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WELCOME BUILDING BUSINESS ACUMEN. How much do you know about Epsilon and ADS Corporation’s Key Success Measures? (or Key Performance Indicators (KPIs)

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Presentation on theme: "WELCOME BUILDING BUSINESS ACUMEN. How much do you know about Epsilon and ADS Corporation’s Key Success Measures? (or Key Performance Indicators (KPIs)"— Presentation transcript:

1 WELCOME BUILDING BUSINESS ACUMEN

2 How much do you know about Epsilon and ADS Corporation’s Key Success Measures? (or Key Performance Indicators (KPIs) ) Let’s find out! Important Questions

3 1 - How much Cash was on hand?$______$______ 2 - How much Cash was generated by Operating Activities?$______$______ 3 - What was our Total Revenues? $______$______ 4 - What was our Net Income? $______$______ 5 - What was our EBITDA Margin? ______% ______% 6 - What was our Net Margin? ______% ______% 7 – What was our Return on Assets? ______% ______% 8 - How much did Total Revenue change YOY? ______%_______% 9 - How much did EBITDA change YOY? ______% _______% 10 - How much did Net Income change YOY? ______%_______% For fiscal year 2010: Epsilon ADS Pop Quiz N/A

4 Understand the 10 key performance measures that are important to Epsilon, ADS and the Executive Team. List and describe the five business drivers all successful businesses must focus on. Teach specific components of ADS financial statements. Better articulate company performance & strategy. Create a personal action plan that can positively impact personal performance and company results. Learning Objectives

5 3 Acumen Means?

6 When Gretzky’s Dad was asked by a reporter, “What makes your son so great?” “ He skates to where the puck… is going to be.” (Hockey Acumen!) He responded by saying; “Wayne doesn’t skate to where the puck is.” “The Great One” ~Wayne Gretzky~

7 …the ability to make good business decisions in a timely manner with an understanding of how the decision should impact the business. 3 Acumen Means?

8  Only 5-10% of business start-ups survive past 5 years.  16% of CEOs lose their job every year. Booz Allen Hamilton 5 th annual Study  70% of merger and acquisition activity do not live up to expectation. Wall Street Journal 2007 Why do businesses fail? 6 Business can be tough!

9 Every business must focus on five business drivers.  If they do, they will be successful.  If they don’t, they’ll fail. Let’s Start a Business! 4 Business Acumen:

10 Cash is King! “Cash is more important than your mother." Al Shugart Former Seagate CEO “Cash is a company’s oxygen supply.” -Ram Charan What happens to a company who runs low on cash?

11 Sources of Cash Can a company have too much Cash? 9 Earn it cash from Operation Sell Assets Cash from Investing Borrow it Cash from Financing Pro: No Cost -Con: Time Pro: Immediate -Con: Reduces Assets Pro: Immediate -Con: Cost (Interest) Cash & Cash Flow

12 Can a company have too much Cash? 1)More attractive in a buy-out. 2)Low return. 3)Shareholders don’t like it. 4)May make poor decisions. 9 Cash

13 Companies ought to keep just enough cash to cover their interest, expenses and capital expenditures; plus they should hold a little bit more in case of emergencies. Investopedia How much cash should you have?

14 Cash 8 What 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. M EASURES 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) D EFINITION Definition: Cash

15 (In Millions) Cash ADS 9 Business Measures and Metrics ADS Total Revenue $2,791 $1,964 $2,025 $1,962 Cash Cash and Equivalents $139 $213 $157 $219 Cash as % of Revenue 4.98%10.86%7.75%11.17% Cash from Operating Activities $903 $358 $451 $572

16 Cash Benchmarks 9 (In Millions) Business Measures and Metrics ADS VISA AMEX Harte- Hanks, Inc. ACXIOM 2010 Total Revenue $2,791 $8,065 $30,242 $861 $1,160 Cash Cash and Equivalents $139 $3,867 $2,498 $86 $207 Cash as % of Revenue 4.98%47.95%8.26%9.99%17.85% Cash from Operating Activities $903 $2,691 $9,288 $95 $166

17 Equation: Cash from operations + Cash from investing + Cash from financing = Net Change in Cash Purpose: Cash Management Started Year  Ended Year  Net Change in Cash  ? ?

