Building Business Acumen

Building Business Acumen

What is Business Acumen?

…the ability to make good business decisions in a timely manner with an understanding of how the decision should impact the business.

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Business is Tough! Only 5-10% of business start-ups survive past 5 years.

14% of CEOs lose their job every year. Booz & Co.

70% of merger and acquisition activity do not live up to expectation. Wall Street Journal 2007

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Business AcumenEvery business must focus on five business drivers. If they do, they will be

successful. If they don’t, they’ll fail.

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Defining CashWhat is required to grow and maintain the business.

Cash – the bills and coins in the register, petty cash, and cash in the bank. Also includes cash equivalents, like CD’s and other highly liquid investments, that easily convert into cash within 90 days.

MEASURES

Cash Flow – The cash generation from core business activities calculated from the difference between the cash that flows into and out of the business in a given period of time (month, quarter, annual)

DEFINITION

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Brent has $20,000 in his savings account (this is his CASH POSITION)

During the year he generates $50,000 in salary…

And during that same year, he spends $40,000 on expenses…

Brent’s CASH FLOW is $10,000.

Cash & Cash Flow

Pay off debtInvest itSpend itSave it

How to Obtain Cash

Can a company have too much Cash?

• Earn it• Cash from

Operations• Sell Assets

• Cash from Investing

• Borrow it• Cash from

Financing

No Cost

Immediate

Immediate

How much is too much/little?

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Pro ConTime

Reduce Assets

Cost (Interest)

How Much Cash?A company should have sufficient cash to cover…

• their interest• expenses• capital expenditures• take advantage of opportunities• plus a little for emergenciesTop Uses of Cash for Corporations

• Dividend Pay-outs• Stock Buy-backs• Mergers & Acquisitions (M&A)

• Research & Development (R&D)• Capital Expenditures (CAPEX)• Cash Balance Increase

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Benchmark Cash

24% 9% 5% 18% 33%S&P 500 Average 6%

Cash Review1. Define Cash Driver What is required to grow and maintain

the business.

2. Measures of Cash 1. Cash – easily converted in 90 days

or less to cash. 2. Cash Flow – Difference of cash in

and cash out over a given period of time.

3. Importance of Cash Driver - Sufficient to run business - Enhance shareholder value - Improve attractiveness to suppliers

and customers.

4. Benchmark the numbers 2008 2009

2010 Revenue $762 M $565 M

$584 M

Cash $34 M $49 M $140 M

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Defining Profit

MEASURES

DEFINITION What is left over after you have

subtracted expenses. Can be expressed in dollars ($) or percent (%).

Gross Profit / Gross Profit Margin – Profit after Cost of Goods Sold (COGS) have been subtracted from sales.

Net Profit / Net Profit Margin – Profit after all expenses have been subtracted from sales.

Earnings Before Interest Tax Depreciation & Amortization (EBITDA) – Reflects controllable earnings.

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Sale Price: $1.00Water - $ .04Label - $ .10 COGSBottle & cap - $ .11 Packaging (Direct Labor) - $ .15Total: ($ .40)

$1.00 - $.40 = $.60 = 60% Gross Profit

Rent - $ .03Salaries, Gen, Admin. - $ .10Marketing - $ .07 Shipping - $ .15 Total: ($.35)

$1.00 - $.40 - $.35 = $.25 = 25% EBITDA

Depreciation / Amorit. - $.02Interest & Tax - $.12Total: ($.14)

$1.00 - $.40 - $.35 - $.14 = $ .11 = 11% Net Profit

Life Spring

Artesian

Water

High Profit Companies

33%

24%

32.7%

Low Profit Companies

3.9%

7.9%

1.4%

Benchmark Profit

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S&P 500 Average Net Margin 11%

Profit Review1. Define Profit Driver What is left over after you have

subtracted expenses. Can be expressed in dollars ($) or percent (%).

2. Measures of Profit 1. EBITDA (Margin) – subtract COGS

& SG&A 2. Net Profit (Margin) – subtract all

expenses

3. Importance of Profit Driver - Net Profit is one of the most

important #’s for the business.- Indicates price strength- Identifies ability to manage costs

4. Benchmark the numbers 2008 2009

2010 EBITDA $39 M $70 M $80

M Net Profit 1.5% 9.0%

11.4%11

Defining AssetsWhat we have and how well we use what we have.

