Presentation on theme: "UNIDO Business Performance Management Software"— Presentation transcript:
1 UNIDO Business Performance Management Software FITFinancial Improvement ToolkitTRAINING MATERIALS
2 Improving the use of your financial assets Efficient use of financial assets is one of the main elements of success in business. Enterprise managers must define a strategy that most effectively utilizes and allocates financial resources in order to attain, maintain and improve a company’s competitive position in the market.Careful monitoring through strategic business indicators enables managers to analyze and monitor past and present use of financial and other key resources.FIT, the “Financial Improvement Toolkit”, is especially designed to assist company managers in deciding on improvements of the efficient allocation of financial assets on a yearly basis in order to improve the competitiveness of their enterprise.
3 WHAT IS Fit? FIT presents 23 indicators for the users’ analysis, such as added value,investment, marketing,sales per employee, and others.FIT calculates relevant indicatorsbased on an income statementand a balance sheet ofthe SBU that is to be analyzed.FIT is a software decision support toolbased on modern business concepts.WHAT IS Fit?FIT will show the user the positionof his company as well as the trendover time through comparisonof several years based onactual results or planned data.FIT is based on the availableaccounting data, introducedfor the full year and includingmarketing, R&D costs.FIT is a user-friendly,simple in applicationand self-teaching software.
4 PIMS - Profit Impact of Market Strategy In 1974, Schoeffer, Buzzel and Heany constructed a study to measure the profit impact of market strategies (PIMS).The study dealt with the question which factors are measurably related to sustained profitability of businesses across industries and how their impact may be quantified.The answers that were obtained are based on more than 25 years of intense empirical research throughout industrialized nations.The study identified a number of factors, which have a systematic relationship with the profitability of a business (e.g. return on investment and added value).
5 PIMS - Profit Impact of Market Strategy SBU The object of the investigation in the PIMS program is a Strategic Business Unit (SBU), defined as a unit that transforms and markets a well-defined set of products or services to a clearly defined set of customers and competes with a known set of competitors.Usually it is a sub-division of a company for which it would be sensible to develop a distinct, separate strategy and from which we know financial data.The company can start its business as small enterprise which has only one SBU (as defined above). Upon its products are diversified more than one SBU can be identified at the enterprise.
6 FIT Indicators: Capital Productivity 1. Net Fixed capital as a percentage of salesNet Fixed capital in % of sales = Net Book Value / Net Sales * 100This indicator is a measure of capital productivity relative to sales.It shows to what extent the Net Fixed Assets are used in generating the sales volume. As the value of the fixed assets decreases over time due to their usage, the Net Book Value, which is the undepreciated value of assets, is used for the Net Assets effectiveness measurement.
7 FIT Indicators: Capital Productivity 2. Working capitalWorking capital = Total Current Assets - Total Current LiabilitiesThis indicator shows the actual amount of capital available to the enterprise for its operations.Identifying of the amount of the capital used for production facilitates better allocation of a company’s resources.
8 FIT Indicators: Capital Productivity 3. Working capital as a percentage of salesWorking CapitalWorking capital in % of sales = * 100Net SalesThis indicator shows the actual amount of capital, which an enterprise is working with.Identifying of the amount of the capital used for production facilitates better allocation the company’s resources.
9 FIT Indicators: Investment Intensity An investment is primarily made to improve the competitive strength of an enterprise and we generally speak of three types of investments:Replacement InvestmentExpansion InvestmentEnvironment Investment
10 FIT Indicators: Investment Intensity Investments are generally considered for longer periods and different methods have been developed for the analysis of investment decisions.In FIT the formulae for investment is as follows:Investment = Total Net Assets - Total Current Liabilities
11 FIT Indicators: Investment Intensity 2. Investment intensity as a percentage of Added ValueInvestmentInvestment intensity in % of Added value = * 100Added valueDefined as investment divided by added value, it is a key measure of a firm’s financial standing and refers to the actual added value per year relative to the necessary investments.
