Ch. 5 Matching Supply & Demand

Question 1

What are the value drivers for companies?

Answer 1

1. it’s ability to generate cash flows from revenue growth

2. and Return on Invested Capital (ROIC) relative to its cost structure

Question 2

ROI =

Answer 2

profit ÷ capital employed

which is divided in two parts

1. profit ÷ sales (margin)
2. sales ÷ capital employed (asset turnover)

Question 3

In what ways can logistics improve the Dupont chart?

Answer 3

1. Sales > customer service
2. Cost > logistics efficiency
3. Cash > pipeline management
4. Net receivables > invoicing accuracy
5. Inventory > JIT logistics
6. Fixed assets > asset utilization/deployment

Question 4

How do you calculate ROA?

ROA = profitability

Answer 4

1. total cost = operating cost + cost of stock
2. profit = sales - total cost
3. total assets = other assets + stock
4. ROA = profit ÷ total assets

Question 5

What are the 5 drivers of shareholder value?

Answer 5

1. revenue growth
2. tax minimization
3. operating cost reduction
4. fixed capital efficiency
5. working capital efficiency

Question 6

The value of any strategy is inherently driven by 4 factors

hint: enhance & accelerate

Answer 6

1. acceleration of cash flows
2. increased level of cash flows
3. cash flow risk reduction
4. residual value of the business

Question 7

1. What is the problem with traditional accounting methods?

2. How to solve this?

Answer 7

1. It has trouble allocating shared and indirect costs (overhead). This distorts real profitability.
2. activity-based costing

Question 8

Cash-to-cash cycle =

Answer 8

days of inventory + days of account receivable - days of account payable

Question 9

There are many costs that need to be identified if profitability is to be measured accurately. Name a few.

Answer 9

1. cost of sales
2. commissions
3. sales calls
4. key account management time
5. trade bonuses & discounts
6. order processing costs
7. promotional costs
8. merchandising costs
9. non-standard packaging
10. dedicated warehouse space
11. materials handling costs
12. transport costs
13. documentation/communication costs
14. returns/refusals
15. trade credit

Question 10

What 4 strategies can we employ to serve costumers?

Customer profitability matrix: net sales value x cost of service

Answer 10

1. protect (low cost/high sales)
2. build (low cost/low sales)
3. cost engineer (high cost/high sales)
4. danger zone (high cost/low sales)