18 Profit 10 What is left over after you have subtracted expenses. Can be expressed in dollars ($) or percent (%). EBITDA/EBITDA Margin– Reflects earnings before interest and taxes. M EASURES Net Profit / Net Profit Margin – Profit after all expenses have been subtracted from sales. D EFINITION Definition: Profit

19 Every business must earn a return that is greater than the cost of using other people’s money. -Ram Charan No Margin, No Mission. -Stephen R. Covey

20 Total Revenues (Sales)$100100% - Cost of Operations$ 55 - Provisions For Loan loss$ 14 - General & Admin. (G&A)$ 3 =EBITDA$ 2828% -Depreciation & Amortization$ 5 = Operating Income$ 23 23% -Interest & Other Expense $ 11 -Taxes $ 4 = Income From Continuing Operations $ 7 7% -Losses from discontinued operations $ -- = Net Income $ 7 7% Two ways to impact PROFIT

21 Driving Profit High and Low Profit Margins S&P Average TTM:11% Who has much higher profit margins? Coca Cola33% Microsoft30% Google 29% Apple21% Why the high margins?

22 Driving Profit High and Low Profit Margins S&P Average TTM:11% Who has lower profit margins? ExxonMobil8% Wal-Mart3.8% Costco 1.7% Why the low margins?

23 2010 EBITDA$ 772,446 +Stock Compensation Expense$ 50,094 +Loss on Sale of Assets$-- +Merger and Other Costs$-- = Adjusted EBITDA$ 822,540 Calculating Adjusted EBITDA

24 How We Calculate Adjusted EBITDA (pg K) 24

25 Epsilon 613, ,272 Profit ADS 11 (In Millions) Business Measures and Metrics ADS Total Revenue $2,791 $1,964 $2,025 $1,962 Net Income $194 $144 $206 $164 Profit EBITDA Margin 27.67%27.14%29.45%27.94% Net Margin 6.94%7.32%10.19%8.36%

26 Epsilon 613, ,272 Profit Epsilon 11 (In Millions) Business Measures and Metrics Epsilon Q Month Total Revenue $188$344 $613 $514 $491 Profit Adjusted EBITDA Margin 21% 24.83%24.94%25.78% Operating Income From Continued Operations Margin N/A 10.61%9.62%8.06%

27 Profit Benchmarks S&P 500 Averages: Net Margin = 11% 11 (In Millions) Business Measures and Metrics ADS VISA AMEX Harte- Hanks, Inc. ACXIOM 2010 Total Revenue $2,791 $8,065 $30,242 $861 $1,160 Net Income $194 $2,966 $4,057 $54 $(23) Profit EBITDA Margin 27.67%60.19%19.72%13.30%2.67% Net Margin 6.94%36.78%13.42%6.23%-2.00%

28 11 United Parcel Services (UPS) – Avoiding left-hand turns -92,000 trucks worldwide -Saved over 28,541,472 miles -Saved 3 million gallons of fuel -Reduced insurance premiums -Reduced maintenance frequency and costs Profit In Action

29 1. What is the basic equation for each statement? 2. What is the purpose of the statement? 3. What are the key numbers and how are they trending? 4. How can you impact each statement? The Annually Reported Financial Statements Statement of Income (P&L) Balance Sheet Statement of Cash Flows Epsilon Financial Statements

30 Net Profit Margin Net Income: 193,737 Total Rev. ÷ 2,791,421 = 6.94% S&P 500 Ave. = 11% Indicates: Profitability (G&A) SG&A: Salaries Sales commissions Benefits/Severance Rental Expense Bad debt charges Merger integration costs Professional services: Attorney fees, Accounting (Revenue = Sales) = Top Line = Bottom Line = EBIT Equation: Revenues- Expenses= Income EBITDA Margin Total Revenue: 2,791,421 EBITDA: EBIT629, , ,420 = 772,446 ÷ 2,791,421 = 27.67% P&L EBITDA margin =27.67% Net profit margin = 6.94% = Net income / Diluted # of shares

31 Statement of Income (P&L) Increase revenue by 100K 100K 55K 45K 17K 28K

32 Statement of Income (P&L) Lower costs by 100K 100K 37K 63K

33 Raising Revenues $100M =$28 -or- Cutting Costs by $100M =$63 What are the implications of each action? Which is better?