12 FIT Indicators: Investment Intensity 2. Investment intensity as a percentage of Added ValueOn a very general level one can say that an investment intensity below 100% is favorable for profitability.Investment is the total capital that is needed to produce the sales volume.
13 FIT Indicators: Investment Intensity 3. Investment per employeeInvestmentInvestment per employee =Number of EmployeesThis indicator should be examined together with added value per employee.A rule of thumb is that production volume per employee must increase as more capital invested per employee.It is an indicator of the degree of automation operating in a particular company.
14 FIT Indicators: Added Value Added value = Net sales - Purchased goodsIt can be translated as the “Economic Productivity” of an enterprise.Measured as the net sales less purchased goods and services needed to produce the net sales and monitored over time, this indicator provides an early warning of changes in profitability.
15 FIT Indicators: Added Value The economic value the business creates is the difference between the cost of purchases (raw materials, components, supplies, energy, etc.) and the revenue from the sale of the goods and services produced using those purchases.How successfully it creates this "added value" with its resources of people, capital, and other fixed costs is a critical measure of performance.
16 FIT Indicators: Added Value 2. Added Value as a percentage of salesAdded valueAdded value in % of sales = * 100Net SalesIndicates how much of the Added Value is produced by actual sales, and is therefore a measure for the degree of Added Value generation.It measures the degree of vertical integration within a firm and indicates the extent of the net sales value produced “in-house”.
17 FIT Indicators: Added Value 3. Added Value per employeeAdded value Added value per employee =Number of EmployeesThis indicator portrays the average amount of Added Value produced for each employee. Added Value per employee, an indicator of labor productivity, shows the effectiveness of the work force.It may be compared with salary per employee or investment per employee.
18 FIT Indicators: Marketing and Sales 1. Net Sales IndexNet Sales index = Net_Sales[n] / Net_Sales * 100The Net Sales index shows the trend in net sales over years.This indicator compares Net Sales of each year to the Net Sales of the first year.The Net Sales index is very useful for measuring the financial performance, one can view the percentage of the Net Sales and quickly find the years when it was at a lower level.
19 FIT Indicators: Marketing and Sales 2. Net Sales per employeeNet SalesNet Sales per employee =Number of EmployeesThe Net Sales per Employee Index is generally about the effectiveness of the organizational structure of your enterprise.The more employees are busy at the enterprise, the more Net Sales should be generated.The index measures the average amount of net sales amount per employee for each year.
20 FIT Indicators: Marketing and Sales 3. Marketing expenditures as a percentage of salesMarketing CostsMarketing in % of sales = * 100Net SalesThis indicator is used to analyze the major marketing cost components necessary for generating sales as well as trends over time.The more effective is its marketing strategy, the more sales this enterprise would generate.
21 1. Cost of Goods as a percentage of sales FIT Indicators: Costs1. Cost of Goods as a percentage of salesTotal Cost of GoodsCost of Goods in % of sales = * 100Net SalesThis indicator is used to show how well the Cost of Goods contributes to the Sales generation.
22 1. Cost of Goods as a percentage of sales FIT Indicators: Costs1. Cost of Goods as a percentage of salesIt is used to analyze the major marketing cost components necessary for generating sales as well as trends over time.It allows to allocate the possible problems in financial flow at a company. If it spends more on goods purchases than it collects sales, then one should analyze the possible problems in this area.
23 2. Administrative costs in percentage of sales FIT Indicators: Costs2. Administrative costs in percentage of salesOther ExpensesAdministration in % of sales = * 100Net salesThis indicator is used to analyze the major cost components incurred in generating sales amount and their trend over time.
24 Trade debtors in % of sales = -------------------- * 100 FIT Indicators: Costs3. Trade debts as a percentage of salesTrade DebtorsTrade debtors in % of sales = * 100Net SalesTrade debtors in FIT are used as receivables.This indicator shows how trade debts contribute to sales generation.