Return on Assets (ROA) – Percent value of Net Profit to Total Assets.

Revenue per Employee - Company efficiency measure that reflects employee count and revenues.

MEASURES

Asset Strength – the ability to remain viable during ups and downs in the marketplace.Asset Utilization – the ability to efficiently and effectively use assets to generate profits.

DEFINITION

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Benchmark Assets

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S&P 500 Average ROA 6%

Assets Review1. Define Asset Driver What we have and how well we

use what we have.

2. Measures of Asset 1. ROA – Percent value of Net Profit

to Total Assets.

2. Revenue per Employee – Company efficiency measure that reflects employee count and revenues.

3. Importance of Asset Driver- Demonstrates ability to work smarter rather than harder.- Indicates company invests in “right” assets

- Indication of execution & efficiency

4. Benchmark the numbers 2008 2009

2010Rev./Employee $378k $354k

$352k

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Defining GrowthThe ability to increase year over year, quarter over quarter, and/or month over month.

Revenue Growth – Top-line Sales/Revenues increase.

MEASURES

EBITDA Growth – ‘Controllable’ Profit increase.

“In today’s business world, no growth means lagging behind in a world that grows every day…”“Investors expect it, employees are energized by it, customers are generally attracted to it and executives are measured by it.”

DEFINITION

14Net Profit Growth – Bottom-line / Profit increase.

Facing Rapid Decline

• Best & brightest leave first.• Productivity goes down.• Morale goes down.• Costs are cut, which limits ability to grow, company becomes less profitable.

Studies Show: It usually takes 4 or 5 years for the company to recover.

Facing Rapid Growth

• Attracts/Retains the best & brightest!• Productivity goes up = more profit = more cash = more ability to grow!• Morale is high.• You have the ability to grow in your career!

Growth gets more time & attention than any of the 5 elements in a public company.

Growth in Action

“Our brilliance is not retail. It’s our IT!”

Benchmark Growth

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Growth Review1. Define Growth Driver The ability to increase year over

year, quarter over quarter, and/or month over month.

2. Measures of Growth 1. Revenue Growth – Top-line

Sales/Revenues increase. 2. Net Income Growth – Bottom-line

/ Profit increase. 3. Cost of Capital – Opportunity cost

of funds deployed in an investment.

3. Importance of Growth Driver “Investors expect it, employees

are energized by it, customers are generally attracted to it and executives are measured by it.”

1. Define Growth Driver The ability to increase year over

year, quarter over quarter, and/or month over month.

2. Measures of Growth 1. Revenue Growth – Top-line Sales/Revenues increase. 2. EBITDA – ‘Controllable’ Profits increase 3. Net Profit Growth – Bottom-line / Profit increase.

4. Benchmark the numbers 2009

2010Sales Growth -25.9% 3.4%EBITDA Growth 78.34%

14.24%Net Profit Growth 363.09%

30.05% 15

Defining PeopleThe External Customer, Vendor/Re-seller, or Internal Customer that has the ability to impact the success of the business.

Expressions of Interest (EOI) – The number of times a visitor clicks on a listing.

Net Promoter Score (NPS) – Customer Care Satisfaction score.

MEASURES

DEFINITION

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Failing to Anticipate CustomerWhat companies have failed to anticipate customer expectations? What were the results?

What limits companies from anticipating their customers’ wants and needs?

Benchmark People

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CareerBuilder CareerBuilder CareerBuilder2010 2009 2008

Net Sales 584$ 565$ 763$ People

Expressions of Interest (EOI) 285.5 M 261.9 M 236.3 MNet Promoter Score (NPS) 77% 71% 62%

Element

Our NPS – 2011 73%.2010 Net Promoter Scores – USAA = 81%, Apple = 78%, Facebook = 65%, Google = 63%

People Review1. Define People Driver The External Customer, Vendor/Re-

seller, or Internal Customer that has the ability to impact the success of the business..

2. Measures of People 1. Expressions of Interest (EOI) – The

number of times a visitor clicks on a listing.

2. Net Promoter Score (NPS) – Customer Care Satisfaction score.

3. Importance of People Driver- Without People, then what happens?- Anticipate and then exceed expectations.- Customer service is for everyone;

Internal, External, Vendors.

