Business size up overview
Download
1 / 16

MBA1- Finance w BUSINESS SIZE-UP OVERVIEW - PowerPoint PPT Presentation


  • 1288 Views
  • Uploaded on

BUSINESS SIZE-UP OVERVIEW Two purposes: Understanding the past e.g. are inventory levels consistent with production process? e.g. are accounts receivables consistent with credit terms? Predicting the future: External and internal examination of key success factors and capabilities

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'MBA1- Finance w BUSINESS SIZE-UP OVERVIEW' - issac


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
Business size up overview l.jpg
BUSINESS SIZE-UP OVERVIEW

Two purposes:

  • Understanding the past

    • e.g. are inventory levels consistent with production process?

    • e.g. are accounts receivables consistent with credit terms?

  • Predicting the future:

    • External and internal examination of key success factors and capabilities

    • Used in conjunction withquantitative analysis (e.g., projected financial statements or projected cash flows)


  • Business size up framework l.jpg
    BUSINESS SIZE-UP FRAMEWORK

    • Internal (firm) factors

    • Operations

    • Management

    • Marketing

    • Past financial performance

    • liquidity

    • profitability

    • capacity

    • asset management

    • External factors

    • economy

    • industry

    • Future financial performance

    • key success factors?

    • firm capabilities?

    • Implications for financing


    External size up economy l.jpg
    EXTERNAL SIZE-UP: ECONOMY

    • “Business cycle”?

      • In a recession, inventories and accounts receivable grow relative to sales, profit margins and cash flows decline and lenders pay more attention

    • Future interest rates?

      • Depend on default risk, interest rate risk and inflation

    • Government?

      • Taxes, regulations, assistance programs

    • Implications for the future: key economic variables?


    External size up industry l.jpg
    EXTERNAL SIZE-UP: INDUSTRY

    • Size, growth and profitability of industry?

    • Competition?

      • Ease of entry, pressure from substitute products, bargaining power of buyers/suppliers, existing rivalries

      • Competitive strategies? Low cost producer or differentiated products?

    • Opportunities/risks

      • Political, economic, social, technological

    • Implications for the future: key success factors for industry?


    Internal size up operations l.jpg
    INTERNAL SIZE-UP: OPERATIONS

    • Cost vs. quality?

    • Process?

      • Job shop, line flow or project

    • Plant and equipment?

      • Capacity, scheduling

    • Inventory?

      • Raw material, work in progress and finished goods

    • Workers?

      • Skills, training, rewards, labour relations

    • Implications for the future: supply risk?


    Internal size up marketing l.jpg
    INTERNAL SIZE-UP: MARKETING

    • Consumer analysis: needs, buying process

    • Marketing mix:

      • Price

        • discounts and allowances, credit terms

      • Promotion

        • advertising and promotion

      • Product

        • features, quality, service, warranties

      • Place (distribution channels)

    • Implications for the future: demand risk?


    Internal size up management l.jpg
    INTERNAL SIZE-UP: MANAGEMENT

    • Experience of key personnel

    • Focus and drive

    • Character

    • Leadership

    • Strategy

    • Implications for the future: capabilities?


    Internal size up finance l.jpg
    INTERNAL SIZE-UP: FINANCE

    • Liquidity

    • Efficiency

    • Profitability

    • Capacity

    • Implications

      • From the past: financial health?

      • For the future: profitability and financing needs


    Financial size up ratios l.jpg
    FINANCIAL SIZE UP: RATIOS

    • Examine relation between numbers in the income statement and balance sheet

    • Usefulness:

      • Compare to internal targets (e.g. accounts receivable management)

      • Consider trends for a given firm

      • Compare to industry and / or comparable firm


    Financial size up liquidity l.jpg
    FINANCIAL SIZE UP: LIQUIDITY

    • Current ratio

      • can short term claims be covered by liquid assets

    • Acid test or quick ratio

      • exclude inventories and prepaid expenses

    Current Assets

    Current Liabilities

    Cash + S.T. Securities + Accounts Receivable

    Current Liabilities


    Financial size up liquidity11 l.jpg
    FINANCIAL SIZE UP: LIQUIDITY

    • Collateral analysis

      • Compute value that could be obtained in liquidation

      • Can obligations be met?

      • Typical recovery rates

        • Cash 100%

        • Accounts receivable 75%

        • Inventory 50%

        • Land Market value

        • Other fixed assets 20%


    Financial size up efficiency l.jpg
    FINANCIAL SIZE UP: EFFICIENCY

    • Accounts payable turnover (days)

    • Accounts receivable turnover (days)

    • Inventory turnover (days)

    Accounts Payable

    Purchases / 365

    Accounts Receivable

    Net Sales / 365

    Ending Inventory

    Total Cost of Goods Sold / 365


    Financial size up profitability l.jpg
    FINANCIAL SIZE UP: PROFITABILITY

    • Sales growth

    • Net profit margin

    • Gross profit margin

    Year ‘t’ Net Sales

    -1

    Year ‘t-1’ Net Sales

    Net Income (after tax)

    Net Sales

    Gross Income

    Net Sales


    Financial size up profitability14 l.jpg
    FINANCIAL SIZE UP: PROFITABILITY

    • Return on assets (ROA)

      • could substitute earnings before interest and taxes for net profit (removes effect of “capital structure”)

    • Return on equity (ROE)

      • equity includes preferred stock, minority interests and retained earnings

    Net Income (after tax)

    Total Assets

    Net Income (after tax)

    Net Worth


    Financial size up capacity l.jpg
    FINANCIAL SIZE UP: CAPACITY

    • Debt to assets

    • Debt to equity

    • Interest coverage

      • ability to meet interest payments out of recurring profits

    Current liabilities + Long-term debt

    Total Assets

    Current liabilities + Long-term debt

    Net Worth

    Earnings before interest and taxes

    Interest expense

    Net income before taxes + interest expense

    =

    Interest expense


    Overall size up implications l.jpg
    OVERALL SIZE-UP IMPLICATIONS

    • Opportunities

      • what is critical to success?

      • does firm have capabilities?

      • impact on future financial requirements?

    • Risks

      • Business risk:

        • focuses on Earnings before Interest and Taxes (EBIT)?

      • Financial risk:

        • focuses on capital structure (debt versus equity)


    ad