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Business Fluency Boot Camp Ragan Communications/GWU Karen Vahouny July 23, 2020 Business and Finance Fundamentals

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Page 1: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

Business Fluency Boot Camp

Ragan Communications/GWU

Karen Vahouny

July 23, 2020

Business and Finance Fundamentals

Page 2: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

I’ll Start with the Head of a Successful

Agency …

CEO and co-founder of Peppercomm

Finalist for EY’s Entrepreneur of the Year Award

One of 50 Game-Changers of PR (PRNews)

Page 3: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

Question for Steve

Why is it important for a person in PR/communications to

have a business/finance understanding?

Page 4: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

Steve’s Answer

“Because you will fail without knowing how to read an

annual report, 10-K or other basic accounting documents.

““If you’re financially ignorant, you will be considered an

afterthought on the corporate side and a less strategic fast

tracker with agencies.”

Page 5: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

Three Things That Shaped My Career

1. An MBA

2. The opportunity to learn and lead investor relations

3. An enlightened CEO who gave me P&L responsibilities

Page 6: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

Communicators of the Future

“…will need a working knowledge of ‘business 101’ and

demonstrated business acumen.” – Matt Ragas/Ron Culp

Page 7: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

Top 3 Business 101 Needs

1. Financial statement basics

2. Financial terminology primer

3. Communication’s contribution to company strategy

--From survey of Arthur W. Page Society members

Page 8: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

Our Topics Today

The trifecta of financial reporting

The language of business: key terms

Annual/quarterly reports

Preparation for an economic downturn

Page 9: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

The Trifecta

1. Income statement

2. Balance sheet

3. Statement of cash flow

Page 10: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

1. Income Statement

Shows what an organization earned from its operations

Tracks performance and is useful for budgeting and

future planning

Measures results over a period of time

Typically a quarter or a year

Page 11: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

Income Statement - Example

Sales $500,000

Cost of goods sold $380,000 (or cost of services)

Gross profit $120,000

Operating expenses:

Sales and marketing $25,000

General and admin. $55,000

Total op. expenses $80,000

Operating income $40,000

Income tax expense $8,000

Net income $32,000

Page 12: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

Useful Analysis

Q1 2019 Actual Q1 2020 Actual

Sales $450,000 $500,000

Page 13: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

Additional Analysis

Q1 2019 Actual Q1 2020 Actual Q1 2020 Budget

Sales $450,000 $500,000 $575,000

Page 14: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

2. Balance Sheet

Shows the financial condition of an organization at a

specific point in time

Typically the last day of a quarter or a year

Displays three key categories:

Assets – what you own

Liabilities – what you owe

Equity – what you’re worth

Page 15: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

Balance Sheet – Example(in thousands)

Assets Liabilities

Current assets Current liabilities

Cash $250 Accounts payable $150

Accounts receivable $150 Income taxes payable $ 20

Fixed assets Long-term liabilities

Land and buildings $600 Long-term debt $230

Equipment $100

Other: l-term investments $100 Total liabilities $400

Total assets $1,200 Shareholders’ equity $800

Page 16: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

3. Statement of Cash Flow

Analyzes all the reasons net income didn’t produce the

same increase in cash in the bank

Income statement is focused on operating performance

Income statement does not represent the immediate impact of

buying equipment or borrowing money

Income statement does not factor in the timing of accounts

receivable or payables

Page 17: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

Cash Flow Example (in thousands)

It begins with the net income line from the income

statement

Net income $32

Page 18: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

Cash Flow Example (in thousands)

Net income $32

Adjustments to operating activities

Increase in accounts receivable $(25)

More sold than collected

Adjustments from investing activities

Cash invested in new equipment $(18)

Net cash flow (drain) $(43)

Balance of cash – end of period $(11)

Page 19: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

An Excellent Resource

Page 20: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

Our Topics

The trifecta of financial reporting

The language of business: key terms

Annual/quarterly reports

Preparation for an economic downturn

Page 21: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

Test YourselfDo you know what these terms mean?

P/E ratio

Margin

Valuation

Variance

EPS

P&L

Liquidity

KPI

Market cap

Return on investment

Page 22: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

What’s Market Cap?

