1. Copyright © 2011 Business Performance Group, Inc. Finance for Non Financial Managers

2. Licensed to Business Performance Group, Inc., from Matt H. Evans Matt H. Evans  CPA, CMA, CFM  25 years + in Accounting & Finance  Former Controller, Financial Manager, Senior Analyst, etc.  Formal Training includes Wharton Business School and J.L. Kellogg Graduate School of Management  Work & live here in D.C. area 2

3. Licensed to Business Performance Group, Inc., from Matt H. Evans About You  Your Name  Your Title  Your Organization  What you hope to gain from this workshop 3

4. Licensed to Business Performance Group, Inc., from Matt H. Evans Learning Objectives as it relates to PMBOK  At the completion of this course, the student will be able to: – Understand how to work with financial information to effectively manage project cost management tasks set forth in A Guide to the Project Management Body of Knowledge (PMBOK® Guide), Fifth Edition. – Apply basic accounting procedures to effectively track and manage project budgets as set forth in PMBOK® Guide – Analyze financial statements and understand the project impact in order to maintain best practices set forth in PMBOK® Guide. – Understand the core concepts of financial analysis as they apply to corporations and long-term projects. – Apply financial analysis concepts as they relate to risk management, procurement management, and cost management knowledge area best practices set forth in PMBOK® Guide. 4

5. Licensed to Business Performance Group, Inc., from Matt H. Evans Overview of Workshop  Purpose is to give you a good overall understanding of how to work with financial information  Assumes you know nothing about finance  Consists of several small modules – each builds on the previous module  Interactive – Feel free to ask questions as we progress  Two days – Day 1 covers core topics and Day 2 reinforces Day 1 + advanced topics  All modules are reinforced with multiple choice questions or case study exercises 5

6. Licensed to Business Performance Group, Inc., from Matt H. Evans Workshop Roadmap 6 Financial Statements Look for correlations & relationships + understand key indicators of value Economic Analysis of Investments, Valuations Start with Accounting Understand Financial Statements Real Finance (Day 1) Advanced Topics (Day 2) Non Financial Analysis, Performance Measurement in General

7. Licensed to Business Performance Group, Inc., from Matt H. Evans Topics to be Covered 7 Day 1Day 2 1. Accounting Crash Course10. Financial Forecasting 2. Financial Statements11. Risk Analysis 3. Reading Financial Statements12. Economic Analysis 4. Horizontal & Vertical Analysis13. Three Advanced Topics in Finance 5. Ratio Analysis14. Private Capital 6. Working Capital Management15. Intellectual Capital 7. Key Financial Indicators16. Performance Measurement 8. Cost Analysis17. Business Analysis 9. Recap Day 118. Recap Day 2

8. Licensed to Business Performance Group, Inc., from Matt H. Evans 8 Learning Objectives Identify the source of financial information presented in financial statements Distinguish different general ledger accounts used in financial statements Identify the five major groups of accounts that form financial statements Interpret the Accounting Equation in relation to how a business is managed Compile financial statements at the end of the accounting cycle (Case Study Exercise 1) Module 1 – Accounting

9. Licensed to Business Performance Group, Inc., from Matt H. Evans Chart of Accounts 9 CashMoney in the bank Accounts ReceivableAmounts owed to the company for sales InventoryAssets held for resale to customers Prepaid ExpensesAmounts paid in advance Work in ProgressCapture costs of projects Fixed Assets – EquipmentPhysical property owned by the company Accounts PayableAmounts that must be paid to vendors Loans PayableAmounts due to banks Long Term DebtAmounts due to investors who purchased bonds Owners Capital AccountAmount invested by the owner of the business Retained EarningsProfits held by the business for reinvesting Sales RevenueAmount of revenues from selling products / services Cost of Goods SoldCost of inventory that has been sold Administrative ExpenseCost of office support personnel Depreciation ExpenseExpensing a portion of a long-term asset Utility ExpenseGas, Water & Electric expenses Interest ExpenseInterest on Loans or Debt instruments Balance Sheet Accounts Income Statement Accounts

10. Licensed to Business Performance Group, Inc., from Matt H. Evans Five Major Groups of Accounts 10 1.Assets – Resources of the Business 2.Liabilities – Obligations 3.Equity – Investments by Owners 4.Revenues – Inflows from Sales 5.Expenses – Outflows for Costs Accounts that have balances must collectively balance out within the Accounting Equation: Assets = Liabilities + Equity Businesses invest in assets for one primary reason: To generate Revenues! These accounts always have a balance – Balance Sheet These accounts are closed out each reporting period – Income Statement

11. Licensed to Business Performance Group, Inc., from Matt H. Evans Debits vs. Credits 11

12. Licensed to Business Performance Group, Inc., from Matt H. Evans Posting Transactions 12 1-6-2014 Purchase office supplies 1-1-2014 Beginning Balance Cash 1-16-2014 Run Bi Weekly Payroll 1-12-2014 Deposit payment from customer 1-26-2014 Pay Monthly Electric Bill 1-22-2014 Insurance Premium Paid $ 4,220.55 $ 142.20 1-31-2014 Ending Balance $ 3,600.00 $ 2,640.00 $ 265.00 $ 516.30 $ 4,257.05 Debit (Left) Credit (Right) Month End Cut Off – Basis for Reporting

13. Licensed to Business Performance Group, Inc., from Matt H. Evans Example of Cash Flow Cycle 13 Key Strategy: Short Cycles are preferred – current assets don’t generate any returns like Long-term assets! So you don’t want to hold current assets – the objective is to turn over your current assets quickly! Accounts Receivable Cash Inventory Sale Eventually everything will flow through your cash account!