25 4. Average salary per employee FIT Indicators: Costs4. Average salary per employeeTotal SalariesAverage salary per employee =Number of employeesIt reflects trends in payroll development on a per employee basis.The value is calculated by taking the annual total of all salary payments for the enterprise per average number of staff employees during that year (based on total person hours).
26 5. Number of employees FIT Indicators: Costs This indicator shows the average number of employees for a year, indicates how many persons are involved in producing goods for sale.
27 FIT Indicators: Profitability 1. Return on Investment (ROI)Income before Tax and InterestReturn On Investment = * 100InvestmentThis indicator shows how effective is your investment strategy.
28 FIT Indicators: Profitability 1. Return on Investment (ROI)Securing the continuing growth and development of a company requires the review of ROI, which gives information on the amount of income is generated with the current investment strategy (based on the cost of capital)?It has to be compared with the cost of capital for the currency used for calculation.
29 FIT Indicators: Profitability 2. Return on Equity (ROE)Income before TaxReturn On Equity = * 100Shareholders EquityThis indicator shows how well the shareholder’s equity contributes to income collection.It may be compared with potential returns on alternative investments available to shareholders, e.g. financial or stock markets.
30 FIT Indicators: Stocks 1. Stocks as a percentage of salesStocks in percent of sales = Total Stocks / Net Sales * 100Used to identify possible problems in working capital (or investment intensity).This indicator will assist in improving various infrastructure elements of enterprise management, such as logistics, just-in-time production or supply chain management.This indicator is also referred to as inventory in percentage of sales.
31 FIT Indicators: Stocks 2. Raw materials in a percentage of salesRaw materialsRaw materials in % of sales = * 100Net SalesIt reflects the effective use of inventory and helps to identify potential problems in working capital (or investment intensity).
32 FIT Indicators: Stocks 3. Work in progress in a percentage of salesWork in progressWork in progress in % of sales = * 100Net SalesThis indicator is used to show the extent to which the materials are used in sales generation through the percentage of unfinished products calculation.
33 FIT Indicators: Stocks 4. Finished goods in a percentage of salesFinished goodsFinished goods in % of sales = * 100Net SalesIt indicates storage level of the ready products, and shows how well are the finished goods are being sold.
34 How to get started?You may want to print the manual first, before starting working with FIT.For that see “How to print manual” help page.1. First step of working with FIT is to perform Authorization according to User parameters , when each user is granted his assess level.
35 How to get started?2. After the Authorization has been complete, you may start working with FIT by pressing the "Database" button at the top of the main screen.Select "Open/New" option.Type an existing databases' name in the database selection. You can open it by selecting it from the available databases in the browsing window opened with the button as well.Note that if you type a name, which does not exist in the registered databases, the system will automatically create a new database.Press button.
36 How to get started?3. To restore the selected database press "Database" button, and select ADMINISTRATION option. Then press "Restore" button on the administration, and select the name of the file contained in the desired database. Press button when the file is selected.4. If you want to start creating a new database profile for your enterprise, enter the required data as described in the How to enter data help page.
37 FIT Utilities Administration Database safety (Backup/Restore) Multilingual supportGraphical representation
38 FIT Utilities: Backup / Restore The FIT backup function enables users to give their backup data set a reference name.The data will be saved under a specified name.This function gives a possibility to restore the data any time.
39 FIT Utilities: Backup / Restore The FIT backup function enables you to make backup, save it onto local disks or LAN computers with particular reference name.By pressing the Backup Data button in the administration panel (Path: Main Menu Database->Administration->Backup ), FIT will prompt you for an archive file name.Enter any name of max. 8 characters. Your data will now be saved under the respective name.
