Where are we?

1. Where are we?

2. Situation/SWOT Analysis Strategic Planning Functional Integration Performance Assessment • Company • Consumers • Competitors • Conditions • PEST Functional Integration • Profits • Mrkt Share • ROA • ROS • ROE • Asset T/O • Stock • Mrkt Cap Marketing Growth &Competitive Strategies R&D Production HR Finance Step#1

3. BUSINESS PLAN GUIDELINE 1.Where are we now? 2.Where do we want to go 3.How do we get there? = Situation Analysis

4. Consumers Competitors Conditions You are finding answers re: • How the market is segmented & the relevant criteria that influence consumers use in their purchasing decisions • The nature & magnitude of the competition • Existing & emerging Economic & Technological trends that will impact demand, pricing, product design & positioning

5. 5 SEGMENTS

6. Cheaper too-$.50 drop in price/year

7. SENSOR INDUSTRY ONGOING GROWTH ..the entire market growing at around 14 - 15% per year.

8. Next …. EXTERNAL Consumer, Competitive & Macro- Environment UNCONTROLLABLE INTERNALEnvironment CONTROLLABLE Economic Social Corp./Business STRATEGY Competitive Demographic Psychographic trends Financial Management Forces Marketing Management Technological Political Production & HR Management Legal Regulatory

9. Consumer Conditions Company Competitors Situation-Analysis INTERNAL ENVIRONMENT Your Company's Strengths & Weaknesses: EXTERNAL ENVIRONMENT Opportunities & Threats 

10. 1st KEY Q: • Is what you are making any good?

11. Strategic Thinking- the ten big ideas • 4. Portfolio theory- • GE-(three-by-three matrix, using business strength & market attractiveness as variables). • The Boston Consulting Group (BCG) introduced its two-by-two matrix-(invest in the stars, divest the dogs, milk the cows, and solve the question marks)

12. Portfolio Analysis Which Brands should receive more/ less/ no investment- based on: • Product Position/ Potential • Profitability/ Margins • Market-Growth/Market-Share Matrix • Competitive Strategy

13. G.E Strategic Planning Model Business Strength Strong Average Weak High Low Industry Attractiveness Business Strength IndexIndustry Attractiveness Index * Market Share * Market size * Price Competitiveness * Market Growth * Product Quality * Industry Profit Margin * Customer Knowledge * Amount of Competition * Sales Force and Effectiveness * Seasonality * Geographic Advantage * Cost Structure

14. STARS PROBLEM CHILD CASH COWS DOGS Boston Consulting Group’s Growth-Share Matrix High Product-Market Growth (%) Low 10x 4x 2x 1.5x 1x .5x .2x.1x Relative Market Share High Low

15. Strengths & Weaknesses:·        Marketing & R&D

16. Evaluating Your Company’sMarketing

17. 2nd Big Q • Is what you are making any good? • Is “how you are making it”—any good?

18. “Generically, profits are driven by the company’s asset base and by its efficiency working those assets”

19. Evaluating Your Company’sProduction & HR

20. Last but not Least-

21. Various Measures of Your PROFITABILITY • Profitability Ratios: • ROS---Return on Sales • ROA—Return on Assets • ROE-- Return on Equity • Net Profits • Cum Profits

22. Main ratio of ProfitabilityReturn on Sales net profit net sales Return on Sales = “ROS indicates percentage of each sales dollar that results in net income.”

23. How Profitable is your Firm? ROS Contribution Margin

24. Financial Guidelines: Profitability-ROS & Margins

25. IF: Contribution Margin below 30%,Problem =Marketing(customers hate your products), Production(your labor & material costs too high), or Pricing(you cut price too much). Contribution Margin is above 30%…but Net Margin Percentage is below 20% … Problem= heavy expenditures on Depreciation(perhaps you have idle plant) or on SGA (perhaps you’re pushing into diminishing returns on Promo & Sales Budgets). Net Margin above 20%,but ROS below 5%.. --you either experienced some extraordinary "Other" expense like a write-off on plant you sold, or you are paying too much Interest

26. “Generically, profits are driven by the company’s asset base and by its efficiency working those assets”

27. How effective/aggressive R-U in building your Co’s asset base… It takes $$ to Make $$ &-why not make it using somebody else's…. To help you make even more…

28. How effective/aggressive R-U in building your Co’s asset base… • At outset should be spending ~$10-25M / round on plant improvement • By end should expand asset base to min $140M to $160M+

29. LEVERAGE: Assets/Equity – simulation takes owner's perspective. Corp assets fin.w/ debt Optimal A Leverage of 3.0 says, "For every $3 of Assets there is $1 of Equity 1.8 to 2.8

30. “Generically, profits are driven by the company’s asset base and by its efficiency working those assets”

31. Return on Assets “ROA measures company’s ability to use all its assets to generate earnings.” net profit assets Return on Assets =

32. Asset Turnover Reveals how effective assetsare at generating sales revenue. The higher the better = more efficient use of assets You are generating $1.05 in sales for every $1 assets sales assets Asset Turnover=

33. ERGO:…if you effectively build your asset base & efficiency work those assets Stocks Profit$ Market Share

34. net profit equity Return on Equity = As measured by ROE Encompasses the 3 main levers used by mgt to generate return on investors equity Profitability * Asset Mgt * Leverage

35. net profit equity Return on Equity = net profit sales sales assets assets equity x x Value Chain Profitability * Asset Mgt * Leverage

36. Du Pont Formula Value Chain net profit equity Return on Equity = net profit sales sales assets assets equity x x

37. net profit equity Return on Equity = net profit sales sales assets assets equity x x Du Pont Formula Value Chain

39. net profit sales sales assets assets equity x x Improve ROE by: Value Chain Profitability * Asset Mgt * Leverage Increase sales&/or reduce&/oreff.workassets Improving Margins Increasing Leverage

40. ERGO:…if you effectively build your asset base & efficiency work those assets Stocks Profit$ Market Share

41. STOCK PRICE Function of: • Earnings per Share • Net Profit / # Shares • Book Value • Equity/# Shares • Dividend Policy Good Dividend Policy

43. Financial Guidelines Re: Liquidity

44. IF • You Produce a crappy product • &/or Your Competitors produce a better product • &/or You produce too much product You’ll be left w/less revenue than anticipated PLUSproduction & inventorycarrying costs that must be paid.. Then

45. Big Al arrives -- pays your bills, and leaves you with a loan & a stiff interest payment Then You’re left w/less revenue than anticipated and did not plan & allocate enough cash to cover yourproduction & inventorycarrying costs.... IF

46. Maintain Adequate working capital & cash reserves In order to: Need to: • Avoid “Big AL” & a Liquidity Crisis- • Have realistic/ accurate sales forecasts

47. EVALUATE theStrengths & Weaknesses of yourFinancial Situation

48. Consumer Conditions Company Competitors Situation SWOT Analysis