14. Licensed to Business Performance Group, Inc., from Matt H. Evans Accounting = Source of Financial Data 14 Payroll Transactions Sales Transactions Purchase Transactions Financing Transactions Accounting System General Ledger Accounts Financial Statements Cash Inflows Cash Outflows Accruals (Non Cash) Sales Depreciation Liabilities

15. Licensed to Business Performance Group, Inc., from Matt H. Evans Recap of how the Overall Process Works 15 Accounting System Financial Statements End of Period Accrual Entries Transactions (Mostly Cash Basis) Post to General Ledger Accounts Balance Sheet Income Statement Economic Activity of the Business Accounting is a very iterative process that captures transactions (inputs) to generate Financial Statements (outputs)

16. Licensed to Business Performance Group, Inc., from Matt H. Evans Multiple Choice Question No. 1 16 1. If the total assets of a business are $ 5,000 and the total liabilities are $ 3,000, then the total equity for the business must be: a. $ 2,000 b. $ 3,000 c. $ 4,000 d. $ 5,000

17. Licensed to Business Performance Group, Inc., from Matt H. Evans Multiple Choice Question No. 2 17 2. Eventually every business transaction should flow through which general ledger account? a. Fixed Assets b. Owners Capital c. Long Term Debt d. Cash

18. Licensed to Business Performance Group, Inc., from Matt H. Evans Case Study Exercise 1 – Compile Financial Statements 18 Locate Exercise No. 1 - Accounting Case Study We will work through the transactions for a start up business, flow these transactions to the general ledger accounts and compile the Balance Sheet and Income Statement from the general ledger account balances. Tab 1: Detail Transactions for a Startup Business Tab 2: Post the Transactions and Impose a Cut Off Tab 3: Close out the Accounting Cycle using the Trial Balance Tab 4: Compile and Present the Balance Sheet and Income Statement Tab 5: Complete Listing of General Ledger Accounts

19. Licensed to Business Performance Group, Inc., from Matt H. Evans 19 Learning Objectives Recognize the purpose of three different financial statements Recognize how general ledger account balances are presented within the body of financial statements Identify important principles associated with financial statements Identify important disclosures with footnotes to financial statements Recognize key disclosures contained in publicly traded financial statements Module 2 - Financial Statements

20. Licensed to Business Performance Group, Inc., from Matt H. Evans Three Types of Financial Statements 20 Financial condition of a company at a given point in time Consists of three components: Assets, Liabilities and Owners Equity Profit or Loss of a company over a period of time The critical indicator of company performance! Consists of two components: Revenues and Expenses Sources and uses of cash over a period of time Consists of three activities: Operating, Investing, and Financing Income Statement Statement of Cash Flow Balance Sheet

21. Licensed to Business Performance Group, Inc., from Matt H. Evans Balance Sheet 21 The resources or wealth of a business are leveraged or financed by liabilities and equity. This all gets expressed on the Balance Sheet!

22. Licensed to Business Performance Group, Inc., from Matt H. Evans Income Statement 22

23. Licensed to Business Performance Group, Inc., from Matt H. Evans Cash Flow Activities 23 Operations: Cash Received from sales, interest revenues, dividend revenues, sale of marketable securities Cash Paid to suppliers, vendors, taxes to the government, utilities, rent, supplies, etc. Investing: Cash Received from sale of property, equipment, business units, etc. Cash Paid to purchase property, equipment, machinery, business units, etc. Financing: Cash Received from issuing stock, borrowing money from the bank, mortgages on real estate, etc. Cash Paid to owners in the form of dividends or returns on capital, repay principal on loans, purchase back stock, etc.

24. Licensed to Business Performance Group, Inc., from Matt H. Evans Statement of Cash Flows 24 Cash Flows related to Operating Activities Cash Flows related to Financing Activities Cash Flows related to Investment Activities

25. Licensed to Business Performance Group, Inc., from Matt H. Evans Some Important Principles about Financial Statements  Comparability – More useful when published side by side to understand long-term trends  Consistency – Financial Statements tend to be consistent thanks to published standards  Historical Costs – Financial Statements will not reflect market values  GAAP (Generally Accepted Accounting Principles) vs. IFRS (International Financial Reporting Standards) 25

26. Licensed to Business Performance Group, Inc., from Matt H. Evans Footnotes and Other Information  Footnotes often disclose certain “dirty” items not otherwise found in the financial statements  Accounting policies  More details about major accounts  Tables that breakdown assets  Liabilities that may be understated  Rates paid on debt  Business Segments 26

27. Licensed to Business Performance Group, Inc., from Matt H. Evans Good Source of Footnote Information – Public Companies 27 10-K: Annual Report which is very comprehensive – Audited Financial Statements, Description of the Business, Key Customers, Product Lines, Financial Results, etc. 10-Q: Quarterly Report which is summary level – Unaudited Financial Statements, Less Detail than 10-K 8-K: Disclosure of significant events – description of the event and any applicable exhibits (such as Press Releases)

28. Licensed to Business Performance Group, Inc., from Matt H. Evans Walk Through 10-K for Coca Cola (Exercise 2) 28 Full and Adequate Disclosure – 10-K Annual Report All Companies should strive for full and adequate disclosure Let’s walk through an example – Coca Cola: Page 11 – Disclose your risk Page 21 – Disclose liabilities not reported on the Balance Sheet Page 23 – Who manages the company Page 29 – Summarize 5 Years of Financials Page 29 – Management Discussion and Analysis Pages 74 to 78 – Comparative Financial Statements Page 79 – Accounting Policies Page 138 – Audit Opinion Page 139 – Management Assurance over Internal Controls (Sarbanes Oxley)

29. Licensed to Business Performance Group, Inc., from Matt H. Evans Multiple Choice Question 29 3. Companies will usually publish what type of financial statements? a. Income Statement and Reconciliation Statement b. Income Statement, Balance Sheet and Reconciliation Statement c. Income Statement, Balance Sheet and Statement of Cash Flows d. Balance Sheet, Statement of Cash Flows, and Reconciliation Statement

30. Licensed to Business Performance Group, Inc., from Matt H. Evans Multiple Choice Question 30 4. In order to properly understand the numbers presented in financial statements, you should also read the: a. Bank Statement b. Footnotes c. Tax Return d. Disclaimer

31. Licensed to Business Performance Group, Inc., from Matt H. Evans Module 3 – Reading Financial Statements 31 Interpret key terminology that gets applied to financial analysis Identify what parts of the Income Statement to read vs. those parts that inject noise Interpret the liquidity and solvency of a company by reading the Balance Sheet Distinguish three different types of cash flows Learning Objectives

32. Licensed to Business Performance Group, Inc., from Matt H. Evans Some Terminology to Remember 32 Cost of Capital – The cost of financing the business which is a combination of debt and equity. Each has an imputed cost. Cost of Goods Sold – The total costs of producing a product. The sales price less the cost of goods sold is the gross margin or gross profit. Debt – Liabilities such as Loans, Mortgages, Bonds, and Commercial Paper (large public corporations) Equity – The amount of funds invested by owners of the business + profits that are retained by the business for future growth. Liquidity – The ability of a company to convert assets into cash for meeting short-term obligations Leverage – How a company finances its assets Net Income – The residual income remaining after all expenses; same as profits. Rate of Return – How much return does the investment generate for the business; residual income after all costs. Turn Over – The ability of a company to turn over and convert an asset into something else, such as sales or cash. Working Capital – The funds available to the business within the current operating cycle, expressed as current assets in excess of current liabilities.

