part 1 welcome to: building business acumen ® marine civil aerospace energy nuclear defense...
TRANSCRIPT
Part 1
Welcome to:
Building Business Acumen®
Marine
Civil Aerospace
Energy
Nuclear
Defense Aerospace
Rolls – RoyceEngine Services
OaklandRRESO
Only 5-10% of business start-ups survive past 5 years.
16% of CEOs lose their job every year. Booz Allen Hamilton 5th annual Study
70% of merger and acquisition activity do not live up to expectation. Wall Street Journal 2007
Business can be tough!
So why do businesses fail?
Every business must focus on five business drivers.
If they do, they will be successful.
If they don’t, they’ll fail.
Let’s Start a Business!
Business Acumen:
4
Acumen means?
…the ability to make good business decisions in a timely manner with an understanding of how the decision should impact the business.
3
Every business must focus on five business drivers.
If they do, they will be successful.
If they don’t, they’ll fail.
Let’s Start a Business!
Business Acumen:
When it comes to running a business successfully,the street vendor and the CEOs of some of the world’s largest and most successful companies talk and think very much alike.
-Ram Charan
Cash DefinitionsDefinition of Cash:Cash is the bills and coins in the register, petty cash, and cash in the bank. It also includes cash equivalents, like Certificates of Deposits (CD’s) and other highly liquid investments (i.e. easily converted into cash within 90 days. (Also see: Appendix: Cash, Page 58)
Definition of Cash Flow:Cash generation is the difference between the cash that flows into the business and the cash that flows out of the business in a given period of time, such as a quarter or a year.
Can a company be profitable and go out of business?
(Page 8)
Cash is King!
“Cash is more important than your mother.“ -Al Shugart Former Seagate CEO
“Cash Flow is more important than profit.” -Peter Drucker
“Cash is a company’s oxygen supply.” (It gives you the ability to stay in business) -Ram Charan Cash:
(Savings Account)
Cash Flow: (Checking Account)
$5,000 On hand
$100,000 Salary- $90,000 Expenses $10,000 ???
Put in Acct.
Spend it
Invest it
Cash & Cash Flow
How to obtain Cash
Can a company have too much Cash?
9
• Earn it •Cash from Operation
• Sell Assets•Cash from Investing
• Borrow it•Cash from Financing
Pro: No Cost -Con: Time
Pro: Immediate -Con: Reduces Assets
Pro: Immediate -Con: Cost (Interest)
How much is too much/little?
Cash- Rolls-Royce
Cash- Rolls-Royce
Cash- Rolls-Royce
How Much Cash Should You Have?
Companies ought to keep just enough cash to cover their interest, expenses and capital expenditures;
plus they should hold a little bit more in case of emergencies.
Cash- Rolls-Royce
Cash- Rolls-Royce & Benchmark Companies
Cash- Rolls-Royce & Benchmark Companies
Cash Flow Guidance
What do shareholders generally want a company to do with its extra cash?
Invest
in the st
ock m
arket.
Stock
pile as
much
as it c
..
Pay off all o
f its d
ebt.
Eith
er invest
it or r
eturn
..
None of t
he above.
0% 0% 0%0%0%
1. Invest in the stock market.
2. Stock pile as much as it can so that is can earn more interest.
3. Pay off all of its debt.4. Either invest it or
return it to shareholders
5. None of the above.
When a CEO refers to cash flow or cash generation, they are likely referring to:
How m
uch ca
sh ...
How m
uch ca
sh ...
The cash
gener...
The inte
rest
e...
0% 0%0%0%
1. How much cash is in the bank.
2. How much cash you made from selling assets.
3. The cash generated from your core business.
4. The interest earned on your cash.
Profit is what is left over after you have paid your expenses. It can be
expressed in dollars ($ Profit) or as a percent (% Margin).
The types of expenses you deduct determine which margin you are calculating. Most common margin calculations are:
Gross Profit: deduct cost of goods only
Underlying Operating Profit: (?)
Net Profit: deducts all expenses
Definition of Profit:
Sales Price: $2.00Water - $ .20 COGSLabel - $ .05 COGSBottle/cap - $ .25 COGS
Packaging - $ .50 COGS________________________________________________________________
Total: ($ 1.00) $2.00 - $1.00 =
$1.00 GROSS MARGIN ($1.00 or 50.0%)
Rent - $ .10Gen, Admin. - $ .15Marketing - $ .15 Shipping - $ .05
_______________________________________________________________________
Total: ($ .50)$2.00 - $1.00 - $.50 = $ .50 NET MARGIN
($ .50 or 25%)
Operating Profit & EBIT
Gross Margin
Net Margin
28%
32%
22%
WHY?
They sell commodities.
“If you’re not unique, you better be cheap!”
WHY?
They sell commodities.
“If you’re not unique, you better be cheap!”
To drive Profit($) you need either: High Margin (%) or High Velocity (Volume)
High Margin vs. Low Margin(Take notes on Page 11)
3.6%
8.0%
1.7%
High Margins
Low Margins
WHY?
They offer something Unique!
Profit- Rolls-Royce
UPBFCT
Profit- Rolls-Royce & Benchmark Companies
Profit- Rolls-Royce & Benchmark Companies
General Mills: Hot’n Spicy Chex Mix:
“We had 14 different pretzel shapes. By getting rid of some of them, we save $1 million a year.”
Yoplait: Ditched multicolored lids, saving $2 million a year:
Examples of PROFIT In Action
Airlines: Baggage Fees fatten airline revenues by $3.8B
Assets (Guide book p.12)
Balancing…
Asset Strength
Asset Utilization
Example: Example: Profits & & Assets
“In 1912, the Model T for the first time cost less than the prevailing average annual wage in the United States.”
“Ignoring conventional wisdom, Henry Ford continually sacrificed margins to increase sales. In fact, profits per car did fall as he slashed prices from $220 in 1909 to $99 in 1914.”
“But Sales Exploded!”
“Ford demonstrated that a strategic, systematic lowering of prices could boost profits, as net income rose from…
$3 million in 1909 to $25 million in 1914.”~Daniel Gross, Forbes Greatest Business Stories
Moody’s A3 S&P A- Stable
How does this help our financial
strength?
Assets- Rolls-Royce
Assets- Rolls-Royce & Benchmark Companies
Assets- Rolls-Royce & Benchmark Companies