34 Balancing… Asset Strength Asset Utilization & i.e. cash, inventory and ratings Assets (Read from guide book p. 12)

35 Assets 12 What we have and how well we use what we have. Return on Assets (ROA)— percent value of Net Income to Total Assets M EASURES D EFINITION Definition: Assets

36 13 “In 1912, the Model T for the first time cost less than the prevailing average annual wage in the United States.” “Ignoring conventional wisdom, Henry Ford continually sacrificed margins to increase sales. In fact, profits per car did fall as he slashed prices from $220 in 1909 to $99 in 1914.” “But Sales Exploded!” “Ford demonstrated that a strategic, systematic lowering of prices could boost profits, as net income rose from… $3 million in 1909 to $25 million in 1914.” ~Daniel Gross, Forbes Greatest Business Stories Example of Profits and Assets

37 Assets ADS 13 (In Millions) Business Measures and Metrics ADS Total Revenue $2,791 $1,964 $2,025 $1,962 Net Income $194 $144 $206 $164 Assets Return on Assets (ROA) 2.34%2.75%4.75%3.94% ROA = Net Income = $194 = 2.34% Total Assets $8,272

38 Assets Benchmarks 13 (In Millions) Business Measures and Metrics ADS VISA AMEX Harte- Hanks, Inc. ACXIOM 2010 Total Revenue $2,791 $8,065 $30,242 $861 $1,160 Net Income $194 $2,966 $4,057 $54 $(23) Assets Return on Assets (ROA) 2.34%8.88%2.76%5.78%-1.77%

39 1. What is the basic equation for each statement? 2. What is the purpose of the statement? 3. What are the key numbers and how are they trending? 4. How can you impact each statement? The Annually Reported Financial Statements Statement of Income (P&L) Balance Sheet Statement of Cash Flows Epsilon Financial Statements

40 Becomes Cash < 1 year  Most Liquid  Least Liquid  Due First  Due Last Due in < 1 year Balance Equation: Assets = Liabilities + Equity Indicates: Financial (asset) Strength Current Ratio = 1.6 Snapshot in time

41 Growth 14 The ability to increase year over year, quarter over quarter, and/or month over month. Revenue Growth M EASURES EBITDA Growth “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.” D EFINITION Definition: Growth Net Income Growth

42 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. 15 Business in Rapid Decline…

43 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. 15 Business in Rapid Growth…

44 Growth ADS 15 (In Millions) Business Measures and Metrics ADS Total Revenue $2,791 $1,964 $2,025 Net Income $194 $144 $206 Growth Revenue Growth 42.10%-3.01%3.22% EBITDA Growth 44.91%-10.62%8.78% Net Income Growth 34.79%-30.36%25.81%

45 Growth Epsilon 15 (In Millions) Business Measures and Metrics Epsilon Q Months Total Revenue $188$344 $613 $514 $491 Profit Revenue Growth 38%31%19.26%4.68%N/A Adjusted EBITDA Growth 26%25%18.8%1.3%N/A

46 Growth Benchmarks 15 (In Millions) Business Measures and Metrics ADS VISA AMEX Harte- Hanks, Inc. ACXIOM 2010 Total Revenue $2,791 $8,065 $30,242 $861 $1,160 Net Income $194 $2,966 $4,057 $54 $(23) Growth Revenue Growth 42.10%16.70%13.14%0.05%5.53% EBITDA Growth 44.91%28.96%109.93%1.84%-68.71% Net Income Growth 34.79%26.05%90.47%12.32% % —Remainder of 2011 Outlook— “Maintain double-digit organic revenue growth in Augmented by the recent acquisitions, total revenue growth is expected to be in the mid-30 percent range compared to Adjusted EBITDA is expected to trend with revenue growth as margins are expected to remain consistent with 2010.” Q2 Press Release.

