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what are internal resources and capabilities?
things managers have control over
5 components of the layered model
- ethics, culture, assets
- organization dynamics (day to day visible effort-->individual work, teamwork milestones)
- strategy <-->business model (direction; business model ensures strategy is profitable)
- value chain (ensure each step is efficient)
4 elements that make up value
- don't outsource core competence or distinctive competence.
five aspects for healthy business organization
- strategically advancing, financially healthy,
- operationally efficient, organizationally strong and stable, socially and environmentally
- responsibleàput it into a pyramid
why is socially responsible important
think of it as the thread from which the bow is released; if the thread is weak, the accomplishment of releasing the arrow in terms of distance and speed is weak
compound annual growth rate
how much debt should company have
less than or equal to 5 times net income
average asset/ average equity
the value of shares offered by company
how to increase profit margin
increase by decreasing cost and increasing sales
how to find average asset
last year + this year /(2)
net income (NI)/ revenue (NS)-->percentage value
- revenues/average asset
- asset turnover is the asset efficiency
how much cash is good to have? (Burn rate)
enough to cover 12-24 months of all expenses (operating and financial)
- earning before interest and taxes
- or it is called operating profit (when you deduct things from revenue)
net earning/income bottom line is when
you deduct taxes and interest from EBIT
what is a balanced sheet?
- a snapshot, picture of a company's liability and assets for a given period of time, end of fiscal year.
- left side (things you own), right side (what you owe)
- -in stored value (when you stored it value), not market value
give an example of a liquid vs a fixed asset
- assets that take more time to sell without losing value are less liquid (property)
- liquid assets like cash, bonds, banking (aren't the same when you first bought them)
what does assets equal?
total liabilities (things you owe) + equity (value of shares issued by company)
what is BATNA
best alternative to the negotiative agreement (second best option)
why is the internal environment important?
- culture leads to behavior, culture is the bedrock to the behavior. Behavior is a reflection of culture.
- culture is the set of values.
how are revenue, expenses and EBIT related?
total revenue-operating expenses=EBIT
what are terms synonymous with shareholder's equity?
stockholders' equity or net worth
net income synonyms
net profit or profit after tax.
- gross profit/sales
- measures the ability of the firm to cover its direct costs
- greater for differentiated products than for commodity products when all things are equal (due to differences in value added and pricing power)
- greater for firms with higher leverage with suppliers (procure raw materials on favorable terms)
what are profitability ratios?
measure the ability of a firm's revenues to cover its costs.
what are the three types of profitability ratios?
gross margin, operating margin and net margin
what does COGS include?
- cost of goods sold
- includes raw materials, direct labor, and depreciation of manufacturing equipment
what is operating margin
- operating income/ sales
- subtracting SG&A, R&D, depreciation expenses and any other operating expenses from gross profit.
- also known as EBIT
- measures ability of firm to generate a profit after covering costs for producing and selling its products
- firms with heavy R&D, advertising and promotion will have lower operating margin than gross margin
- net income/sales
- also known as profit margin and return on sales
- extends operating margin to reflect non-operating costs: interest and taxes.
- while it does not add much info about effectiveness of firm's operating strategy, it is an important summary measure of income that belongs to shareholders after all costs, both operating and financial have been covered
when gross margins are high what does that say about the company?
strong brand equity, a differentiated product and associated pricing power
what does interest costs tell us about the company?
its financial strategy rather than its business strategy
asset management philosophy? What is asset management metric?
- generate maximum revenue on minimum assets, without compromising long-term strategy
- total asset turnover=sales/total assets (measures the dollars of sales generated by each dolla)r invested in assets
what is return on assets (ROA)?
- integrates profitability and asset utilization
- =net income/total assets
- measures the net income generated for each dollar invested in assets
- effective strategy must be both profitable and asset efficient
fixed asset turnover
- measures the ability of a firm's fixed assets (property, plant, equipment) to generate sales
- high fixed asset turnover indicates a superior ability to optimize usage of the existing capital base and to schedule capital expenditures.
