Accounting Day Teaching Elephants2 Dance Dan Ruchman
-
Upload
danruchman -
Category
Business
-
view
1.035 -
download
0
description
Transcript of Accounting Day Teaching Elephants2 Dance Dan Ruchman
![Page 1: Accounting Day Teaching Elephants2 Dance Dan Ruchman](https://reader033.fdocuments.net/reader033/viewer/2022060120/5592d7701a28abc9668b4654/html5/thumbnails/1.jpg)
Teaching Elephants to Dance:
Financial Metrics for Non-Financial Executives
Dan RuchmanMay 18, 2009
![Page 2: Accounting Day Teaching Elephants2 Dance Dan Ruchman](https://reader033.fdocuments.net/reader033/viewer/2022060120/5592d7701a28abc9668b4654/html5/thumbnails/2.jpg)
What is Business?
• Organized• Delivery of products or services• Agreed upon price• Value for value• Profit
![Page 3: Accounting Day Teaching Elephants2 Dance Dan Ruchman](https://reader033.fdocuments.net/reader033/viewer/2022060120/5592d7701a28abc9668b4654/html5/thumbnails/3.jpg)
What makes for Success?
• Mission• Vision and Values• Goals• Plans• People• Is that all?
![Page 4: Accounting Day Teaching Elephants2 Dance Dan Ruchman](https://reader033.fdocuments.net/reader033/viewer/2022060120/5592d7701a28abc9668b4654/html5/thumbnails/4.jpg)
Success – the Intangibles
• Desire… • Communication… • Analysis…• Focus…• Wisdom
![Page 5: Accounting Day Teaching Elephants2 Dance Dan Ruchman](https://reader033.fdocuments.net/reader033/viewer/2022060120/5592d7701a28abc9668b4654/html5/thumbnails/5.jpg)
What We’ll Talk About
• Accountants - Who you are• Non-accountants – what they do,
and why don’t they care?• Metrics & Management• The opportunity• When the band plays together…
the company being all it can be.
![Page 6: Accounting Day Teaching Elephants2 Dance Dan Ruchman](https://reader033.fdocuments.net/reader033/viewer/2022060120/5592d7701a28abc9668b4654/html5/thumbnails/6.jpg)
Accounting -- & Balance
• Does this give you comfort?
![Page 7: Accounting Day Teaching Elephants2 Dance Dan Ruchman](https://reader033.fdocuments.net/reader033/viewer/2022060120/5592d7701a28abc9668b4654/html5/thumbnails/7.jpg)
The accountant,
The friend, and . . .
The dinosaur
![Page 8: Accounting Day Teaching Elephants2 Dance Dan Ruchman](https://reader033.fdocuments.net/reader033/viewer/2022060120/5592d7701a28abc9668b4654/html5/thumbnails/8.jpg)
Who are You?
• Accountants• Why you do what you do• Measuring • Communicating• Impacting the bottom line
![Page 9: Accounting Day Teaching Elephants2 Dance Dan Ruchman](https://reader033.fdocuments.net/reader033/viewer/2022060120/5592d7701a28abc9668b4654/html5/thumbnails/9.jpg)
Who are THEY?
• Non-accountants• R&D• Marketing• Manufacturing• Sales• General Management
![Page 10: Accounting Day Teaching Elephants2 Dance Dan Ruchman](https://reader033.fdocuments.net/reader033/viewer/2022060120/5592d7701a28abc9668b4654/html5/thumbnails/10.jpg)
Non-accountants
![Page 11: Accounting Day Teaching Elephants2 Dance Dan Ruchman](https://reader033.fdocuments.net/reader033/viewer/2022060120/5592d7701a28abc9668b4654/html5/thumbnails/11.jpg)
BABEL?
• Do we all speak different languages, like the Tower of Babel, destined for confusion, miscommunication, miscues, missteps and costly errors?
![Page 12: Accounting Day Teaching Elephants2 Dance Dan Ruchman](https://reader033.fdocuments.net/reader033/viewer/2022060120/5592d7701a28abc9668b4654/html5/thumbnails/12.jpg)
Language of the Universe
La matematica è l'alfabeto nel quale Dio ha scritto l'universo.