Reflects the value of a public company

The price of a share of stock x the number of shares

Page 23: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

Market Cap Comparisons

$1.7 trillion $1.55 trillion

$285 billion $108 billion

$90 billion $9.2 billion

$9 billion $8 billion

Page 24: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

Moving to the Price/Earnings Ratio

A Key Performance Indicator relating to valuation

How much investors are willing to pay as a multiple of earnings

P/E is the stock price per share divided by its earnings

per share

S&P 500 Average P/E: about 15

Page 25: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

P/E Comparisons

30.4 148

26.3 21.8

27.5 NA

10.8 78.1

Page 26: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

Shifting to Return on Investment (ROI)

How much money you’ll make on an investment

Page 27: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

Here’s a Basic ROI/Return Example

Page 28: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

Beyond Meat

L.A.-based producer of plant-based meat substitute

Competitors include Impossible Foods (Whopper)

2009: Founded by DC native Ethan Brown

2016: Released first plant-based burger sold in meat

section of grocery stores

2019: Initial Public Offering

Page 29: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

Revenues and Profit

2018 2019

Revenues: $88M $298M

Net income: ($32.6M) ($12.4M)

Parenthesis means a loss

Page 30: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

Market Value

IPO value: $1.5 billion

Now: $8 billion

Revenues: $298 million

That means the current market value is more than 25x revenues

Page 31: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

Beyond Meat ROI Question

Beyond Meat’s IPO stock price: $25

Recent price: $130

If you bought a share of stock at $25, what’s your return on

investment?

Page 32: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

Beyond Meat ROI Question

Recent price: $130 compared to IPO price of $25

$130 - $25 = $105

$105 is the gain

$105 divided by $25 = 4.2 or 420%

Page 33: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

Our Topics

The trifecta of financial reporting

The language of business: key terms

Annual/quarterly reports

Preparation for an economic downturn

Page 34: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

What’s a Form 10-K?

An annual filing by public companies with the SEC

It includes detailed company information:

Business and risk factors

Selected financial data: five years

MD&A (Management’s Discussion and Analysis)

Financial statements for the year

Page 35: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

Form 10-K versus “Annual Report”

Companies are not required to produce an “annual

report” but most do

Most recent NIRI survey indicated:

88 percent of companies produced an annual report

67% of the companies surveyed produced both an online and a

print version

Page 36: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

More about Annual Reports

Page 37: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

Annual Reports: What to Look For

1. Overall summary or chairman’s letter What happened during the year?

Page 38: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

Annual Reports: What to Look For

1. Overall summary or chairman’s letter What happened during the year?

2. Clear financial highlights Good and bad news are easy to find

Transparent

Page 39: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

Annual Reports: What to Look For

1. Overall summary or chairman’s letter What happened during the year?

2. Clear financial highlights Good and bad news are easy to find

Transparent

3. Theme and key messages Reflects the vision and personality of the organization

Page 40: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

Annual Reports: What to Look For1. Overall summary or chairman’s letter

What happened during the year?

2. Clear financial highlights Good and bad news are easy to find

Transparent

3. Theme and key messages Reflects the vision and personality of the organization

4. Easy to read/view Reader-friendly language, no jargon, concise

Page 41: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

Annual Reports: What to Look For1. Overall summary or chairman’s letter

What happened during the year?

2. Clear financial highlights Good and bad news are easy to find

Transparent

3. Theme and key messages Reflects the vision and personality of the organization

4. Easy to read/view Reader-friendly language, no jargon, concise

5. Focused on the future What happened during the year that demonstrates progress toward goals

Page 42: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

Who’s the Audience?

Understand that the primary audience is the

investment community So you may notice financial terms that may not be familiar to

you but that are commonly used and understood by a company’s

investors

Page 43: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

The Chairman/CEO Letter

A way to recap the past year’s highlights and present a look

ahead to the future

The economic environment

Competitors

Key product or service changes or additions

New or shifting priorities (and why)

Can reflect both the “personality” of the company and the

executive …

Page 44: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

Some Good Examples …

Sources: Some Financial Reporting Winners from IR

Magazine

Page 45: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

One More Good Example

Lauded in Forbes Magazine:

“Find CEO Brilliance in Shareholder Letters”

Page 46: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

Annual Reports for Nonprofits

A “by the numbers” section and a year-in-review video

Page 47: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

Our Topics

The trifecta of financial reporting

The language of business: key terms

Annual/quarterly reports

Preparation for an economic downturn

Page 48: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

One Forecast

Late June: Business Roundtable

Most CEOs said they expect the business impact from the

coronavirus to linger until at least the end of 2021

Nearly one third expect the recovery to stretch beyond 2021

Page 49: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

Another

Early June: Congressional Budget Office

CBO projected severe economic impact over the next two

years

Impact could linger for a decade

Page 50: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

Current/Potential Responses

Public companies: not providing earnings guidance

Organizations negatively affected:

Short-term and permanent layoffs

Early retirement offers

Other cost-cutting

Conserving cash

Organizations positively affected:

Investing in revenue growth

Products, services, customers

Page 51: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

Some Advice

Follow investor calls, news releases, website information

about your “comps”

Monitor KPIs and trends

Expand your horizons: how other organizations are

responding

Review what other communication/PR practitioners are

doing

Share ideas and sources

Page 52: Business and Finance Fundamentals...Income Statement - Example Sales $500,000 Cost of goods sold $380,000 (or cost of services) Gross profit $120,000 Operating expenses: Sales and

Questions?


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