Welcome to Raytheon’s
Jeff Cope
Raytheon
Post-Course Action Items
1.
7-days:
Teach one of the principals learned in class, to someone
in your department.
2.
7 days:
Discuss your action items with your manager in the next.
3.
30 days:
Read the first 90 pages of:
3.
30 days:
Get with your class coach and give an accounting of your
progress on the action items.
“What The CEO Wants You to Know“
Start now:
 Build and practice your new business acumen skills.
 When making decisions, determine how the outcome will impact Cash, Profit,
Assets, Growth, People…
HINT: Tear out page 47 and use it at your desk!
Important Question!
What’s your “Business Acumen”?
How much do you know about
Raytheon’s
Key Success Measures?
Let’s find out!
Pop Quiz!
For fiscal year: 2012
1 - How much Cash was on hand?
$________
2 - How much Cash was generated by Operating Activities?
$________
3 - How much Free Cash Flow was on hand?
$________
4 - What was our total Net Sales?
$________
5 - What was our Operating Income/EBIT?
$________
6 - What was our Net Income?
$________
7 - What was our EPS?
$________
8 - What was our Backlog?
$________
9 - How much did Net Sales grow (Y/Y)?
_______%
10 - What was our Operating Income growth?
_______%
11 - What was our Net Income growth?
_______%
12 - What was our EPS growth (Y/Y)?
_______%
*Given all the above, how do we stack up against other companies?
35
Clear Learning Objectives:
1. List and describe the 12 measures most important
to our CEO and Executive team, and how you can
impact them.
2. Understand the 5 Business Drivers
that all successful businesses focus on.
3. Create a personal action plan that can positively
impact personal performance and company results.
®
4. Develop a better understanding of the company’s
financial statements and be able to teach them to others.
5. Better articulate company performance and strategy!
Acumen means?
…the ability to make good business decisions,
in a timely manner, with an understanding of how the
decision should impact the business.
3
Cash
Cash is King!
Cash
On Hand
Cash is a company’s oxygen supply …
Generation
and allows you to stay in business.”-Ram Charan
Growth
People
Profit
Top Line
Bottom Line
Employees
Customers
Revenues
Expenses
Cash is more important than your
mother.“ -Al Shugart, Former Seagate CEO)
Assets
Strength
Utilization
Cash : Lack of cash - #1 reason why
companies fail!
Growth
Growth
Cash
Profit
Assets
8
Definitions:
®
DEFINITION:
Cash: What is required to Grow and Maintain the
business.
MEASURES
Cash:
 Cash in the bank, register, cash equivalents. (p.58)
Cash Flow:
 Cash that comes from your core business.
 Most important indicator of a company’s financial
health and strength. (p.58)
Cash
Free Cash Flow:
 The cash that a company is able to generate (cash
flow), after spending the money required to run or
expand it’s business. (p.60)
Merck: Cash flow
- capital expenditures
Free Cash Flow
 What is it used for??
Pay debt, providing dividends to investors, buying back stock,
expansion, acquisitions, and/or financial stability to weather
difficult market conditions.
88
Cash Flow is NOT Profit
®
Cash Flow
Profit

Cash in, Cash out


Influenced by timing of Accounts
Payable & Receivable
Calculated for financial reporting
& tax purposes

