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Building Business Acumen
Building Business Building Business AcumenAcumen
1. How much cash was on hand?2. What were the total Revenues (Sales)?3. What was the Net Profit?4. What was the Net Profit Margin?5. What was EBITDA?6. What was the Revenue per Employee?7. How much did Revenues grow year over
year?8. How much did Net Profit grow year over year?9. How much did EBITDA grow year over year?10.How many Expressions of Interest (EOI)?11. What was the Net Promoter Score (NPS)?
Pop Quiz
35
Objectives List and describe 11 key performance measures
that are important to the Executive Team.
List and describe the five business drivers all successful businesses must focus on.
Create a personal action plan that can positively impact personal performance and company results.
Better articulate company performance & strategy.
What is Business Acumen?
…the ability to make good business decisions in a timely manner with an understanding of how the decision should impact the business.
3
Wayne Gretzky…referred to as the
“The Great One” When asked by a reporter…
“What makes you so Great?!”
Wayne responded by saying…“I don’t skate to where
the puck is, I skate to where the puck is going to be.”
Hockey Acumen
Business is Tough! Only 5-10% of business start-ups survive past 5 years.
14% of CEOs lose their job every year. Booz & Co.
70% of merger and acquisition activity do not live up to expectation. Wall Street Journal 2007
5
Business Acumen
Every business must focus on five business drivers. If they do, they will be
successful. If they don’t, they’ll fail.
4
• Inherited business from long lost relative.• Located in on busy street corner of the
city.• 1000 passer-by’s of which 500 are buyers.• Motivation is to be successful in one year
to inherit relative’s massive fortunes.
Build a Business
5
Defining CASH
What is required to grow and maintain the business.
Cash – the bills and coins in the register, petty cash, and cash in the bank. Also includes cash equivalents, like CD’s and other highly liquid investments, that easily convert into cash within 90 days.
Measures
Cash Flow – The cash generation from core business activities calculated from the difference between the cash that flows into and out of the business in a given period of time (month, quarter, annual)
Definition
8
How to Obtain Cash
Can a company have too much Cash?
• Earn it• Sell Assets• Borrow it
No CostImmediateImmediate
How much is too much/little?
9
Pro Con
TimeReduce AssetsCost (Interest)
How Much Cash?
A company should have sufficient cash to cover…
• their interest• expenses• capital expenditures• plus a little for emergencies
~ InvestopediaTop Uses of Cash for Corporations
• Dividend Pay-outs• Stock Buy-backs• Mergers & Acquisitions (M&A)
• Research & Development (R&D)• Capital Expenditures (CAPEX)• Cash Balance Increase
9
Benchmark Cash
24% 9% 5% 18% 33%
CareerBuilder CareerBuilder CareerBuilder Monster Dice Holdings2010 2009 2008 2010 2010
Net Sales 584$ 565$ 763$ 914$ 129$ Cash
Cash and Equivalents 140$ 50$ 35$ 163$ 43$
Element
CASH Review
1. Define Cash Driver
What is required to grow and maintain
the business.
2. Measures of Cash
1. Cash – easily converted in 90 days
or less to cash.
2. Cash Flow – Difference of cash in
and cash out over a given period of
time.
3. Importance of Cash Driver
- Sufficient to run business
- Enhance shareholder value
- Improve attractiveness to suppliers
and customers.
4. Benchmark the numbers
2008 2009
2010
Revenue $762 M $565 M
$584M
Cash $34 M $49 M
$140 M
9
Large Group Discussion
What can you do to positively impact focusing on Cash and/or Cash Flow.
•Increase Sales•Reduce Costs•Improve new product launch schedules•Reduce travel•Better manage Account Receivables
•Reduce/conserve operating costs•Delay purchases•Improve Project Planning•Improve Data Input•Better Manage Account Payables
Possibilities
9
Defining PROFIT
Measures
DefinitionWhat is left over after you have subtracted expenses. Can be expressed in dollars ($) or percent (%).
Gross Profit / Gross Profit Margin – Profit after Cost of Goods Sold (COGS) have been subtracted from sales.
Net Profit / Net Profit Margin – Profit after all expenses have been subtracted from sales.
Earnings Before Interest Tax Depreciation & Amortization (EBITDA) – Reflects controllable earnings.
