Financial managementLecture # 6

Jan H. Jansen

jan.jansen@han.nl

Programme (Spring 2008)# Date Topic Chapters F&A Additional readings Assignments1 11.02.2008

(2 hrs)IntroductionFinancial StatementsEconomic Trade Off’s

13

AtrillDrury

1 (Analyses Annual Report KPN 2006)

2 18.02.2008(4 hrs)

AccountingFinancial Ratios

4 & 56

HorngrenDrury

2 Benchmarking Annual Reports

3 25.02.2008(2 hrs)

BudgettingVariance Analyses

7 AtrillDrury

3 (Case outsourcing)

4 25.02.2008(2 hrs)

Break Even AnalysesCost Prices

8 DruryHorngren

4 (Budgetting case)

5 10.03.2008(2 hrs)

Working Capital ManagementCapital Budgetting

1011 & 12

5 (Variance Analyses)

6 17.03.2008(2 hrs)

Capital BudgettingInterest rate & Risk

12 Drury HorngrenBrigham

6 (Interest calculations)

7 31.03.2008(2 hrs)

DOSIT modelCase study

Case study 7 (Capital budget)

8 07.04.2008(2 hrs)

Case studyTest exam

Case study 8 (Investment decision)

E14.04.2008Or21.04.2008

Writte exam(2 hrs)

Investment DecisionsInvestment Decisions

Investment trade off (I)

Investment– 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

– Product innovation

– Innovation of processes

Sustainability– Stewardship / Managership / Bailiff (UK)

(Dutch: Rentmeesterschap)

Investments

SustainabilityInnovation:•Products•Process

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

1. Focus as a company on a limited number of activities connected to sustainability

2. Intrinsic motivation of staff concerning change in general and sustainability: specific

3. Communication in the company concerning sustainability: Top Down & Bottom Up

4. ‘Quick and dirty job’ in SME’s, staff wants to see immediately results

5. Aspects of sustainability have influence on the continuity of the company

6. Sound financial base is important for the continuity of the company

Profit People

Planet

Stages in the DOSIT methodology

1. Preparation

2. Choice of priorities in the areas of Key Success Factors

3. Selection of possible Innovations

4. Final choices of Innovations

5. Implementation of Innovations

DOSIT Matrix (Overview Priorities)

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Raw

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Co

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Bu

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Pro

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Pro

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Pro

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/ Rev

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Lo

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tics

 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