– Galileo Galilei
![Page 13: Accounting Day Teaching Elephants2 Dance Dan Ruchman](https://reader033.fdocuments.net/reader033/viewer/2022060120/5592d7701a28abc9668b4654/html5/thumbnails/13.jpg)
Language of Business
La finanza è la lingua nel quale Dio discute degli affari.
Finance is the language of business.
![Page 14: Accounting Day Teaching Elephants2 Dance Dan Ruchman](https://reader033.fdocuments.net/reader033/viewer/2022060120/5592d7701a28abc9668b4654/html5/thumbnails/14.jpg)
Language of Finance
• P&L• Balance Sheet• Cash Flow• Financial Ratios• Footnotes• Investor info, trends, other
numeric but non-financial things
![Page 15: Accounting Day Teaching Elephants2 Dance Dan Ruchman](https://reader033.fdocuments.net/reader033/viewer/2022060120/5592d7701a28abc9668b4654/html5/thumbnails/15.jpg)
P&L – or Income Statement, or Stmt of Operations, or Statement of Earnings
• How much did we sell – goods & services
• What did it cost us?• Did we make money?
• Is our business growing?• Is our profitability good, bad,
improving?
![Page 16: Accounting Day Teaching Elephants2 Dance Dan Ruchman](https://reader033.fdocuments.net/reader033/viewer/2022060120/5592d7701a28abc9668b4654/html5/thumbnails/16.jpg)
Basic P&L
($ in 000s)2008
Revenue (Sales) $25,000
Cost of Goods Sold (COGS) 10,000
Gross Profit 15,000
Operating Expenses 10,000
Profit Before Tax (PBT) 5,000
Taxes 1,000
Profit After Tax $4,000
![Page 17: Accounting Day Teaching Elephants2 Dance Dan Ruchman](https://reader033.fdocuments.net/reader033/viewer/2022060120/5592d7701a28abc9668b4654/html5/thumbnails/17.jpg)
P&L: A lot of terms in a short amount of time
• P&L – the income side• P• L• Income• Sales – gross, net, etc.
![Page 18: Accounting Day Teaching Elephants2 Dance Dan Ruchman](https://reader033.fdocuments.net/reader033/viewer/2022060120/5592d7701a28abc9668b4654/html5/thumbnails/18.jpg)
More P&L - Costs
• Product costs – Fixed, VariableStandard, process, totalSemi-FixedFOHVOHInternal costs vs vendor costsOutsource vs buying from sister coDistribution, warehousing
![Page 19: Accounting Day Teaching Elephants2 Dance Dan Ruchman](https://reader033.fdocuments.net/reader033/viewer/2022060120/5592d7701a28abc9668b4654/html5/thumbnails/19.jpg)
More P&L – Expenses
• Marketing• Selling• R&D• G&A
The Power of DefinitionsAdding value with metrics
![Page 20: Accounting Day Teaching Elephants2 Dance Dan Ruchman](https://reader033.fdocuments.net/reader033/viewer/2022060120/5592d7701a28abc9668b4654/html5/thumbnails/20.jpg)
P&L – Terms & Ratios
• “Profit Margin”…? Gross Margin Operating Margin Contribution Margin Pre-tax vs Post-tax EBITDA
![Page 21: Accounting Day Teaching Elephants2 Dance Dan Ruchman](https://reader033.fdocuments.net/reader033/viewer/2022060120/5592d7701a28abc9668b4654/html5/thumbnails/21.jpg)
A word on EBIT…
. . .Earnings Before Irregularities
and Tampering?
![Page 22: Accounting Day Teaching Elephants2 Dance Dan Ruchman](https://reader033.fdocuments.net/reader033/viewer/2022060120/5592d7701a28abc9668b4654/html5/thumbnails/22.jpg)
Another Word on EBITDA
Earnings Before I Tricked the Damn Auditor
![Page 23: Accounting Day Teaching Elephants2 Dance Dan Ruchman](https://reader033.fdocuments.net/reader033/viewer/2022060120/5592d7701a28abc9668b4654/html5/thumbnails/23.jpg)
A Final Word on EBITDA
• Earnings Before: Interest Taxes Depreciation Amortization
. . . and it MEANS?
![Page 24: Accounting Day Teaching Elephants2 Dance Dan Ruchman](https://reader033.fdocuments.net/reader033/viewer/2022060120/5592d7701a28abc9668b4654/html5/thumbnails/24.jpg)
EBITDA
A popular metric designed to focus on the core operations of the company, excluding non-cash and other items beyond the control of the operating side of the business.