Match Revenue with Expense

GAAP & SEC rules

Expenses & revenue which are
not Cash

Change in Cash includes
Investing & Financing Activities
9
Top Uses of Cash at
Raytheon
®
Top 6 Uses of Cash
1 - Dividend Pay-outs
$643M
4 - Research & Development (R&D) $704M
2 - Stock Buy-Back
$825M
5 - Capital Expenditures (CAP-EX)
$339M
6 – Debt Retirement
$970M
3 - Mergers & Acquisitions (M&A) $301M
How to Obtain Cash:
3 Sources
1. Earn it
Pro: No Cost
Con: Not Immediate
2. Sell Assets
Pro: Immediate
Con: Reduce Assets
3. Borrow it
Pro: Immediate
Con: Cost (Interest)
Can a company have:
1. Too much Cash?
 Yes! Banks offer low interest /return, not using cash wisely.
2. Too little Cash?
 Yes! #1 reason why companies fail.
3. Too much Cash Flow?
 No!
Investors
want company to: “Either invest it or return it to us in dividends!”
Most important indicator of a company’s
financial health and strength.
Key ways to increase
CASH and CASH FLOW:
®
To increase CASH:
 Paying slower
 Collecting faster
… with the same sales revenues and costs.
To increase CASH and CASH FLOW:
 Increase revenues/sales
 Reduce/cut costs
9
CASH: Raytheon
®
Raytheon
Raytheon
Raytheon
Raytheon
2009
2010
2011
2012
Net Sales
Net Income
$24,881
$1,935
$25,183
$1,879
$24,857
$1,896
$24,414
$1,888
Cash
Cash as % of Sales
Cash from Operations
Free Cash Flow
$2,642
10.6%
$2,745
$3,111
$3,638
14.4%
$1,931
$1,599
$4,000
16.1%
$2,156
1,719*
$3,188
13.1%
$1,951
$1,473
DRIVER:
Cash:
Cash
Cash Flow
S&P 500 Average: Cash = 6%
Free cash flow: Operating cash flow minus capital expenditures. It
is the cash available to a company to use for paying debt, providing
dividends to investors, buying back stock, expansion, acquisitions,
and/or financial stability to weather difficult market conditions.
Cost of Capital: The required return necessary to make a capital
budgeting project, such as building a new factory, worthwhile. Cost of
capital includes the cost of debt and the cost of equity.
3,188 = 13.1%
24,414
CASH: Raytheon
®
Raytheon
General
Dynamics
Lockheed
Martin
Boeing
Northrop
Grumman
2012
2012
2012
2012
2012
Net Sales
Net Income
$24,414
$1,888
$31,513
-$332
47,182
2,745
81,698
3,900
25,218
1,978
Cash
Cash as % of Sales
Cash from Operations
Free Cash Flow
$3,188
13.1%
$1,951
$1,473
$3,296
10.5%
$2,687
$2,634
$1,898
4.0%
$1,561
$1,803
$10,341
12.7%
$7,508
$2,197
$3,862
15.3%
$2,833
$2,309
DRIVER:
Cash:
Cash
Cash Flow
S&P 500 Average: Cash = 6%
CASH - Review
®
1. Define Cash Driver
• What is required to grow
and maintain the business.
2. Measures of Cash
1. Cash:
Easily converted into cash
in 90 days or less.
2. Cash Flow:
Difference: Cash In and
Cash Out over a given
period of time.
3. Free Cash Flow: Cash Flow minus Cap Ex.
3. Importance of Cash Driver
4. Action Plan
• Have sufficient cash to run the business
• Accounts Payable: pay slower
• What is the cost of that cash (capital)
• Accounts Receivable: Collect Faster
• Enhance shareholder value
• Capital Expenditures:
• Improve attractiveness to suppliers and
customers.
• Better inventory management: lower levels
• Don’t give customers excuses not to pay…
9
Action Plan:
What Single Action are You Committed to do to
Positively Impact CASH and CASH FLOW?
1.
2.
3.
4.
5.









