Building Blocks Balance Sheet What is an asset?

Building Blocks Balance Sheet What is an asset? Economic resources controlled by an entity as a result of past transactions or events and from which future economic benefits may be obtained.

Building Blocks Balance Sheet Assets are separated between: Current Assets (Short Term) – cash or used within a year + Inventory Non-Current Assets (Long Term)

Building Blocks Current Assets (Short Term) Cash and equivalents Short-Term Investments Accounts Receivable Inventory Prepaid Expenses Other current assets

Non-Current (Long Term) Long-Term Investments Building Blocks Non-Current (Long Term) Long-Term Investments Property, Plan and Equipment (Fixed Assets) Intangible Assets Goodwill Trademarks Patents Development Costs

Non-Current (Long Term) Long-Term Investments Building Blocks Non-Current (Long Term) Long-Term Investments Property, Plan and Equipment (Fixed Assets) Intangible Assets Goodwill Trademarks Patents Development Costs

Building Blocks Balance Sheet What is a liability? An entities debts and obligations arising from past transactions. They represent future outflows of assets (mainly cash) or services to the creditors that provided the entity with the resources needed to conduct its business. Liabilities and obligations are often created but not recognized in financial statements.

Building Blocks Balance Sheet What is a liability? An entities debts and obligations arising from past transactions. They represent future outflows of assets (mainly cash) or services to the creditors that provided the entity with the resources needed to conduct its business. Liabilities and obligations are often created but not recognized in financial statements. (contracts, manipulation, financial instruments) Separated between current and long term liabilities.

Building Blocks Current Liabilities (due within a year) Bank indebtedness Accounts Payable Accrued Liabilities Current Portion of Long Term debt Other current liabilities Long Term Liabilities (coming due beyond one year) Notes and mortgages payable Lease obligations Bonds Payable Other long-term liabilities

Building Blocks Balance Sheet Equity Financing provided to the firm by both its owners and the operations of the business. Owners invest to earn two types of return: Dividends Capital appreciation/Capital gains What is realized and unrealized?

Building Blocks Debt Equity Assets

Building Blocks Debt is “preferred” over Equity When the firm is no longer a “going concern” its creditors have first right to its’ assets. With equity you have a high risk and reward position. Investing through debt is low risk and a predictable reward.

Building Blocks Going Concern Not a Going Concern In the “black” Government Creditors Employees Owners Going Concern Not a Going Concern In the “black” In the “red”

Building Blocks Value Accounting – value in monetary terms Economics (1) utility (2) worth of good or service to exchange for other items of value Marketing/Consumption: Relative value placed on good or service. This is perceived.

Value Proposition Value Proposition Relevant – how does it solve a problem or serve or a need? Quantified – what benefits does it deliver? Differentiated - how is it different than the competition (or no action)? The key to any successful value proposition is that the perceived value of what you offer – be it a product, service – outweighs the perceived cost or alternatives. Think of it as a question: If I am customer why should I buy this rather than that (or buy nothing)?

Value Proposition Value Proposition (CVP) Attributes of a product/service Price Quality Speed of Delivery Completeness of the service Relationship customer experiences by interacting with the company Service Process Systems Emotional Appeal How do you feel about the company or the product Moral or ethical connection How others’ perceive you

Value Proposition Thinking through it Intended User – who is the predominant user of the product The next best alternative - closest competitor Value delivery – how does this product deliver a better, same or worse experience than competition Measure – can the difference be quantified? Is the difference a range? Or is it an intangible? Cost - Does it cost more, less or same for competition? If no competition, does it provide more value than not buying?

Value Proposition Value Proposition – a marketing statement Relevant – how does it solve a problem or serve or a need? Quantified – what benefits does it deliver? Differentiated - how is it different than the competition (or no action)? The key to any successful value proposition is that the perceived value of what you offer – be it a product, service – outweighs the perceived cost or alternatives. Think of it as a question: If I am customer why should I buy this rather than that (or buy nothing)?

Building Blocks Your goal in business is to “create” value for your customers and business. How do we create value? Innovation Efficiency Culture

Value Chain Value Chain A set of activities performed by one firm to bring a product of service to market.

Value Chain Industry Value Chain A set of activities performed by a number of firms to bring products and services from creation to market. What has happened to the music industry?

Industry Value Chain Music Industry Past Artist Publishers Manufacturers Distributors Retailers Customers Music Industry Past

Industry Value Chain Music Industry Present Artists Publishers Retailers Customers Music Industry Present

Risks Risks Strategic Risk Operational Risk Financial Risk Brand/Reputation Risk Compliance/Legal Risk Amazon Starbucks

The Core Competency Theorized in 1990 Completely revolutionized and changed management and strategy. Before this theory, companies focused around core products and made variations of those products and wanted to achieve vertical integration. Changed the theory to focus around core competencies which lead to core products.

The Core Competency Identify top strengths/assets/intangibles Use competencies as building blocks Develop strategies to become an industry leader focused around your core competencies Develop products, systems, talent and businesses to leverage your core competencies. Provides benefits to the customer Hard to imitate Provides access to a wide variety of markets

The Core Competency Identify top strengths/assets/intangibles Use competencies as building blocks Develop strategies to become an industry leader focused around your core competencies Develop products, systems, talent and businesses to leverage your core competencies. Provides benefits to the customer Hard to imitate Provides access to a wide variety of markets

The Core Competency Identify Competencies Develop Competencies Structure organization around competencies Involve competencies in all products Evolve organization around competencies

The Core Competency

The Core Competency

The Core Competency

The Core Competency Identify the core competency Google Apple Netflix Honda (1980)