Building Business Acumen
Building Business Acumen
What is Business Acumen?
…the ability to make good business decisions in a timely
manner with an understanding of how the decision should
impact the business.
3
Business is Tough!
 Only 5-10% of business start-ups survive past 5 years.
 14% of CEOs lose their job every year.
Booz & Co.
 70% of merger and acquisition activity do not live
up to expectation.
Wall Street Journal 2007
5
Business Acumen
Every business must focus on
five business drivers.
 If they do, they will be successful.
 If they don’t, they’ll fail.
4
Defining Cash
DEFINITION
What is required to grow and maintain
the business.
MEASURES
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.
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)
8
Cash & Cash Flow
Pay off debt
Invest it
Spend it
Save it
9
How to Obtain Cash
• Earn it
•Cash from Operations
• Sell Assets
•Cash from Investing
• Borrow it
•Cash from Financing
Pro
Con
No Cost
Time
Immediate
Reduce Assets
Immediate
Cost (Interest)
Can a company have too much Cash?
How much is too much/little?
9
How Much Cash?
A company should have sufficient cash to cover…
• their interest
• expenses
• capital expenditures
• take advantage of opportunities
• plus a little for emergencies
Top Uses of Cash for Corporations
• Dividend Pay-outs
• Stock Buy-backs
• Mergers & Acquisitions (M&A)
• Research & Development (R&D)
• Capital Expenditures (CAPEX)
• Cash Balance Increase
9
Benchmark Cash
Element
CareerBuilder
2010
Net Sales $
584
CareerBuilder
2009
$
565
CareerBuilder
2008
$
763
Monster
2011
$
1,040
Dice Holdings
2011
$
179
$
$
$
$
Cash
Cash and Equivalents $
S&P 500 Average 6%
140
24%
50
9%
35
5%
250
18%
55
33%
Cash Review
1.
Define Cash Driver
2. Measures of Cash
What is required to grow and maintain the
1. Cash – easily converted in 90 days or less to
business.
cash.
2. Cash Flow – Difference of cash in and cash
out over a given period of time.
3.
Importance of Cash Driver
4.
Benchmark the numbers
- Sufficient to run business
- Enhance shareholder value
2008
2009
2010
Revenue
$762 M
$565 M
$584 M
Cash
$34 M
$49 M
$140 M
- Improve attractiveness to suppliers and
customers.
9
Defining Profit
DEFINITION
What is left over after you have
subtracted expenses. Can be expressed
in dollars ($) or percent (%).
MEASURES
Gross Profit / Gross Profit Margin –
Profit after Cost of Goods Sold (COGS)
have been subtracted from sales.
Earnings Before Interest Tax Depreciation
& Amortization (EBITDA) – Reflects
controllable earnings.
Net Profit / Net Profit Margin – Profit
after all expenses have been
subtracted from sales.
10
Sale Price:
$1.00
Water
Label
Bottle & cap - $ .11
Packaging (Direct Labor)
Total:
- $ .04
- $ .10
COGS
- $ .15
($ .40)
$1.00 - $.40 = $.60 = 60%
Gross Profit
Rent
- $ .03
Salaries, Gen, Admin. - $ .10
Marketing
- $ .07
Shipping
- $ .15
Total:
($.35)
$1.00 - $.40 - $.35 = $.25 = 25%
EBITDA
Depreciation / Amorit.
- $.02
Interest & Tax - $.12
Total:
($.14)
$1.00 - $.40 - $.35 - $.14 = $ .11 = 11%
Net Profit
Life
Spring
Artesian
Water
High Profit Companies
24%
33%
32.7%
Low Profit Companies
7.9%
3.9%
1.4%
Benchmark Profit
Element
CareerBuilder CareerBuilder CareerBuilder
Monster
Dice Holdings
2010
2009
2008
2011
2011
Net Sales $
584 $
565 $
763 $
1,040 $
179
Profit
Net Margin
11.38%
Net Income $
66
EBITDA $
80
9.05%
$
$
1.45%
51
70
$
$
5.17%
11 $
39 $
54
151
19.04%
$
$
34
70
S&P 500 Average Net Margin 11%
11
Profit Review
1. Define Profit Driver
2. Measures of Profit
What is left over after you have subtracted
1. EBITDA (Margin) – subtract COGS & SG&A
expenses. Can be expressed in dollars ($) or
2. Net Profit (Margin) – subtract all expenses
percent (%).
3. Importance of Profit Driver
4. Benchmark the numbers
- Net Profit is one of the most important #’s for
the business.