Increase Sales or Price
Reduce Costs
Better manage Accounts Receivable (preserve customer relationships)
Better manage Accounts Payable (preserve supplier relationships)
Better manage Inventories
Minimize DSO (Days Sales Outstanding)
Reduce/Conserve operating costs
Manage billing milestones – efficiently execute completion milestones
Minimize time from task completion to payment (Days Sales Outstanding – DSO)
Ensure timecard compliance
 Timely – DAILY input / accurate entry of time worked
 Establishment and communication of proper charge numbers
 Pre-emptive discussion on how to charge in weather calamities, training, etc.
Timely review/approval of subcontractor and consultant invoices
Fully participate and understand monthly financial reviews
Maximize profitability
Excellent contract performance
 Equates to happy customer who don’t protest invoices or delay
payments due to dissatisfaction
®
9
Profit
“Every business must earn a return
that is greater than the cost of
using other people’s money.”
Cash
On Hand
~Ram Charan
Generation
Growth
People
Profit
Top Line
Bottom Line
Employees
Customers
Revenues
Expenses
“No Margin, No Mission.”
~Stephen R. Covey
Assets
Strength
Utilization
Growth
Growth
Cash
Profit
Assets
10
Definition: PROFIT
®
Profit is the money made after
expenses are subtracted from your
revenues. It can be expressed in
dollars ($) or as a percent (%).
You can improve profit in two fundamental ways:
DEFINITION:
#1
Increase Revenues
• charge more
• sell more
#3 - Both!
Profit
#2
Decrease Expenses
MEASURES
Gross Profit ($) / Gross Profit Margin(%)
SALES – COGS
Operating Income (EBIT)($) / Operating Margin(%)
SALES – COGS – Operating Expenses
Net Income($) / Net Margin(%)
SALES – ALL expenses
Earnings Per Share (EPS)
Net Income / # of outstanding shares
10
PROFIT: Measures
Notes
Profit = Income = Earnings
Profit = $ Margin = %
Profit = Expressed in Dollars ($) or as a Percent (%)
Gross Margin
= Sales
- COGS
Operating Profit (EBIT) = Sales
- COGS
- Operating Exp.
Net Profit Margin
= Sales
- COGS
- Operating Exp.
- Interest & Taxes
 A good indication of how profitable a company is at the
most fundamental level. Companies with higher gross margins
will have more money left over to spend on other business
operations, such as research and development or marketing.
 Earnings Before Interest and Taxes (non-controllables)
 EBIT is a good gauge of how well a company is being managed.
 Controllables
 Controllables
 Non-Controllables
(All Expenses)
Gross & Net Profit($) / Margin(%)
®
Sales Price: $1.50
Water
Label
Bottle & cap
Packaging
Total:
$1.50 - $.50 =
- $ .04
- $ .11
- $ .15
- $ .20
($ .50)
COGS
 Direct Labor
$1.00 Gross Profit = 67% Gross Margin
Rent
Salaries, Gen, Admin. (SG&A)
Marketing
Shipping
Total:
- $ .03
- $ .30
- $ .08
- $ .19
($ .60)
(Controlables)
$1.50 - $.50 - $.60 = $.40 Operating Income (EBIT)
Interest Expense
Taxes
Total:
- $ .04
- $. 06
($ .10)
(Non-controlables)
Life
Spring
Artesian Water
$1.50 - $.50 - $.60 - $.10 = $.30 (EBITDA)
Depreciation /Amortization
- $ .02
$1.50 - $.50 - $.60 - $.10 - .02 = $.28 Net Profit = 18.6% Net Margin
11
4 Profit Calculations
®
2012
Sales (Revenues)
(in millions)
- Costs of Goods Sold
1
= Gross Profit/Margin
- R&D, SG&A, etc.
2
= Operating (EBIT) Income/Margin
- Taxes, Interest
3
= Net Earnings/Margin
$100
$ 35
$ 65
= EPS (Public Company)
65%
$ 50
$ 15
$
15%
2
$ 13
/ Total Shares (diluted)
4
100%
13%
6.5
$
2
“Net Earnings = Net Profit” and “Net Earnings”
11
High Margin vs. Low Margin
HIGH MARGIN
LOW MARGIN
[2012]
34%
8.7%
30%
3.7%
24%
1.7%
Market Share
Patent
Brand
WHY?
WHY?
They offer something Unique!
They sell commodities.
(Higher demand than supply)
(Lower demand than supply)
“If you’re not unique, you better be cheap!”
S&P 500 Average: Net Margin = 13%
To drive Profit($) you need either: High Margin (%) or High Volume
11
Profit: Raytheon
®
Raytheon
Raytheon
Raytheon
Raytheon
2009
2010
2011
2012
Net Sales
$24,881
$25,183
$24,857
$24,414
Net Income
$1,935
$1,879
$1,896
$1,888
Gross Margin %
77.6%
64.2%
26.0%
30.9%
Operating Margin (%)
12.2%
10.4%
11.4%
12.2%
Net Income/Profit Margin (%)
7.8%
7.5%
7.6%
7.7%
Earnings Per Share (EPS)
$4.88
$4.79
$5.28
$5.65
DRIVER:
(in millions)
Profit:
S&P 500 Averages:
Gross Margin =
30%
Operating Margin = 15%
Net Margin =
10%
Earning Per Share (EPS) =
$ 1,866 M (Net Income available to common stockholders)
÷ 353.6 M (Diluted Shares)
$ 5.28  On Statement of Operations
Profit: Benchmarks
®
Raytheon
General
Dynamics
Lockheed
Martin
Boeing
Northrop
Grumman
(in millions)
2012
2012
2012
2012
2012
Net Sales
$24,414
$31,513
47,182
81,698
25,218
Net Income
$1,888
-$332
2,745
3,900
1,978
Gross Margin %
30.9%
52.1%