40 FIT Utilities: Backup / Restore If you wish to restore the data from some other file, choose the Restore function of the panel. You would see the backup data sets that had been saved previously.Any file locations can be selected including network storage.For safety reason it is recommended to take regular back-ups of your FIT data.Note: These functions are available for administrator only.
41 Manual PrintingThe package is shipped with the user manual in electronic form as Win-help file and consists of several chapters.Any chapter or single topic in the chapter can be printed out at any time using the locally available printer upon the need of the user.
42 Manual PrintingThere are the following steps in case one needs printing the manual:1. Open FIT Help window by one of the following possibilities:a) By opening Help without entering Menu START/ PROGRAMS/ FIT/ FITHELP).b) By pressing button on the main FIT menu.
43 Manual Printing2. The FIT Help window has several buttons: "Contents", "Search", "Back", "Print" and "Glossary".– presents the main topics of the FIT help– allows the user to search for desired FIT items– switches the screen to previous page– proceeds the selected pages to printer– shows the list of all possible FIT terms and topics3. One should use the mouse to select Help the desired help chapters and open them one at a time.4. Press Button. The contents of a selected chapter will be transferred for printing.
44 ReportsOne can print reports any time for presentations and other purposes.Reports can be printed for each of the FIT indicator as well as the financial statements, which may be selected from the main FIT menu by selecting the desired report.
45 Reports For report printing: One should select the desired report and open the print preview windowAdjust the settings. Note that your settings are saved for each report after you adjust them.Press button.
46 Selecting languageSelect language feature enables each user to choose his own working language for the FIT application.It also allows user to set some language parameters.Selected language becomes the current user default language.
47 Selecting language The language parameters are: Captions translation - the language performs automatic form captions and menu items translation.Hints translation - the same as captions translation but for hints only.Application fonts - fonts are to be used in buttons captions and message boxes.
48 Selecting language In order to change language: Press TOOLS button on the main screen and select “Select language” optionMark the desired language in Language SettingsSelect the messages and buttons font from the availableThe fonts for the desired language is seen at the Test WindowPress OK button in CONFIRMATION windowTo change the language use the same procedurePress OK button
49 Graphic Representation of indicators When the list of indicators is opened, the operating buttons appear at the bottom of the screen:- erase all opened diagrams.- adjust the diagrams' colors according to your taste. Choose one of the available options:Default color – blue.Different colors - shown the diagrams in different colors set by the system.Set Color - choose the color yourself from the available color palette.- presents the data on the absolute scale (Y) starting from minimum to maximum values; therefore, it's a more precise data presentation.
50 Graphic Representation of indicators - presents the data on the absolute scale (Y) starting from 0 to maximum indicator value.- saves the opened indicators scenario with all set parameters.- loads the indicators scenario previously loaded by the "Save" button.- opens a print preview for the selected for printing indicators.- closes both all indicators and the indicators list.
51 Data Entry: Enterprise registration Here a user enters the actual coordinates of his company:NameLocationStreetCityCountryPhonesFaxesMiscellaneousMeasure Unit (thousands or units)
52 Data Entry: Financial Statements I. FIXED and CURRENT ASSETS.Current assets:1. Cash and marketable securitiesEnter only the amount that is necessary to operate your business2. Trade debtorsAlso known as receivables, and are used mainly when the import of your company exceeds its export.
53 Data Entry: Financial Statements I. FIXED and CURRENT ASSETS.Current assets:3. Stocks: Here this term relates to merchandise on hand and consists of raw materials , work in progress and finished goods at the time when the data is collected.Raw materials : The value of material that you bought from outside for production and that is in your inventory at the time the balance sheet is drawn up.Work in progress: The value of materials being currently used, but that not yet finished, at the time the balance sheet is drawn up.Finished goods: The value of finished goods, ready for delivery, that is in your: inventory at the time the balance sheet is drawn up.4. Other current assets.
