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Integrated Management Project

Integrated Management Project. FN02 Dr David Ewers Same Time Session. Reasons to Fail – Being Stupid !. Disorganised Descriptive No understanding Integration of three areas Referencing Reviewer and Support – Senior Management Support /Reviewer

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Integrated Management Project

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  1. Integrated Management Project FN02 Dr David Ewers Same Time Session

  2. Reasons to Fail – Being Stupid ! • Disorganised • Descriptive • No understanding • Integration of three areas • Referencing • Reviewer and Support – Senior Management Support /Reviewer • Have I fallen down any of these holes ?

  3. Reasons to Fail – being Clever ! • Disorganised • Descriptive • No understanding • Integration of three areas - Help • Referencing - Help • No Support - Help • Reviewer – Senior Management Support - Help /Reviewer • Have I fallen down any of these holes ? - Why

  4. SVA application:CASE – Subject Integration CFG – SD - GBE • CFG SD GBE • SGR • OPM • CTR • RFCI/IFCI • IWCI • COC/WACC • Competitive Adv Advantage

  5. Integration Linkage Sheet

  6. Traditional corporate finance theory breaks down due to… • Conflict of interest: • The interests/objectives of the decision makers in the firm conflict with the interests of shareholders. • Bondholders (Lenders) are not protected against expropriation by shareholders. • Asymmetric information: • Financial markets do not operate efficiently, and share prices do not reflect the underlying value of the firm. • Contingent liabilities: • Significant social costs can be created as a by-product of share price maximization.

  7. The Market of Corporate Control • The corporate control market is a market in which investors or management teams buy and sell corporations and compete for control of a company. • Narrowly defined, the corporate control market is a corporate takeover market in which mergers, acquisitions, hostile takeovers, leveraged buy-outs (LBOs), and management buyouts (MBOs) take place. • A broader definition includes a variety of other organizational restructuring events that are related to attempts by one team or another to retain or get control of a company. • These events include divestitures, spin-offs, and initial public offerings (IPOs).

  8. Now The “forward looking” mindset Historical Future “Performance” “Potential” Profit Free Cash Flows IBT Book Taxes Equity Dividends Retained Earnings Economic Accounting

  9. Estimating free cash flows: the Value Drivers. CASH PROFIT GENERATION Sales • Cost of good sold = Operating Margin + Depreciation/Amortization = EBITDA • Cash Taxes = Operating cash flows - RFCI: Replacement Fixed Capital Investment - IFCI: Incremental Fixed Capital Investment - IWCI: Incremental Working Capital investment = Free Cash Flows to the Firm INCREMENTAL CASH NEEDED

  10. Sales Growth Rate (SGR) Operating Profit Margin (OPM % sales) Cash Tax Rate (CTR % of OPM) IFCI (% incr sales) IWCI (% incr sales) Depreciation (% of sale) RFCI (= depreciation) Cost of Capital Where do I find the Value Drivers? Profit & Loss Balance Sheet WACC

  11. Free cash flows from planning period Inputs from past performance Projected into the future

  12. Free cash flows from planning period

  13. Free cash flows from continuing period: the Terminal Value

  14. From Business Value to share price

  15. Integration Linkage Sheet

  16. Increases in CFG value supported by SD and GBE • Sales growth may improve because of being able to use the distribution channels of each organisation to sell the products of both • Reductions in operating profit margins may be possible because of being able to use production facilities more efficiently • Cash taxes may be saved by being able to plan the tax position of the new combined organisation. This area may be particularly beneficial for certain types of cross-border deals • Fixed capital requirements may be lowered by being able to use available spare capacity for increased sales activity. There may also be an impact on replacement capital requirements, a good example of this being the decision to merge by two high street clearing banks. It may be possible to provide service to both sets of customers in the new organisation by cutting the number of branches • Working capital requirements can be reduced if the two businesses have a profile of cash flows opposite in effect to one another. There may also be potential benefits arising from better debtor, creditor and stock management • The cost of capital may fall if access is obtained to cheaper sources of finance. • What are the most influential SVD/s and their value impact and the assumptions needed to be supported by SD and GBE

  17. Integration Scenario Analysis

  18. My IMP • Title • Description – abstract (200 words) • Value Objective • GBE Concepts utilised - • SD Concepts utilised - • CF Concepts utilised - • CG Concepts utilised – • Number of Integration Links • Value Created by Project • Management Reviewer

  19. My IMP Integration Linkage Sheet

  20. Questions and Action Plan • 1 • 2 • 3 • 4 • 5 • 6

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