59.8%
82.7%
44.1%
Operating Margin (%)
12.2%
2.6%
9.4%
7.7%
13.1%
Net Income/Profit Margin (%)
7.7%
-1.1%
5.8%
4.8%
7.8%
Earnings Per Share (EPS)
$5.65
-$0.94
$8.36
$5.11
$7.81
DRIVER:
Profit:
S&P 500 Averages:
Gross Margin =
30%
Operating Margin = 15%
Net Margin =
10%
Raytheon Sales
11
Raytheon Operating Profit
Raytheon EPS
PROFIT - Review
®
1. Define Profit Driver
 What is left over after you have subtracted
expenses.
 Can be expressed in dollars ($) or as a
percent (%).
2. Measures of Profit
1. Gross Profit (Margin) – subtract COGS
2. Operating Income - EBIT – Earnings Before
Interest and Taxes
3. Net Income – subtract ALL expenses
3. Importance of Profit Driver
 Net Profit is one of the most important
#’s for the business.
 Indicates price strength & cost controls
 Identifies ability to manage costs
4. Action Item
 Increase Revenue
 Sell more
 Charge more
 Lower Expenses
 Satisfy customers & employees to reduce
turnover…
Discussion: Action PlanWhat Single Action are You Committed to do to
Positively Impact PROFIT?
®
1. Increase Sales:
- Sell more, increase pricing, increase employee product knowledge to better up-sell or cross-sell,
increase accessory sales (higher margin business)
2. Decrease Costs:
- Decrease operating expenses: Reduce product failures/returns/replacements, reduce utilities, better
maintain equipment, no color copies, book flights 4 weeks in advance, etc.
- Manage cost budgets, approve only costs that have relevance and a business need
- Manage/Reduce OCC’s (other credits & charges), decrease delinquent paying customers
3. Improve staffing practices
•
•
•
•
4.
5.
6.
7.
Minimize turnover and anticipate needs (vacancies can = loss in revenues)
Faster on-boarding & effective training: Have people with contingent offers lined up for backfills
Support staffing efforts by participating in job fairs
Emphasize /encourage job referrals with your employees
Effective program execution
Continuous process improvement : minimize waste, and reduce costs
High Customer satisfaction : award fees
Understand the various contract vehicles that are available, how each
one works – i.e. Firm Fixed Price, Cost Plus, etc., and the impact on profit
11
Assets
Anything you own or control…
which has value.
Cash
On Hand
Generation
Growth
People
Profit
Top Line
Bottom Line
Employees
Customers
Revenues
Expenses
Assets
Strength
Utilization
Growth
Growth
Cash
Profit
Assets
12
Definition: Assets
®
Assets
DEFINITION
What we have and how well we use what
we have.
Asset Strength
(Have)
Asset Utilization
(Use)
• People:
Increase employee
productivity.
• Property:
increase usage with
lower number of
buildings.
• Cash:
Buy back stock, acquire
another company, invest
in higher returns.
• Inventory:
“just in time” inventory
increasing inventory
turnover.
• Plant &
Equipment:
Decrease cycle time.
• Information:
Increase number of
patents per year.
12
Definition: Assets
®
Definition:
What we have and how well we use what we have.
Assets:
Include cash, property, plant, equipment (PP&E), technology, intellectual
property, and people. Work processes are key “assets.”
 “People are considered, by many organization, their most important asset.”
Asset Strength (Have): Refers to the amount of liquidity your company has, including
cash, cash equivalents, and unused lines of credit. The greater your company’s
liquidity, the greater your Asset Strength.
Asset Utilization (Use): Refers to the return you obtain from your Assets. The more
you can increase an asset’s ability to make or save money, the higher the
utilization. In general Asset Utilization means the efficient use of assets—
how hard a company’s assets work to make money, to produce revenue profitably.
We can increase Asset Utilization in two fundamental ways:
(1) Decrease the amount of assets used to get results, and
(2) Increase the results obtained from using the same assets.
13
Definition: Assets
(Page 12)
®
The costs of excess inventory:
- Cost of capital
- Storage costs
- Obsolescence
- Inventory shrinkage
Benefit of a strong credit rating:
- Can borrow more money…
- at a cheaper rate.
Balancing…
Asset
Strength
Asset
Utilization
What a company may sacrifice to
have a high rating:
- Borrow less money
- Hold more cash
- Take less risk thus lower returns
A strong asset base = financial strength
= …costs MONEY!
Strong asset utilization = higher efficiencies
= higher productivity
…more profit or MONEY!
13
Asset Utilization Measures
Ways Companies Track Asset Utilization
Inventory Turnover
Return on Assets (ROA)
Revenue (Sales) / Employee
Return on Equity (ROE)
Net Earnings / Employee
Return on Investment (ROI)
Unit Production / Worker
Mean Time Between Failures (MTBF)
