session 1 slides - intro to business finance

8/2/2019 Session 1 Slides - Intro to Business Finance

1/16

Business FinanceGIBS FULL TIME MBA 2011

Andrew Abdo

[email protected]


2/16

MBA Framework

External ReportingFinancial Performance and

Position FinancialStatements

Regulated (IFRS + Audit)

Ratio Analysis

FinancialAccounting

Internal Users (non regulated)

Business processes, internalcontrols, budgeting &forecasting

Allocation of Costs ,Breakeven, Volumes, Pricing

Management

Accounting

Sources of funding Investments

Valuing businesses

Mergers and acquisitions

Financial modelling

Risk and return

BusinessFinance


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BusinessNeedsFundingInvestmentDecisions

Grows

Can be Valued

Business FinanceTools for Strategy & Leadership

1

2

3 4

5 6

Must Plan

2


4/16

Demystify the language of financeSimplify complex conceptsPractical applicationUseful tools for decision making

Financial modelling in Excel

the GOAL


5/16

Assessment

IndividualClass Participation & Prep 10%Class Quiz 10%

SyndicateCase Write-Up Session 4 (Lifestyle) 10%Case Write-Up Session 7 (SportWorld) 10%

Exam 60%

Total 100%


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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


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Cycle of Competitiveness

Profit

Share Price

Cash

Credit Rating

Reinvest inCompany

Replace assetsExpand assets

Systems

developmentBrand Building

Skills Development

IncreasedCompetitiveness

Cost efficiencyProduct Innovation

Customer Experience

#1 inIndustry


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Analysing Performance

ROE

Asset

Turnover

Net

Margin Leverage

AssetManagement

MarginManagement

FinancialManagement

RevenueAssets

ProfitRevenue

AssetsEquity

ProfitEquity


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Net Margin

Equity

Debt

Assets

Revenue

Expenses

Profit


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Asset Turnover

Equity

Debt

Assets

Revenue

Expenses

Profit


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Leverage

Equity

Debt

Assets

Revenue

Expenses

Profit


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ROE levers

DISNEY 1980

16% = 0.68 x 15% x 1.6

DISNEY 1983

7% = 0.55 x 7% x 1.6

ROENet

Margin

Asset

Turnover

Gearing

OperatingDecisions

InvestingDecisions

FinancingDecisions


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Influencing Performance

1. Increase revenue or decrease asset base

The effect of volume growth/customer growth/brandstrength/order book

Asset utilisation/working capital management/reducingnon productive assets

2. Make more profit out of existing revenue

The effect of margin adjustments due to pricing

The effect of operating efficiencies/innovation inproduction/economies of scale/buying power over

suppliers

3. Increase levels of debt

The effect of gearing/leverage


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Key Performance Metrics

1984 1989 1994

Net Income $94m $703m $1 110m

Gross Margin 17% 25% 27%

Net Margin 7% 15% 17%

Asset Turnover 0.55 0.79 0.95 RoA 4% 12% 16%

RoE 7% 26% 27%

Share price $53 $484 $624


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History Repeats

2000 share price trades at $150

2002 share price drops below $100

2004

Comcast attempted takeoverat $75 - Eisner fired

2006 share price drops to $33

2008

share trades below $20

2010 share is listed at $34


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Key Learning Points

Business is about doing the basics well

Smallchanges can make a big difference

Understand the limitations of the financialstatements

Understand the usefulness of financialstatements

Appreciate the key financial indicators used byshareholders to judge performance and valuecreation

Review the importance of strategy and leadershipIn influencing performance

session 1 slides - intro to business finance

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