4. Benchmark the numbers 2008 2009

2010 EOI 236.3M 261.9M

285.5M NPS 62% 71%

77%17

5 Business DriversCan you ignore any of these over time and still be successful?

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Can our clients ignore any of these over time and still be successful?

Demystifying the Annual Report

The Annual Report & Financial Statements

Letter to the Share Holders: 1. Identify which drivers are being

focused on.2. Understand the strategic goal(s)

Financial Statements:3. Identify the equation.4. Recognize the purpose of the

statement.5. Locate the key numbers/measures.6. How do I impact each statement?

CAN YOU READ THIS?

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Letter to the Share Holders

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Job-Master 2010 2009 2008Revenue $ 111,055.00 $ 111,359.00 $ 107,378.00 Other Revenue, Total $ 11,963.00 $ 12,669.00 $ 11,550.00

Total Revenue $ 123,018.00 $ 124,028.00 $ 118,928.00

Cost of Revenue, Total $ 50,405.00 $ 49,556.00 $ 46,705.00 Gross Profit $ 60,650.00 $ 61,803.00 $ 60,673.00

Selling/General/Admin. Expenses, Total $ 31,407.00 $ 31,526.00 $ 30,242.00 Research & Development $ - $ - $ - Depreciation/Amortization $ 19,714.00 $ 19,883.00 $ 21,577.00 Interest Expense(Income) - Net Operating $ - $ - $ - Unusual Expense (Income) $ 102.00 $ 467.00 $ - Other Operating Expenses, Total $ - $ - $ -

Total Operating Expense $ 101,628.00 $ 101,432.00 $ 98,524.00 Operating Income $ 21,390.00 $ 22,596.00 $ 20,404.00

Interest Income(Expense), Net Non-Operating $ - $ - $ - Gain (Loss) on Sale of Assets $ - $ - $ 148.00 Other, Net $ 142.00 $ 139.00 $ 497.00

Income Before Tax $ 18,999.00 $ 20,164.00 $ 18,204.00

Income After Tax $ 12,843.00 $ 13,128.00 $ 11,951.00 Minority Interest $ (308.00) $ (261.00) $ - Equity In Affiliates $ - $ - $ -

Net Income Before Extra. Items $ 12,535.00 $ 12,867.00 $ 11,951.00

Accounting Change $ - $ - $ - Discontinued Operations $ - $ - $ - Extraordinary Item $ - $ - $ -

Net Income $ 12,535.00 $ 12,867.00 $ 11,951.00

Diluted Normalized EPS $ 2.19 $ 2.32 $ 1.92

Income StatementEquation:Revenue – Expenses = Profit

Cost of Revenue -

Cost of Goods Sold (COGS)Gross Margin

$60,650 / $123,018 =

49.3%

Total RevenueTop-line

Net Margin$12,535 /

$123,018 = 10.2%

Purpose:Identify Profitability

Operating Profit

Operating Income

EBIT

Net ProfitNet IncomeBottom-line

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2010 2009 2008Cash & Equivalents $ 3,802.00 $ 1,792.00 $ 1,970.00 Cash and Short Term Investments $ 3,802.00 $ 1,792.00 $ 1,970.00 Accounts Receivable - Trade, Net $ 14,978.00 $ 16,047.00 $ 16,185.00 Total Receivables, Net $ 14,978.00 $ 16,047.00 $ 16,185.00 Prepaid Expenses $ 1,572.00 $ 1,538.00 $ 1,524.00 Other Current Assets, Total $ 3,982.00 $ 3,179.00 $ 5,007.00

Total Current Assets $ 24,334.00 $ 22,556.00 $ 24,686.00

Property/Plant/Equipment, Total - Gross $ 230,552.00 $ 218,579.00 $ 210,518.00 Accumulated Depreciation, Total $ (130,459.00) $ (119,491.00) $ (114,628.00)Goodwill, Net $ 73,259.00 $ 71,829.00 $ 70,713.00 Intangibles, Net $ 61,823.00 $ 63,712.00 $ 58,402.00 Long Term Investments $ 2,921.00 $ 2,332.00 $ 2,270.00 Other Long Term Assets, Total $ 6,322.00 $ 5,728.00 $ 23,683.00