Cycle Time Measures - Time per Unit
Error Rate per Volume Produced
Cost per Unit Produced
Steps / Stations in Work Processes
Book to Bill Ratio:
DEFINITION: The ratio of orders received to units shipped and billed for a specified period.
EXAMPLE:
A book-to-bill ratio of 1.10 implies that $110 of orders were booked for every $100
of product billed during the period.
A ratio of above 1 implies that more orders were received than filled, indicating
strong demand, while a ratio below 1 implies weaker demand.
It is closely watched by investors & analysts as an indication of performance and future outlook.
13
Raytheon: ASSETS
®
13
Assets: Raytheon
®
Raytheon
Raytheon
Raytheon
Raytheon
2009
2010
2011
2012
Net Sales
Net Income
$24,881
$1,935
$25,183
$1,879
$24,857
$1,896
$24,414
$1,888
Inventory Turnover
Return On Assets (ROA)
Days Sales Outstanding (DSO)
Ending A/R
Bookings
Backlog
Book-to-Bill Ratio
57.4
13.2%
65
4,493
25,058
36,877
55.9
7.7%
63
4,414
24,449
34,551
58.5
7.3%
66
4,526
26,555
35,312
67.9
7.1%
67
4,543
26,504
36,181
1.09
Inventory =
Turnover
COGS
Inventory
DRIVER:
(in millions)
Assets:
S&P 500 Averages for 2012:
Inv. Turnover = 8.6
ROA = 5.8%
R&D Spend = 5%
Cap Ex = 5%
ROIC =
Net Income – Dividends
Total Capital
ROA =
Net Income
Total Assets
How efficient is the company in using
its assets to generate profits.
DSO = Ending A/R
(Sales/360)
A measure of the average number of
days that a company takes to collect
revenue after a sale has been made.
Bookings:
New/awarded contract that year.
Backlog:
Contracts won, but not yet delivered.
Book-to-Bill
Ratio:
New business booked vs. current
business delivered and billed.
13
Assets: Benchmarks
®
Raytheon
General
Dynamics
Lockheed
Martin
Boeing
Northrop
Grumman
2012
2012
2012
2012
2012
Net Sales
Net Income
$24,414
$1,888
$31,513
-$332
47,182
2,745
81,698
3,900
25,218
1,978
Inventory Turnover
Return On Assets (ROA)
Days Sales Outstanding (DSO)
Ending A/R
Bookings
Backlog
Book-to-Bill Ratio
67.9
7.1%
67
4,543
26,504
36,181
1.09
11.1
-2.1%
105
9,166
14.6
7.1%
50
6,563
1.8
2.5%
25
5,608
24.6
7.5%
41
2,858
57,410
80,700
355,500
39,515
DRIVER:
(in millions)
Assets:
S&P 500 Averages for 2012:
Inv. Turnover = 8.6
ROA = 5.8%
R&D Spend = 5%
Cap Ex = 5%
13
Assets - Review
1. Define Asset Driver
2. Measures of Asset
• What we have and
• ROA – Percent value of total revenue to
total assets.
• How well we use what we have.
• Backlog
3. Importance of Asset Driver
4. Action Item
• Demonstrates ability to work smarter rather
than harder.
• Increase efficiencies (personal & company)
• Indicates company invests in “right” assets
• Manage Inventories
• Indication of execution
• Invest and upgrade in the right assets…
• Improve processes and systems
Action Plan:
What Single Action are You Committed to do to
Positively Impact ASSETS?
®
(page 13)
ASSETS
REVIEW:
= Efficiencies, productivity, speed,
making assets work harder
•
•
•
•
•
•
•
•
•
•
•
•
Increase efficiencies (employee/company)
Increase employee productivity
Measure employee output
Increase performance
Increase process efficiencies
Reduce under-performing assets
Reduce steps in work processes
Increase cross-training of employees
Reduce cycle time
Decrease travel distance for US Trainers
Increase multi-sales
Increase smart road mapping
•
•
•
•
•
•
•
•
•
•
Decrease customer churn
Increase FCR (First Call Resolution)
Decrease average handle time (AHT) per call
Use resources better within the company
Least cost network design
Schedule more efficiently
Encourage web meetings
Least cost routing
Reduce unplanned absences
 Your own idea…
13
Growth
Why is GROWTH so
important to business?
Cash
On Hand
Generation
Growth
People
Profit
Top Line
Bottom Line
Employees
Customers
Revenues
Expenses
Grow or die!
Assets
Strength
Utilization
Growt
h
Growt
h
Cash
Profit
Asset
s
14
Definition: Growth
®
DEFINITION:
Growth is defined as an increase over a period of time
such as: year/year, quarter/quarter, or month /month.
There are two types of Growth:
1.
Organic Growth:
Comes from a company’s existing business  Slower. More controlled growth.
Growth
2.
Inorganic Growth:
Comes from a merger or an acquisition  Faster. Less controlled growth.
MEASURES:
Growth is most commonly measured by:
Sales
(Top Line)
Op. Profit
(EBIT)
Profit
EPS
(Bottom Line)
(Investor)
14
Why is Growth so important?
®
“Change is a constant in today’s business world so you are either growing
with it or dying from it. Growth forces a company to change and adapt, to
anticipate customer needs, and to look for new opportunities.”
 Investors expect it
 Employees are more energized
 Growth provides opportunities for employees
 Customers are generally more attracted to it