54 Data Entry: Financial Statements I. FIXED and CURRENT ASSETS.Fixed assets:1. Gross book value2. Accumulated depreciationOther assets:Current assets that fall into none of the previously mentioned categories, as e.g. prepaid raw materials.
55 Data Entry: Financial Statements II. LIABILITIES and EQUITY.Current liabilities:Any liability that will be paid within one year is usually defined as current.1. Short-term borrowing: Borrowings that will be repaid within one year.2. Current portion of long-term debt: The part of the long-term debt that has to be repaid within one year and will not be renewed as a long-term debt.3. Trade creditors, Other current liabilities: The amount you owe and must pay within one year to your suppliers.
56 Data Entry: Financial Statements II. LIABILITIES and EQUITY.Long-term liabilities:Long-term debt: Liabilities that will not require payment within one year.Other liabilities:e.g. credits from the own mother company, for which no interest is to be paid.Shareholders’ equity:Shareholders equity is the accountants estimate of the value of the shareholders investment in the firm, it is the sum of all claims against a business assets by the owners. Owner's equity is equal to the excess of total assets over total liabilities.
57 Data Entry: Financial Statements III. INCOME STATEMENT for SBU.1. Revenue2. Cost of goods3. Marketing costs4. Research and Development5. Income6. Others7. Number of employees
58 Data Entry: Financial Statements III. INCOME STATEMENT for SBU.1. RevenueRevenue is equivalent to net sales; also called net revenue.Gross Sales:The total amount for which invoices have been issued during the time period under consideration.Returns and allowances:Includes e.g. commission and bonuses paid to external sales people.Net intracompany sales:The part of net sales that goes to customers within the same company.
59 Data Entry: Financial Statements III. INCOME STATEMENT for SBU.2. Cost of GoodsThe direct cost that occurs to produce the product or service that is sold. Also called total cost of goods.Purchases (raw material): Everything you purchase from outside to produce the product or service that you sell.Direct labor: The labour cost of your own people involved in producing your products or performing your services.Depreciation: Allocating the cost of an asset to the periods the asset benefits. Depreciation on other assets goes into other expenses.Manufacturing: Costs incurred in producing your product, that are not part of purchases, direct labour or depreciation.
60 Data Entry: Financial Statements III. INCOME STATEMENT for SBU.3. Marketing costsSales force:All costs that arise for sales people and other people with sales functions.Media advertising:The costs incurred for advertising, incl. radio and TV.Other marketing:Any marketing activities that do not fall under sales force or media advertising, e.g. leaflets, sales documentation, cost for sponsoring.
61 Data Entry: Financial Statements III. INCOME STATEMENT for SBU.4. Research and DevelopmentAll research and development costs that are not billed to a client.Product R&D:The part of total R&D costs that is spent on product development.Process R&D:The part of total R&D costs that is spent for improvements in the production process of products.
62 Data Entry: Financial Statements III. INCOME STATEMENT for SBU.5. IncomeIncome measures the extent to which revenues generated during the accounting period exceeded expenses incurred in producing the revenues. Also commonly referred to as profits or earnings.Interest expense:Only real interest expenses.
63 Data Entry: Financial Statements III. INCOME STATEMENT for SBU.6. OthersOther expenses:Administration, distribution etc.Total salaries:Refers to the employees of the SBU under consideration and includes all payments.7. Number of employeesshows the average number of employees for a year, indicates how many persons are involved in producing goods (and services) for sale.
64 EXIT FIT To exit FIT: 1. Press button in FIT main Menu 2. Press button on the CONFIRMATION window.
65 The role of fitThe Financial Improvement Toolkit (FIT) calculates relevant indicators based on an income statement and an annual balance sheet.When calculated and presented for several years (minimum three), it shows the strategic trend over time.Paying attention to the fact that to decrease investment intensity it is not necessary to reduce investment, as long as value added increasesOverview of all strategic indicators in simple and easy to interpret form allows managers to monitor the enterprise development and undertake detailed analysis if necessary.