… and some CAVEATS
![Page 25: Accounting Day Teaching Elephants2 Dance Dan Ruchman](https://reader033.fdocuments.net/reader033/viewer/2022060120/5592d7701a28abc9668b4654/html5/thumbnails/25.jpg)
Key P&L Metrics
• Sales growth year-over-year• Earnings growth year-over-year• Gross profit margin percentage• Operating expense % of sales• Profit Margin: Operating, and Net
![Page 26: Accounting Day Teaching Elephants2 Dance Dan Ruchman](https://reader033.fdocuments.net/reader033/viewer/2022060120/5592d7701a28abc9668b4654/html5/thumbnails/26.jpg)
Risk versus Reward
The basic concept : If you take on more risk, you should only be doing it if you stand a chance of getting a higher reward.
![Page 27: Accounting Day Teaching Elephants2 Dance Dan Ruchman](https://reader033.fdocuments.net/reader033/viewer/2022060120/5592d7701a28abc9668b4654/html5/thumbnails/27.jpg)
More on Risk & Reward
• The grocery business
• The restaurant business
• The mob
![Page 28: Accounting Day Teaching Elephants2 Dance Dan Ruchman](https://reader033.fdocuments.net/reader033/viewer/2022060120/5592d7701a28abc9668b4654/html5/thumbnails/28.jpg)
Return: A Holy Grail
![Page 29: Accounting Day Teaching Elephants2 Dance Dan Ruchman](https://reader033.fdocuments.net/reader033/viewer/2022060120/5592d7701a28abc9668b4654/html5/thumbnails/29.jpg)
Balance Sheet
• What do we own?• What do we owe?
• Are we financially strong?• How does our financial position
compare with last year?
![Page 30: Accounting Day Teaching Elephants2 Dance Dan Ruchman](https://reader033.fdocuments.net/reader033/viewer/2022060120/5592d7701a28abc9668b4654/html5/thumbnails/30.jpg)
Basic Balance Sheet
2008
($ in 000s)
Assets
Current Assets 10,000
Fixed Assets, less Depreciation 12,000
Total Assets 22,000
Liabilities
Current Liabilities 5,000
Long-term Debt 12,000
Total Liabilities 17,000
Equity 5,000
Total Liabilities and Equity 22,000
![Page 31: Accounting Day Teaching Elephants2 Dance Dan Ruchman](https://reader033.fdocuments.net/reader033/viewer/2022060120/5592d7701a28abc9668b4654/html5/thumbnails/31.jpg)
Balance Sheet - Terms
ASSETS• Current Assets• Accounts Receivable• Inventory• Intangible Assets• Fixed Assets• Depreciation
![Page 32: Accounting Day Teaching Elephants2 Dance Dan Ruchman](https://reader033.fdocuments.net/reader033/viewer/2022060120/5592d7701a28abc9668b4654/html5/thumbnails/32.jpg)
Balance Sheet – The Other Side
LIABILITIES• Current Liabilities• Accounts Payable• Long Term Debt• Convertible Debt• Off-Balance Sheet Debt
![Page 33: Accounting Day Teaching Elephants2 Dance Dan Ruchman](https://reader033.fdocuments.net/reader033/viewer/2022060120/5592d7701a28abc9668b4654/html5/thumbnails/33.jpg)
Balance Sheet: Equity
EQUITY• Stock – Common vs Preferred• Retained Earnings• Diluted stock ownership: options
![Page 34: Accounting Day Teaching Elephants2 Dance Dan Ruchman](https://reader033.fdocuments.net/reader033/viewer/2022060120/5592d7701a28abc9668b4654/html5/thumbnails/34.jpg)
Balance Sheet:Key Metrics
• Liquidity measures• Current Ratio• Quick Ratio
• Debt-to-Equity (D/E)• Negative Equity
![Page 35: Accounting Day Teaching Elephants2 Dance Dan Ruchman](https://reader033.fdocuments.net/reader033/viewer/2022060120/5592d7701a28abc9668b4654/html5/thumbnails/35.jpg)
Cash Flow
• How much $ did we start the year with?
• How much $ did we end the year with?
• Where is cash being used, and from where is cash coming in?