10
Sale Price: $1.00
Water - $ .04Label - $ .10 COGSBottle & cap - $ .11 Packaging (Direct Labor) - $ .15Total: ($ .40)
$1.00 - $.40 = $.60 = 60% Gross Profit
Rent - $ .03Salaries, Gen, Admin. - $ .10Marketing - $ .07 Shipping - $ .15 Total: ($.35)
$1.00 - $.40 - $.35 = $.25 = 25% EBITDA
Depreciation / Amorit. - $.02Interest & Tax - $.12Total: ($.14)
$1.00 - $.40 - $.35 - $.14 = $ .11 = 11% Net Profit
Life Spring
Artesian
Water
High Profit Companies
28%
32%
22%
Low Profit Companies
3.6%
8.0%
1.7%
United Parcel Services (UPS) – Avoiding left-hand turns
-92,000 trucks worldwide-Saved over 28,541,472 miles-Saved 3 million gallons of fuel-Reduced insurance premiums-Reduced maintenance frequency and costs
Profit in Action
Benchmark Profit
11
CareerBuilder CareerBuilder CareerBuilder Monster Dice Holdings2010 2009 2008 2010 2010
Net Sales 584$ 565$ 763$ 914$ 129$ Profit
Net Margin 11.38% 9.05% 1.45% -3.54% 14.65%Net Income 66$ 51$ 11$ (32)$ 19$
EBITDA 80$ 70$ 39$ (42)$ 48$
Element
PROFIT Review
1. Define Profit Driver
What is left over after you have
subtracted expenses. Can be
expressed in dollars ($) or percent
(%).
2. Measures of Profit
1. EBITDA (Margin) – subtract COGS
& SG&A
2. Net Profit (Margin) – subtract all
expenses
3. Importance of Profit Driver
- Net Profit is one of the most
important #’s for the business.
- Indicates price strength
- Identifies ability to manage costs
4. Benchmark the numbers
2008
2009 2010
EBITDA $39 M $70 M
$80 M
Net Profit 1.5% 9.0%
11.4%
11
Small Group DiscussionDiscuss an action item You are committed to take immediate steps to positively impact focusing on Profit.
Possibilities
•Increase Sales•Reduce Costs•Improve Project Planning•Reduce employee turnover•Effective training and on-boarding costs
•Improve Data input – Billing & Payroll•Reduce/Conserve Operating costs•Enhance value of product (strengthen pricing)•Improve training & cross-training•Have smooth succession planning in place
11
Defining Assets
What we have and how well we use what we have.
Return on Assets (ROA) – Percent value of Net Profit to Total Assets.
Revenue per Employee - Company efficiency measure that reflects employee count and revenues.
Measures
Asset Strength – the ability to remain viable during ups and downs in the marketplace.Asset Utilization – the ability to efficiently and effectively use assets to generate profits.
Definition
12
Assets in ActionThe modern charcoal briquette was invented by automaker Henry Ford. Ford operated a sawmill in the forests around Iron Mountain, Michigan, in the years prior to 1920 to make wooden parts for his Model T. As the piles of wood scraps began to grow, so did Ford's eagerness to find an efficient way of using them. He learned of a process developed and patented by Orin F. Stafford. The process involved chipping wood into small pieces, converting it into charcoal, grinding the charcoal into powder, adding a binder and compressing the mix into the now-familiar, pillow-shaped briquette. By 1921, a charcoal-making plant was in full operation.
Benchmark Assets
13
CareerBuilder CareerBuilder CareerBuilder Monster Dice Holdings2010 2009 2008 2010 2010
Net Sales 584$ 565$ 763$ 914$ 129$ Assets
Return on Assets (ROA) - - - -1.64% 5.93%Revenue per Employee 0.352 0.354 0.378 0.156 0.487
Element
ASSETS Review
1. Define Asset Driver
What we have and how well we
use what we have.
2. Measures of Asset 1. ROA – Percent value of Net Profit
to Total Assets.
2. Revenue per Employee – Company efficiency measure that reflects employee count and revenues.
3. Importance of Asset Driver
- Demonstrates ability to work
smarter rather than harder.
- Indicates company invests in
“right” assets
- Indication of execution &
efficiency
4. Benchmark the numbers
2008 2009
2010
Rev./Employee
$378,000 $354,000
$352,000
13
Defining Growth
The ability to increase year over year, quarter over quarter, and/or month over month.
Revenue Growth – Top-line Sales/Revenues increase.
Measures
EBITDA Growth – ‘Controllable’ Profit increase.
“In today’s business world, no growth means lagging behind in a world that grows every day…”
“Investors expect it, employees are energized by it, customers are generally attracted to it and executives are measured by it.”
Definition
14
Net Profit Growth – Bottom-line / Profit increase.
Facing Rapid Decline
• Best & brightest leave first.
• Productivity goes down.
• Morale goes down.
• Costs are cut, which limits ability to grow, company becomes less profitable.
Studies Show: It usually takes 4 or 5 years for the company to recover.
