Revisionon g business


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Revisionon g business

  1. 1. Business MGT Revision
  2. 2. Profit Making Business <ul><ul><li>Purpose is to optimize the shareholder return </li></ul></ul><ul><ul><li>Provide goods or services (iphone case, protector) </li></ul></ul><ul><ul><li>Maintain an operation </li></ul></ul>
  3. 3. Business Activities <ul><li>Generating Ideas </li></ul><ul><li>Raising Capital </li></ul><ul><ul><li>To buy equipment, hire and train workers, operation expenses, finance a sales transaction </li></ul></ul><ul><ul><li>Sources of funding(owner,loan,reinvestment,angel) </li></ul></ul>
  4. 4. Business Activities <ul><li>Employing and Training Personnel </li></ul><ul><li>Buy Goods and Services </li></ul><ul><li>Marketing Goods and Services </li></ul><ul><li>Maintaining Business Records </li></ul>
  5. 5. Ownership <ul><li>consideration </li></ul><ul><ul><li>In control </li></ul></ul><ul><ul><li>Make decisions </li></ul></ul><ul><ul><li>Investment </li></ul></ul><ul><ul><li>Profit distribution </li></ul></ul><ul><li>forms </li></ul><ul><ul><li>Proprietorship </li></ul></ul><ul><ul><li>Partnership </li></ul></ul><ul><ul><li>Corporation </li></ul></ul>
  6. 6. Business Entities <ul><li>HK </li></ul><ul><li>Limited-liability company (both public and private) </li></ul><ul><li>Branch/Representative Office (overseas) </li></ul><ul><li>Partnership </li></ul><ul><li>Sole Proprietorship </li></ul><ul><li>Foreign Entities (China) </li></ul><ul><li>Representative Office (RO)-image promo only </li></ul><ul><li>Business Activity </li></ul><ul><li>Wholly Foreign-owned Enterprise (WFOE) </li></ul><ul><li>Joint Venture (JV) </li></ul>
  7. 7. Business Management
  8. 8. contemporary business <ul><li>Managing the Technology Revolution </li></ul><ul><li>From Transaction Management to Relationship </li></ul><ul><li>Creating Value through Quality and Customer Satisfaction </li></ul><ul><li>Competing in a Global Market </li></ul><ul><li>Developing and Sustaining a World-Class Workforce </li></ul><ul><li>Wanted: A New Type of Manager </li></ul><ul><li>Managing Ethics and Social Responsibility </li></ul>
  9. 9. Business Planning
  10. 10. What <ul><li>A process that involves the creation of a mission or goal for a company, as well as defining the strategies that will be used to meet those goals or mission. </li></ul><ul><li>The process of business planning can be very broad, encompassing each aspect of the operation, or be focused on particular functions within the overall corporate structure . </li></ul><ul><li>utilization of resources within the company as well as engaging the services of consultants to assist in designing and implementing the plan. </li></ul>
  11. 11. When <ul><li>A new business </li></ul><ul><li>Expand </li></ul><ul><li>M&A </li></ul><ul><li>Review </li></ul>
  12. 12. Business Plan <ul><li>formal statement of a set of business goals , the reasons why they are believed attainable , and the plan for reaching those goals. It may also contain background information about the organization or team attempting to reach those goals </li></ul><ul><li>Formal Business Plan (for Fund Raising ) </li></ul><ul><li>Informal Business Plan (for Internal Use ) </li></ul>
  13. 13. Strategic Management
  14. 14. Strategic Management <ul><li>Activities </li></ul><ul><ul><li>Drafting, implementing, evaluating cross-functional decisions </li></ul></ul><ul><li>Long-term objectives </li></ul><ul><ul><li>Setting company vision and mission =Direction </li></ul></ul><ul><ul><li>Setting company objectives </li></ul></ul><ul><ul><ul><li>=Implementation </li></ul></ul></ul>
  15. 15. Strategic Management Process Scan Environment Define Mission and Objectives Formulate a Strategy Implement the Strategy Evaluate and Control Planning / Formulating Implementing
  16. 16. Strategic Management Process - Scope and Hierarchy of Strategy
