Slide #1.

You found answers re: Consumers How the market is segmented & the relevant criteria that influence consumers use in their purchasing decisions Competitors The nature & magnitude of the competition Conditions Existing & emerging Economic & Technological trends that will impact
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Slide #2.

Situation/S WOT Analysis Strategic Functio Planning nal Integrat NEXT STEP ion •Company •Consumers •Competitors •Conditions • PEST Growth & Competi tive Strate gies Functio nal Integra Marketi tion ng R&D Produc tion HR Finance Perform ance Assessm ent  Profits  Mrkt Share  ROA  ROS  ROE  Asset T/O  Stock  Mrkt Cap
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Slide #3.

Marketing How good are your goods…
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Slide #4.

Production How good are you in making your
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Slide #6.

Asc ert Hea ai n lth of Y Fina nci ou r Com al pan y
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Slide #7.

Key Financial Q’s: 1. Are You Making Enough Profit? 2. -Liquidity? Enough Money on hand to run/grow your co. 3. -Leverage? ideally proportioned betw. Debt & Equity? 4. How effectively are you utilizing your assets? A/T 5. R U providing your investors an Adequate Level of Return? 6. How close are you to Bankruptcy? 7. How’s those Bond Ratings?
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Slide #8.

Various Measures of Your PROFITABILITY • • • • Profitability Ratios: ROS--- Profit/ Sales ROA— Profit/ Assets ROE– Profit/ Equity Net Profits Cum Profits
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Slide #10.

NET NET PROFITS PROFITS $ $ $ $ ••Year Year 1 1 $6 $6 million million ••Year Year 2 2 $8 $8 million million ••Year Year 3 3 $10 $10 million million ••Year Year 4 4 $12 $12 million million ••Year Year 5 5 $16 $16
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Slide #11.

As measured by ROE Return on Equity = net profit equity Encompasses the 3 main levers used by mgt to generate return on investors equity Profitability * Asset Mgt * Leverage
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Slide #12.

“Generically, profits are driven by the company’s asset base and by its efficiency working those assets”
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Slide #13.

Du Pont Formula Value Chain net profit Return on Equity = net profit sales x sales assets equity x assets equity
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Slide #14.

Du Pont Formula Value Chain net profit Return on Equity = net profit sales x sales assets equity x assets equity
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Slide #15.

Ratio World Class   Top 10 cut Mean Poor  ROE* 600 %+ 100 %+ ~20% <15%
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Slide #16.

As measured by ROE Return on Equity = net profit equity Encompasses the 3 main levers used by mgt to generate return on investors equity Profitability * Asset Mgt * Leverage
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Slide #17.

Improve ROE by: Value Chain Profitability * Asset Mgt * Leverage net profit sales Improvin g Margins sales x assets x Increase sales &/or reduce &/or eff. work assets assets equity Increasin g Leverage
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Slide #18.

Contribution Margin IF: (Sales- variable costs) / sales ……. below 30%, Problem = Marketing (customers hate your products) Production (your labor & material costs too high), &or Pricing (you cut price too much).
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Slide #19.

IF: Contribution Margin is above 30%… but Net Margin is below 20% …Net Margin = Sales (Variable Costs + Period (Fixed) Costs) / Sales Problem= heavy expenditures on Depreciation (perhaps you have idle plant) & or heavy expenditures on SGA (perhaps you’re pushing into diminishing returns on Promo & Sales Budgets).
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Slide #20.

% 7 1 7-
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Slide #21.

IF: Net Margin above 20%, but ROS (net profit) below 5%.. -you either experienced some extraordinary "Other" expense like a write-off on plant you sold or you are paying too much Interest (…you may also have spent heavily on TQM initiatives).
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Slide #22.

Improve ROE by: Value Chain Profitability * Asset Mgt * Leverage net profit sales Improvin g Margins sales x assets x Increase sales &/or reduce &/or eff. work assets assets equity Increasin g Leverage
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Slide #23.

“Generically, profits are driven by the company’s asset base and by its efficiency working those assets”
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Slide #25.

Asset Turnover Reveals how effective assets are at generating sales revenue. The higher the better = more efficient use of assets sales sales Asset Turnover = assets assets Currently you are generatin g $1.05 in sales for every $1 assets
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Slide #26.

Improve ROE by: Value Chain Profitability * Asset Mgt * Leverage net profit sales Improvin g Margins sales x assets x Increase sales &/or reduce &/or eff. work assets assets equity Increasin g Leverage
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Slide #28.

LEVERAGE: Assets/Equity – simulation takes owner's perspective. Corp assets fin.w/ debt A Leverage of 3.0 says, "For every $3 of Assets there is $1 of Equity Optimal Levera Asset         ge s 1.0  2.0  3.0  4.0  1.   8   to 2.   8   Deb t     Equi ty $1    $0    $1 $2    $1    $1 $3    $2    $1 $4    $3    $1
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Slide #29.

How effective/aggressive R-U in building your Co’s asset base… It takes $$ to Make $$ &-why not make it using somebody else's…. To help you make even more…
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Slide #30.

“Generically, profits are driven by the company’s asset base and by its efficiency working those assets”
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Slide #31.

Page 3
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Slide #32.

How effective will you be in building your Co’s asset base? • At outset should be spending ~$1025M / round on plant improvement • By end should expand asset base to min $140M to $160M+
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Slide #33.

The More Assets you have the better your Bond Ratings AAA/AA/A/BBB/ AAA/AA/A/BBB/… … BB BB & & beyond beyond is is Junk… Junk… B/CCC B/CCC /CC/C/D /CC/C/D == default default As your debt-toassets ratio increases… Your short term interest rate increases… For each additional . 5% increase in interest -You drop one category
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Slide #34.

Stock Price Profit $
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Slide #35.

1. Earnings per Share Net Profit / # Shares 2. Book Value – Equity / # Shares – STOCK PRICE Function of: 3. Dividend Policy Good Dividend Policy
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Slide #36.

M A N A G E M E N T 2 Deliverable nd S I M U LA T I O N
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Slide #37.

Now Evaluate How good are your goods…
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Slide #38.

Expectations?
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Slide #39.

Strategic Strategic ThinkingThinking- the the ten ten big big ideas ideas 4. Portfolio theoryGE-(three-by-three matrix, using business strength & market attractiveness as variables). The Boston Consulting Group (BCG) introduced its two-bytwo matrix-(invest in the stars, divest the dogs, milk the cows, and solve the question marks)
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Slide #40.

Portfolio Analysis Which Which Brands Brands should should receive receive more/ more/ less/ less/ no no investmentinvestmentBased Based on: on:    Product Product Position/ Position/ Potential Potential Profitability/ Profitability/ Margins Margins MarketMarketGrowth/MarketGrowth/MarketShare Share Matrix Matrix
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Slide #41.

G.E Strategic Planning Model Business Strength Strong Average Weak High Industry Attractive ness Low Business Strength Index Attractiveness Index Industry * Market Share size * Price Competitiveness Growth * Product Quality * Market * Market * Industry
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Slide #42.

Boston Consulting Group’s Growth-Share Matrix STARS Product-Market Growth (%) High Low PROBLEM CHILD CASH COWS 10x 4x High DOGS 2x 1.5x 1x Relative Market Share .5x Low .2x   .1x
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Slide #43.

3 Deliverable rd
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Slide #44.

Next Big Q How good are you in making your
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Slide #45.

M A N A G E M E N T 4 Deliverable th S I M U LA T I O N
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Slide #47.

M A RKETING M G T. S I M U LA T I ON Can I be excused my brain is full..
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