1. ANDREW ZIELINSKI, MBA www.accrongroup.com/fengyeschool/

2. Activity 4.5.2 (Continued) Mathematics of Forecasting 6. Use the following Excel spreadsheet to create the yearly forecast, considering the following data:spreadsheet 6. Cost of Goods: 28% of Sales 7. Fixed Costs: $12,00/month 8. Variable Costs: 25% of Sales 9. Payroll: 10% of Sales

3. Budget Analysis  All this data compilation is great but what does it all mean? How to understand what is going on from one reporting period to another?  As we saw in preceding examples and homework, converting dollars ($) to percentages(%) makes analyzing easier  Although real dollar amounts are necessary to fully understand the scale and scope of the results, percentages convey more quickly both growth and breadth of sales activities  Let’s look at an example:

4. GHI inc. Budget Analysis Period Ending: March 31, 2014 Forecast%Actual% Sales$95,000100.0$108,000100.0 Cost of Sales 38,000 40.0 45,36042.0 Gross Sales$57,00060.0$64,64058.0 Payroll 9,50010.0 10,80010.0 Payroll Taxes 1,000 1.0 1,000 0.9 Rent 16,00016.9 16,00014.9 Maintenance 4,8005.0 5,5005.0 Promotion 9,0009.5 15,10014.0 Total Costs$40,30042.4$48,40044.8 Net Profit$16,70017.6$14,24013.2 (See p112)

5. Objective In 30 hours, convey basic principles of mathematics applied to the daily life of a professional salesperson, including: Review of basic math, using calculators and spreadsheets Typical calculations utilized in sales Typical Sales Forms Budgeting and Sales Forecasting 5. Financial Reporting

6. Objective  Provide an overview of the main financial reports that companies utilize to manage their business How?  Learn about income statement, balance sheet and cash flow statement and understand how these statements are utilized to manage a business

7. Assets, Liabilities, and Owner’s Equity  Keeping it all in Balance! Assets = Liabilities + Owner’s Equity or Assets – Liabilities = Owner’s Equity  This key formula is the foundation of a company’s Balance Sheet  A balance sheet indicates the value of a business based on the net of its assets less its liabilities. It shows where, exactly, this value exists in the business and how active the business is in terms of its inventory activity, the value of its assets, and how it is managing its debts

8. Assets  Consists of all that the company OWNS, all that has a monetary value  How easily they can be converted to cash determines if they are short term or long term asset  Example of a listing of assets: Short-Term AssetsLong-Term Assets DepositsOffice Equipment InvestmentsMachinery Customer AccountsLand Accounts ReceivableReal Estate

9. Liabilities  Consists all that the company OWNS, its debts  Their due dates determine if each liability is short-term or long- term  Examples of a listing of liabilities: Short-Term LiabilitiesLong-Term Liabilities Suppliers Salaries PayableBank Loans Taxes PayableMortgage Accounts Payable

10. Owner’s Equity  Alibaba’s IPO  Where we see the net value of the company  Owner’s Equity is always = Assets – Liabilities  Consists of: Start up investment Owner’s Loans Capital Withdrawls Retained Earnings (Losses) Earnings from last accounting period

11.  Example of a Balance Sheet

12. Analysis of Balance Sheet  Variances  Variance analyses to prior periods helps to see progress between these time periods: Assets20132014% Variance Deposits $8,200$10,500+28.0 Customer Accounts$16,500$12,500-24.2 Inventory$46,000$59,000+28.3

13. Analysis of Balance Sheet  Ratios  Ratios are relationships between balance sheet accounts in the same period. One of the most common such ratios is the Net Working Capital which relates short-term assets (which represents the company’s liquidity) to short-term liabilities (which represents quickly settled debt): Net Working Capital = Short-Term Assets – Short-Term Liabilities  Working Capital Ratio – The ratio is determined by: Short-Term Assets__ Short-Term Liabilities  This ratio identifies the proportion of assets available to pay current debt. The higher the number, the more solid the business  It can also be used to compare the robustness of one business to another:

14.  Example: Business 1Business 2 Short-Term Assets$50,000$10,000 Short-Term Liabilities 45,000 5,000 Working Capital 5,000 Working Capital Ratio 1.11 2.0

15. Activity 4.5.1 Basic Elements of a Balance Sheet 1. What are the two most common forms of the balance sheet equation? 2. Identify each of the following as (A) asset, (L) liability, or (OE) owner’s equity: a. Deposits b. Account Payable c. Land d. Mortgage e. Capital f. Retained Earnings g. Client Accounts h. Suppliers i. Investor repayment

