Financial management Lecture # 6

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Financial management Lecture # 6 25/03/2017 Financial management Lecture # 6 Jan H. Jansen jan.jansen@han.nl

Programme (Spring 2008) 25/03/2017 # Date Topic Chapters F&A Additional readings Assignments 1 11.02.2008 (2 hrs) Introduction Financial Statements Economic Trade Off’s 3 Atrill Drury 1 (Analyses Annual Report KPN 2006) 2 18.02.2008 (4 hrs) Accounting Financial Ratios 4 & 5 6 Horngren 2 Benchmarking Annual Reports 25.02.2008 Budgetting Variance Analyses 7 3 (Case outsourcing) 4 Break Even Analyses Cost Prices 8 4 (Budgetting case) 5 10.03.2008 Working Capital Management Capital Budgetting 10 11 & 12 5 (Variance Analyses) 17.03.2008 Interest rate & Risk 12 Brigham 6 (Interest calculations) 31.03.2008 DOSIT model Case study 7 (Capital budget) 07.04.2008 Test exam 8 (Investment decision) E 14.04.2008 Or 21.04.2008 Writte exam

Investment Decisions

Investment trade off (I) Equipment Building R&D Environment Sustainability Staff / HR Maintenance Operating costs Additional Funds Equity Loans

Investment trade off (II) Cash Outflows Equipment Building R&D Environment Sustainability Staff / HR Maintenance Operating costs Cash Inflows Sales Lower costs

Components of the Capital Budget Model Investment (Year 0) Economic Life of the Investment Years 1 - n Interest Rate: i = r + π + σ r = real interest rate π = inflation σ = risk (project risk mark-up Annual Cash Flows (During economic life) Expenses Revenues

Decision Criteria Pay Back Period (PBP) Return On Investments Discounted Pay Back Period (DPBP) Net Present Value (NPV) Profitability Index Internal Rate of Return (IRR)

DOSIT Model Model developed by: TNO (Applied Research in Science) Chair of TQM in Networks of Organisations Prof. Gerard Berendsen Source: Duurzaam innoveren met de DOSIT-methodiek, G. Berendsen cs, Sigma Kluwermanagement, June 2006

DOSIT Model Dutch Duurzaam Ondernemen Selectie Innovatieve Technologie English Sustainable Entrepreneurial Selection Innovative Technology

Why DOSIT? Hot topics in business are: Innovation Sustainability Product innovation Innovation of processes Sustainability Stewardship / Managership / Bailiff (UK) (Dutch: Rentmeesterschap) Investments

Innovation: Products Process Sustainability Investing

Sustainability & Entrepreneurship in SME’s Company meets the requirements from the government and keeps in mind future reqyuirements Company fulfils its social and cultural role in society Company plays in an effective way its role in the huge changes in society & economic development for the mid and long term

Sustainability & Entrepreneurship in SME’s The product, the way the product is used and will be used The production process (including resources) The way the product is introduced on the market

Basic assumptions: DOSIT model Focus as a company on a limited number of activities connected to sustainability Intrinsic motivation of staff concerning change in general and sustainability: specific Communication in the company concerning sustainability: Top Down & Bottom Up ‘Quick and dirty job’ in SME’s, staff wants to see immediately results Aspects of sustainability have influence on the continuity of the company Sound financial base is important for the continuity of the company

Profit People Planet

Stages in the DOSIT methodology Preparation Choice of priorities in the areas of Key Success Factors Selection of possible Innovations Final choices of Innovations Implementation of Innovations

DOSIT Matrix (Overview Priorities) Supply Chain ↑ & Value Chain ↑ Raw materials Components Business development Logistic Processes (ITO) Production Packaging Warehousing & Distribution Product & Market Development Product Use / Reversed Logistics Aspects ↓ Planet People Profit

Constraints in the process of sustainable innovation ROI requirement (bottom line) Requirements clients How do process interfere in the chain? Feasibility (in a technical way) Connection with future developments & ambitions of the company What is target for the degree of sustainability How much will be the impact of the innovation (paradigm shift?)

DOSIT Method: Excel tool