- accounts receivable represents the uncollected sales, arises from allowing customers to buy on credit and pay over time.
- while extension of credits stimulates sales, the resultant accounts receivable must be funded with costly liabilities or equity.
- receivables are an investment.
- important to see if receivable investment warranted (justifies) the sales generated
accounts recevable turnover
- sales/accounts receivable
- comparability with other asset turnover measures
- high receivables turnover indicate ability to collect credit sales quickly.
days in sales in accounts receivable
- accounts receivable/sales per day
- also know as average collection period and receivable days
- we want this to be low
- directly comparable to stated policy and easily interpreted in light of the business strategy.
complete list of items such as property, goods in stock or contents of a building.
days cost of sales in inventory
inventory/COGS per day
- number of times an item of inventory is replenished each year.
- we want inventory turnover to be high and inventory days to be low.
when will inventory days be lower? higher?
when product is more perishable and higher for long production cycles (inventory includes work in process) and raw materials with unpredictable availability.
what are the two inventory strategies that need to be taking into consideration when considering inventories?
carry enough inventory to meet demand (expected and unexpected) while not carrying so much inventory that needless financing and storage costs are incurred.
what are reasons why we may see a reduction in inventory turnover, and associated increase in inventory days?
deliberately increased inventory levels to accomplish a valid operating object or bought product inputs and/or produced products that it was unable to sell as planned.
what is a leverage buy out
take out debt to reestablish the image of the company
what do you do when profit and revenue are both challenged?
choose growth and revenue and then try to lower cost
what are the advantages of entrepreneurship and foreign assignments?
career, financially well, social, and psychic
disadvantages of foreign assignments and entrepreneurship
reentry may be a problem, career is at question
what is intropreneurship
entrepreneurship within a company
why do we want to expand to other countries?
- expansion of market
- raw materials and human made resources
- increased brand recognition
- lower tax
- cheaper labor
- market potential
- competitor is also overseas
what are the different scopes of the company
- international (grows from 2)
- global (100+ countries, all continents)
what is FDI?
foreign direct investment: you have full control of assets; wholly owned subsidiary
what are ways to enter a foreign market?
- licensing (license tech overseas and they manufacture for you)
- alliance: share customers
- virtual expansion (internet)
what are challenges in operating overseas?
- PESTEL (political, economical, social, environmental, legal)
- don't expect immediate payback
economic and marketing research
- GDP (everything produced in that country)
- PMI (purchasing power of buyers)
- consumer spending debts
- investment in entrepreneurship?
- internal elements (how innovative and cohesive are the people?)
what is one measure of degree of financial leverage?
logn term debt/total assets
what is the equity multiplier for indebtedness?
what is the most useful metric to measure the overall ability of the business strategy to generate returns for shareholders?
- ROE (return on equity)
- ROE=net income/stockholders' equity
what is stockholder's equity
- cumulative funds invested by shareholders.
- funds are directly invested each time new shares are issued.
- funds are indirectly invested each time net income is retained for net reinvestment.
how do we measure scope?
customer base, geographic, locations, number of products.
enterpreneurship within a company
bright side of entrepreneurships and foreign assignments
- financially well
what do you do before you go into the market?
look at GDP, PMI (purchasing power of buyers), employments, if country is investing in entrepreneurships, consumer spending debts, internal elements
difference between joint and merger
what is credo?
- mission and cultural statement, guiding finger for all stakeholders, who are the people that we serve, for outside to read and what this company is all about.
- customers and employers integrated into something important.
what is FDR's 3 r's
relief, recovery, reform
what are the five stages of falling to your death?
- continue to take risks
if you miss the time for an opportunity
- then you may need transition (migrate to next version of technology)
- prepare new vision for company-->transformation to something new
what do you do first to transform the cost structure?
morph your way of doing business
going into multiple products
why are goals important?
gives us long term vision
how is sustainability built in the long term?
through securing the base of the layered model