Planning for Survival and Sustainability Developing Strategies: Financial Issues Assessing the Firm’s Financial Position ard Chapter 4.

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Presentation transcript:

Planning for Survival and Sustainability Developing Strategies: Financial Issues Assessing the Firm’s Financial Position ard Chapter 4

Two Critical Questions: 1. How Well Are We Actually Doing Now? 2. What Does Our Future Hold If No New Strategies Are Undertaken?

Signs of Funding the Present at the Expense of the Future Declining Profitability Declining Productivity Inefficient Use of Cash Decline in Competitive Strength Decline in # of Strategic Experiments Decline in Reinvestment in Marketing, Equipment, Research & Training Declining Market Value of Company Declining Market Share

ROI: Return on Investment Real Profitability Productivity Real Value Added Sustainable Growth Rate Barometers of Current Decay Operating Income Net Assets

Barometers of Future Problems  Ownership Returns Versus Business Investment  Family Business Annuity Assumption: Money spent on the business will ensure a brighter future and money invested outside the business will erode its prospects! (Ward)

Ownership Returns Versus Business Investment Should be no more than 33 – 50% of operating income. Family salaries and perquisites as a % of the total sum available for future business opportunities (net income before taxes). salaries and perquisites net income before taxes

Family Business Annuity Note the approximate worth of BIZ on open market. ($2M) Consider this the “endowment.” How dependent is the family for its current standard of living? Note rate of return the family could earn if $2M were invested in stock, etc. (10% ?) Withdrawing more than that devalues the BIZ.

More Barometers of Problems Low Debt to Equity Ratio (Debt-is-good!) Capital Budget less than the cash savings from the depreciation expense (ideal 1.5 – 2 times annual depreciation) Depreciation of Fixed Assets (more than half is below average.) Strategic Experiments Underway.

Assessing Future Prospects Is Your Market Share Sizeable & Increasing? How are Competitors Doing? Have you Gained or Lost Accounts? Is your company participating in the fastest growing market segments? Are your customers and Suppliers Growing?