You found answers re: How the market is segmented & the relevant criteria that influence consumers use in their purchasing decisions The nature & magnitude of the competition Existing & emerging Economic & Technological trends that will impact demand, pricing, product design & positioning Consumers Competitors Conditions

NEXT STEP Company Consumers Competitors Conditions Situation/SWOT Analysis Strategic Planning Functional Integration Performance Assessment NEXT STEP Company Consumers Competitors Conditions PEST Growth & Competitive Strategies Finance HR Production R&D Marketing Functional Integration Profits Mrkt Share ROA ROS ROE Asset T/O Stock Mrkt Cap

How good are your goods… Marketing How good are your goods…

Production How good are you in making your goods…

Ascertain Financial Health of Your Company

Key Financial Q’s: Are You Making Enough Profit? -Liquidity? Enough Money on hand to run/grow your co. -Leverage? ideally proportioned betw. Debt & Equity? How effectively are you utilizing your assets? A/T R U providing your investors an Adequate Level of Return? How close are you to Bankruptcy? How’s those Bond Ratings?

Various Measures of Your PROFITABILITY Profitability Ratios: ROS--- Profit/ Sales ROA— Profit/ Assets ROE– Profit/ Equity Net Profits Cum Profits

NET PROFITS $$ Year 1 $6 million Year 2 $8 million Year 3 $10 million Year 4 $12 million Year 5 $16 million Year 6 $21 million Year 7 $27 million Year 8 $35 million

Profitability * Asset Mgt * Leverage As measured by ROE Return on Equity = net profit equity Encompasses the 3 main levers used by mgt to generate return on investors equity Profitability * Asset Mgt * Leverage

“Generically, profits are driven by the company’s asset base and by its efficiency working those assets”

Du Pont Formula x x net profit equity Return on Equity = net profit Value Chain net profit equity Return on Equity = net profit sales sales assets assets equity x x

Du Pont Formula x Return on Equity = net profit equity sales assets Value Chain Return on Equity = net profit equity sales assets x

Ratio World Class   Top 10 cut Mean Poor  ROE* 600%+ 100%+ ~20% <15%

Profitability * Asset Mgt * Leverage As measured by ROE Return on Equity = net profit equity Encompasses the 3 main levers used by mgt to generate return on investors equity Profitability * Asset Mgt * Leverage

Profitability * Asset Mgt * Leverage Improve ROE by: Value Chain Profitability * Asset Mgt * Leverage net profit sales assets equity x Increase sales &/or reduce &/or eff. work assets Improving Margins Increasing Leverage

IF: Contribution Margin (Sales- variable costs) / sales ……. below 30%, Problem = Marketing (customers hate your products) Production (your labor & material costs too high), &or Pricing (you cut price too much).

IF: Contribution Margin is above 30%… but Net Margin is below 20% …Net Margin = Sales - (Variable Costs + Period (Fixed) Costs)  / Sales Problem= heavy expenditures on Depreciation (perhaps you have idle plant) & or heavy expenditures on SGA (perhaps you’re pushing into diminishing returns on Promo & Sales Budgets).

7-17%

Net Margin above 20%, but ROS (net profit) below 5%.. -- IF: Net Margin above 20%, but ROS (net profit) below 5%.. -- you either experienced some extraordinary "Other" expense like a write-off on plant you sold or you are paying too much Interest (…you may also have spent heavily on TQM initiatives).

Profitability * Asset Mgt * Leverage Improve ROE by: Value Chain Profitability * Asset Mgt * Leverage net profit sales assets equity x Increase sales &/or reduce &/or eff. work assets Improving Margins Increasing Leverage

“Generically, profits are driven by the company’s asset base and by its efficiency working those assets”

The higher the better = more efficient use of assets Asset Turnover Reveals how effective assets are at generating sales revenue. The higher the better = more efficient use of assets Currently you are generating $1.05 in sales for every $1 assets sales assets Asset Turnover =

Profitability * Asset Mgt * Leverage Improve ROE by: Value Chain Profitability * Asset Mgt * Leverage net profit sales assets equity x Increase sales &/or reduce &/or eff. work assets Improving Margins Increasing Leverage

Assets/Equity – simulation takes owner's perspective. LEVERAGE: Assets/Equity – simulation takes owner's perspective. Corp assets fin.w/ debt Optimal Leverage     Assets Debt Equity 1.0   $1 $0 2.0 $2 3.0 $3 4.0 $4 A Leverage of 3.0 says, "For every $3 of Assets there is $1 of Equity 1.8 to 2.8

How effective/aggressive R-U in building your Co’s asset base… It takes $$ to Make $$ &-why not make it using somebody else's…. To help you make even more…

“Generically, profits are driven by the company’s asset base and by its efficiency working those assets”

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How effective will you be in building your Co’s asset base? At outset should be spending ~$10-25M / round on plant improvement By end should expand asset base to min $140M to $160M+

For each additional .5% increase in interest -You drop one category The More Assets you have the better your Bond Ratings AAA/AA/A/BBB/… BB & beyond is Junk… B/CCC /CC/C/D = default As your debt-to-assets ratio increases… Your short term interest rate increases… For each additional .5% increase in interest -You drop one category

Stock Price Profit$

STOCK PRICE Function of: Earnings per Share Net Profit / # Shares Book Value Equity / # Shares Dividend Policy Good Dividend Policy STOCK PRICE Function of:

2nd Deliverable

How good are your goods… Now Evaluate How good are your goods…

R U Meeting Consumers’ Expectations?

Strategic Thinking- the ten big ideas 4. Portfolio theory- GE-(three-by-three matrix, using business strength & market attractiveness as variables). The Boston Consulting Group (BCG) introduced its two-by-two matrix-(invest in the stars, divest the dogs, milk the cows, and solve the question marks)

Portfolio Analysis Which Brands should receive more/ less/ no investment-Based on: Product Position/ Potential Profitability/ Margins Market-Growth/Market- Share Matrix Competitive Strategy

G.E Strategic Planning Model Business Strength Strong Average Weak High Low Industry Attractiveness Business Strength Index Industry Attractiveness Index * Market Share * Market size * Price Competitiveness * Market Growth * Product Quality * Industry Profit Margin * Customer Knowledge * Amount of Competition * Sales Force and Effectiveness * Seasonality * Geographic Advantage * Cost Structure

Boston Consulting Group’s Growth-Share Matrix STARS High PROBLEM CHILD Product-Market Growth (%) CASH COWS DOGS Low 10x 4x 2x 1.5x 1x .5x .2x .1x High Relative Market Share Low

3rd Deliverable

Next Big Q How good are you in making your goods…

4th Deliverable

Can I be excused my brain is full..