 Attracts better suppliers
 Executives are measured by it.
 It takes 5 times as much to win a new customer as it does to
keep an existing one.
15
How do I Impact Organic Growth?
• Listen to your customers
– What keeps your customer up at night
– How can we improve the mission
– Will innovation improve the process or output
• Performance: Leads to organic growth and demonstrates
capability to perform new business through past/present
performance
Growth: Raytheon
®
Raytheon
Raytheon
Raytheon
Raytheon
2009
2010
2011
2012
$24,881
$1,935
$25,183
$1,879
$24,857
$1,896
$24,414
$1,888
7.4%
16.1%
15.7%
24.7%
2.3%
1.2%
-14.3%
-2.9%
-2.0%
2.5%
-1.3%
8.6%
0.9%
10.2%
2.5%
-1.8%
5.6%
-0.4%
7.0%
2.9%
DRIVER:
(in millions)
Net Sales
Net Income
Growth:
Net Sales Growth
Operating Income Growth
Net Income Growth
EPS (diluted) Growth
R&D as a % of Sales
S&P 500 Average Revenue Growth: 10.5%
Growth: Benchmarks
®
Raytheon
General
Dynamics
Lockheed
Martin
Boeing
Northrop
Grumman
2012
2012
2012
2012
2012
$24,414
$1,888
$31,513
-$332
47,182
2,745
81,698
3,900
25,218
1,978
-1.8%
5.6%
-0.4%
7.0%
2.9%
-3.6%
-78.2%
-113.1%
-113.8%
1.5%
11.4%
3.4%
7.0%
18.9%
8.0%
-2.9%
-4.3%
-4.5%
1.0%
-6.6%
3.9%
DRIVER:
(in millions)
Net Sales
Net Income
Growth:
Net Sales Growth
Operating Income Growth
Net Income Growth
EPS (diluted) Growth
R&D as a % of Sales
Operating Income:
The only way to determine if a companies operating margin is good is to compare it
to that of other companies in the same industry.
Growth - Review
1. Define Growth Driver
The ability to increase year over year, quarter
over quarter, and/or month over month.
2. Measures of Growth
• Net Sales Growth: Top-line/Sales
• Operating Income Growth:
• Net Income Growth: Bottom-line/Profit
• EPS Growth:
3. Importance of Growth Driver
“Investors expect it, employees are energized
by it, customers are generally attracted to it
and executives are measured by it.”
4. Action Item
• Everything we do to improve performance
around all the other Drivers, results in
Growth.
• Bundle products/services.
• Solution based: Understand client
objectives…
Action Plan:
What Single Action are You Committed to do to
Positively Impact GROWTH?
®
(page 15)
GROWTH = Increase:
-Sales, and/or
-Profits, and/or
-Earnings per share (EPS) for public companies.
 Quarter over quarter, or year over year increases
 Organic growth: comes from a company’s existing business
 Inorganic growth: comes from merger and acquisitions.
• Perform well on a daily basis – performance is key to retaining AND acquiring new
business
• Keep customers informed about contract options
• Know the program deliverables, risks, scope and opportunities
• Anticipate customers’ needs
• Keep BD Process and PM Involvement
• Know what Raytheon contract vehicles are available to have customers shift new work
to, or to consolidate work under one of our prime contracts
• Help with proposals
• Provide insight into customer/business intelligence being careful NOT to compromise
OCI (Organizational Conflict of Interest)
• Understand and tell management what other contractors are doing in our customer
spaces
15
People
Customers and employees are
the key to driving profitable
& sustainable growth.
Cash
On Hand
Generation
Growth
People
Profit
Top Line
Bottom Line
Employees
Customers
Revenues
Expenses
Assets
Strength
Utilization
“People are considered, by many
organizations, their most
important asset.”
Why are “People” at the heart
of this model?
8
People
®
DEFINITION:
People are the:
•
•
•
People
External customers,
Internal customers,,
In-direct influences such as affiliates, vendors,
and suppliers.
MEASURES:
There are several ways to measure People. Some example are:
Sales/Revenues
Revenue per Employee
Profit per Employee
Employee Turnover
Number of customers
Number of employees
Customer churn
16-17
Anticipate Customer Needs & Expectations!
Internal People:
1. A’s hire A+’s and B’s hire C’s
2. “People don’t leave companies, they leave their managers”
~First Break All the Rules by Marcus Buckingham
3. “Management is doing things right.
Leadership is doing the right things.”
~Peter Drucker
4. Meet monthly/quarterly with your boss and ask:
#1) Are there any gaps in my performance, and
#2) Have my priorities changed?”
External People:
Know your business so you can anticipate  Build your Business Acumen skills!
Have a formal process for listening to your customers. (Net Promoter Score (NPS).
“People will forget what you said, people will forget what you did, but people will never
forget how you made them feel.”
~Maya Angelou (American Poet, b.1928)
17
16-17
Leader of the Future Profile
Behaviors
Experiences
• Multifunctional professional experience

