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New Tools for Strategic Planning Chapter. 5

New Tools for Strategic Planning Chapter. 5. T. A. Sgritta University of North Carolina at Charlotte. Chapter 5. Financial Analysis for Strategists and Planners. Planning Factors. Real Market, product, customer Win Strengths vis-à-vis the competition, plans and capabilities to implement

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New Tools for Strategic Planning Chapter. 5

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  1. New Tools for Strategic Planning Chapter. 5 T. A. Sgritta University of North Carolina at Charlotte

  2. Chapter 5 Financial Analysis for Strategists and Planners

  3. Planning Factors • Real • Market, product, customer • Win • Strengths vis-à-vis the competition, plans and capabilities to implement • Worth • Financial and cultural

  4. Profit and Loss Statement • Operations • Somewhat flexible • May not be accurate • Source of recent financial problems

  5. Terms • Earnings • EPS • EBT • EBIT • EBITDA

  6. Typical P & L ($000s) Sales $50,000 100% Material $24,000 48 Labor 6,000 12 CGS 30,000 60 Variable Margin $ 20,000 40% Fixed costs: G&A $ 1,750 3.5% Mktg./Sales 4,600 9.2 Manufacturing/Operations 4,400 8.8 Engineering/Prod. Dev. 3,000 6.0 Subtotal Fixed $ 13,75027.5% EBIT $ 6,250 12.5% Interest $ 1,2502.5% EBT $ 5,000 10.0% Provision for taxes 1,750 3.5% Earnings after tax $ 3,250 6.5%

  7. Typical Balance Sheet ($000s) Assets: Cash $ 300 Receivables 10,000 Inventory 10,000 Sub-Total Current Assets $20,300 PPE $ 5,000 Less accm’d dep. 2,200 Net $ 2,800 Goodwill $ 100 Patents, intangibles, net 0 Sub-Total Fixed Assets $ 2,900 Total Assets $23,200

  8. Liabilities and Equity ($000s) Liabilities Accounts Payable $ 8,000 Taxes Payable 200 Other current liabilities 0 Sub-total, Current Liabilities $ 8,200 Long Term Liabilities: Long Term Debt  $11,200 Total Liabilities $19,400 Equity Paid-in-capital $ 100 Retained Earnings 3,700 Total Equity $ 3,800 Total Liabilities and Equity $23,200

  9. Key Balance Sheet Items • Cash • Receivables • Inventory • Fixed assets (PPE) • Accounts payable (current liabilities) • Equity

  10. Receivables: Days Sales Outstanding • Why is it important? • How is it calculated? • Why are amounts past due important? • What are the strategic implications?

  11. Inventory: Inventory Turnover • Why is it important? • How is it calculated? • Why are obsolete items important? • What is the inverse of inventory turnover? • What are the strategic implications?

  12. 25% of inventory is unusable? 30% of receivables are uncollectable? How does this change: Equity? Income? What If…

  13. Compound Growth Rates • Finance • Marketing • Evaluation

  14. Sales Projections(CGR estimate = 8%)

  15. Sales Projections

  16. Sales Projections

  17. Sales Projections

  18. Return on Investment (ROI)(example) • EBIT = $5,000 • Total assets = $25,000 • Current liabilities = $5,000 • ROI = 25%

  19. Income Statement – Growth Situation ($000s)

  20. Cash Flow ($000s)

  21. Year 1 2 3 4 5 6 7 8 9 10 Discount Value (@ 25%) 1.00 0.75 0.56 0.42 0.32 0.24 0.18 0.13 0.10 0.08 Discounted Cash Flow Worksheet

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