Facing Rapid Growth
• Attracts/Retains the best & brightest!
• Productivity goes up = more profit = more cash = more ability to grow!
• Morale is high.
• You have the ability to grow in your career!
Growth gets more time & attention than any of the 5 elements in a public company.
Benchmark Growth
15
CareerBuilder CareerBuilder CareerBuilder Monster Dice Holdings2010 2009 2008 2010 2010
Net Sales 584$ 565$ 763$ 914$ 129$ Growth
Net Sales Growth 3.40 -25.90 - 0.99 17.28EBITDA Growth 14.24 78.34 - -376.96 7.17
Net Income Growth 30.05 363.09 - -270.95 40.10
Element
GROWTH Review
1. Define Growth Driver
The ability to increase year over
year, quarter over quarter, and/or
month over month.
2. Measures of Growth 1. Revenue Growth – Top-line
Sales/Revenues increase. 2. Net Income Growth – Bottom-line
/ Profit increase. 3. Cost of Capital – Opportunity cost
of funds deployed in an investment.
3. Importance of Growth Driver
“Investors expect it, employees
are energized by it, customers are
generally attracted to it and
executives are measured by it.”
4. Benchmark the numbers
2008 2009
2010
Rev Growth ??%
??% ??%
Net Growth ??% ??%
??%
Cost of Cap. ??%
??% ??%
1. Define Growth Driver
The ability to increase year over
year, quarter over quarter, and/or
month over month.
2. Measures of Growth 1. Revenue Growth – Top-line
Sales/Revenues increase.
2. EBITDA – ‘Controllable’ Profits increase
2. Net Profit Growth – Bottom-line /
Profit increase. 4. Benchmark the numbers
2009
2010
Sales Growth -25.9% 3.4%
EBITDA Growth 78.34% 14.24%
Net Profit Growth 363.09%30.05%
15
Large Group Discussion
Possibilities
• Increase global services.• Provide exceptional service.• Invest in employees.• Better utilize marketing.• Play a part in culture shaping.• Hire talent that is strong and adaptable.• Create customer loyalty.
• Develop great leaders.• Anticipate employee needs that will support a growth strategy.
• Increase; customers, revenues, & product offerings
• Sell value
15
What can you do to positively impact focusing on Growth.
Defining PEOPLE
The External Customer, Vendor/Re-seller, or Internal Customer that has the ability to impact the success of the business.
Expressions of Interest (EOI) – The number of times a visitor clicks on a listing.
Net Promoter Score (NPS) – Customer Care Satisfaction score.
Measures
Definition
16
What is more important than meeting customer expectations?
Exceeding?Anticipating Customer Needs &
Expectations!“If I would have asked my customer what they wanted, they would have said a faster horse!”
~Henry Ford
Failing to Anticipate Customer
What companies have failed to anticipate customer expectations? What were the results?
– Unprepared for recession and required government bailout money. Ford secured line of credit prior and retained full ownership.
– decided to move to digital product line. Polaroid did not and is no longer a serious competitor.
– In 1943, the CEO said the customer need for their product was approximately 5 computers for the entire world.
– Did not move to a digital music player and lost a significant market share to innovative companies like Apple and Motorola.
• GM/Ford
• Kodak
• IBM
• Sony
Benchmark PEOPLE
17
CareerBuilder CareerBuilder CareerBuilder2010 2009 2008
Net Sales 584$ 565$ 763$ People
Expressions of Interest (EOI) 285.5 M 261.9 M 236.3 MNet Promoter Score (NPS) 77% 71% 62%
Element
NPS – 2011 is currently 84%.2010 Net Promoter Scores – USAA = 81%, Apple = 78%,
Facebook = 65%, Google = 63%
PEOPLE Review
1. Define People Driver
The External Customer,
Vendor/Re-seller, or Internal
Customer that has the ability to
impact the success of the
business..
2. Measures of People
1. Expressions of Interest (EOI) – The number of times a visitor clicks on a listing.
2. Net Promoter Score (NPS) – Customer Care Satisfaction score.
3. Importance of People Driver- Without People, then what happens?- Anticipate and then exceed expectations.- Customer service is for everyone;
Internal, External, Vendors.
4. Benchmark the numbers
2008 2009
2010
EOI 236.3M 261.9M
285.5M
NPS 62% 71%
77%
17
5 Business Driver RankingRank the 5 Business Drivers in order based on the driver you have the greatest impact / influence or (based on your role) is the most important to the success of careerbuilder.
Be prepared to share your list with the
class.
1.) Most
important
2.)
3.)
4.)
