iAspire: Business Acumen Learning

Summing up slides
Cash Business Driver
• Cash is the fuel of business. All companies require cash to operate, pay bills, and invest for the future. Lack of cash is a
primary reason businesses fail.
• At any point in time, the cash position is the amount of cash on hand and in financial accounts, plus short-term securities
convertible to cash within 90 days (called cash equivalents).
• During any period of time (month, quarter, year), cash flow is all cash collected from a company’s
operations (core business) less all cash used (disbursed) for expenses to run the core business. The ability to generate cash
flow is usually considered more important than the amount of cash on hand at a given point in time.
• Liquidity refers to a company’s available cash, and its ability to quickly turn assets into cash or get access to capital.
• A business generates and uses cash in three basic activities:
✓ Operations, or core business;
✓ Investing, or buying and selling assets; or
✓ Financing, by receiving and paying back loans (debt) or selling stock to investors, paying dividends, or buying back its stock.
• You can impact cash by helping to increase revenues, cut costs, delay payables appropriately, and accelerate the collection
of accounts receivable.
• A business with too much cash is earning very little return on this asset compared to what it might earn through alternative
uses. Shareholders prefer that excess cash be invested or given back to them.
Profit Business Driver
• Profit = Revenues - Expenses
• Synonymous : Revenue = Sales, and Net Profit = Net Earnings = Net Income.
• $ = Profit and % = Margin.
• Gross Profit = Revenue - Cost of goods sold.
• Operating Profit = Revenue - Cost of goods sold - Operating costs (Selling, General & Administrative (SG&A))
• Net profit = Revenue - All costs.
• Investors evaluate the worth of companies in large measure by their potential to consistently increase profits from their
core business over time.
• ↑ Profits = ↑Sales revenues and/or ↓reducing costs.
• ↑ Revenue = ↑ Product prices and/or ↑ selling more products to the same or new customers.
• ↓ Costs = ↓ the cost of goods sold (direct costs), operating expenses, and/or interest & taxes.
Assets Business Driver
• Assets are anything you own or control which has value.
• Assets can be tangible, such as Property, Plant and Equipment – or intangible, such as Intellectual Property.
• Although we often say "People are our most important asset," they are not technically an asset (in the financial sense) and
are not found on the balance sheet.
• Leaders face the constant challenge of balancing asset strength and asset utilization to produce the maximum return on
investment and to ensure growth and profitability.
• Asset strength refers : Overall capability of your company to pay its bills, meet its financial obligations, overcome difficulties
and take advantage of growth opportunities.
• Liquidity : how easily and rapidly your assets can be turned into cash. More liquid companies have greater capability to move
quickly to solve problems and take advantage of market opportunities.
• Asset utilization : how productively your assets are working to make money—to drive sales and profits.
• Return on Assets: how efficiently and productively a company uses its assets. Calculated by dividing Net Income by Total
Assets.
• Inventory Turnover : how many times a year you sell through your average inventory. (Cost of Goods Sold / Average Inventory).
• Return on Investment : Profit generated on an investment. (Profit of the investment / the cost of the investment).
• Employees can improve asset utilization by eliminating inefficient or non-producing assets, getting more productivity from
existing assets, making business and people processes more efficient.
• Leaders work to balance asset strength and utilization by holding enough cash to be financially viable while also investing in
growth opportunities in order to maximize revenues and profits.
Growth Business Driver
• Companies either continue to grow or risk dying. Companies growing profitably tend to be more energized, innovate products
and services, expand market share, and attract motivated top talent.
• Management most important jobs is to ensure sustainable, profitable growth in order to create value for owners/shareholders.
• Companies not growing can enter a “downward decline and die” cycle of lower sales, lost market share, lower share price,
cost cutting, reduction in force, demoralized employees, lost productivity, more loss of market share, and so on. The
competition will take over their markets, customers, and even their best people.
• The investment community looks primarily at the sales and earnings growth of a company when valuing its stock price.
• Growth is reflected primarily on a company’s income statement. Both top-line growth (increasing revenue), and bottom-line
growth (increasing profits) are essential over time. Top-line growth in sales does not necessarily mean bottom-line growth in
profits. Over time, growth in profits is more important than growth in revenue.
• Organic growth means internal expansion, such as opening new stores, selling more products, and entering new demographic
or geographic markets. Inorganic growth means merging with or acquiring new businesses to increase revenue.
• Growth expectations may change based on a company’s stage of development. High growth may be realistic in the early years
but may be less sustainable as the company matures and becomes larger and more complex.
• Risks of high growth include expenses that grow faster than sales revenue, a decline in quality, and burnout among employees.
Some companies have grown sales rapidly but lost money and gone out of business.
People Business Driver
• People are the most important resource for any company. Employees and customers are two important stakeholders to your
business.
• Successful companies usually have a history of strong employee satisfaction and longer employee tenure, so companies work
hard to keep employees satisfied and to attract top talent.
• Internal customers are those employees or departments to whom we provide work, product, information, or output. Most
employees are both internal suppliers and internal customers to each other.
• Satisfaction and loyalty are more a result of expectations met than actual results achieved. Managing customer expectations
is critical in creating loyalty. Delivering on the expectations is essential.
• Your customers are the lifeblood of your business. You should focus on your customers more than on your competitors.
• Anticipating and innovating to meet unstated present and future customer needs is a key to long-term competitive success.
• Most innovative, breakthrough products are a result not of customer requests but of innovative anticipation of unexpressed
customer needs and opportunities in the marketplace.
• Customers buy more than just products. They purchase trustworthiness, convenience, prestige, or a memorable experience.
Determine what your customers are buying.