1. Breakout is an Epi-V initiative, delivered by Transitions. Dynamic Financial Analysis Shai Vyakarnam and Simon Pratten

2. What to Measure? Building KPIs Lead/lag indicators Business Liquidity (risk) Shareholder returns

3. Business Sales Profits Product profitability Sales per employee Meters Tonnes Outputs from the factory Asset utilisation Absolute Percentage changes Over time Cumulative Rolling annual Time

4. Shareholders Level of profit shared out among shareholders (dividends) Value of shares – profits and adjusted for risks and future earnings Level of debt against the level of shareholders money injected in the business (gearing)

5. Liquidity (cash) Amount of stock (inventory) Amount of money owed by customers (debtors) Amount of cash in the bank Money you owe to the tax man Money owed to suppliers (creditors) Level of overdraft

6. Breakeven Analysis The point at which the business starts to make a profit Volume Fixed cost Variable cost / cost of sale Total cost Total revenue Loss Profit £££ Break- even Point

7. How to use Breakeven Dynamic Calculate what-if Help with decisions Need to have gross profit figure Forces the right disciplines into business Most people can understand it in the business!

8. Profit and Loss Account Sales less cost of sales Gross profit less overheads Operating profit less dividends and other charges Net profit 100% Gross margin = % Profit on sales = % Net profit = %

9. Gross (Profit) Margin The gap between sales and variable costs The real income of the business Expressed as a percentage of sales (Gross Margin %)

10. Calculating Breakeven Point 1. Gross Profit = Turnover - Cost of Sales 2. Gross Margin % = Gross Profit Turnover 3. Break-even Point = Fixed costs GM%

11. If your GM is £ 1000 how much sales is required at varying GM%s? Gross Margin £ GM % Required Sales 1000 5 ? 1000 10 ? 1000 20 ? 1000 40 ?

12. Your Accounts

13. Calculate the Following Gross margin % Breakeven point (sales) Breakeven sales as % of actual sales Margin of safety (gap between breakeven and actual sales as %) Dynamic analysis - hours/units

14. Deliberate Movement of Break Even Point 1 Note your GP% Now - increase sales (prices) 1% Reduce cost of sales by 1% What is the new GP%? What is the new BEP?

15. Movement of Break Even Point 2 Reduce your fixed costs by 1% Having increased sales price and reduced both cost of sales and fixed costs what is the new NET PROFIT? What is the % increase in net profit? You have just seen the magic of 1% Suppose you can change these by more than 1%?!

16. Controlling costs Building on the impact of flexing your breakeven point have a first cut at shedding costs

17. Cash flow Short term future plans and the impact on cash flow estimates Activity Ratios: How well do you manage your cash in the business?

18. Gearing and Capital Structure How much ‘cover’ is there in the business to meet the needs of the bank? And Is there enough equity in the business to ensure the bank feels comfortable with the amount being lent?

19. Solvency and Liquidity Is there enough ‘liquidity’ in the business to meet day to day obligations? Are the assets of the business really being ‘sweated’? Can the business demonstrate that the ration of current assets and inventory to short term creditors is strong enough?

20. Conclusions What have been the key take home messages for you? What needs to be changed? What are your action points and how will you prioritise them?