33. Licensed to Business Performance Group, Inc., from Matt H. Evans Profitability – Focus on Operations! 33 Revenues from the sale of products and services are related to the real operations of the business. Operating costs are directly related to what it took to produce the services and products. In the case of inventories, this may get disclosed as Cost of Goods Sold on the Income Statement. You also have to promote and sell the products + it takes some overhead to manage the business.

34. Licensed to Business Performance Group, Inc., from Matt H. Evans Liquidity and Solvency 34 Equity capital of the business – not available to pay debts Liquid assets – ability to meet current obligations Non Liquid assets – not easily converted into cash Current Obligations Long Term Obligations

35. Licensed to Business Performance Group, Inc., from Matt H. Evans Reading the Cash Flows 35 Related to the actual operations of the business. Need to generate consistent positive cash flows over time. If major sources of cash are coming from non-operating activities, this could indicate a certain level of financial distress in trying to sustain or grow the business.

36. Licensed to Business Performance Group, Inc., from Matt H. Evans In Summary – What to Look For 36 1.Income Statement > Profitable – Operational Perspective 2.Balance Sheet >Good Liquidity to Cover Current Liabilities 3.Balance Sheet > Proportional Long Term Debt to Long Term Assets 4.Balance Sheet > Debt Load is not Excessive, Owners have invested 5.Statement of Cash Flows > Positive Cash Flows – Operational Perspective

37. Licensed to Business Performance Group, Inc., from Matt H. Evans Multiple Choice Question No. 5 37 5. Which financial statement is useful in understanding the liquidity of a company? a. Income Statement b. Balance Sheet c. Bank Statement d. Reconciliation Statement

38. Licensed to Business Performance Group, Inc., from Matt H. Evans Exercise 3 – Operating Income 38 Sales Revenues$ 160,000 Other Revenues – Sale of Business Unit15,000 Total Revenues175,000 Cost of Sales (Cost of Goods Sold)65,000 Administrative Expenses15,000 Selling Expenses8,000 Expense from Litigation Settlement12,000 Taxes28,000 Total Expenses128,000 Net Income$ 47,000 What is the Operating Income for this Company? Take five minutes to complete this exercise Refer back to slide 33 for help

39. Licensed to Business Performance Group, Inc., from Matt H. Evans Module 4 – Horizontal and Vertical Analysis 39 Interpret trends by applying horizontal analysis to comparative financial statements Identify key financial relationships by applying vertical analysis to financial statements Apply horizontal analysis to historical costs to arrive at Estimates to Complete for projects Learning Objectives

40. Licensed to Business Performance Group, Inc., from Matt H. Evans Horizontal and Vertical Relationships 40 200420052006 Sales Revenues$ 120,000$ 135,000$ 146,000 Operating Expenses$ 68,000$ 73,000$ 78,000 Net Income$ 22,000$ 26,000$ 29,000 Sales Revenues$ 120,000100% Operating Expenses$ 68,00057% Net Income$ 22,00018% Viewing Financial Data Horizontally Viewing Financial Data Vertically

41. Licensed to Business Performance Group, Inc., from Matt H. Evans Horizontal Analysis 41 How are things trending year to year?

42. Licensed to Business Performance Group, Inc., from Matt H. Evans Two Key Trends Income Statement 42 Top Line and Bottom Line Growth Trends: Income Statement 20132014 Sales Revenues$ 100,640$ 90,200 Personnel Expenses61,41055,100 Other Operating Expenses8,2006,900 Operating Income31,03028,200 Interest Expense2,6002,300 Tax Expense7,2005,400 Net Income$ 21,230$ 20,500

43. Licensed to Business Performance Group, Inc., from Matt H. Evans Horizontal Analysis - Projects Apply Burn Rates 43 Project Managers often assess monthly burn rates to determine when they will run out of money. Phase 1 has a budget of $ 250,000 1 2 3 Last 3 months levels off, take average of last 3 months x months to complete Preliminary Design is ramping up, expect to be fully staffed in Jan 2009 x 3 months to complete Final Design is expected to cost $ 35,000 starting in April 2009 1 2 3

44. Licensed to Business Performance Group, Inc., from Matt H. Evans Additional Funding Needed – Phase 1 44 Based on costs incurred to date and what we expect going forward, you must submit a request for additional funding:

45. Licensed to Business Performance Group, Inc., from Matt H. Evans Vertical Analysis  Express financial statements as percentages – Common Size  Compare the Common Size Statements from period to period and against industry benchmarks  Easy to ascertain financial strength’s and weaknesses  Easy to discern overall cost structure  Certain Ratios are automatically calculated such as Return on Sales 45

46. Licensed to Business Performance Group, Inc., from Matt H. Evans Vertical Analysis – Income Statement 46 Income Statement > Sales Revenues is the Base Number or 100% Composition Breakdown of Revenues to Cost to Profits Two Key Things to Look for: 1.Operating Cost > 60% 2.Profits > 10%

47. Licensed to Business Performance Group, Inc., from Matt H. Evans Vertical Analysis – Balance Sheet 47 Balance Sheet > Total Assets is the Base Number or 100% Composition Breakdown of Assets Key Things to Look for: 1.High Percentages of Current Assets – Must benchmark to identify weaknesses

48. Licensed to Business Performance Group, Inc., from Matt H. Evans In Summary – What to Look For 48 Horizontal Analysis Track Trends over Time Key Trends include Sales Revenues, Net Income, Debt Levels Vertical Analysis Track Relationships (between accounts) over Time Monitor proportion of debt and equity to assets – too much debt equates to higher risk Monitor proportion of non-operating expenses to operating expenses – most of your costs should be operating with minimal non-operating expenses Monitor proportion of Net Income to Sales Revenues – 10% or higher is preferred

49. Licensed to Business Performance Group, Inc., from Matt H. Evans Include Benchmarking Enhances Your Analysis  Financial benchmarks are available from service bureaus (visit your public library)  Financial benchmarks can help determine costs (such as supply chains)  Averages are OK, but try to seek out “Best in Class”  Identify gaps in performance and set goals to improve 49