- Indicates price strength
2008
EBITDA
Net Profit
2009
$39 M $70 M
1.5%
9.0%
2010
$80 M
11.4%
- Identifies ability to manage costs
11
Defining Assets
DEFINITION
What we have and how well we use
what we have.
Asset Strength – the ability to remain
viable during ups and downs in the
marketplace.
Asset Utilization – the ability to
efficiently and effectively use assets to
generate profits.
MEASURES
Return on Assets (ROA) – Percent value
of Net Profit to Total Assets.
Revenue per Employee - Company
efficiency measure that reflects
employee count and revenues.
12
Benchmark Assets
Element
CareerBuilder
2010
Net Sales $
584
CareerBuilder
2009
$
565
CareerBuilder
2008
$
763
0.354
0.378
Monster
Dice Holdings
2011
2011
$
1,040 $
179
Assets
Return on Assets (ROA)
Revenue per Employee
0.352
2.61%
0.178
10.45%
0.676
S&P 500 Average ROA 6%
13
Assets Review
1. Define Asset Driver
What we have and how well we use what we
have.
3. Importance of Asset Driver
- Demonstrates ability to work smarter rather
than harder.
- Indicates company invests in “right” assets
- Indication of execution & efficiency
2. Measures of Asset
1. ROA – Percent value of Net Profit to Total Assets.
2. Revenue per Employee – Company efficiency
measure that reflects employee count and
revenues.
4. Benchmark the numbers
2008
Rev./Employee $378k
2009
2010
$354k $352k
13
Defining Growth
DEFINITION
The ability to increase year over year,
quarter over quarter, and/or month over
month.
“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.”
MEASURES
Revenue Growth – Top-line
Sales/Revenues increase.
EBITDA Growth – ‘Controllable’ Profit
increase.
Net Profit Growth – Bottom-line / Profit
increase.
14
Facing Rapid Decline
• 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.
Facing Rapid Growth
• 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.
Growth in Action
$405,000
$390,000
$375,000
$360,000
$345,000
$330,000
$315,000
$300,000
$285,000
$270,000
$255,000
$240,000
$225,000
$210,000
$195,000
$180,000
$165,000
$150,000
$135,000
$120,000
$105,000
$90,000
$75,000
$60,000
$45,000
$30,000
$15,000
10
20
09
20
08
20
07
20
06
20
05
20
04
20
03
20
02
20
01
20
00
20
99
19
98
19
97
19
96
19
95
19
94
19
93
19
19
92
“Our brilliance is not
retail. It’s our IT!”
Benchmark Growth
Element
CareerBuilder
2010
Net Sales $
584
CareerBuilder
2009
$
565
CareerBuilder
2008
$
763
Monster
2011
$
1,040
Dice Holdings
2011
$
179
-25.90
78.34
363.09
-
13.78
502.55
266.25
38.86
46.20
80.42
Growth
Net Sales Growth
EBITDA Growth
Net Income Growth
3.40
14.24
30.05
15
Growth Review
1. Define Growth Driver
The ability to increase year over year, quarter
over quarter, and/or month over month.
3. Importance of Growth Driver
“Investors expect it, employees are energized by
2. Measures of Growth
1. Revenue Growth – Top-line Sales/Revenues
increase.
Sales/Revenues increase.
2. EBITDA
Net Income
Growth – Bottom-line
/ Profit
– ‘Controllable’
Profits increase
3. increase.
Net Profit Growth – Bottom-line / Profit
3. Cost of Capital
– Opportunity cost of funds
increase.
deployed in an investment.
4. Benchmark the numbers
2009
2010
it, customers are generally attracted to it and
Sales Growth
-25.9%
3.4%
executives are measured by it.”
EBITDA Growth
78.34%
14.24%
Net Profit Growth
363.09%
30.05%
15
Defining People
DEFINITION
The External Customer, Vendor/Reseller, or Internal Customer that has the
ability to impact the success of the
business.
MEASURES
Expressions of Interest (EOI) – The number
of times a visitor clicks on a listing.
Net Promoter Score (NPS) – Customer
Care Satisfaction score.
16
Failing to Anticipate Customer
What companies have failed to anticipate customer
expectations? What were the results?
What limits companies from anticipating their
customers’ wants and needs?
Benchmark People
Element
CareerBuilder CareerBuilder CareerBuilder
2010
2009
2008
Net Sales $
584 $
565 $
763
People
Expressions of Interest (EOI)
Net Promoter Score (NPS)
285.5 M
77%
261.9 M
71%
236.3 M
62%
Our NPS – 2011 73%.
