WEEK 1 HW
Alexsandra2496
AccountingandFinanceSlidesupdatedSP21.pptxStrategic Management in Accounting/Finance
Introduction to Corporate Goals, Objectives & Analysis
Information Sources
Accounting
Quantitative
Financial
Internal
Non-Accounting
Qualitative
Non-Financial
External
Strategic Management Accounting
Five Corporate Goal Factors:
Mission Statement
Goals
Objectives
Operational Strategies
Performance Measurements
Organizational Strategic Decisions to Consider:
Corporate Strategy – What business should we be in?
Competitive Strategy – How do we compete?
Operational Strategy – How do we organize internally to achieve corporate goals?
SITUATIONAL AUDIT (SWOT Analysis)
Comparison to last year
Comparison to our competitors
Comparison to industry as a whole
Based on the Above:
What is our current position?
Where would we like to be?
Where might we be if we do not react to the current situation?
What strategies must we adopt to get where we want to be?
What strategies must we adopt to avoid the current situation?
Financial performance SWOT analysis
SWOT Analysis Model
Historic Data
Current Data
Forecasting
Fundamental Analysis
Profitability
Liquidity
Gearing
Working Capital
Solvency
Takeover Vulnerability
Recovery Potential
Rivalry
Entry/Exit
Substitutes
Buyers
Suppliers
Products
Market Share
Brands
Targeting
Political
Economics
Legal
Technological
Demographics
Financial Performance
Competition
Markets
Environments
Strengths, Weakness, Opportunities & Threats
Balance Scorecard Strategy
Income Statement (P&L)
| Income Statement Survey (000) Given period of time, i.e. quarter or year | |
| Sales | $520,397 |
| Variable Costs (Labor, Material, Carry) | $374,467 |
| Depreciation | $23,740 |
| SGA (R&D, Promo, Sales, Admin) | $25,975 |
| Other (Fees, Writeoffs, TQM, Bonuses) | $2,817 |
| EBIT | $93,398 |
| Interest (Short term, Long term) | $23,438 |
| Taxes | $24,486 |
| Profit Sharing | $909 |
| Net Profit | $44,564 |
Balance Sheet (Report or Account Form)
| Balance Sheet Survey (000) Snapshot of Given point in time | |
| Cash | $55,833 |
| Accounts Receivable | $42,772 |
| Inventory | $85,485 |
| Total Current Assets (Short – 1 year) | $184,090 |
| Plant and equipment | $356,100 |
| Accumulated Depreciation | ($125,820) |
| Total Fixed Assets (Long) | $230,280 |
| Total Assets | $414,370 |
| Accounts Payable | $34,997 |
| Current Debt | $72,867 |
| Long Term Debt | $101,736 |
| Total Liabilities | $209,600 |
| Common Stock | $58,258 |
| Retained Earnings | $146,512 |
| Total Equity | $204,770 |
| Total Liabilities & Owners' Equity | $414,370 |
Business Expenses-Fixed/Variable
Fixed Costs
Examples of fixed costs: - Rent and rates - Depreciation - Research and development - Marketing costs (non- revenue related) - Administration costs
Variable Costs
Direct variable costs are those which can be directly attributable to the production of a particular product or service and allocated to a particular cost center. Raw materials and the wages those working on the production line are good examples.
Indirect variable costs cannot be directly attributable to production but they do vary with output. These include depreciation (where it is calculated related to output - e.g. machine hours), maintenance and certain labor costs.
Business Expenses-Break Even
Business Expenses-SGA/COGS
SGA - Selling, General & Administrative Expenses
Selling: The sum of all direct and indirect selling expenses, which includes salaries of labor (excluding COGS), advertising expenses, rent, and all expenses and taxes related to selling product.
General: General operating expenses and taxes that are directly related to the general operation of the company, but do not relate to the other two categories.
Administration: Executive salaries and general support and all associated taxes related to the overall administration of the company.
COGS - Cost of Goods Sold
Parts, raw materials and supplies used,
Labor, including associated costs such as payroll taxes and benefits, and
Overhead of the business allocable to production.
Financial Ratios
| Activity Ratios | ||
| Inventory turnover | = | cost of goods sold ÷ average inventory (1/ITx365 = days to sell through of entire inventory) |
| = | $500 ÷ $190 = 2.6x (higher the better) | |
| Receivables turnover | = | net revenue ÷ average receivables (beg+end/2) |
| = | $1,000 ÷ $128.5 = 7.8x (higher the better) | |
| Payables turnover | = | purchases* ÷ average payables |
| = | $520 ÷ $90 = 5.8x (high=quick & low=slow) | |
| Asset turnover | = | net revenues ÷ average total assets (higher is better) |
| = | $1,000 ÷ $1,391 = 0.72x (best is based on industry) |
Financial Ratios
| Liquidity Ratios | ||
| Current ratio | = | current assets ÷ current liabilities |
| = | $685 ÷ $750 = 0.91x (greater than 1 is better) | |
| Quick ratio | = | (cash + short-term marketable securities + accounts receivable) ÷ current liabilities |
| = | $340 ÷ $750 = 0.45x (greater than 1 is better) | |
| Cash ratio | = | (cash + short-term marketable securities) ÷ current liabilities |
| = | $200 ÷ $750 = 0.27x (greater than 1 is better) | |
Financial Ratios
| Solvency Ratios | ||
| Debt-to-assets ratio | = | total liabilities ÷ total assets (40% & lower-good) |
| = | $1,067 ÷ $1,485 = 0.72, or 72% (60% & higher-bad) | |
| Debt-to-capital ratio | = | total debt* ÷ (total debt* + total shareholder’s equity) (higher=more risk) |
| = | $517 ÷ $935 = 0.55, or 55% | |
| Debt-to-equity ratio | = | total debt* ÷ total shareholder’s equity |
| = | $517 ÷ $418 = 1.24, or 124% (30-60% range is good) | |
| Interest coverage ratio | = | earnings before interest and taxes ÷ interest payments (below 1 is bad; 2 is min & 3 is great) |
| = | $230 ÷ $100 = 2.3x | |
| Total Debt* = Both short term and long term |
Financial Ratios
| Profitability Ratios | |||
| Gross profit margin | = | gross income ÷ net revenue (based on industry norms) | |
| = | $500 ÷$1,000 = 0.5, or 50% | ||
| Operating profit margin | = | operating income ÷ net revenue (based on industry norms) | |
| = | $180 ÷ $1,000 = 0.18, or 18% | ||
| Net profit margin | = | net income* ÷ net revenue (based on industry norms) | |
| = | $82.75 ÷ $1,000 = 0.083, or 8.3% | ||
| Return on assets (ROA) | = | net income* ÷ total assets (over 5% is good) | |
| = | $82.75 ÷ $1,485 = 0.056, or 5.6% | ||
| Return on equity (ROE) | = | net income* ÷ total stockholder’s equity | |
| = | $82.75 ÷ $418 = 0.20, 20% (15-20% is good) | ||
| net income* = after taxes |
