1 © NOKIA Venture Cup_Profitability / January 2003 / Jonne Hankimaa

Profitability

January 29, 2003Jonne Hankimaa

Director Finance&Control

Nokia Mobile PhonesVENTURE CUP 2002/2003

2 © NOKIA Venture Cup_Profitability / January 2003 / Jonne Hankimaa

• Financial Statements

• Profitability

• Follow-up

Content

3 © NOKIA Venture Cup_Profitability / January 2003 / Jonne Hankimaa

Financial Statements

1) Profit and Loss Statement

2) Balance Sheet

3) Cash Flow

4 © NOKIA Venture Cup_Profitability / January 2003 / Jonne Hankimaa

Payments

Products/ Systems

Payments

Work

DividendsInterest

Components

Salaries

Share capitalCapital investment

Personnel

CustomersSubcontractors

OwnersBankers

Money flows

Material flows

Material and Money Flows

5 © NOKIA Venture Cup_Profitability / January 2003 / Jonne Hankimaa

Financial Statements

•Profit and Loss Statement – history

•Balance Sheet – today•Cash Flow - future

•Change in one, means changes in the others = double entry bookkeeping

6 © NOKIA Venture Cup_Profitability / January 2003 / Jonne Hankimaa

Profit and Loss Statement

• Measures and reports profit generated during a certain period

•revenues•costs

•salaries•materials•variables•fixed

• Profit/ loss is more or less an opinion

7 © NOKIA Venture Cup_Profitability / January 2003 / Jonne Hankimaa

Balance Sheet

•What is the value of the company at a certain point of time?

•What did the value consist of - how were assets financed?

•What is the company´s risk level?•Debt/Equity•Assets usage•Sales receivables• Inventories

8 © NOKIA Venture Cup_Profitability / January 2003 / Jonne Hankimaa

Cash Flow

•“Profit is a matter of opinion - Cash Is the King”

•eliminates effects of judgements/ valuations/ periodisations in Profit& Loss Statement and Balance Sheet (accounting principles)!

•what happened during the period in cash terms?

•How well are assets managed?

•What are financing needs?

9 © NOKIA Venture Cup_Profitability / January 2003 / Jonne Hankimaa

Profit and Loss Statement, Balance Sheet and Cash Flow

Profit and Loss

Statement

PROFIT/LOSS OFTHE PERIOD

- SALES- COST STRUCTURE

Balance Sheet

SNAPSHOT OFASSETS AND LIABILITIES

- PRODUCT OF THE HISTORY- MUSCLE FOR THE FUTURE

€INCOMEFINANCE CHANGES

CASH FLOW

€

10 © NOKIA Venture Cup_Profitability / January 2003 / Jonne Hankimaa

• Profit&Loss Statement

• Lifecycle Profitability

• Trade-off

Profitability

11 © NOKIA Venture Cup_Profitability / January 2003 / Jonne Hankimaa

Profit & Loss Statement

* NET SALES

- COST OF GOODS SOLD

* SALES MARGIN

- FIXED COSTS

- DEPRECIATION

* OPERATION PROFIT+/- OTHER INC. AND EXPENSES INTEREST (Capital Charge)

* NET PROFIT (Before Taxes)

12 © NOKIA Venture Cup_Profitability / January 2003 / Jonne Hankimaa

Lifecycle Profitability

products contribution

time

€

product creation sales

0

13 © NOKIA Venture Cup_Profitability / January 2003 / Jonne Hankimaa

Graph Example

-20

-10

0

10

20

30

40

50

60

Q1/00 Q2/00 Q3/00 Q4/00 Q1/01 Q2/01 Q3/01 Q4/01 Q1/02 Q2/02 Q3/02 Q4/02

-1,000

-500

0

500

1,000

1,500

2,000

2,500

3,000

Vo

lum

e

Cumulative Volume Volume Cumulative Contribution

Total Sales Volume

Total Net investment into project

Break Even Point (in Time)

Break Even Point (in Volume)

Cumulative Sales Volume Development

Total Contribution

Quarterly Sales Volume

Development

Peak Sales Volume

Total Time on the market

Cumulative Contribution Development

€

14 © NOKIA Venture Cup_Profitability / January 2003 / Jonne Hankimaa

Why lifecycle calculations?

PROGRAM PHASE

Concept Development Production Ownership

100

50

0

Saving potential

Cost commitment

Percentage ofLife Cycle Cost

15 © NOKIA Venture Cup_Profitability / January 2003 / Jonne Hankimaa

Time

Development cost

Product cost

Performance

Trade-off

16 © NOKIA Venture Cup_Profitability / January 2003 / Jonne Hankimaa

• Statement for Business Measures

• Balance Scorecard

• Key Ratios

Follow-up

17 © NOKIA Venture Cup_Profitability / January 2003 / Jonne Hankimaa

Provide a systematic approach for identifying, collecting

and sharing holistic, yet focused strategic performance

information (financial & non-financial) and for setting and

communicating aligned targets derived from the critical

success factors and strategic objectives to enable continuous

improvement and learning.

Business Measures

Focus attentionFocus attention

Drive for continuous improvement Drive for continuous improvement

Enable target settingEnable target setting

Boost strategy implementationBoost strategy implementation

Push fact based managementPush fact based management

18 © NOKIA Venture Cup_Profitability / January 2003 / Jonne Hankimaa

Balance Scorecard

CommoCommonn

measurmeasure e

definitidefinitionon

ScorecardScorecard

Measure 1 Measure 1

Measure 2Measure 2

Measure NMeasure N

Business Business decisiondecision

Business OwnerBusiness OwnerBusiness OwnerBusiness OwnerScorecard Scorecard CoordinationCoordinationScorecard Scorecard

CoordinationCoordination

Measure Measure OwnerOwner

Measure Measure OwnerOwner

MeasureMeasureValuesValues

MeasureMeasureValuesValues

19 © NOKIA Venture Cup_Profitability / January 2003 / Jonne Hankimaa

There is a need for multiple perspectives

Is one perspective enough to describe all the dimensions

well enough?

Can you get a more holistic view by looking at the dimensions from

multiple angles?

?

20 © NOKIA Venture Cup_Profitability / January 2003 / Jonne Hankimaa

Examples of Key Ratios

Efficiency

Net Working Capital -Inventory, Receivables,

Liabilities

Solidity

Equity RatioGearing

Liquidity

Quick ratioCurrent ratio

Profitability

Operating ProfitNet Profit

RONA

21 © NOKIA Venture Cup_Profitability / January 2003 / Jonne Hankimaa

Thank you