2010 Net Promoter Scores – USAA = 81%, Apple = 78%, Facebook = 65%, Google = 63%
17
People Review
1. Define People Driver
The External Customer, Vendor/Re-seller,
or Internal Customer that has the ability
to impact the success of the business..
3. Importance of People Driver
- Without People, then what happens?
- Anticipate and then exceed
expectations.
- Customer service is for everyone;
Internal, External, Vendors.
2.
Measures of People
1. Expressions of Interest (EOI) – The number of
times a visitor clicks on a listing.
2. Net Promoter Score (NPS) – Customer Care
Satisfaction score.
4. Benchmark the numbers
2008
2009
2010
EOI
236.3M
261.9M
285.5M
NPS
62%
71%
77%
17
5 Business Drivers
Can you ignore any of these over
time and still be successful?
Can our clients ignore any of
these over time and still be
successful?
18
Demystifying the Annual Report
The Annual Report & Financial Statements
Letter to the Share Holders:
1. Identify which drivers are being focused on.
2. Understand the strategic goal(s)
CAN YOU READ THIS?
Financial Statements:
1. Identify the equation.
2. Recognize the purpose of the statement.
3. Locate the key numbers/measures.
4. How do I impact each statement?
21
Letter to the Share Holders
22
Equation:
Revenue – Expenses = ProfitJob-Master Income Statement
2010
Revenue
Other Revenue, Total
Cost of Revenue
- Cost of Goods
Sold (COGS)
Gross Margin
$60,650 /
$123,018 =
49.3%
Net Margin
$12,535 /
$123,018 =
10.2%
$ 111,055.00
$ 11,963.00
Total Revenue $ 123,018.00
Cost of Revenue, Total
50,405.00
60,650.00
31,407.00
19,714.00
102.00
101,628.00
21,390.00
142.00
18,999.00
Purpose:
Identify Profitability
2008
2009
$ 111,359.00
$ 12,669.00
$ 124,028.00
$ 107,378.00
$ 11,550.00
$ 118,928.00
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Gross Profit
Selling/General/Admin. Expenses, Total
Research & Development
Depreciation/Amortization
Interest Expense(Income) - Net Operating
Unusual Expense (Income)
Other Operating Expenses, Total
Total Operating Expense
Operating Income
Interest Income(Expense), Net Non-Operating
Gain (Loss) on Sale of Assets
Other, Net
Income Before Tax
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Income After Tax
Minority Interest
Equity In Affiliates
Net Income Before Extra. Items
$ 12,843.00
$
(308.00)
$
$ 12,535.00
$ 13,128.00
$
(261.00)
$
$ 12,867.00
$ 11,951.00
$
$
$ 11,951.00
Accounting Change
Discontinued Operations
Extraordinary Item
$
$
$
Net Income $ 12,535.00
$
$
$
$ 12,867.00
$
$
$
$ 11,951.00
Diluted Normalized EPS
$
$
$
2.19
49,556.00
61,803.00
31,526.00
19,883.00
467.00
101,432.00
22,596.00
139.00
20,164.00
2.32
46,705.00
60,673.00
30,242.00
21,577.00
98,524.00
20,404.00
148.00
497.00
18,204.00
Total Revenue
Top-line
Operating Profit
Operating Income
EBIT
Net Profit
Net Income
Bottom-line
1.92
24
Equation:
Assets = Liabilities + Equity
Most Liquid
Least Liquid (1yr.)