Has vision & leads with courage
• Multiple Raytheon Businesses or multiple
industry experiences

Exhibits 100% integrity

Leads organizational change

Vigilantly cultivates talent pipeline

Exhibits global mindset & inclusivity

Drives growth through innovation, taking
appropriate risks
• Led teams in distinctly different
environments
– Turnaround, Site Lead, Growth
Opportunity, Increased Scope, High
Visibility, Enterprise Initiative, Resource
Constrained, Org Transition
• Proven success driving business growth
– Adjacent markets, M&A, international
• Strong business fundamentals


Has “Board Room” level presence
Fosters strong relationships
– Promotes matrix effectiveness & alignment
– Operates “from the market back”
• Lived and worked outside the USA
Raytheon Leadership Competencies




Strategic and Visionary Thinking
Influential Communication
People Development
Innovative / Creative




Customer Focus
Business Acumen
Performance / Results
Ethical Leadership




Courage
Alignment Achievement
Diversity / Inclusive
Self-Management
People: Raytheon &
Competitors
Raytheon
General
Dynamics
Lockheed
Martin
Boeing
Northrop
Grumman
2012
2012
2012
2012
2012
Net Sales
Net Income
$24,414
$1,888
$31,513
-$332
47,182
2,745
81,698
3,900
25,218
1,978
Employees
Revenue Per Employee
Income Per Employee
71,000
343,859
26,592
92,200
341,790
-3,601
123,000
383,593
22,317
171,700
475,818
22,714
72,500
347,834
27,283
DRIVER:
(in millions)
People:
People - Review
1. Define People Driver
Anyone who has the ability to impact the
success of the business:
• Internal customers
• External customers
2.
Measures of People
 Employee turnover
 Customer churn.
 Others…
• Vendors, Re-sellers, Suppliers.
3. Importance of People Driver
4. Action Item
• People (employees and customers) are our
most important assets.
 Select, train, advance and retain
Employees more efficiently.
• Without People, we have no company.
 Listen to Customer needs and have a
process for responding.
• Customer service is for everyone;
Internal, External, Vendors
 Meet  Exceed  Anticipate
(employees and customers)…
Action Plan:
What Single Action are You Committed to do to
Positively Impact PEOPLE?
®
(page 17)
1. How do you anticipate your customers’ needs?
• Meet  Exceed  Anticipate!
• Ask  Listen  Follow Through!
2. How are you attracting, developing, and retaining your employees?
Meet monthly and ask:
“Are there any gaps in my performance and have my priorities changed”
INTERNAL:
EXTERNAL:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Develop teams into leaders
Invest in employees
Develop a learning culture
Exceed deadlines
Be positive
Always follow through
Increase vision
Anticipate needs and expectations
Increase employee education
HR: Hire the best!
Accurately set customer expectations
Listen with empathy to resolve unhappy customers
Possess good product knowledge when selling
Qualify each customer
Better educate customers
Increase customer negotiations
Increase customer awareness
17
Financial Statements:
-Training & Analysis Module-
The Five Drivers and
the Three Financial Statements
Statement of Cash Flow
Statement of Income (P&L)
Balance Sheet
30
Statement of Operations
Equation:
Sales – Expenses = Income
• Statement of Earnings
• Profit & Loss (P&L)
Gross Profit ($)
Indicates:
$ 24,857
- $ 19,697
$5,322
Profitability
Gross Margin (%)
REVIEW  Teach  1 Question
$ 5,322
÷ 24,414
x 100
= Top Line
Cost of Goods Sold (COGS)
General & Administrative (G&A) or Overhead
R&D
21.8%
S&P 500 = 30%
Operating Income ($)
24,414 – 21,425 = 2,989
$2,989
Operating Margin (%)
$ 2,989
÷ 24,414
x 100
Tax Rate: 878 / 2,779 x 100 = 31.6%
12.2%
S&P 500 = 13%
= Bottom Line
Net Income ($)









