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BU121 Final Exam Review Notes.docx

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Roopa Reddy

WILFRID LAURIER UNIVERSITY BU121 Final Exam Review Notes Alex Sheedy 4/13/2013 Analytical Measures of Financial Performance  Analytical Measures of Financial Performance o Cash Burn Rate  The rate at which a venture uses cash  Determines the weeks of cash remaining  Cash Burn = Cash Operating Expenses + Interest + Taxes + Increase in Inventories – Changes in Payable and Accruals + Capital Expenditures  Net Cash Burn looks are how cash burn and cash build are related o Cash Build Rate  How quickly a venture builds cash through sales collections o Liquidity  The ventures ability to meet short term financial obligations  The ability of a venture to maintain a build rate high enough to meet its financial obligations o Conversion Period  The length of the operating capital cycle  Time to convert an asset into cash (affects liquidity) o \Leverage  The ventures potential to employ and repay debt  It also gives us an idea of the extent at which a firm uses debt and whether it can meet its debt obligations  A low degree of leverage means there is a lower risk, but also a lower return  A high degree of leverage shows a higher risk, but a higher return o Profitability and Efficiency  The ventures ability to provide a return on invested capital o Current Ratio  The relationship between current assets and current liabilities  average current assets / average current liabilities  Want it between 2 and 4 o Acid Test/Quick Ratio  average current assets – average inventories average current liabilities  Want it greater than 1 o Net Working Ratio to Total Assets Ratio  average current assets – average current liabilities average total assets  Higher percentage means greater liquidity o Inventory to Sale Conversion Time  average inventory cost of goods sold/365 o Sale to Cash Conversion Period  average receivables net sales/365  Days of sales outstanding or average collection period o Average Operating Cycle  Inventory to Sale + Sale to Cash  The average time it takes to purchase raw materials, assemble a product, book the sale, and collect payment o Purchase to Payment Conversion Period  average payables + average accrued liabilities cost of goods sold/365 o Purchase-to-Payment Conversion Period  average payables + average accrued liabilities cost of goods sold/365 o Cash Conversion Cycle  inventory-to-sale + sale-to-cash – purchase-to-payment  Looks at the number of days an operation must be externally financed  As close to 0 as possible is ideal o Total Debt-to-Total Assets  average total debt / average total assets o Debt-to-Equity  average total debt / average owners’ equity o Current Liabilities-to-Total Debt  average current liabilities / average total debt o Interest Coverage  EBITDA / interest o Fixed Charges Coverage  EBITDA + lease payments interest + lease payments + (debt repayments/(1-tax rate) o Gross Profit Margin  (net sales – cost of goods sold) / net sales o Operating Profit Margin  EBIT / net sales o Net Profit Margin  net income / net sales o Sales-to-Total Assets  net sales / average total assets o Operating Return on Assets  EBIT / average total assets o Return on Assets  net income / average total assets o Return on Equity  net income / average owners’ equity Analytical Techniques  Industry Comparable Analysis o Compares the ratios of a company against the industry average  Cross-Sectional Analysis o Compares the ratios of one company to another firms  Trend Analysis o A comparison done over time Cost Volume Profit Analysis  Used for decision making within a business  Allows you to more clearly see changes in Costs, Volumes, and Profits  Specifically shows the impact of operating leverage o Degree in which a company is locked into fixed operating costs  Must sell more to cover fixed costs increases the RISK  However if the fixed costs are covered it offers a higher RETURN  Used in a breakeven analysis and very important to the concept of contribution Types of Costs  Fixed Costs o Remain constant regardless of the level of production and sales o Assuming the company is operating in a normal range  Variable Costs o Vary with changes in levels of production and sales One Minute Negotiator Model  By definition this is the ongoing process through which two or more parties, whose positions aren’t consistent work in an effort to reach an agreement  Negotiaphobia: disease of attitude and skill deficiency o Many people see negotiations as an act of combat or conflict The EASY Process Engage Recognize you are in a negotiation and quickly review the viable strategies Assess Evaluate your tendency to use each of the negotiation strategies as well as the tendencies of the other side Strategize Select the proper strategy for this particular negotiation Your One Minute Drill Each time you begin a negotiation situation, take a minute to review the three steps Thomas-Kilmann Conflict Mode Instrument  Compromising is used late in the negotiation process after legitimate strategies fully used and only a small gap remains on one issue, and is directly tied to the agreement Negotiating Strategy Matrix Proactive Competition Collaboration Win/Lose Win/Win Low Cooperation High Cooperation Avoidance Accommodation Lose/Lose Lose/Win Reactive  It matters how the other side sees you because it affects how they negotiate with you o Because of this you need to know yourself as others know you  Your strategic tendency can also be of concern if you use one strategy regardless of the situation o Most people are extremely predictable because of this o Observation will allow you to recognize behavioural styles and company culture Strategizing  None of the strategies are universally applicable or appropriate in differing circumstances  Avoidance o Minimal Issue  Recognize it may grow in importance  Do it in a way that demonstrates investment in relationship o Superior option readily available elsewhere  Objections are a sign of interest  Accommodation o In significantly weaker bargaining position (little leverage)  Can improve leverage with knowledge o How you accommodate is as important as when  For example this time around we would be willing to consider….  Don’t make excuses  Competition o Opponent not inclined or capable of collaborating  Need senior players in loop to get at true needs o Typically not worth the effort  Look for the true potential of the negotiation when deciding whether to proceed  Collaboration o When situation presents a significant opportunity with capable and willing decision makers on all sides  WIN-WIN-WIN  80-20 Rule  80% preparation and 20% negotiation at the table o Requires preparation, need identification and trust o Internal collaboration is a prerequisite for external collaboration Critical Success Factors for Sustainable Business  Achieving financial performance  Meeting customer needs  Providing quality products and services  Encouraging innovation and creativity  Gaining employee commitment Three Decisions at Three Stages  Planning-starts with product design o Production types and processes  Mass production vs. mass customization o Choice of location and layout  Link between type of production, process used, and layout o Resource planning or supple and chain management  Make the product our outsource production  Inventory management to attain liquidity  Controlling o Routing and scheduling o Quality and cost control  Harley Davidson has a productivity-quality connection o Improving  Constantly working to make the product better as newer technology becomes available Service vs. Manufacturing Since both transform raw materials into finished goods, we differentiate since a service…  A raw material is a person with unsatisfied needs or possession that requires care  Services are performed not produced  Focus on process as well as outcome o Judged on quality of work and service  Characteristics are different o Intangible  Experience key, customized, can`t be stored  Customer is part of process o Extent of contact affects operations  Integration of Marketing and Operations o Demand/Capacity trade-off  Manufacturing o Set capacity slightly ahead of demand 
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