5.) Least
important38
Demystifying the Annual Report
The Annual Report & Financial Statements
Letter to the Share Holders: 1.Identify which drivers are being focused on.2.Understand the strategic goal(s)
Financial Statements:1.Identify the equation.2.Recognize the purpose of the statement.3.Locate the key numbers/measures.4.How do I impact each statement?
CAN YOU READ THIS?
21
22
Letter to the Share Holders
24
Job-Master 2010 2009 2008Revenue $ 111,055.00 $ 111,359.00 $ 107,378.00 Other Revenue, Total $ 11,963.00 $ 12,669.00 $ 11,550.00
Total Revenue $ 123,018.00 $ 124,028.00 $ 118,928.00
Cost of Revenue, Total $ 50,405.00 $ 49,556.00 $ 46,705.00
Gross Profit $ 60,650.00 $ 61,803.00 $ 60,673.00 Selling/General/Admin. Expenses, Total $ 31,407.00 $ 31,526.00 $ 30,242.00 Research & Development $ - $ - $ - Depreciation/Amortization $ 19,714.00 $ 19,883.00 $ 21,577.00 Interest Expense(Income) - Net Operating $ - $ - $ - Unusual Expense (Income) $ 102.00 $ 467.00 $ - Other Operating Expenses, Total $ - $ - $ -
Total Operating Expense $ 101,628.00 $ 101,432.00 $ 98,524.00
Operating Income $ 21,390.00 $ 22,596.00 $ 20,404.00 Interest Income(Expense), Net Non-Operating $ - $ - $ - Gain (Loss) on Sale of Assets $ - $ - $ 148.00 Other, Net $ 142.00 $ 139.00 $ 497.00
Income Before Tax $ 18,999.00 $ 20,164.00 $ 18,204.00
Income After Tax $ 12,843.00 $ 13,128.00 $ 11,951.00 Minority Interest $ (308.00) $ (261.00) $ - Equity In Affiliates $ - $ - $ -
Net Income Before Extra. Items $ 12,535.00 $ 12,867.00 $ 11,951.00
Accounting Change $ - $ - $ - Discontinued Operations $ - $ - $ - Extraordinary Item $ - $ - $ -
Net Income $ 12,535.00 $ 12,867.00 $ 11,951.00
Diluted Normalized EPS $ 2.19 $ 2.32 $ 1.92
Income StatementEquation:Revenue – Expenses = Profit
Cost of Revenue -
Cost of Goods Sold (COGS)Gross Margin
$60,650 / $111,055 =
54.6%
Total Revenue - Top-line
Net Margin$12,535 /
$111,055 = 11.3%
Purpose:Identify Profitability
Operating Profit –
Operating Income – EBIT
Net Profit – Net Income
– Bottom-line
26
2010 2009 2008Cash & Equivalents $ 3,802.00 $ 1,792.00 $ 1,970.00 Cash and Short Term Investments $ 3,802.00 $ 1,792.00 $ 1,970.00 Accounts Receivable - Trade, Net $ 14,978.00 $ 16,047.00 $ 16,185.00 Total Receivables, Net $ 14,978.00 $ 16,047.00 $ 16,185.00 Prepaid Expenses $ 1,572.00 $ 1,538.00 $ 1,524.00 Other Current Assets, Total $ 3,982.00 $ 3,179.00 $ 5,007.00
Total Current Assets $ 24,334.00 $ 22,556.00 $ 24,686.00
Property/Plant/Equipment, Total - Gross $ 230,552.00 $ 218,579.00 $ 210,518.00 Accumulated Depreciation, Total $ (130,459.00) $ (119,491.00) $ (114,628.00)Goodwill, Net $ 73,259.00 $ 71,829.00 $ 70,713.00 Intangibles, Net $ 61,823.00 $ 63,712.00 $ 58,402.00 Long Term Investments $ 2,921.00 $ 2,332.00 $ 2,270.00 Other Long Term Assets, Total $ 6,322.00 $ 5,728.00 $ 23,683.00
Total Assets $ 268,752.00 $ 265,245.00 $ 275,644.00
Accounts Payable $ 7,514.00 $ 6,921.00 $ 7,059.00 Accrued Expenses $ 17,655.00 $ 16,960.00 $ 17,911.00 Notes Payable/Short Term Debt $ 33.00 $ 4,616.00 $ 1,921.00 Current Port. of LT Debt/Capital Leases $ 7,328.00 $ 9,503.00 $ 4,939.00 Other Current liabilities, Total $ 4,175.00 $ 4,290.00 $ 7,444.00
Total Current Liabilities $ 36,705.00 $ 42,290.00 $ 39,274.00
Long Term Debt $ 64,720.00 $ 60,872.00 $ 57,255.00 Total Long Term Debt $ 64,720.00 $ 60,872.00 $ 57,255.00
