I was wondering if anyone had any suggestions on books on investing in the software industry? Really more investor relations, but the perspective of the actual investor seems a good start. I can read an annual report. I understand what the numbers represent from an abstract sense. There's a lot of meaning in those numbers I don't get though. Retail is the industry I understand. A 25% profit margin in retail would be, pretty much, a pipe dream. I would prefer something not limited to just standard reporting, but also include what, say, a venture capitalist is looking for when they crack open the books. I would like a better understanding of royalities, licensing fees and such from a financial perspective. Things like when can you book the income and what's the qualifications and conditions for that.

I would really prefer gaming since, duh, it particularly interests me, but the software industry in general would serve well enough.

Secrets of the Game Business by Larramee
Introduction to Game Development by Rabin
Subscribe to Game Developer magazine

> I would prefer something not limited to just standard reporting, but also include what, say,
> a venture capitalist is looking for when they crack open the books. I would like a better
> understanding of royalities, licensing fees and such from a financial perspective.

Book value of a companie is based on the manufacturing model. The company builds products, inventories them, and then sells them for a profit, and it all happens within the same reporting period, typically a quarter. Software companies don't build tangible products. Not directly. And especially not when they are ramping up to that first product. But they are creating value for the investors. The problem with software companies is that expenses are not aligned with the profits within the same reporting period. One can hammer on a game for two years (or more) and see this to market only much later.

There are calculation techniques named ROIC and EVA, which part of the employee salaries along with IP rights are removed from the expenses and refitted as Intangible Assets which are deprecated over a short life span (around 3 - 7 years). ROIC and EVA are better indicators of value creation than then more generic GAAP profits and profit margins indicators.

http://www.fool.com/...h-with-eva.aspx

http://www.fool.com/...asics-roic.aspx

Hope this helps.

-cb