2. Ascertain Financial Health of Your Company

3. Key Financial Q’s: 1.Are You Making Enough Profit ? 2.Liquidity ? Enough Money on hand to run/grow your co. 3.Leverage? ideally proportioned betw. Debt & Equity? 4.How effectively are you utilizing your assets? A/T 5.R U providing your investors an Adequate Level of Return? 6.How close are you to Bankruptcy? 7.How’s those Bond Ratings ? 8.Do you have Adequate Levels of Investment in your Company's Plant, People & Processes ?

4. NET PROFITS $$ Year 1 $6 million Year 2 $8 million Year 3 $10 million Year 4 $12 million Year 5 $16 million Year 6 $21 million Year 7 $27 million Year 8 $35 million NET PROFITS $$ 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 CUM PROFIT General Range: $20 to $100 M CUM PROFIT General Range: $20 to $100 M

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

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

9. Du Pont Formula Return on Equity = net profit equity salessalesassetsassetsequity xxxx Value Chain

10. Du Pont Formula Return on Equity = net profit equity salessalesassetsassetsequity xxxx Value Chain

11. Ratio World Class Top 10 cut MeanPoor ROE* 600%+100%+ ~20%<15%

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

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

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

16. Contribution Margin is above 30%…but Net Margin is below 20% … 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). IF:

17. Net Margin above 20%, ROS (net profit) below 5%.. -- 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). IF:

18. 7-17%

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

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

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

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

25. Assets/Equity – simulation takes owner's perspective. A Leverage of 3.0 says, "For every $3 of Assets there is $1 of Equity Leverage Assets Debt Equity 1.0 $1 $0 $1 2.0 $2 $1 3.0 $3 $2 $1 4.0 $4 $3 $1 LEVERAGE: 1.8to2.8 Optimal Corp assets fin.w/ debt

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

27. 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 +

28. 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…

29. 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 The More Assets you have the better your Bond Ratings

30. Page 3

31. Stock Price Profit$

32. STOCK PRICE Function of: 1. Earnings per Share – Net Profit / # Shares 2. Book Value – Equity / # Shares 3. Dividend Policy Good Dividend Policy Good Dividend Policy

33. Evaluate Your Company’s Financial Situation & Formulate Financial Strategy & Set Objectives... Financial Situation & Formulate Financial Strategy & Set Objectives...