Using math to determine your firm's value position. (Q&A with Phil Phillips).When working with clients in strategy development, one is mainly "looking ahead" and planning for the future. To accomplish the development of a solid future plan, we always encourage our clients to make certain all the key employees are involved in the process and have a full understanding of all the elements needed to launch a strategic planning Strategic planning is an organization's process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy, including its capital and people. process. We accomplish this through a MAP (management action program) analysis, which asks the participants to provide their impression of the company's positions in regard to marketing, technical and financial aspects.
Not surprising, we find many people have neither a common opinion nor grounding of these important facts. Therefore, we must then make certain that their perceptions change to a common accuracy prior to future plan discussions.
One of the most important elements we see missing in strategic planning is understanding a company's financials in general and in particular, the details and how those details play within the future planning tactics.
Elements To Understanding
The items below attempt to simplify financials and their respective meaning to running a business. There are five general and 22 specific ratios one should be familiar with and have at their fingertips "Fingertips" is a 1963 number-one hit single recorded live by "Little" Stevie Wonder for Motown's Tamla label. Wonder's first hit single, "Fingertips" was the first live, non-studio recording to reach number-one on the Billboard Pop Singles chart in the United States. to make basic evaluations of their own and other companies. We have outlined the ratio and described its meaning.
Stay The Course
Maintaining these key ratios in your memory or within close reference and referring to them often when planning or comparing one's firm to another, can help "stay-the-course." Or, if required, it can alter one's strategic direction and allow your firm to take advantage of opportunities.
RATIO CALCULATION MEANING Liquidity Current Current assets The extent to Ratios divided by which a firm can current meet its liabilities short-term obligations. Quick Current The extent to assets -- which a firm can Inventory meet its short- divided by term obligations current without relying liabilities on the sale of inventories. Leverage Debt-to-total- Total debt The percentage Ratios assets divided by total of total funds assets that are provided by creditors. Debt-to-equity Total debt The percentage divided by total of total funds stockholder provided by equity creditors vs. the percentage provided by owners. LT debt-to- Long-term debt The balance equity divided by total between debt and stockholder equity in firm's equity LT capital structure. Times-interest- Profits before The extent to earned interest and which earnings taxes divided by can decline total interest without the firm charges becoming unable to meet its annual interest costs. Activity Inventory Sales divided by Whether a firm Ratios Turnover inventory of holds excessive finished goods stocks of inventories and whether a firm is selling its inventories slowly compared to the industry average. Fixed assets Sales divided by Sales turnover fixed assets productivity and plant equipment utilization. Total asset Sales divided by Whether a firm turnover total assets is generating a sufficient volume of business for the size of its asset investment. Accounts Annual credit In percentage receivable sales divided by terms, the turnover accounts average length receivable of time it takes a firm to collect on credit sales. Average Accounts In days, the Collection receivable average length period divided by total of time it takes sales/365 days a firm to collect on credit sales. Profitability Gross profit Sales - Cost of The total margin Ratios margin goods sold available to divided by sales cover operating expenses and yield a profit. Operating profit Earnings before Profitability margin interest and without concern taxes divided by for taxes and sales interest. Net profit Net income After tax margin divided by sales dollars per dollar of sales. Return of total Net income After tax assets divided by total profits per assets dollar of assets: also called return on investment (ROI). Return on Net income After tax stockholders profits per Equity (ROE) dollar of stockholder equity investment in the firm. Earnings per Net income Earnings share (EPS) divided by available to the number of shares owners of common common stock stock. outstanding Growth Sales Annual divided Firm's growth Ratios by growth in rate in sales total sales Income Annual divided Firm's growth by growth rate rate in profits in profits Earnings per Annual divided Firm's growth share by growth in EPS rate in EPS Dividends per Annual divided Firm's growth share growth in rate in dividends/share dividends/share Price-earnings Market price per Faster-growing share divided by and less risky EPS firms tend to have high-price- earning ratios.
Phil PHIL Philosophy
PHIL Philadelphia, PA, USA
PHIL Public Health Image Library (US CDC) Phillips Phil·lips
A trademark used for a screw with a head having two intersecting perpendicular slots and for a screwdriver with a tip shaped to fit into these slots. is founder of PGPhillips & Associates, a consulting firm Noun 1. consulting firm - a firm of experts providing professional advice to an organization for a fee
business firm, firm, house - the members of a business organization that owns or operates one or more establishments; "he worked for a focusing on the coatings, adhesives, sealants industries.