Total Debt $ 72,081.00 $ 74,991.00 $ 64,115.00
Deferred Income Tax $ 23,803.00 $ 19,196.00 $ 24,939.00 Minority Interest $ 425.00 $ 403.00 $ - Other Liabilities, Total $ 41,199.00 $ 46,137.00 $ 38,809.00
Total Liabilities $ 166,852.00 $ 168,898.00 $ 160,277.00 Common Stock, Total $ 6,495.00 $ 6,495.00 $ 6,495.00 Additional Paid-In Capital $ 91,707.00 $ 91,728.00 $ 91,638.00 Retained Earnings (Accumulated Deficit) $ 39,366.00 $ 36,591.00 $ 33,297.00 Treasury Stock - Common $ (21,260.00) $ (21,410.00) $ (15,683.00)Other Equity, Total $ (14,408.00) $ (17,057.00) $ (380.00)
Total Equity $ 101,900.00 $ 96,347.00 $ 115,367.00
Total Liabilities & Shareholders' Equity $ 268,752.00 $ 265,245.00 $ 275,644.00 Total Common Shares Outstanding $ 5,901.93 $ 5,893.01 $ 6,043.55
Balance SheetEquation:
Assets = Liabilities + Equity
Purpose:Financial Strength
Most Liquid
Least Liquid (1yr.)
Current Ratio
Current Assets / Current
Liabilities
24,334 / 36,705= .663
Equity Ratio
Total Equity / Total Assets
$101,900 / $268,752= 38%
28
2010 2009 2008Net Income/Starting Line $ 12,843.00 $ 13,128.00 $ 12,147.00 Depreciation/Depletion $ 19,714.00 $ 19,883.00 $ 21,577.00 Amortization $ - $ - $ - Deferred Taxes $ 2,104.00 $ 5,889.00 $ (240.00)Non-Cash Items $ 1,036.00 $ 1,383.00 $ 531.00 Changes in Working Capital $ (1,252.00) $ (6,627.00) $ 227.00
Cash from Operating Activities $ 34,445.00 $ 33,656.00 $ 34,242.00
Capital Expenditures $ (16,595.00) $ (19,676.00) $ (17,717.00)Other Investing Cash Flow Items, Total $ (1,330.00) $ (9,467.00) $ (959.00)
Cash from Investing Activities $ (17,925.00) $ (29,143.00) $ (18,676.00)
Financing Cash Flow Items $ (465.00) $ 151.00 $ (51.00)Total Cash Dividends Paid $ (9,670.00) $ (9,507.00) $ (8,743.00)Issuance (Retirement) of Stock, Net $ 28.00 $ (5,758.00) $ (8,404.00)Issuance (Retirement) of Debt, Net $ (4,403.00) $ 10,423.00 $ 1,184.00
Cash from Financing Activities $ (14,510.00) $ (4,691.00) $ (16,014.00)
Foreign Exchange Effects $ - $ - $ -
Net Change in Cash $ 2,010.00 $ (178.00) $ (448.00)
Cash Interest Paid, Supplemental $ 3,873.00 $ 3,727.00 $ 3,445.00 Cash Taxes Paid, Supplemental $ 4,471.00 $ 5,307.00 $ 4,013.00
Cash Flow Statement
Equation: Cash from Operations +/- Cash from Investing +/- Cash from Financing = Net Change in Cash
Purpose:Cash Management
Earn It (Core Business)
Sell Assets
Borrow It
140
58466
11.38
80.37
.352
3.4
30.0
14.2
285.5
77%
66 584
584 503
584 1658
584 565
66 51
80.37 70.35
35
Individual Action Plan
Review:What new insights did you gain, as a result of attending?
(Page 52)
Action Plan: List the things you can commit
to do: Cash: (refer to page 9) Profit: (refer to page 11) Assets: (refer to page 13) Growth: (refer to page 15) People: (refer to page 17)
(Page 53)
53
Retaining Content over Time
Time
ReviewApplyTeach
15%
52
Find a Partner now and:1. Set up a specific date and time in 30 days to
report your progress on your action plan.
2. Exchange emails
3. Exchange phone numbers
4. Decide who will initiate the call
5. Determine a back-up plan
6. Transfer this information to
your planner or PDA now.
Acumen Accountability
Locating Financial Information
Web Sites:
• www.nasdaq.com
• www.reuters.com
• www.yahoo.com
• www.finance.google.com
• www.hoovers.com
• www.smartmoney.com
55
One Final Thought…
“People will work
hard for a paycheck,
harder for a person, and
hardest for a reason.”