  17. 17. Scan Environment <ul><ul><li>1. Internal analysis of the firm and industry </li></ul></ul><ul><ul><ul><li>Evaluates entry barriers, suppliers, customers, substitute products, industry rivalry </li></ul></ul></ul><ul><ul><ul><li>SWOT analysis </li></ul></ul></ul><ul><ul><ul><li>BCG Matrix </li></ul></ul></ul><ul><ul><li>2. External macro-environment ( PEST analysis ) </li></ul></ul>
  18. 18. Strategy Formulation <ul><li>Based on information from environment scan: </li></ul><ul><ul><li>Match its strengths to the opportunities </li></ul></ul><ul><ul><li>Address its weaknesses and external threats </li></ul></ul><ul><ul><li>Develop a competitive advantage over its rivals </li></ul></ul><ul><ul><li>Advantages: </li></ul></ul><ul><ul><ul><li>Cost </li></ul></ul></ul><ul><ul><ul><li>Differentiation </li></ul></ul></ul><ul><ul><li>Three industry-independent generic strategies </li></ul></ul><ul><ul><ul><li>Cost leadership - price </li></ul></ul></ul><ul><ul><ul><li>Differentiation - product/service </li></ul></ul></ul><ul><ul><ul><li>Focus - market </li></ul></ul></ul>
  19. 19. <ul><li>Indemnify </li></ul>Create, position, define <ul><ul><li>Procurement, </li></ul></ul><ul><ul><li>Technology Development, </li></ul></ul><ul><ul><li>Human Resource Management, </li></ul></ul><ul><ul><li>Firm Infrastructure </li></ul></ul>
  20. 20. Competitive Adv <ul><ul><li>Ability to utilize its resources effectively </li></ul></ul><ul><ul><ul><li>Market products faster than competitors </li></ul></ul></ul><ul><ul><ul><ul><li>Organization/internal adv. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Experience </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Response to the market </li></ul></ul></ul></ul>Resources Capabilities <ul><li>Competencies </li></ul><ul><li>Innovation </li></ul><ul><li>Efficiency </li></ul><ul><li>Quality </li></ul><ul><li>Customer responsiveness </li></ul><ul><ul><li>Patents and trademarks </li></ul></ul><ul><ul><li>Proprietary know-how </li></ul></ul><ul><ul><li>Installed customer base </li></ul></ul><ul><ul><li>Reputation of the firm </li></ul></ul><ul><ul><li>Brand equality </li></ul></ul>
  21. 22. Strategy Formulation Knowing Resources & Capabilities - Competencies Identify Competitive Adv Identify Where to create Values in the value Chain Matching support activities For value creation Procurement Technology HRM Firm Infrastructure Strategy Selection Focus Cost Leadership Differentiation
  22. 23. Strategy Implementation <ul><li>Means of </li></ul><ul><ul><li>Programs </li></ul></ul><ul><ul><li>Budgets </li></ul></ul><ul><ul><li>Procedures </li></ul></ul><ul><li>Organization of firm’s resources </li></ul><ul><li>Motivation of the staff </li></ul><ul><li>Successful implementation depends on who is the leadership of the program </li></ul><ul><ul><ul><li>Personal understanding of the strategy </li></ul></ul></ul><ul><ul><ul><li>Make staff understand the strategy </li></ul></ul></ul><ul><ul><ul><li>Motivate staff to do it </li></ul></ul></ul>
  23. 24. Marketing
  24. 25. Marketing Activities Summary Marketing Research Market segmentation Marketing Strategy
  25. 26. Marketing <ul><li>Marketing Functions </li></ul><ul><li>Marketing Planning </li></ul><ul><li>Market Share </li></ul><ul><li>Marketing Mix </li></ul><ul><li>Product Life Cycle </li></ul><ul><li>Product Diffusion Cycle </li></ul><ul><li>Marketing Segmentation </li></ul><ul><li>Marketing Research </li></ul>B2B/ B2C <ul><ul><li>Sales(absolute/Share (relative: </li></ul></ul><ul><ul><li>Market Share = Company's Sales / Total Market Sales </li></ul></ul><ul><ul><li>Preference/share/distribution </li></ul></ul>Intro, Growth, maturity, Decline
  26. 27. Marketing Functions Marketing Functions Promotion Product & Service Management Distribution Selling Pricing Financial Analysis Marketing Information Management
  27. 28. Marketing Mix