50. Licensed to Business Performance Group, Inc., from Matt H. Evans Exercise 4 Vertical Analysis and Benchmarking 50 Refer to the financial statements for Jacobs Engineering and the Vertical Analysis Template: 1.Calculate the percentages for Jacobs Engineering per the boxes in the template. 2.Refer to the benchmark information in your handout. We will use RMA percentages that size to Jacobs Engineering. Insert the percentages based on assets and based on sales. 3.Compare the calculated percentages for Jacobs Engineering to the RMA benchmarks – how does Jacobs compare? Take ten minutes to complete this exercise

51. Licensed to Business Performance Group, Inc., from Matt H. Evans Module 5 – Ratio Analysis 51 Calculate ratios to assess the liquidity of a company Interpret a company’s ability to meet short term obligations Calculate ratios to assess the use of leverage (debt and equity) by a company Interpret the risk of a company per leverage ratios Calculate ratios to assess how effective a company is with managing its assets Calculate ratios to assess profitability Learning Objectives

52. Licensed to Business Performance Group, Inc., from Matt H. Evans Why Ratios? 52  Wide range of ratios to evaluate almost anything  Easier to comprehend financial results vs. financial statements  Easy to understand and calculate  Comparable by periods, companies, and useful for forecasting  Published benchmarks are available for industry analysis Numerator / Denominator = Ratio Net Income / Sales = Return on Sales Ratio

53. Licensed to Business Performance Group, Inc., from Matt H. Evans Types of Ratios 53 Return on Investments (1)Rate of Return on Investments LiquidityAbility to meet short-term obligations of the business LeverageDegree to which assets are financed by debt Asset ManagementManagement’s ability to manage assets ProfitabilityDegree of profitability generated (1) Return on Investment will be discussed in the next module

54. Licensed to Business Performance Group, Inc., from Matt H. Evans Key Questions – Answered with Ratios 54 Efficiency in Managing Assets: 1.Accounts Receivable – How quickly is the company converting receivables into cash? 2.Inventory – How old is the inventory and how quickly is the company turning the inventory over into sales? 3.Total Assets – How many times are assets turned over into sales? Liquidity and Leverage: 1.Current Assets – How much liquid assets are available to cover current obligations? 2.Debt Load – How much of the company assets are financed outside of the company? Profitability: 1.Return on Sales – What is the profit margin on our sales? 2.Return on Assets – How much return are we generating from our assets?

55. Licensed to Business Performance Group, Inc., from Matt H. Evans Liquidity Ratios - Current 55 Measures the ability of a company to meet its short term obligations Current Ratio = Quick Ratio = Current Assets Current Liabilities Current Assets - Inventory Current Liabilities KEY POINT > These ratios should be greater than 1.0

56. Licensed to Business Performance Group, Inc., from Matt H. Evans Example – Liquidity Ratios 56 Assets Cash$ 5,600 Accounts Receivable12,400 Inventory39,000 Total Current Assets57,000 Plant and Equipment145,000 Real Estate Holdings55,000 Total Non-Current Assets200,000 Total Assets257,000 Liabilities Accounts Payable11,500 Long Term Loans Payable73,000 Total Liabilities84,500 Equity Owners Capital110,000 Retained Earnings62,500 Total Equity172,500 Current Ratio $ 57,000 / $ 11,500 = 5 We have 5 times the current assets that we have in current liabilities Quick Ratio ( 57,000 - 39,000) / 11,500 = 1.5 Our current liabilities are covered 1.5 times by highly liquid assets

57. Licensed to Business Performance Group, Inc., from Matt H. Evans Leverage Ratios – Proportion of Debt 57 Measures the degree to which the company is leveraged in terms of debt and equity Debt to Equity Debt to Assets Total Liabilities Owners Equity Total Liabilities Total Assets Greater than 100% means company is using more debt than equity – more risk to the company Greater than 50% means the company is using more debt than equity – more risk to the company

58. Licensed to Business Performance Group, Inc., from Matt H. Evans Example – Leverage Ratios 58 Assets Cash$ 5,600 Accounts Receivable12,400 Inventory39,000 Total Current Assets57,000 Plant and Equipment145,000 Real Estate Holdings55,000 Total Non-Current Assets200,000 Total Assets257,000 Liabilities Accounts Payable11,500 Long Term Loans Payable73,000 Total Liabilities84,500 Equity Owners Capital110,000 Retained Earnings62,500 Total Equity172,500 Debt to Equity Ratio $ 84,500 / $ 172,500 = 49% For every $ 1.00 of Equity, we have $.49 of Debt Debt to Assets $ 84,500 / $ 257,000 = 33% For every $ 1.00 of assets, we have borrowed $.33

59. Licensed to Business Performance Group, Inc., from Matt H. Evans Turnover Ratios - Overall 59 Measures the ability of a company to manage its overall assets Asset Turnover = Sales Total Assets Capital Turnover = Sales Debt* + Equity *only interest bearing debt, such as loans, not accounts payable, taxes payable, etc. On an annual basis, should be able to turn over your assets and capital deployed at least 1.0 times during the year; i.e. for every $ 1.00 invested, we were able to generate $ 1.00 of sales

60. Licensed to Business Performance Group, Inc., from Matt H. Evans Example – Asset Turnover 60 Assets Cash$ 5,600 Accounts Receivable12,400 Inventory39,000 Total Current Assets57,000 Plant and Equipment145,000 Real Estate Holdings55,000 Total Non-Current Assets200,000 Total Assets257,000 Revenues Sales Revenues$ 620,000 Investment Revenues115,000 Total Revenues735,000 Excerpt from the Balance Sheet: Excerpt from the Income Statement: Asset Turnover $ 620,000 / $ 257,000 (1) = 2.4 We are able to turn our asset base over 2.4 times into sales revenues (1) May want to exclude the $55,000 Real Estate from the Asset Total since this is not operational

61. Licensed to Business Performance Group, Inc., from Matt H. Evans Example – Capital Turnover 61 Assets Cash$ 5,600 Accounts Receivable12,400 Inventory39,000 Total Current Assets57,000 Plant and Equipment145,000 Real Estate Holdings55,000 Total Non-Current Assets200,000 Total Assets257,000 Liabilities Accounts Payable11,500 Long Term Loans Payable73,000 Total Liabilities84,500 Equity Owners Capital110,000 Retained Earnings62,500 Total Equity172,500 Revenues Sales Revenues$ 620,000 Investment Revenues115,000 Total Revenues735,000 Capital Turnover $ 620,000 / $ 245,500 = 2.5 How often can the company turn over the invested capital into sales? (1) Capital = $ 73,000 + $ 172,500