Current Ratio
Current Assets /
Current Liabilities
Balance Sheet
2010
3,802.00
3,802.00
14,978.00
14,978.00
1,572.00
3,982.00
24,334.00
Property/Plant/Equipment, Total - Gross
Accumulated Depreciation, Total
Goodwill, Net
Intangibles, Net
Long Term Investments
Other Long Term Assets, Total
Total Assets
$ 230,552.00 $ 218,579.00 $ 210,518.00
$ (130,459.00) $ (119,491.00) $ (114,628.00)
$
73,259.00 $
71,829.00 $
70,713.00
$
61,823.00 $
63,712.00 $
58,402.00
$
2,921.00 $
2,332.00 $
2,270.00
$
6,322.00 $
5,728.00 $
23,683.00
$ 268,752.00 $ 265,245.00 $ 275,644.00
Accounts Payable
Accrued Expenses
Notes Payable/Short Term Debt
Current Port. of LT Debt/Capital Leases
Other Current liabilities, Total
Total Current Liabilities
$
$
$
$
$
$
7,514.00
17,655.00
33.00
7,328.00
4,175.00
36,705.00
$
$
$
$
$
$
6,921.00
16,960.00
4,616.00
9,503.00
4,290.00
42,290.00
$
$
$
$
$
$
7,059.00
17,911.00
1,921.00
4,939.00
7,444.00
39,274.00
$
$
Total Debt $
64,720.00
64,720.00
72,081.00
$
$
$
60,872.00
60,872.00
74,991.00
$
$
$
57,255.00
57,255.00
64,115.00
$
$
$
Total Liabilities $
Common Stock, Total
$
Additional Paid-In Capital
$
Retained Earnings (Accumulated Deficit)
$
Treasury Stock - Common
$
Other Equity, Total
$
Total Equity $
23,803.00
425.00
41,199.00
166,852.00
6,495.00
91,707.00
39,366.00
(21,260.00)
(14,408.00)
101,900.00
$
$
$
$
$
$
$
$
$
$
19,196.00
403.00
46,137.00
168,898.00
6,495.00
91,728.00
36,591.00
(21,410.00)
(17,057.00)
96,347.00
$
$
$
$
$
$
$
$
$
$
24,939.00
38,809.00
160,277.00
6,495.00
91,638.00
33,297.00
(15,683.00)
(380.00)
115,367.00
Total Liabilities & Shareholders' Equity
Total Common Shares Outstanding
268,752.00
5,901.93
$
$
265,245.00
5,893.01
$
$
275,644.00
6,043.55
$
$
$
$
$
$
$
$
$
2008
1,970.00
1,970.00
16,185.00
16,185.00
1,524.00
5,007.00
24,686.00
$
$
$
$
$
$
$
Deferred Income Tax
Minority Interest
Other Liabilities, Total
$
$
$
$
$
$
$
2009
1,792.00
1,792.00
16,047.00
16,047.00
1,538.00
3,179.00
22,556.00
Cash & Equivalents
Cash and Short Term Investments
Accounts Receivable - Trade, Net
Total Receivables, Net
Prepaid Expenses
Other Current Assets, Total
Total Current Assets
Long Term Debt
Total Long Term Debt
24,334 / 36,705
= .663
Purpose:
Financial Strength
Equity Ratio
Total Equity /
Total Assets
$101,900 /
$268,752
= 38%
26
Equation:
Cash from Operations
+/- Cash from Investing
+/- Cash from Financing
= Net Change in Cash
Earn It
(Core Business)
Sell Assets
Borrow It
Purpose:
Cash Management
Cash Flow Statement
Net Income/Starting Line
Depreciation/Depletion
Amortization
Deferred Taxes
Non-Cash Items
Changes in Working Capital
Cash from Operating Activities
$
$
$
$
$
$
$
2010
12,843.00
19,714.00
2,104.00
1,036.00
(1,252.00)
34,445.00
$
$
$
$
$
$
$
2009
13,128.00
19,883.00
5,889.00
1,383.00
(6,627.00)
33,656.00
$
$
$
$
$
$
$
2008
12,147.00
21,577.00
(240.00)
531.00
227.00
34,242.00
Capital Expenditures
$ (16,595.00) $ (19,676.00) $ (17,717.00)
Other Investing Cash Flow Items, Total
$ (1,330.00) $ (9,467.00) $
(959.00)
Cash from Investing Activities $ (17,925.00) $ (29,143.00) $ (18,676.00)
Financing Cash Flow Items
Total Cash Dividends Paid
Issuance (Retirement) of Stock, Net
Issuance (Retirement) of Debt, Net
Cash from Financing Activities
Foreign Exchange Effects
$
(465.00)
$ (9,670.00)
$
28.00
$ (4,403.00)
$ (14,510.00)
$
Net Change in Cash $
Cash Interest Paid, Supplemental
Cash Taxes Paid, Supplemental
$
$
$
$
$
$
$
2,010.00
$
$
3,873.00
4,471.00
$
$
151.00
(9,507.00)
(5,758.00)
10,423.00
(4,691.00)
$
(51.00)
$ (8,743.00)
$ (8,404.00)
$ 1,184.00
$ (16,014.00)
- $
(178.00) $
3,727.00
5,307.00
$
$
(448.00)
3,445.00
4,013.00
28
140
584
66
66
584
584
503
584
1658
.352
584
565
3.4
66
51
30.0
80.37
70.35
14.2
11.38
80.37
285.5
77%
35
Locating Financial Information
Web Sites:
•
www.nasdaq.com
•
www.reuters.com
•
www.yahoo.com
•
www.finance.google.com
•
www.hoovers.com
•
www.smartmoney.com
55