47 Page 47 Q2 Earnings Release

48 People 16 -The External Customer, Vendor/Re-seller, or Internal Customer that has the ability to impact the success of the business.. -Employees D EFINITION Definition: People

49 17 What is more important than meeting customer expectations? Exceeding? Anticipating Customer Needs & Expectations! “If I would have asked my customer what they wanted, they would have said a faster horse!” ~Henry Ford People

50 17 What companies have failed to anticipate customer expectations? What were the results? – Unprepared for recession and required government bailout money. Ford secured line of credit prior and retained full ownership. – decided to move to digital product line. Polaroid did not and is no longer a serious competitor. – In 1943, the CEO said the customer need for their product was approximately 5 computers for the entire world. – Did not move to a digital music player and lost a significant market share to innovative companies like Apple. GM/Ford Kodak IBM Sony Failing to Anticipate customer needs/expectation!

51 Sell More Fully Integrated End-to-End Marketing Solutions. “In our Epsilon segment, we have assembled what we believe is the industry’s most comprehensive suite of targeted and data-driven marketing services, including marketing strategy consulting, data services, database development and management, marketing analytics, creative design and delivery services such as communications.” 2010 Year End Press Release Goal for 2011 Page 51

52 Epsilon acquires Aspen Marketing Services We’ve Invested Over $1.3 Billion To Be The Comprehensive Provider Page 52 Industry Leadership Epsilon acquired by Alliance Data Frequency Marketing, Inc. integrated into Epsilon Epsilon acquired Bigfoot Interactive Epsilon acquired DoubleClick Solutions Epsilon acquired CPC Associates Epsilon acquired Abacus ICOM integrated into Epsilon Epsilon acquired the Equifax Direct Marketing Services Division Epsilon founded 1969 Oct 2004 Sept 2005 Nov 2005 Apr 2006 Sept 2006 Feb 2007 Jan 2009 Jul 2010 Jun 2011

53 Marketing Database Design Development Hosting Interactive Web design & hosting Real-time decision support Loyalty Management Technology platforms & Program Strategy Services Data Processing Services CDI/PDI Data Hygiene NCOA, PCOA, Merge/Purge DM Agency Multichannel Communications Marketing Strategy Account Management Creative Strategy & Analytics Strategy Services Modeling & Analytics Experiential Marketing Abacus Cooperative Transactional Cooperative Database Predictive Modeling Survey Data Survey-driven Data Targeted Marketing Solutions Compiled data Weekly New Mover Lifestyle Demographic Interactive Consulting Services Search Engine Website Direct Mail Print Production Letter Shop Hispanic Marketing Page 7

54 Ranked #1 in Current Offering. Leading scores in  Database Management  Execution and Fulfillment  Corporate Strategy  Industry Strategy  Global Strategy Strong Market Presence led by Financials and Employees Epsilon Ranked #1 in US Database Marketing Service Providers, Q Page 54

55 What are your best practices in anticipating CUSTOMERS needs? (Capture ideas on page 17) Know your business and how you impact results! Develop formal processes for listening to customers, both internal and external. A quarterly meeting with your boss…ask, how am I doing? What could I do to improve?

56 Cash -On hand -Generation Assets -Strength -Utilization Growth -Top Line -Bottom Line Profit -Revenue -Expenses People -Customers -Employees 5 Business Driver Review (Pages 8-17)

57 = ,272 2,791 1, = = , , ,

58 Epsilon Corporation’ Key Success Measures 1 ½ 0 SCORING: Right answer = 1 point Somewhat close = ½ point (within: $2B, $2, 2%) Missed it by a ways = 0 point 35

59 Retaining Content over Time Time Content Retention Review Apply Teach 15% 52

60 1.7 days:Teach one of the principals learned in class today, to someone in your department. 2.7 days: Discuss your action items with your manager in the next 7 days days: Read the first 90 pages of: “What The CEO Wants You to Know“ 4.30 days: Get with your class partner and give an account of your progress on your action item(s). Start now:  Build and practice your new business acumen skills.  When making decisions, determine how the outcome will impact Cash, Profit, Assets, Growth, People… Post Course Action Items:

61 Understand the 10 key performance measures that are important to Epsilon, ADS and the Executive Team. List and describe the five business drivers all successful businesses must focus on. Teach specific components of ADS financial statements. Better articulate company performance & strategy. Create a personal action plan that can positively impact personal performance and company results. Learning Objectives

62 * nasdaq.com* finance.google.com * reuters.com* hoovers.com * yahoo.com* smartmoney.com Glossary: page 58 Where to Find Information (page 55)

63 One final thought… People will work hard for a paycheck, harder for a person, and hardest for a reason.


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