62. Licensed to Business Performance Group, Inc., from Matt H. Evans Turnover Ratios – Current Assets 62 Measures the ability of a company to manage its current assets Accounts Receivable Turnover Sales Accounts Receivable Days Held in Accounts Receivable A / R Turnover 365 Days Inventory Turnover Cost of Goods Sold Inventory Days Held in Inventory 365 Days Inventory Turnover

63. Licensed to Business Performance Group, Inc., from Matt H. Evans Example – Accounts Receivable 63 Revenues Sales Revenues (1)$ 620,000 Investment Revenues115,000 Total Revenues735,000 Expenses Cost of Goods Sold380,000 Assets Cash$ 5,600 Accounts Receivable12,400 Inventory39,000 Total Current Assets57,000 Accounts Receivable Turnover $ 620,000 / $ 12,400 = 50 How often does Accounts Receivable turn over during the year? Number of Days Held in A / R 365 / 50 = 7 days How many days does it take to convert Accounts Receivable into cash? (1) Assume all Sales Revenues are on account, no cash sales

64. Licensed to Business Performance Group, Inc., from Matt H. Evans Example – Inventory 64 Revenues Sales Revenues$ 620,000 Investment Revenues115,000 Total Revenues735,000 Expenses Cost of Goods Sold380,000 Assets Cash$ 5,600 Accounts Receivable12,400 Inventory39,000 Total Current Assets57,000 Inventory Turnover $ 380,000 / $ 39,000 = 9.7 How often does Inventory turn over during the year? Number of Days Held in Inventory 365 / 9.7 = 37 days How many days does it take to convert Inventory into Accounts Receivable?

65. Licensed to Business Performance Group, Inc., from Matt H. Evans Cost Recovery Ratio - Projects 65 Companies need to recover their costs in a timely manner Certain things must be in place when you start a project! If not, you work at risk = lost revenues. WIP > Acct Rec > Cash Very Poor Turnover!

66. Licensed to Business Performance Group, Inc., from Matt H. Evans Cost Recovery Ratio - Projects 66 A much better beginning to the project: Signed contract and task order issued, project is fully funded, timely cost recovery Much stronger turnover from WIP to A/R to Cash Notice to Proceed issued before project team starts Signed task order issued with funding in place Invoice package is complete, copies to A/P, PM, etc. 1 2 3 1 2 3

67. Licensed to Business Performance Group, Inc., from Matt H. Evans Profitability Ratios 67 Measures profitability in relation to some base line Profit Margin Net Income Sales Operating Margin Sales Operating Income Return on Assets Net Income Total Assets (1) Return on Equity Net Income Total Equity (1) (1) Average balances for the year are often used

68. Licensed to Business Performance Group, Inc., from Matt H. Evans Example – Profitability Ratios 68 Revenues Sales Revenues$ 620,000 Investment Revenues115,000 Total Revenues735,000 Expenses Cost of Goods Sold380,000 Marketing & Selling77,000 General & Administrative130,000 Interest Expense56,000 Taxes29,000 Net Income63,000 NOTE: Operating Income is $ 620,000 – 380,000 – 77,000 – 130,000 = $ 33,000 Profit Margin $ 63,000 / $ 620,000 = 10% For every $ 1.00 of Sales, we are able to turn a profit of $.10 Operating Margin $ 33,000 / $ 620,000 = 5% For every $ 1.00 of Sales, we are able to turn a gross margin of $.05

69. Licensed to Business Performance Group, Inc., from Matt H. Evans Example – Return Ratios 69 Revenues Sales Revenues$ 620,000 Investment Revenues115,000 Total Revenues735,000 Expenses Cost of Goods Sold380,000 Marketing & Selling77,000 General & Administrative130,000 Interest Expense56,000 Taxes29,000 Net Income63,000 Total Assets257,000 Liabilities Accounts Payable11,500 Long Term Loans Payable73,000 Total Liabilities84,500 Equity Owners Capital110,000 Retained Earnings62,500 Total Equity172,500 Return on Assets $ 63,000 / $ 257,000 = 24% For every $ 1.00 invested in assets, we return $.24 Return on Equity $ 63,000 / $ 172,500 = 36% For every $ 1.00 of Equity, we return $.36

70. Licensed to Business Performance Group, Inc., from Matt H. Evans Exercise 5 – Ratio Analysis 70 You will need the Ratio Template and the financial statements for Jacobs Engineering. Calculate the Ratios described in the template. The template includes the formula for each ratio. Take ten minutes to complete this exercise

71. Licensed to Business Performance Group, Inc., from Matt H. Evans Module 6 – Working Capital Management 71 Identify two basic strategies for how Cash should be managed Recognize three criteria to use for determining how much cash to keep on hand Calculate the amount of cash to keep on hand Identify an important control for managing Accounts Receivable and Accounts Payable Identify important calculations and controls for the management of inventory Learning Objectives

72. Licensed to Business Performance Group, Inc., from Matt H. Evans Four accounts that warrant additional analysis 72 1.Cash – Does not generate a return for the business, need to minimize what we hold 2.Accounts Receivables – Need to turnover and collect what is due 3.Accounts Payables – Need to pay all of our vendors on time 4.Inventory – Need to minimize what we hold and re-order to meet demand

73. Licensed to Business Performance Group, Inc., from Matt H. Evans Key Objectives - Cash 73 Collect what is due as quickly as possible Disperse cash only when it is due Invest surplus cash in marketable securities to generate a return Amount of Cash to keep on hand is the Greater of: 1.Compensating balances required by loans with banks or 2.Sum of what is required to cover recurring transactions + pre-cautionary reserve to cover surprises

74. Licensed to Business Performance Group, Inc., from Matt H. Evans Example of Cash to Keep on Hand 74 Bank requires you maintain a $ 5,000 cash balance as a condition of a loan. To cover recurring day to day transactions, you require $ 2,500 in Cash Pre-cautionary balance to cover unexpected events is $ 1,000 What is the minimum amount of cash to keep on hand? Greater of $ 5,000 or $ 3,500 or $ 5,000 must be kept on hand

75. Licensed to Business Performance Group, Inc., from Matt H. Evans Key Objectives – Accounts Receivable 75 Monitor and Collect – Review Aging Reports every month Invoice quickly after every monthly accounting close Send statements reminding customers of overdue balances Require advances or pre-payments for new customers that are questionable regarding payment Establish a credit policy for issuing credit to customers – who can buy on account Measure – Two Ratios (Turnover and Days Held)