![Page 36: Accounting Day Teaching Elephants2 Dance Dan Ruchman](https://reader033.fdocuments.net/reader033/viewer/2022060120/5592d7701a28abc9668b4654/html5/thumbnails/36.jpg)
Cash Flow – Key Terms
• Free Cash Flow• EBITDA• Cash Positive• Cash Negative• Capital Intensive• Cash Burn Rate
![Page 37: Accounting Day Teaching Elephants2 Dance Dan Ruchman](https://reader033.fdocuments.net/reader033/viewer/2022060120/5592d7701a28abc9668b4654/html5/thumbnails/37.jpg)
Cash Flow – Key Issues
• Burn rate vs Cash Balance vs Earnings
• Future capital spending needs• Cash from sale of stock – When?
Why?• Paydown of debt – When? Why?
![Page 38: Accounting Day Teaching Elephants2 Dance Dan Ruchman](https://reader033.fdocuments.net/reader033/viewer/2022060120/5592d7701a28abc9668b4654/html5/thumbnails/38.jpg)
Other Key Metrics
• Return on Assets (ROA, RONA, RNOA)
• Return on Equity (ROE)• Earnings per share (EPS)• Price/Earnings Ratio (P/E)• Free Cash Flow – Be careful!• Inventory turnover
![Page 39: Accounting Day Teaching Elephants2 Dance Dan Ruchman](https://reader033.fdocuments.net/reader033/viewer/2022060120/5592d7701a28abc9668b4654/html5/thumbnails/39.jpg)
Concepts
• Accuracy versus Precision• Information is Power: Share it• Know Your Audience• Thinking: The Box• The Price of Miscommunication• The Opportunity
![Page 40: Accounting Day Teaching Elephants2 Dance Dan Ruchman](https://reader033.fdocuments.net/reader033/viewer/2022060120/5592d7701a28abc9668b4654/html5/thumbnails/40.jpg)
Thinking – Inside, Outside, Through the Box
![Page 41: Accounting Day Teaching Elephants2 Dance Dan Ruchman](https://reader033.fdocuments.net/reader033/viewer/2022060120/5592d7701a28abc9668b4654/html5/thumbnails/41.jpg)
A Story
19th Century Shoe Salesmen
![Page 42: Accounting Day Teaching Elephants2 Dance Dan Ruchman](https://reader033.fdocuments.net/reader033/viewer/2022060120/5592d7701a28abc9668b4654/html5/thumbnails/42.jpg)
Questions to be Answered
• Is the company financially sound?• Has the right degree of financial
savvy?• Right balance of bottom line focus vs
market share vs growth vs customers, vs…?
• Would I invest in this company?
![Page 43: Accounting Day Teaching Elephants2 Dance Dan Ruchman](https://reader033.fdocuments.net/reader033/viewer/2022060120/5592d7701a28abc9668b4654/html5/thumbnails/43.jpg)
• The Price
•The Challenge
•The Opportunity
![Page 44: Accounting Day Teaching Elephants2 Dance Dan Ruchman](https://reader033.fdocuments.net/reader033/viewer/2022060120/5592d7701a28abc9668b4654/html5/thumbnails/44.jpg)
Galileo… Updated for Business• Mathematics is the language by which
God has written the universe.−Galileo
• Today’s reality: Finance and accounting are the language by which business writes and measures its successes and it failures.
![Page 45: Accounting Day Teaching Elephants2 Dance Dan Ruchman](https://reader033.fdocuments.net/reader033/viewer/2022060120/5592d7701a28abc9668b4654/html5/thumbnails/45.jpg)
Why You’re Here
"You are not here merely to make a living. You are here in order to enable the world to live more amply, with greater vision, with a finer spirit of hope and achievement. You are here to enrich the world, and you impoverish yourself if you forget the errand."
-- President Woodrow Wilson
![Page 46: Accounting Day Teaching Elephants2 Dance Dan Ruchman](https://reader033.fdocuments.net/reader033/viewer/2022060120/5592d7701a28abc9668b4654/html5/thumbnails/46.jpg)
Teaching Elephants to Dance
Financial Metrics for Non-Financial Executives
Dan RuchmanRuchman & Associates Creative and Intelligent Solutions for Finance, Operations & Strategy. Lighting the Path to Profitability Office: 858.784.0104 [email protected]