16. 3. From the data below, build the company’s balance sheet:  Cash on hand is $1,360  Office equipment: $180  Car: $14,000  $3,000 left to pay on car loan  A $225 client invoice still remains unpaid  Equipment: $25,000  A $7,000 loan was taken to purchase more equipment  Information to include on statement (report): Name: Pro-Management, inc. Report: On March 31, 20XX Use the form on following slide to create balance sheet

18. 4. Calculate the Working Capital and Working Ratio for the following companies: Company ACompany BCompany C Short-Term Assets$25,000$100,000$80,000 Short-Term Liabilities 20,000 80,000 40,000 Working Capital Working Ratio 5. From your calculations, above, which company has the most solid financial position? _________________________

19. Revenues and Expenses  Stating Income  Revenues, Costs of Sales, Expenses, Breaking Even, Net Income  Why an Income Statement? To pay taxes and to show how you are managing your business  Why is this Important?  Investors need to know Investors  In the video clip and article, above, we see how revenues and earnings per share affect investor perception  This article ties retail performance to public confidence and provides insight into how retails use this information to manage their companiesarticle  This article and video show how retailers diversify their product offering to address market demand and boost salesarticle

20. The Income Statement  Revenues  All amounts that represent raw income for the business  Example: sales amounts from all cash registers and cheque payments to the business for product or service sales

21. The Income Statement  Expenses  Two kinds: Cost of Sales and Operating Expenses  Cost of Sales  These are expenses incurred in the purchase of raw or primary materials to make or finish the gods that a company sells  Also can include services that enable such finishing or conversion  Can also include costs incurred in the process of selling the product or service, or making it available for sale  Typically involves the flow of inventory across the company as follows: Starting Inventory + Purchases – Ending Inventory = Cost of Goods Sold

22.  Example Company A Inventory – Start: $5,000 Inventory – End: $8,000 Purchases: $10,000 Company B Inventory – Start: $5,000 Inventory – End: $3,000 Purchases: $10,000 Calculating Cost of Goods Sold: Company ACompany B Starting Inventory$ 5,000$ 5,000 + Purchases$10,000$10,000 - Ending Inventory$ 8,000$ 3,000 - Cost of Goods Sold$ 7,000$12,000 - Inventory Management is Key to Effectively Managing Perception of Sales Effectiveness

23. The Income Statement  Operating Expenses  All other expenses incurred  Expenses incurred in operating the business including but not limited to: Payroll, Advertising, Rent, Loan re-payments, Insurance, Utilities, etc.

24. Profit and Loss (P&L)  Simple representation of all revenues and expenses with a Net Income (before taxes) total at the bottom  Example:

25. Activity 4.5.2 Identifying Balance Sheet and Income Statement Items 1. For the following items, identify as appearing on (B) balance sheet or (I) income statement a) Land b) Inventory c) Purchases d) Payroll e) Maintenance f) Car g) Travel expenses h) Rent i) Interest Fee j) Supplier Accounts

26. Activity 4.5.2 Identifying Balance Sheet and Income Statement Items 2. Calculate cost of goods sold for the following businesses, using the information provided: Starting Inventory PurchasesEnding Inventory Cost of Goods Sold a) $18,000$56,000$16,000 b) $30,000$150,000$45,000 c) $26,000$110,000$30,000 d) $14,624$30,165$790.00

27. Breaking Even  The Role of Fixed and Variable Costs  Fixed Costs – Stay relatively the same through an accounting and production period, like rent. This concept of ‘fixed’ is relative. Fixed cost for one company could be variable for another  Variable Costs – fluctuate according to sales volume, like inventory purchases. Expressed in $/unit  Calculating  Where revenue = expenses  Formula: Fixed Costs____________ Unit Sale Price – Unit Variable Cost

28.  Example of Break-Even Calculation Fixed Costs: $4,200/month Variable Costs: $5/unit Sale Price: $8/unit FC____ = $4200____ = $4200_ = 1400 units USP – UVC $8-$5/unit $3/unit Break-Even Sales Amount = 1400 units x $8/unit = $11,200  What-If Scenarios  Impact on business if brought up unit price to $10?  What if rent went up?

29.  Impact of Commissions  Commissions are based on a percent (%) of sales  Increase variable costs Sale Price X %Commission = Unit Commission $10 X 15% = $1.50 Variable Costs jump from $5 to $6.50 FC____ = ___$5,000__ = $5,000_ = 1429 units USP – UVC $10-$6.5/unit $3.50/unit