76. Licensed to Business Performance Group, Inc., from Matt H. Evans Accounts Receivable Aging Report 76 A very important control for analyzing Accounts Receivable. Breaks down the Accounts Receivable by customer and by days outstanding pas the invoice date:

77. Licensed to Business Performance Group, Inc., from Matt H. Evans Accounts Payable Aging Report 77 Also run an Aging Report for your Accounts Payable

78. Licensed to Business Performance Group, Inc., from Matt H. Evans Key Objectives - Inventories 78 Automated System to track and control flow of every item Segment inventory – high volume sales, moderate and slow moving Calculate re-order points – know lead times Control holding, storage and order costs Integrated approach – Supply Chain Management – everyone working in sync If you have inventories, then you will need to have aggressive control procedures since this is at the heart of what your business does

79. Licensed to Business Performance Group, Inc., from Matt H. Evans Inventory Analysis by Segment 79 Group A – Best selling items account for most of your sales Group B – Moderate selling items account for less than 50% of sales Group C – Poor selling items do not contribute much to sales

80. Licensed to Business Performance Group, Inc., from Matt H. Evans Inventory Re Order Level 80 Re-Order based on Demand and Lead Time to Replenish Inventory 1.Start with a forecast of usage or demand for a specific time frame and normalize this to days 2.Next, multiply this daily demand by the number of lead time days to determine your reorder level 3.Re-Order Level (RL) = Daily Usage or Demand (d) x Lead Time Days (L) Example: Local bakery expects to use 6,300 pounds of flour next year. The flour will be used approximately 120 days during the year. It takes 4 days to go out and get more flour when the bakery runs out. At what level should we re-order flour? 6,300 pounds / 120 days = 52.5 pounds are used per Day 4 Days x 52.5 = 120 pounds is the level when you should re-order more flour

81. Licensed to Business Performance Group, Inc., from Matt H. Evans Exercise 6 Inventory Segment Analysis 81 Find the Inventory Segment Analysis template and calculate the inventory into three groups: A, B, and C Group A = High valued items that contribute more than 10% to the total inventory value Group B = Moderate inventory items that contribute between 2% to 10% to the total inventory value Group C = Contributes the least, less than 2% What is the total value for each of these three groups?

82. Licensed to Business Performance Group, Inc., from Matt H. Evans Module 7 – Key Financial Indicators 82 Identify underlying drivers behind growing revenues and reducing costs Recognize how to measure profitability below the company level Recognize the importance of cash flows as it relates to the value of an investment or company Calculate the Return on Investment Identify the components with Cost of Capital Interpret value through the comparison of Return on Investment with Cost of Capital Learning Objectives

83. Licensed to Business Performance Group, Inc., from Matt H. Evans Growing the Top Line & Lowering Costs 83 Over time, companies are expected to grow the top line or Revenues and lower their overall cost structures: Higher sales volumes Increased market share Introduction of new products Acquire new business Outsource Core Processes Move Operations Overseas Automate Production Reduce Duplications Grow RevenuesCut Costs

84. Licensed to Business Performance Group, Inc., from Matt H. Evans Product Profitability 84 Product profitability is a function of sales prices determined in the free market vs. all absorbed costs to produce the product..

85. Licensed to Business Performance Group, Inc., from Matt H. Evans Project Profitability 85 Projects can also be viewed in terms of their profitability...

86. Licensed to Business Performance Group, Inc., from Matt H. Evans Cash Flows vs. Earnings 86  Earnings (Profits) must be converted into cash flows  Closer Earnings are to Cash Flow = Higher Integrity in Financial Statements  Cash flow is a better indication of value  Businesses with high cash flows have opportunities to invest and grow

87. Licensed to Business Performance Group, Inc., from Matt H. Evans Earnings are over-emphasized 87 Correlation with Value Earnings per Share 1% Return on Equity25% Return on Investments75% Source: Thoughts on Valuation by Michael Mauboussin – Credit Suisse First Boston There is a poor correlation between earnings and market values of companies since earnings tend to fluctuate:

88. Licensed to Business Performance Group, Inc., from Matt H. Evans Return on Investment (ROI) 88 Residual Benefits * Total Amount Invested ** Looking at the overall business, ROI is usually expressed as Return on Capital or Return on Equity ROI Net Income Average Equity for the Year * Total Benefits less Total Amount Invested ** All costs to place the asset into service

89. Licensed to Business Performance Group, Inc., from Matt H. Evans Quantifying Benefits 89 Organizational Benefits Builds company reputation Creates new customer opportunities Fosters company vision and mission Improves market position relative to competitors Improves the ability to serve customers Increases competitiveness and ability to charge a premium Financial Benefits Creates additional/new revenue Creates cost savings through tax avoidance Enables cost avoidance Faster return on investments Increases cash flow Increases profitability of existing products/services Increases revenue of existing sources Increases stock price/shareholder value Lowers cost of production Lowers cost of servicing Operational Benefits Decreases employee work loads for undesirable work Eliminates non-value added activities Improves employee morale / team spirit Improves internal communication Improves use of workspace Increases employee and process productivity Reduces cycle time Reduces cycle time of production/process Reduces external inputs to processes Reduces person-hours Reduces process steps Simplifies processes and workflow steps Information Technology Benefits Decreases maintenance/support costs Improves application/system performance Improves application/system utilization rate Increases efficiency of support activities Increases productivity through automation Reduces application/system variation (increases reliability) Reduces paper documentation requirements Strengthens application/system security Identifying costs (outflows) is fairly straight-forward. Trying to quantify the benefits (inflows) can be very challenging. Examples of benefits include:

90. Licensed to Business Performance Group, Inc., from Matt H. Evans Hard vs. Soft Benefits 90 It is best to exclude soft benefits since it is too subjective to quantify financial impacts. ROI may be inappropriate where there is no financial impact. Hard BenefitsSoft Benefits Reductions in PersonnelImproved User Satisfaction Reduced Maintenance CostsInformation is More Accurate Less Run / Processing TimeEasier to Access Fewer Mistakes and ErrorsBetter Control over Process