SG&A
Salaries
Benefits/Severance
Sales commissions
Advertising
Call center costs
Rent
Bad debt charges
Merger integration costs
Professional Services: attorney
fees, accounting
Variance Analysis
$ 1,888
Net Margin (%)
This year
Last year
- 1 x 100
$ 1,888
÷ 24,414
7.7%
S&P 500 = 10%
Earnings Per Share (EPS)
Net Income
$ 1,888
÷
Dil. Number of Shares
÷ 334.2
$ 5.65
To Increase Profit:
You can impact:
• Cash Management
• Accounts Receivable
(A/R)
• Accounts Payable (A/P)
• Inventory
• Capital
Expenditures(Cap Ex)
Variance Analysis
Variance Analysis
2011 vs. 2010
(In Millions)
4.04%
3.91%
13.58%
0.55%
6.61%
-12.05%
-0.19%
-5.56%
24
Equation:
Raytheon Company
Current Ratio:
Indicates:
Assets = Liabilities + Equity
Preliminary Balance Sheet Information
Total Current
Liabilities
Financial
Strength
Total Current Assets
REVIEW  Teach  2 Questions
9,246
5,902
1.6
= ____
1.2
S&P 500 Ave = _______
Equity Ratio:
Most Liquid
Total Equity
Total Assets
30.7%
8,190 x 100 = _____
26,686
Becomes Cash < 1 year
25%
S&P Aver: _______
Working Capital:
= Current Assets
- Current Liabilities
Least Liquid
3.2%
Positive: a company is able to pay off
its short-term liabilities.
Due First
Negative: a company currently is
unable to meet its short-term
liabilities with its current assets (cash,
accounts receivable and inventory).
Due in < 1 year
Goodwill:
TOTAL Liabilities: $ 18,496
Balance
$ 17,509 5.6%
?
Due Last
Purchase Price
- Total Assets
= Goodwill
(Market Value)
(Tangible Assets)
(Intangibles Assets)
Goodwill:
You are buying a valuable name, a
reputation, brand names, a loyal
predictable customer list, patents, trained
and knowledgeable employees, supplier
relationships and agreements, proprietary
knowledge,(i.e. operational efficiencies
and IP), proven strategic strengths and
processes, etc
Statement of Cash Flows
The purpose of the Statement of Cash Flows is to better
understand and determine:
1. Where a company gets its cash from
2. Where or how the company uses its cash
3. How the company manages its cash
4. If the company has enough cash to repay its loans and continue
to stay in operation
Executives use the statement and an important analysis
tool to:
1. Better understand where a company’s cash came from
2. How the company used its cash
3. How the cash is used to pay for operational costs and pay off its
loans.
28
Equation:
Cash In – Cash Out = Net Change in Cash
Raytheon Company
Preliminary Cash Flow Information
Purpose:
Cash from Operations:
Cash Management
Cash from core business
- Cash to run the business
= Operating Cash Flow (OCF)
Most important number!
Healthy operating cash flow
means that the company can
finance more of its growth
internally, without borrowing or
selling stock or assets.
Net Cash from Operating Activities:
Cash from Investing:
Spending on investments
suggests management is
investing in the future.
Cash from Financing:
Most important number!
Net Cash from Investing Activities:
Positive = Borrowing
Negative = Reducing debt and/or
paying cash (dividends) to
Shareholders
Total: ($716)
Net Cash from Financing Activities:
?
3 Ways Companies Get Cash:
Total: ($1,346)
?
1) Earn it =
Cash from Operations
2) Sell an Asset =
Cash from Investing
3) Borrow it =
Cash from Financing
28
Management Module
-Navigating the Financials-
Navigating the Financials
Raytheon: Navigating the Financials
Location in the Financials
Component
Statement of
Operations
Growth
Assets
Profit
Cash
Cash & Cash
Equivalents
Balance
Sheets
Statement of
Cash Flows
Calculation
l
Cash from
Operating
Activities
l
Additions to
property, plant,
equip AND Cash
used for internal
use software
l
Enter Results Here
Metric
None
$
3,188M
1
Cash
None
$
1,951M
2
Cash from
Operations
(Cash Flow)
Cash from Operating
Activities
-
Capital Expenditures
-
Cost of Internal software
=
$
1,546M
3
Free Cash Flow
Net Sales
l
None
$
24,414M
4
Net Sales
Operating Income
l
None
$
2,989M
5
Operating Income
Net Income
l
None
$
1,888M
6
Net Income
EPS
l
None
$
5.65
7
Earnings Per
Share (EPS)
From Class Notes
$
26,500M
8
Backlog
Class Notes
Total Net Sales
l
Operating Income
l
Net Income
l
This Year's Net Income
÷
Last Year's Net Income
Earnings per Share
(diluted)
l
This Year's Diluted EPS
÷
Last Year's Diluted EPS
People
This Year's Total Net Sales
This Year's Operating
Income
÷
÷
Last Year's Total Net Sales
Last Year's Operating
Income
(EBIT)
- 1 x 100
-1.5
%
9
Net Sales Growth
- 1 x 100
5.6
%
10
Operating Income
(EBIT) Growth
- 1 x 100
1.2
% 11
- 1 x 100
7.0
% 12
From Internal Data or Market Research
Net Income
Growth
Earnings Per
Share (EPS)
Growth
33
Management Module
-100 Up vs. 100 Down-
Raytheon Company
Preliminary Statement of Operations Information
Increase
Sales by
$100
Cut
Costs by
$100
+ $100
($81.0)
($100 )
= +$100
($19.0)
(Tax Rate:24%)
$14.44
($24.0)
( Tax Rate:24%)
$76.0
So, which is better?
Raising Revenues $100M = $14.44
or
Cutting Costs by $100M = $76.00
What are the implications of
each action?
CEO Urgency Continuum
URGENT
CASH
Airlines
NEAR TERM
LONG TERM
PROFITS
ASSETS
GROWTH
PEOPLE
Start-ups
Automobiles
49
Management Module
-Action Planning-
Content
Retention
Retaining Content Over Time…



15%




Time
What new insights did you gain, as a result of attending?
“Management is doing the things right;
Leadership is doing the right things.”
~Peter Drucker
52
Changing Behaviors: Study
*Based on a 1993 Brigham Young University Study
When a Person Says …
Chances of the idea being
incorporated into their life is...
“That’s a good idea”...
10%
“I’ll do it!” and commits...
25%
Says when they’ll do it…
40%
Plans how to do it…
50%
Commits to another…
60%
Sets a future specific
appointment with the
person they committed to...
Good Management
Technique!
95%
Where to Find Financial Information?
Investopedia.com
Click On: “Investor Relations”
55
One Final Thought…
“People will work
hard for a paycheck,
harder for a person, and
hardest for a reason.”
~T. S. Monson
(Multi-national Leader)
(Life = Risk Video)
Thank you!
Jeff Cope
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