2. Chapter 11: Strategic Leadership Chapter 5 Financial aspects of logistics and supply chain management

3. Chapter 11: Strategic Leadership Contents Introduction Part A: Introduction to financial management decision making Part B: Introduction to cost accounting and calculations for decision-making purposes

4. Chapter 11: Strategic Leadership Contents – Part A: Introduction to financial management decision making Shareholder value Cost of equity Free cash flow Economic value added Value drivers Return on investment

5. Chapter 11: Strategic Leadership Contents – Part B: Introduction to cost accounting and calculations for decision-making purposes Logistics costing and activity-based costing Marginal costing Cost-volume-profit analysis

6. Chapter 11: Strategic Leadership Learning outcomes Understand the concepts of shareholder value, cost of equity, free cash flow, economic value added and give a brief account of how these values are determined. Identify and describe the various drivers of value. Analyse and interpret a statement of financial position in terms of return on investment, profit margin and asset turnover. Describe the objectives of activity-based costing, marginal costing, cost structure calculation, cost- volume-profit analysis, breakeven analysis and explain how these values are determined. Solve examples of the various abovementioned concepts numerically and interpret your answers.

7. Chapter 11: Strategic Leadership Introduction Wealth of shareholders Accounting information Drivers of market value Part A: financial decision making Part B: cost accounting

8. Chapter 11: Strategic Leadership Shareholder value Shareholder value is determined by the market value of a company’s shares. Management can increase the market value by either: increasing and expediting the projected free cash flow of the company; or reducing the risk of the company, thereby reducing the cost of equity.

9. Chapter 11: Strategic Leadership Cost of equity Introduction Risk-free rate Market risk premium The beta factor Capital asset pricing model Ce = Rf + (ß x Mrp)

10. Chapter 11: Strategic Leadership Free cash flow Free cash flow is the cash flow from operating activities actually available for distribution to the shareholders. To increase free cash flow, management needs to: increase the profit after tax; decrease the investment in working capital; and decrease the investment in property, plant and equipment.

11. Chapter 11: Strategic Leadership Economic value added Economic value added (EVA) is a residual income measure that subtracts the cost of capital employed from the operating profits generated. EVA = NOPAT – CCE

12. Chapter 11: Strategic Leadership Value drivers Revenue Operating costs Tax Working capital Property, plant and equipment

13. Chapter 11: Strategic Leadership Return on investment Introduction Profit margin Asset turnover

14. Chapter 11: Strategic Leadership Part B: Introduction to cost accounting and calculations for decision-making purposes Logistics costing and activity-based costing Marginal costing Cost-volume-profit analysis

15. Chapter 11: Strategic Leadership Logistics costing and activity-based costing Logistics costing Activity-based costing process: - Identifying main activities - Allocating cost to activities (cost pools) - Determining cost drivers (causes) - Assigning costs to product/service (usage)

16. Chapter 11: Strategic Leadership Logistics costing and activity-based costing (continued) Activity-based costing

17. Chapter 11: Strategic Leadership Marginal costing Introduction to marginal costing Special-order decisions Discontinuation of a department or product Replacement of equipment Choice of products where a limiting factor exists: - Fixed and variable costs - The concept of contribution per unit - Limiting-factor decisions Non-financial factors

18. Chapter 11: Strategic Leadership Cost-volume-profit analysis Introduction to CVP and its relevance to logistics Contribution approach to CVP analysis CVP analysis in decision making

19. Chapter 11: Strategic Leadership Contribution approach to cost-volume-profit analysis Breakeven point Margin of safety Sales to achieve a target profit Breakeven graph

20. Chapter 11: Strategic Leadership Cost-volume-profit analysis in decision making Change in fixed cost Change in variable cost Change in selling price Conclusion on CVP

21. Chapter 11: Strategic Leadership Conclusion Examples Questions