1 © NOKIA Venture Cup_Profitability / January 2003 / Jonne ...

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  • The main principles of financial statements Income and expenses are booked on accrual basis (not cash basis) The part of expenses that does not create income is booked as costs The part of expenses that is expected to create income in future financial periods is capitalized to the balance sheet (e.g. inventory, capital expenditure) The result of the year = income - expenses
  • Profit and Loss Statement and Balance Sheet are describing mostly the material flows. By combining those two you get the Cash Flow Statement as a consequence of the change in balance sheet over time and the status of P&L Statement in certain period.
  • NWC = Account Receivables + Inventories - Trade Liabilities Target: as little NWC as possible How: Optimise terms of payment for the customer (as short as possible), Optimise Inventories (as little as possible), Optimise terms of payment from suppliers (as long as possible) Inventory Rotation (days) = 365 x (Inventories / Variable costs) Target: 40 days Account Receivables Rotation (days) = 365 x (Accounts Receivable / Net Sales) Target: as short as possible, close or better of than of Trade payables Trade Liabilities Rotations (days) = 365 x (Trade Liabilities / Costs of goods*) Target: as long as possible Operating Profit % = (Operating Profit / Net Sales) x 100 Operating Profit = Net Sales - Costs of goods* Target: > 20 % Net Profit % = (Net Profit / Net Sales) x 100 Net Profit = Net Sales - Costs of goods - Capital Charge (interest payments) - Depreciation - Taxes Target: > 10 % Return on Net Assets (RONA) % = (Net Profit + Capital Charge) / (NWC + Fixed Assets) Target: > 20 % Equity % = (Share Capital + Reserves*) / Total Assets Target: > 40 % Gearing % = (Long term and short term interest bearing debt** - financial assets) / (Share Capital + Reserves) x 100 Net debt to equity; how much debt (=borrowed money) you have in respect to share capital and reserves (=own money) Target: <0 % Equity % = (Share Capital + Reserves*) / Total Assets Target: > 40 % Gearing % = (Long term and short term interest bearing debt** - financial assets) / (Share Capital + Reserves) x 100 Net debt to equity; how much debt (=borrowed money) you have in respect to share capital and reserves (=own money) Target: <0 %
  • 1 © NOKIA Venture Cup_Profitability / January 2003 / Jonne ...

