Learn English – What does “financials pencil out” mean in this context

meaning-in-context

Does it mean "They don't have enough money"?

"Reasons include a shortage of Chinese companies whose financials pencil out. Many that have gone public are “unicorns” worth more than $1 billion — valuations that may be out of reach, said Yanhong Lin, founder and managing partner of CTIC, which is based in Palo Alto, California, and has offices in Shanghai and Nanjing."

Source: https://www.bloomberg.com/news/articles/2017-01-10/china-investors-have-money-want-biotech-and-don-t-fear-trump

Best Answer

pencil out is a phrasal verb, and when used in a business context, it means to estimate in approximate figures whether a proposed investment is expected to be profitable. In other words, does it make economic sense or not.

A convoluted example (but it gets the point across):

Net Operating Income (NOI) for a proposed investment was estimated at $10,000 and compared with an offering price of $200,000. The resulting expected cash-on-cash return of 5% did not pencil out because the buyer’s objective was a minimum return of 8%.

In the example you have given, the reason that Chinese investors are continuing to invest in U.S. biotech companies is that there is a shortage of Chinese companies where it makes economic sense to do so.

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