  28. 29. Marketing Strategy – Marketing Research (2/12) Marketing Research Process Prepare the research report Determine research design Identify data types and sources Design data collection forms and Qs Analyze and interpret the data Collect the data Determine sample plan and size Defining the Problem Management Decision
  29. 30. E Business Application
  30. 31. E-Business Models <ul><ul><li>Providing product information (customer service) </li></ul></ul><ul><ul><li>Promoting company (marketing) </li></ul></ul><ul><ul><li>Selling online (selling) </li></ul></ul><ul><ul><li>Conducting market research (marketing) </li></ul></ul><ul><ul><li>Making payments (selling) </li></ul></ul><ul><ul><li>Obtaining parts and supplies (logistics) </li></ul></ul><ul><ul><li>Tracking shipments (logistics) </li></ul></ul>
  31. 32. Types of E-Business <ul><li>E-Business Matrix </li></ul><ul><ul><li>B2B </li></ul></ul><ul><ul><ul><li>Online business transaction with parties </li></ul></ul></ul><ul><ul><ul><li>Largest and fast growing segment </li></ul></ul></ul><ul><ul><li>B2C </li></ul></ul><ul><ul><ul><li>First and most familiar model </li></ul></ul></ul><ul><ul><ul><li>Expanded sales of products in different geographic markets </li></ul></ul></ul><ul><ul><li>C2B </li></ul></ul><ul><ul><ul><li>Consumers originate online transactions through price offers to businesses </li></ul></ul></ul><ul><ul><ul><ul><li>Online bidding, e.g. priceline </li></ul></ul></ul></ul><ul><ul><li>C2C </li></ul></ul><ul><ul><ul><li>Direct dealing between consumers </li></ul></ul></ul><ul><ul><ul><li>Bargaining and auctions </li></ul></ul></ul><ul><ul><ul><ul><li>E.g. eBay </li></ul></ul></ul></ul>
  32. 33. Extended E-Business Matrix
  33. 34. Social Concern on Tech <ul><li>Employment Trends </li></ul><ul><li>Health Concerns </li></ul><ul><li>Computer Crime </li></ul><ul><li>Privacy Concerns </li></ul>
  34. 35. Business Application Systems <ul><li>ERP (Enterprise Resources Planning) </li></ul><ul><li>CRM (Customer Relationship Management) </li></ul><ul><li>SCM (Supply Chain Management) </li></ul>
  35. 36. Risk Mgt
  36. 37. <ul><li>Identifying Risks </li></ul><ul><li>Economic and Non-economic, Pure and Speculative, Controllable and Uncontrollable , Insurable and Uninsurable </li></ul><ul><li>Dealing with Risks </li></ul><ul><li>Uninsurable Risks </li></ul><ul><ul><li>Avoid </li></ul></ul><ul><ul><li>Transfer </li></ul></ul><ul><ul><li>Insure </li></ul></ul><ul><ul><li>Assume </li></ul></ul>
  37. 38. Phases of Software Development Cycle
  38. 39. Financial
  39. 40. Fin Statement <ul><li>Tells: Potential/Performance/Position </li></ul><ul><li>Balance Sheet, Income Statement (P&L), statement of retained earning, statement of cashflow </li></ul>
  40. 41. Purpose of Financial Statement <ul><li>Who need to read financial statements </li></ul><ul><ul><li>Owners/managers/stockholders </li></ul></ul><ul><ul><ul><li>Make important business decisions </li></ul></ul></ul><ul><ul><li>Prospective investors </li></ul></ul><ul><ul><ul><li>Assess the viability of investing in a business </li></ul></ul></ul><ul><ul><li>Financial institutions (banks or lenders) </li></ul></ul><ul><ul><ul><li>Decide to grant fresh capital or extend debt security to the company </li></ul></ul></ul><ul><ul><li>Government entities (tax) </li></ul></ul><ul><ul><ul><li>Ascertain the accuracy of taxes and duties </li></ul></ul></ul><ul><ul><li>Employees </li></ul></ul><ul><ul><ul><li>Make collective bargaining with the management </li></ul></ul></ul><ul><ul><li>Vendors (suppliers) </li></ul></ul><ul><ul><ul><li>Consider to extend credit to a business </li></ul></ul></ul><ul><ul><li>Media and the General Public </li></ul></ul><ul><ul><ul><li>News, investment, research, personal interest </li></ul></ul></ul>