Total Assets $ 268,752.00 $ 265,245.00 $ 275,644.00

Accounts Payable $ 7,514.00 $ 6,921.00 $ 7,059.00 Accrued Expenses $ 17,655.00 $ 16,960.00 $ 17,911.00 Notes Payable/Short Term Debt $ 33.00 $ 4,616.00 $ 1,921.00 Current Port. of LT Debt/Capital Leases $ 7,328.00 $ 9,503.00 $ 4,939.00 Other Current liabilities, Total $ 4,175.00 $ 4,290.00 $ 7,444.00

Total Current Liabilities $ 36,705.00 $ 42,290.00 $ 39,274.00

Long Term Debt $ 64,720.00 $ 60,872.00 $ 57,255.00 Total Long Term Debt $ 64,720.00 $ 60,872.00 $ 57,255.00

Total Debt $ 72,081.00 $ 74,991.00 $ 64,115.00

Deferred Income Tax $ 23,803.00 $ 19,196.00 $ 24,939.00 Minority Interest $ 425.00 $ 403.00 $ - Other Liabilities, Total $ 41,199.00 $ 46,137.00 $ 38,809.00

Total Liabilities $ 166,852.00 $ 168,898.00 $ 160,277.00 Common Stock, Total $ 6,495.00 $ 6,495.00 $ 6,495.00 Additional Paid-In Capital $ 91,707.00 $ 91,728.00 $ 91,638.00 Retained Earnings (Accumulated Deficit) $ 39,366.00 $ 36,591.00 $ 33,297.00 Treasury Stock - Common $ (21,260.00) $ (21,410.00) $ (15,683.00)Other Equity, Total $ (14,408.00) $ (17,057.00) $ (380.00)

Total Equity $ 101,900.00 $ 96,347.00 $ 115,367.00

Total Liabilities & Shareholders' Equity $ 268,752.00 $ 265,245.00 $ 275,644.00 Total Common Shares Outstanding $ 5,901.93 $ 5,893.01 $ 6,043.55

Balance SheetEquation:

Assets = Liabilities + Equity

Most Liquid

Least Liquid (1yr.)

Current Ratio

Current Assets / Current

Liabilities

24,334 / 36,705= .663

Equity Ratio

Total Equity / Total Assets

$101,900 / $268,752= 38%

Purpose:Financial Strength

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2010 2009 2008Net Income/Starting Line $ 12,843.00 $ 13,128.00 $ 12,147.00 Depreciation/Depletion $ 19,714.00 $ 19,883.00 $ 21,577.00 Amortization $ - $ - $ - Deferred Taxes $ 2,104.00 $ 5,889.00 $ (240.00)Non-Cash Items $ 1,036.00 $ 1,383.00 $ 531.00 Changes in Working Capital $ (1,252.00) $ (6,627.00) $ 227.00

Cash from Operating Activities $ 34,445.00 $ 33,656.00 $ 34,242.00

Capital Expenditures $ (16,595.00) $ (19,676.00) $ (17,717.00)Other Investing Cash Flow Items, Total $ (1,330.00) $ (9,467.00) $ (959.00)

Cash from Investing Activities $ (17,925.00) $ (29,143.00) $ (18,676.00)

Financing Cash Flow Items $ (465.00) $ 151.00 $ (51.00)Total Cash Dividends Paid $ (9,670.00) $ (9,507.00) $ (8,743.00)Issuance (Retirement) of Stock, Net $ 28.00 $ (5,758.00) $ (8,404.00)Issuance (Retirement) of Debt, Net $ (4,403.00) $ 10,423.00 $ 1,184.00

Cash from Financing Activities $ (14,510.00) $ (4,691.00) $ (16,014.00)

Foreign Exchange Effects $ - $ - $ - Net Change in Cash $ 2,010.00 $ (178.00) $ (448.00)

Cash Interest Paid, Supplemental $ 3,873.00 $ 3,727.00 $ 3,445.00 Cash Taxes Paid, Supplemental $ 4,471.00 $ 5,307.00 $ 4,013.00

Cash Flow Statement

Equation: Cash from Operations +/- Cash from Investing +/- Cash from Financing = Net Change in Cash

Purpose:Cash Management

Earn It (Core Business)

Sell Assets

Borrow It

14058466

11.3880.37

.3523.4

30.014.2

285.577%

66 584

584 503

584 1658

584 565

66 51

80.37 70.35

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Locating Financial InformationWeb Sites:• www.nasdaq.com• www.reuters.com• www.yahoo.com• www.finance.google.c

om• www.hoovers.com• www.smartmoney.co

m

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