Samlat viktigt Flashcards
5 phases that characterize Benchmarking
- Identify the strategic objectives
- Performance orientation
- Process orientation
- Sample selection
- Leader-, sector- or internal benchmarking
- Involvement modality
- Unconsious
- Consious
- Performances of choice for the comparison
- Definition of scope
- Definition of the measurement system
- Data correction
What is Consolidated Financial Statement and different theories?
The financial statement of a group of companies.
- Proprietary theory - Views the company as an extension of its owners.
Con: Does not show details on invested capital and minority interest.
- Entity theory - Views the group as a seperate economic entity
Pro: CFS is complete, minority interest is shown
Con: Result of the group can be overestimated.
- Parent company theory - Adopts the view point of parent company shareholders.
Parent dont own assets or has responsability for liabilities, but can control them.
Operational budget:
- Revenues budget
Budgetes the revenues, based on for example historical data, season etc. - Production budget
Budgets quantity and volumes needed for the production.
Ex. Do we need to outsource?
- Cost of goods sold
- Direct material consumption
- Direct labor
- Manufacturing overhead
- Period costs budget (This one has Incremental approach and Zero based budget approach)
- Selling
- Marketing
- Administrative
- General costs
- R&D
What 3 budgets is included in Master Budget
Operation budget
Capital expenditure budget
Financial budget
Financial budgets
Includes:
The budget cash flow statement
Capital expenditure budget
Outlines anticipated capital exependiture:
Example buying equipment or building a new store.
Exemplify: Financial planning - Long term
- Bank loan / Syndicated bank loan
- Corporate bonds
- Leasing
Exemplify: Financial planning - short term
- Bridge/bank/syndicated bank loan
- Lines of credit
- Factoring
Tell me about corporate bonds
Securitys that corporations can sell on the market, meaning individuals or corporation can lend money in exchange of interest or just repayment over time.
Hybrid bonds: Mix of equity and dept, can swap from bond- to share-holder
Zero coupon: The bond pays no coupon
Coupon: Bond pays coupons over time. Rate can be fixed or floating.
Pros:
Priority in case of default
Often higher interest rate
If you cant take bank loan this is an option.
Two categories of leasing
Operating leasing - Shorter period than life of asset
Financial leasing - Generally last whole asset life
What is Financial planning?
Choosing the best source of financing for the company
What is Value based indicators?
VBI aim at controlling enterprises, measuring the creation of value and its risks.
Four type of indicators:
- Direct measurement of present value
- Indirect measurement of present value
- Relative valuation
- Value based proxies
- Risk value indicators
Value based proxies
- Total Business Return
TBR = V(1) + Net Cash Flow (1) - Market Value Added
MVA = Market value - Invested capital - Total shareholder return
TSR = (Variance in market value + Dividends) / Initial market value
Risk value indicators
- Value at risk (VAR)
- Economic capital
- Risk-adjusted Return indicators
- RORAC, RAROC, RARORAC
Main steps in Relative valuation?
Main steps:
- Defining comparable companies ( Should be companies which are competing on our same values )
- Defining possible multiples (Convert asset values into standardised values. Absolute prices cannot be compared)
- Analysing multiples. To choose the best multiples.
- Applying multiples.
Relative valuation - Possible multiples
Asset side:
- EV/EBIT
- EV/EBITDA
- EV/FCFF
- EV/SALES
Equity side:
- P/E
- PEG
- P/FCFE
- P/BV
What is Value drivers?
Value drivers refer to indicators which provide early signals of value creation.
Three categories:
- Non financial performance indicators
- Non financial resource state
- Drivers of risk
Value drivers: Non financial performance indicator - Time
Internal (Time for performing specific processes):
- Highlighting non value added activities
- Throughput time
- Time Efficiency
External :
- Delivery time
- Time to market
Value drivers: Non financial performance indicator - Quality
External quality: Products
- Quality of design
- How the product meet needs and wants
- Customer responsiveness
- Capability of product to respond to needs and wants of customers
- Conformance quality
- Performance of a product/service relative to its design and product specifications
Internal quality: Process
- Measure the failure in the production and the delivery process
How to map performances and customer satisfaction to understand how we performe?
Use a map consisting: Concentrate here Keep up the good work Low priority Possible overkill
Value drivers: Non financial performance indicator - Productivity
Productivity = Output / Input
Measuring outputs:
Production type / Output indicator
One-product / Quantity
Different, but homogeneous products / Quantity with physical weights
Diversified products / “Standard” sales
Measuring inputs:
Partial productivity = Output is confronted against each production factor
Global productivity = Output is confronted against a weighted average of production factors
Value drivers: Non financial performance indicator - Flexibility
Capability of a company of answering to changes with limited cost and time.