91. Licensed to Business Performance Group, Inc., from Matt H. Evans ROI Example 91 Proposed new marketing program cost $ 200,000. It will give the company much more exposure to new potential customers. Past programs have proven to increase a company’s revenues by 5% over a three year period. What is the Rate of Return for this investment? Step 1 - Quantify the Benefits: Current Annual Revenues are $ 1,600,000 x 5% = $ 80,000 benefits per year x 3 years = $ 240,000 Total Benefits Step 2 – Quantify all of the Costs: Total investment cost is up front, one time fee of $ 200,000 Step 3 – Calculate the ROI: Total Benefits of $ 240,000 - $ 200,000 costs = $ 40,000 residual benefits divided by $ 200,000 = 20% ROI

92. Licensed to Business Performance Group, Inc., from Matt H. Evans Exercise 7 – Return on Investment 92 Expected Benefits: Additional Revenues Generated$ 150,000 Cost Savings from Investments$ 200,000 Required Investments: Startup Costs$ 175,000 Life Time Maintenance Costs$ 160,000 A key competitor has disclosed some information about its major IT investments. The information is listed below: What is the Return on the Investment? Take ten minutes to complete this exercise Refer back to the top of slide 88 for help

93. Licensed to Business Performance Group, Inc., from Matt H. Evans Cost of Capital vs. ROI 93 All businesses have a cost of financing the business: 1.Cost of Debt – Interest Payments on Loans 2.Cost of Equity – Owners expect to get a return on what they’ve invested into the business Cost of Capital = Cost of Debt + Cost of Equity Cost of Capital Create Value Destroy Value Returns on Investment (ROI) 10% 12% 14% 16% 8% 6% 4%

94. Licensed to Business Performance Group, Inc., from Matt H. Evans Calculating the Cost of Capital 94 Identify each component of capital and its costs. The cost of debt consists of interest and interest is tax deductible. So you need to take the net of tax effect rate for debt. The cost of equity is more difficult to determine since owners have expected rates of return they anticipate taking on their original investments.

95. Licensed to Business Performance Group, Inc., from Matt H. Evans Apply Weights to Determine Overall Weighted Average Cost of Capital 95 In order to increase the value of the company, long-term investments need to generate a return higher than Now take all of your components of capital and apply weights to arrive at an overall weighted average cost of capital. This becomes your benchmark for determining if you create value!

96. Licensed to Business Performance Group, Inc., from Matt H. Evans Multiple Choice Question No. 6 96 6. In order for a company to create value for its owners, the company must be able to: a. Generate Returns on Investment equal to its Cost of Capital b. Generate Returns on Investment greater than its Cost of Capital c. Generate a Cost of Capital that exceeds the Gross Margin percent d. Grow revenues at a higher rate than its Cost of Capital

97. Licensed to Business Performance Group, Inc., from Matt H. Evans Exercise 8 – Cost of Capital 97 Refer to the Template for Calculating Cost of Capital – Jacobs Engineering You will need to refer to the Jacobs Financials to pull off Amounts per the Balance Sheet for Step 4 in the template. Complete the template to see how you calculate Cost of Capital

98. Licensed to Business Performance Group, Inc., from Matt H. Evans EBITDA = Quick Indicator of Cash 98 Earnings or Net Income$ 1,850 Interest Expense (1)+ 300 Taxes (1)+ 420 Depreciation (2)+ 160 Amortization (2)+ 70 Earnings Before Interest Taxes Depreciation Amortization or EBITDA $ 2,800 (1)Not directly related to the actual operations of the business (2)Not an actual disbursement of cash Add Back

99. Licensed to Business Performance Group, Inc., from Matt H. Evans EBITDA and Multiples 99 Sales ($millions) 5 150 500 1,000 Small Lower Middle Upper Large Businesses M I d d l e M a r k e t Companies 2-3x 4-7x 8-9x 10-11x >12x 5.4MM 300,000 2,000 Over the last 20 years, companies have more or less sold at multiples of their EBITDA’s. So Investment Bankers use EBITDA as a main-stay principle in finance. They follow a “buy left & sell right” strategy:

100. Licensed to Business Performance Group, Inc., from Matt H. Evans What exactly is the Multiple? 100 Price Paid (Equity + Debt) When you hear investment bankers talk about a company selling at 6 times EBITDA or simply 6 x, they are referring to the following formula: Multiple = EBITDA (Net Income + Income Taxes + Interest Expense + Depreciation + Amortization)

101. Licensed to Business Performance Group, Inc., from Matt H. Evans Exercise 9 – EBITDA 101 You currently work as an Information Analyst for a Merger and Acquisition Group. You just received an 8-K filing from target companies that you have been tracking. Based on the information provided in the 8-K filing, did Rexnord Corporation pay too much for Falk Corporation? HANDOUT: 8-K Filing and follow these Steps: 1.Identify the total price paid by Rexnord to acquire Falk 2.Identify the recast EBITDA for Falk (acquired company) 3.Calculate the Multiple (Step 1 divided by Step 2) 4.Identify the annual sales revenues of Falk 5.Go to the Multiples Chart (Slide 84) – compare the multiple on the chart (using Sales per Step 4) with the calculated multiple (Step 3) We will work through this exercise together – somewhat complicated

102. Licensed to Business Performance Group, Inc., from Matt H. Evans Module 9 – Cost Analysis 102 Interpret costs from a General Ledger account down to the source detail Recognize potential errors in source data that can distort costs at a control level such as the project level Recognize the risks of trying to control costs by general ledger account Distinguish costs between variable and fixed Apply three analytical techniques for analyzing variable vs. fixed costs Distinguish costs between direct and indirect Apply the concepts of Activity Based Costing for allocating indirect costs to cost objects (project, product, customer, etc.) Apply the concepts of Target Costing for helping to reduce costs in a price competitive situation Learning Objectives

103. Licensed to Business Performance Group, Inc., from Matt H. Evans Drilling Down to Project Costs 103 Balance Sheet Cash................ $ 12,046 Accounts Receivable... 72,196 Inventory............. 186,233 Work in Progress...... 456,104 Fixed Assets.......... 967,246 Total...... 1,693,825 Accounts Payable..... 16,783 Long Term Debt........ 458,909 Total....... 475,692 Owners Capital........ 352,693 Retained Earnings..... 865,440 Total......1,218,133 Let’s work our way down from the Balance Sheet down to detail project costs. We will analyze the current month for Task 64-JL-3284:

104. Licensed to Business Performance Group, Inc., from Matt H. Evans Lowest Level – Detail Cost Entries 104

105. Licensed to Business Performance Group, Inc., from Matt H. Evans Five Potential Errors / Action Items 105

106. Licensed to Business Performance Group, Inc., from Matt H. Evans Don’t cut the People, cut the non-value added activities! 106 Traditional approach to Cost Control – by General Ledger: Better approach is to improve the Process! Eliminate non-value added type activities (“Re” type activities) Compress hand-off’s in workflows Look for delays, wait times, waste, defects, holding inventory, etc. Too many manual processes – invest in technologies Look at how people spend their time – should be spent servicing an internal or external customer

107. Licensed to Business Performance Group, Inc., from Matt H. Evans Fixed vs. Variable Costs 107 Production Volume Cost Variable Fixed Variable Cost – Varies or changes with changes in activity levels such as demand for products and services. Includes production labor, raw materials and various discretionary items such as advertising or research. If I do not sell anything, what costs do I continue to incur? Fixed Cost – Remains the same regardless of activity levels. Tends to be long-term commitments or non-discretionary items such as Rent, Insurance, Interest, Depreciation and Senior Management Salaries.

