whether your firm is increasing revenue over time, whether rising expenses can be justified with respect to future potential sales growth, and whether additional external funding will benefit your company's long-term prospects and hence its expected future share price.
Earnings and Competitor Analysis
And while reviewing trends in your firm's financials certainly is useful, comparing results to industry competitors can often provide more insight into whether your company is ultimately delivering increasingly higher value to shareholders, including yourself.
You can do this by taking a moment to review the financials of your firm's top three competitors. Then, as you do the work, consider the competitive landscape, industry- and company-specific factors and market trends, to evaluate how they may be affecting your company’s share price.
For instance, when it comes to the competitive landscape, take the time to identify your company's main competitors, and evaluate how they’re performing. Then ask whether they’re gaining market share or losing it. What are their strengths and weaknesses, and how does your company compare? By asking these questions, you’ll not only gain better insights into the competitive landscape, it can also help provide valuable awareness into your company's relative performance.
Now, depending on the industry, there may be specific factors that affect financial performance from one industry to the next. For example, in the technology industry, innovation and R&D spending may be critical to maintaining a competitive edge, especially for early-stage companies in their high-growth phase. In contrast, earnings for firms in the pharmaceutical industry likely will be affected by factors like regulatory approvals and patent expirations.
And with respect to market trends in the competitive landscape, ask yourself whether sales and profits are growing across the industry, or whether they’re in decline. If the industry is growing, it's important to consider whether your company is keeping up with the overall industry growth rate. And, if the industry growth rate is declining, it's also essential to consider whether your employer is able to maintain its respective market share and profitability in such an environment.
Finally, it's critical to take a long-term view when evaluating the performance of your company and its competitors. Consider the industry trends and the competitive landscape over the next several years. And then ask yourself, “how is my company best positioned to take advantage of opportunities and overcome challenges in the industry?” Based on your response, evaluate how your company’s strategy compares to its competitors in terms of its long-term prospects.
Overall, when evaluating the performance of your company and the competition in the same industry and marketplace, you should consider a variety of factors that can affect sales growth and ultimately, profitability.
Finding Your Employer’s Financials
So, with all this talk about performing a financial analysis on your company stock, you may be asking yourself, “where exactly can I find this information?”
Publicly Held Companies
Well, as a first step in evaluating your firm's financials, you should check if the company you work for is required by law to disclose certain financial information.
If your company is publicly traded, it likely will file periodic reports with the Securities and Exchange Commission (SEC), which are publicly available and can be accessed in many cases through your company's website or at the very least, through the SEC's EDGAR database.
These reports contain financial statements and other information that can help you understand your company's financial performance and its financial prospects.
Privately Held Companies
Now, if your company is pre-IPO or privately held, it may still be required to provide certain financial information to its shareholders or employees. You can check your employment contract or equity compensation plan to see if it includes provisions for the company to provide you with certain financial information, and if so, where you can find it.
One way to determine the value of your privately-held stock award is to review your firm's latest 409a valuation. Now, a 409a valuation is a type of valuation performed for privately held companies to determine the fair market value of your firm's common stock. This valuation is a filing more often than not required by the Internal Revenue Service (IRS).
And a 409a valuation typically involves an independent valuation firm, which will consider a range of factors when determining the fair market value of your company's common stock. These factors may include the company's financial performance, growth prospects, market conditions, and the value of comparable companies.
Now, if your company is not legally required to disclose financial information in a public way, you can try to request financials from your company directly. To do this, try speaking with your manager or human resources department to see if there is a process for obtaining this information. If there is no established process, in certain instances, you could request a meeting with a senior executives and, depending on your standing with your firm, discuss your concerns and request additional information at that time.
Now, it’s critical to keep in mind that privately held companies may not provide the same level of financial disclosure as public companies, therefore, it may be more difficult to obtain accurate and up-to-date financial information. And in some cases, you may need to rely on other factors, such as the company's industry and market conditions, to estimate the value of your stock award.
Third-Party Analyst Evaluations
One final way to better understand your company's financials and what it may mean for the value of your stock award is to review analyst opinions on the financial health of your firm. Indeed, reviewing third-party analyst evaluations of your company stock is essential because it can provide you with an independent perspective on the value of your company stock and its growth prospects.
These evaluations are typically conducted by financial analysts who specialize in researching and analyzing specific companies and industries and who also have access to a wide range of financial data and market trends. What's more, third-party analyst evaluations can help you objectively understand the risks and opportunities associated with your equity awards and help you make more informed decisions about your company holdings.
So, where can you find these third-party reports?
Well, you can generally start your research by visiting financial news websites like Yahoo Finance or Bloomberg news. These resources can in many cases provide you with access to research reports and analyst ratings that offer valuable insights into your company's financial performance and growth prospects.
Another option is to seek out research reports from your brokerage firm. That’s because many brokerage firms offer research reports and analyst ratings as a service to their paying clients. And if your broker offers such a service, then these reports can be another useful tool to use if you're looking to stay up-to-date on the value of your company stock and market trends.
Now, if you're really dedicated to understanding the value of your company's stock, and want an objective opinion but don’t want to take the time to search for it, then in many cases you can work with an independent research firm to gain access to its reports.
Either way, gaining access to third-party research can save you a lot of time and hassle as you’re doing the work to better understand the value of your company stock.
What Drives the Value of Your Employer’s Stock?
We’ve covered a lot of ground here today in terms of the steps you can take to evaluate the value of your company stock and how it may ultimately affect your stock award. And, if you’re not sure where to start, take a lesson from Craig and how he applied some of approaches we discussed here today to better understand the value of his company’s stock.
To start, Craig's journey to gaining a deeper insight of the value of IniTech’s stock was marked by first understanding whether the work his firm was doing was aligned with his leadership team’s vision, values and goals for the company.
Then, he took the time to explore the competitive environment to understand factors like market share, barriers to entry, and potentially disruptive technologies, that could significantly impact his company's future earnings performance.
Next, Craig began to closely monitor IniTech's earnings releases, evaluating crucial data points like revenue growth, earnings per share, and management guidance. This information helped him gain insight into the financial health of the company and assess its growth prospects.
Lastly, Craig utilized third-party research to obtain an unbiased opinion on the value of IniTech's stock. By integrating external analysis with his own understanding of the company's competitive landscape and financials, Craig was able to make more informed decisions about his equity compensation.
Taken together, these steps ultimately enabled Craig to confidently evaluate the benefits and risks associated with his company stock. And armed with a comprehensive understanding of IniTech's earnings prospects and competitive position, Craig could now make a well-informed decision about whether to hold onto his company stock, or diversify his holdings as he took one step closer to becoming the master of his financial independence journey.