Different types:
Entity of change = Small, Range, Large
Nature of change = Quality (Product, Production, Operation), Quantity (Volume, Mix, Expansion)
Value drivers: Non financial performance indicator - Environment and Society - Sustainability
Cost drivers: Energy consumptions, fines
Revenue drivers: CO2 emissions, Reputational effect
GRI Standard (Global Reporting Initiative)
KPI examples: Use of materials, energy consumption
Carbon footprint
Value drivers: Non Financial measure - Resource Indicators
Aims at capturing potentialities for enterprises to innovate and grow
Cover both tangible and intangible assets
Four types of resources:
- Financial
- Technological
- Human and organizational
- Image and reputation
Three types of measures:
- Quality
- Quantity
- Accessibility
Value drivers: Non Financial measure - Intellectual capital
Is referred as a resource including three dimensions:
- Human capital: Skill, education.
- Relation capital: relationships with customers and suppliers, reputation.
- Internal structure capital: intangible assets and knowledge embedded in organisational structures and processes (include patents, technology, basically whats left when the staff has gone home)
Value drivers: Non Financial measure - Human Resources
Human capital index
Value drivers: Non Financial measure - Image and reputation - Brand Equity
Potential of the brand (how the brand is different from others)
Characteristics of non-financial performance and resource indicators
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- Timeliness: High, main advantage of these measures
- Long term orientation: can be high
- Measurability: possible ambiguity (oklarhet, mångtydighet)
- Completeness
- Precision
Risk drivers: Key risk indicators
- Objective or subjective
* Single or composite
Target setting is related to these two parts:
Budgeting
Risk and performance measurement
Targets are used for:
Decision making
Motivation
Performance Management Systems support the target process by:
Defining reference performance values -> Budgeting
Predicting performance variability and events -> Enterprise-wide Risk Management (ERM) system
Checking variance between forecast and actual values
ERM model areas of risk:
Strategic
Operations
Reporting
Compliance
ERM eight elements:
Internal environment Objective setting Event identification Risk assessment Risk response Control activities Information and communication Monitoring
Indicators which may come out from ERM are:
- Risk value proxies
- Key risk indicators
Key risk indicators typology
- Objective or subjetive
- Single or composite
Three types of operational centers
- Cost centers: Relation between output and required resources, no direct link to external market
- Revenue centers: Directly interact with external market
- Expense centers: Responsible for period cost. No direct link with external market.
Cost centers
They are:
- Responsible in the use of resources
- Not responsible in determining the output level
C_tot=C_variable * Q + C_fixed
Problems:
Cannot control variances
Short term oriented
Solutions:
ABM
Variance analysis
First level:
Total variance = Actual cost - Budgeted cost
Second level example:
Direct labour cost = Cost per unit (€/u) * Volume (u)
Third level:
Direct labor unit cost = hourly rate (€/h) * direct labour use (h/u)
Revenues centers
Responsibility limited to the output.
Revenues = price (p) * Volume (V)
Problems: Cannot control variations in price and quantity sold
Yearly revenues are not long term indicators
Expense centers
Output not easily identifiable with money.
Control on performance is not possible.
Name a problem of Corporate cost allocation
Occurs when there are some resources which belong to the corporate, but these resources are employed by this business unit.
Four essential purposes of corporate cost allocation:
- To provide information for economic decisions
- To motivate managers and other employees
- To justify cost or compute reimbursement
- To measure income and assets for reporting to external parties
How to allocate cost? 3 possibilites
No allocation, complete allocation, partial allocation
A transfer pricing system is required for several purposes, which are they?
- to provide information that motivates divisional managers to make good economic decisions
- to communicate data that will lead to goal-congruent decisions
- to provide information for evaluating divisional performances
- to ensure divisional autonomy
- to plan tax
Transfer pricing methods
- Market-based transfer prices
- Cost based plus mark up transfer prices
- Full actual cost
- Full standard cost
- Marginal cost
- Negotiated transfer prices
- Dual transfer prices
Market-based transfer prices
Refers to the market outside
Problems:
Non-homogeneous markets
High variability of prices
Strategic divisions
Definition of a group
- Proprietary theory : Views the company as an extension of its owners
- Entity theory: Views the group as a separate economic entity
- Parent company theory: View the point of parent company shareholders
Required steps for consolidation
- Harmonisation of accounting principles between companies
- Harmonisation of the accounting period (no longer than 3 months)
- Elimination of equity investment
- Elimination of intragroup transactions
- Definition of the value of assets and liabilities of the group
Two ways:
Proportionate consolidation
Line by line basis consolidation
Why benchmarking?
To understand strengths and weaknesses
To improve knowledge
To improve efficiency