    1. 1. Profitability January 29, 2003 Jonne Hankimaa Director Finance&Control Nokia Mobile Phones VENTURE CUP 2002/2003
    2. 2. <ul><li>Financial Statements </li></ul><ul><li>Profitability </li></ul><ul><li>Follow-up </li></ul>Content
    3. 3. Financial Statements 1) Profit and Loss Statement 2) Balance Sheet 3) Cash Flow
    4. 4. Material and Money Flows Payments Products/ Systems Payments Work Dividends Interest Components Salaries Share capital Capital investment Personnel Customers Subcontractors Owners Bankers Money flows Material flows
    5. 5. Financial Statements <ul><ul><li>Profit and Loss Statement – history </li></ul></ul><ul><ul><li>Balance Sheet – today </li></ul></ul><ul><ul><li>Cash Flow - future </li></ul></ul><ul><ul><li>Change in one, means changes in the others = double entry bookkeeping </li></ul></ul>
    6. 6. Profit and Loss Statement <ul><li>Measures and reports profit generated during a certain period </li></ul><ul><ul><li>revenues </li></ul></ul><ul><ul><li>costs </li></ul></ul><ul><ul><ul><li>salaries </li></ul></ul></ul><ul><ul><ul><li>materials </li></ul></ul></ul><ul><ul><ul><li>variables </li></ul></ul></ul><ul><ul><ul><li>fixed </li></ul></ul></ul><ul><li>Profit/ loss is more or less an opinion </li></ul>
    7. 7. Balance Sheet <ul><ul><li>What is the value of the company at a certain point of time? </li></ul></ul><ul><ul><li>What did the value consist of - how were assets financed? </li></ul></ul><ul><ul><li>What is the company´s risk level? </li></ul></ul><ul><ul><ul><li>Debt/Equity </li></ul></ul></ul><ul><ul><ul><li>Assets usage </li></ul></ul></ul><ul><ul><ul><li>Sales receivables </li></ul></ul></ul><ul><ul><ul><li>Inventories </li></ul></ul></ul>
    8. 8. Cash Flow <ul><ul><li>“ Profit is a matter of opinion - Cash Is the King” </li></ul></ul><ul><ul><ul><li>eliminates effects of judgements/ valuations/ periodisations in Profit& Loss Statement and Balance Sheet (accounting principles)! </li></ul></ul></ul><ul><ul><ul><li>what happened during the period in cash terms? </li></ul></ul></ul><ul><ul><li>How well are assets managed? </li></ul></ul><ul><ul><li>What are financing needs? </li></ul></ul>
    9. 9. Profit and Loss Statement, Balance Sheet and Cash Flow Profit and Loss Statement PROFIT/LOSS OF THE PERIOD - SALES - COST STRUCTURE Balance Sheet SNAPSHOT OF ASSETS AND LIABILITIES - PRODUCT OF THE HISTORY - MUSCLE FOR THE FUTURE € INCOME FINANCE CHANGES CASH FLOW €
    10. 10. <ul><li>Profit&Loss Statement </li></ul><ul><li>Lifecycle Profitability </li></ul><ul><li>Trade-off </li></ul>Profitability
    11. 11. Profit & Loss Statement * NET SALES - COST OF GOODS SOLD * SALES MARGIN - FIXED COSTS - DEPRECIATION * OPERATION PROFIT +/- OTHER INC. AND EXPENSES INTEREST (Capital Charge) * NET PROFIT (Before Taxes)
    12. 12. Lifecycle Profitability products contribution time € product creation sales 0
    13. 13. Graph Example -20 -10 0 10 20 30 40 50 60 Q1/00 Q2/00 Q3/00 Q4/00 Q1/01 Q2/01 Q3/01 Q4/01 Q1/02 Q2/02 Q3/02 Q4/02 -1,000 -500 0 500 1,000 1,500 2,000 2,500 3,000 Volume Cumulative Volume Volume Cumulative Contribution Total Sales Volume Total Net investment into project Break Even Point (in Time) Break Even Point (in Volume) Cumulative Sales Volume Development Total Contribution Quarterly Sales Volume Development Peak Sales Volume Total Time on the market Cumulative Contribution Development €
    14. 14. Why lifecycle calculations? PROGRAM PHASE Concept Development Production Ownership 100 50 0 Saving potential Cost commitment Percentage of Life Cycle Cost
    15. 15. Time Development cost Product cost Performance Trade-off
    16. 16. <ul><li>Statement for Business Measures </li></ul><ul><li>Balance Scorecard </li></ul><ul><li>Key Ratios </li></ul>Follow-up
    17. 17. Business Measures Provide a systematic approach for identifying, collecting and sharing holistic , yet focused strategic performance information (financial & non-financial) and for setting and communicating aligned targets derived from the critical success factors and strategic objectives to enable continuous improvement and learning . <ul><li>Focus attention </li></ul><ul><li>Drive for continuous improvement </li></ul><ul><li>Enable target setting </li></ul><ul><li>Boost strategy implementation </li></ul><ul><li>Push fact based management </li></ul>
    18. 18. Balance Scorecard Common measure definition Scorecard Measure 1 Measure 2 Measure N Business decision Business Owner Scorecard Coordination Measure Owner Measure Values
    19. 19. There is a need for multiple perspectives Is one perspective enough to describe all the dimensions well enough? Can you get a more holistic view by looking at the dimensions from multiple angles? ?
    20. 20. Examples of Key Ratios Efficiency Net Working Capital -Inventory, Receivables, Liabilities Solidity Equity Ratio Gearing Liquidity Quick ratio Current ratio Profitability Operating Profit Net Profit RONA
    21. 21. Thank you

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