Business Finance

GIBS FULL TIME MBA 2011

Andrew Abdo andrew@atcor.co.za

MBA Framework

External Reporting Financial Performance and Position Financial Statements Regulated (IFRS + Audit) Ratio Analysis

Management Accounting
Internal Users (non regulated) Business processes, internal controls, budgeting & forecasting Allocation of Costs , Breakeven, Volumes, Pricing

Sources of funding Investments Valuing businesses Mergers and acquisitions Financial modelling Risk and return

Financial Accounting

Business Finance

Business Finance
Tools for Strategy & Leadership
2
Must Plan

Needs Funding

Business
2
Grows

Investment Decisions

5 6

Can be Valued

the

GOAL

Demystify the language of finance Simplify complex concepts Practical application Useful tools for decision making Financial modelling in Excel

Assessment
Individual Class Participation & Prep Class Quiz Syndicate Case Write-Up Session 4 (Lifestyle) Case Write-Up Session 7 (SportWorld) Exam Total 10% 10% 10% 10% 60% 100%

Prep Cases
Case 1 Disney Case 2 Clinic Supply Agency Case 3 Green-X Case 4 Lifestyle(Graded) Case 5 Heritage Dolls Case 6 SportWorld (Graded) Case 7 Vodacom

Cycle of Competitiveness
Profit

Cash
Credit Rating Share Price

Reinvest in Company Replace assets Expand assets Systems development Brand Building Skills Development

#1 in Industry

Increased Competitiveness Cost efficiency Product Innovation Customer Experience

Analysing Performance
Margin Management Asset Management Financial Management

ROE

Net Margin

Asset Turnover

Leverage

Profit Equity

Profit Revenue

Revenue Assets

Assets Equity

Net Margin
Equity Assets Debt

Revenue Expenses Profit

Asset Turnover
Equity Assets Debt

Revenue Expenses Profit

Leverage
Equity Assets Debt

Revenue Expenses Profit

ROE levers
Investing Decisions Operating Decisions Financing Decisions

ROE

Asset Turnover

Net Margin

Gearing

DISNEY 1980 16% = DISNEY 1983 7% =

0.68

15%

1.6

0.55

7%

1.6

Influencing Performance
1. Increase revenue or decrease asset base The effect of volume growth/customer growth/brand strength/order book Asset utilisation/working capital management/reducing non productive assets

2.

Make more profit out of existing revenue The effect of margin adjustments due to pricing The effect of operating efficiencies/innovation in production/economies of scale/buying power over suppliers
Increase levels of debt The effect of gearing/leverage

3.

Key Performance Metrics

1984
Net Income Gross Margin Net Margin Asset Turnover RoA RoE $94m 17% 7% 0.55 4% 7% $53

1989
$703m 25% 15% 0.79 12% 26% $484

1994
$1 110m 27% 17% 0.95 16% 27% $624

Share price

History Repeats
2000 share price trades at $150 2002 share price drops below $100 2004 Comcast attempted takeover at $75 - Eisner fired 2006 share price drops to $33 2008 share trades below $20 2010 share is listed at $34

Key Learning Points

Business is about doing the basics well Small changes can make a big difference
Understand the limitations of the financial statements Understand the usefulness of financial statements Appreciate the key financial indicators used by shareholders to judge performance and value creation Review the importance of strategy and leadership In influencing performance