108. Licensed to Business Performance Group, Inc., from Matt H. Evans Different Forms of Analysis 108 Once you understand your costs as variable vs. fixed, you can do several forms of analysis: 1.Breakeven Analysis – Determine the level of sales at which we break even in terms of operating income. If we can sell more than breakeven, we earn a profit. 2.Differential Analysis – Determine the change in income by adding or eliminating a product or service. 3.Make or Buy Analysis – Determine if it is best to make the product yourself or buy it from someone else.

109. Licensed to Business Performance Group, Inc., from Matt H. Evans Breakeven Analysis 109 Simple Concept: How much business do I have to do to breakeven (recover all of my fixed costs)? Breakeven Volume = Fixed Costs / (Sales Price – Variable Cost per Unit) Breakeven Sales Amount = Fixed Costs / Contribution Margin Ratio Contribution Margin Ratio = (Sales Price – Variable Cost) / Sales Price EXAMPLE: Sales Price = $ 150.00 per Hour | Actual Labor Rate = $ 100.00 per Hour $ 100,000 of costs are incurred no matter how much business takes place Breakeven Hours = $ 100,000 / ($ 150.00 - $ 100.00) = 2,000 Hours must be billed out Contribution Margin = $ 50.00 / $ 150.00 = 33% Breakeven Revenues = $ 100,000 /.33 = $ 300,000 (2,000 Hours x $ 150 per Hour)

110. Licensed to Business Performance Group, Inc., from Matt H. Evans Analysis Examples 110 Differential Analysis: Do you discontinue the Dual Cap Joints product line? Make or Buy Decision Analysis: Make price of $ 68.95 vs. Buy price of $ 60.00 Looks like we should eliminate this product, but per our analysis we lose $ 1,105

111. Licensed to Business Performance Group, Inc., from Matt H. Evans Direct vs. Indirect 111 Direct Cost – Resources expended to create the products and services consumed by your customers (people who are billed out, labor that builds the house, etc.) Indirect Cost – Resources that support the business that you can not directly associate with your products and services received by the customer (support services such as accounting, human resources, executive management, etc.)

112. Licensed to Business Performance Group, Inc., from Matt H. Evans Cost Pools Capture the Indirect Cost 112 HR Department Accounting Dept Legal Dept Procurement Dept Tech Support Maintenance Dept Executive Mgmt You have to recover all of your indirect cost as part of your billing rates, product prices or what ever you charge the customer. Accounting System should be setup to capture cost for each cost center such as HR, Accounting, Legal, etc.

113. Licensed to Business Performance Group, Inc., from Matt H. Evans Allocate Indirect Cost to Projects, Products, etc. 113 HR Department Recruit and Hire New Personnel Accounting Department Process Travel Expense Reports $ 2,200 $ 450 Project A – $ 11,000 Project A – $ 11,000 Project A – $ 8,100 Project A – $ 8,100 5 New Personnel hired during the year 6 people made 3 trips during the year Cost CenterActivityActivity CostActivity DriverCost Object

114. Licensed to Business Performance Group, Inc., from Matt H. Evans Target Costing Example 114 Why are billing rates so much higher than what we are paying our people? Because you have a lot more indirect cost than you realize + you have to add in a profit margin. This is becoming a bigger issue given more competition, more cost plus contracts, etc.

115. Licensed to Business Performance Group, Inc., from Matt H. Evans Two Important Tools for Cost Management 115 Activity Based Costing – Allocate your indirect cost to cost objects such as projects or customers. Start by breaking down your indirect cost: Target Costing – Analyze all of your cost and establish a target cost so you remain price competitive.

116. Licensed to Business Performance Group, Inc., from Matt H. Evans Multiple Choice Question No. 7 116 You have been approached about eliminating a product from your business. When you conduct your financial analysis and evaluate this decision, you should be careful to exclude which of the following cost which is not relevant to the decision? a.Personnel / Labor Costs b.Direct Costs c.Variable Costs d.Fixed Costs

117. Licensed to Business Performance Group, Inc., from Matt H. Evans Exercise 10 – Allocate Indirect Cost to Customer 117 Find the Exercise 10 Template which shows: Current Profit Report by 3 Major Customers Objective: Calculate a revised Gross Profit based on the Service Support Cost as allocated by the number of service calls placed by each customer

118. Licensed to Business Performance Group, Inc., from Matt H. Evans Module 10 118 End of Day 1 – Quick Recap

119. Licensed to Business Performance Group, Inc., from Matt H. Evans What we covered – sequence of events 119 1.Accounting is not complicated – think about your Check Book. Cash flows in and out > Record the Transactions > Classify the Transactions > Generate Financial Statements 2.Financial Statements: 1.Balance Sheet – Use to evaluate financial condition of company 2.Income Statement – Use to assess profitability 3.Statement of Cash Flow – Use to see how the company obtains and applies its cash flow 3.Reading Financial Statements – Focus on the Operations to filter out the noise that is buried throughout the financial statements. 4.Market Value of Business – Not related to earnings, but has more to do with cash flows from long term investments

120. Licensed to Business Performance Group, Inc., from Matt H. Evans What we covered – continued 120 7.Return on Investment must exceed Cost of Capital – Two very important financial calculations (ROI and Cost of Capital) 8.Three Techniques to Analyzing Financial Statements: Vertical Analysis, Horizontal Analysis and Ratio Analysis 9.Specific Account Analysis – Cash, Receivables and Inventory. This is how you manage the Working Capital of a company. 10.EBITDA – This is a very common benefit stream used to assign value to a private company. Worked through 6 multiple choice questions and 9 exercises on Day 1