  41. 42. Information for Financial Statement – Financial Records <ul><li>Asset Records </li></ul><ul><ul><li>Buildings, equipment owned by the business </li></ul></ul><ul><ul><li>Original value, current value, mortgage, loan </li></ul></ul><ul><li>Depreciation Records </li></ul><ul><ul><li>Assets have decreased in value due to their age and use </li></ul></ul><ul><ul><li>E.g. production line, survey equipment </li></ul></ul><ul><li>Inventory Records </li></ul><ul><ul><li>Type and number of products on hand for sale </li></ul></ul><ul><ul><li>Records of product sold, damaged, returned, lost </li></ul></ul><ul><ul><li>Current value of inventory (likely to decease in value ) </li></ul></ul><ul><li>Records of accounts </li></ul><ul><ul><li>All purchases and sales made using credit </li></ul></ul><ul><ul><li>Accounts payable records – credit purchases </li></ul></ul><ul><ul><li>Account receivable records – credit purchases by customers, status of each account </li></ul></ul>
  42. 43. Information for Financial Statement – Financial Records <ul><li>Cash records </li></ul><ul><ul><li>List all cash received and spent by the business </li></ul></ul><ul><li>Payroll records </li></ul><ul><ul><li>Information on all employees of the company, their compensation, and benefits </li></ul></ul><ul><li>Tax records </li></ul><ul><ul><li>All taxes collected, owed and paid </li></ul></ul><ul><ul><li>MPF, ORSO contribution </li></ul></ul><ul><ul><li>Withheld Employees’ salaries for income tax (not for HK) </li></ul></ul>
  43. 44. Information for Financial Statement – Balance Sheet <ul><li>A report of company’s assets, liabilities and owner’s equity on the date the balance sheet is prepared </li></ul>
  44. 45. Information for Financial Statement – Balance Sheet <ul><li>Assets: </li></ul><ul><ul><li>Anything of value owned by the business </li></ul></ul><ul><ul><li>Current Assets: </li></ul></ul><ul><ul><ul><li>Cash, items that can be readily converted to cash such as inventory and account receivable </li></ul></ul></ul><ul><ul><li>Long-term assets (fixed assets) </li></ul></ul><ul><ul><ul><li>Assets with a lifespan of more than (xx years) </li></ul></ul></ul><ul><ul><ul><li>Common fixed assets such as land, buildings, equipment, expensive technology </li></ul></ul></ul>
  45. 46. Information for Financial Statement – Balance Sheet <ul><li>Liabilities : </li></ul><ul><ul><li>Amounts owned by the business to others </li></ul></ul><ul><ul><li>Current liabilities: </li></ul></ul><ul><ul><ul><li>Will be paid within a year ( short term period ) </li></ul></ul></ul><ul><ul><ul><li>Payments owned to banks (short-term loans), payments to suppliers </li></ul></ul></ul><ul><ul><li>Long-term liabilities </li></ul></ul><ul><ul><ul><li>debts owned for land, buildings, expensive equipment </li></ul></ul></ul>
  46. 47. Information for Financial Statement – Balance Sheet <ul><li>Owner’s equity </li></ul><ul><ul><li>Value of business after liabilities are subtracted </li></ul></ul><ul><ul><li>Show how much the business is worth </li></ul></ul><ul><ul><li>Investment from the owner </li></ul></ul>Owner's Equity = Assets - Liabilities
  47. 48. Information for Financial Statement – Income Statement (P & L) <ul><li>A report of company’s revenue, expenses, and net income or loss from operations for a specific period </li></ul>
  48. 49. Information for Financial Statement – Income Statement (P & L) <ul><li>Revenue: </li></ul><ul><ul><li>All income received by the business during the period </li></ul></ul><ul><ul><li>Source of Income </li></ul></ul><ul><ul><ul><li>Sale of products & services </li></ul></ul></ul><ul><ul><ul><li>Interest earned from investments </li></ul></ul></ul><ul><li>Expenses: </li></ul><ul><ul><li>All of the costs of operating the business during the period </li></ul></ul><ul><ul><li>Expenses include </li></ul></ul><ul><ul><ul><li>Rent, supplies, inventory, payroll, utilities </li></ul></ul></ul>
  49. 50. Information for Financial Statement – Income Statement (P & L) <ul><li>Net Income: </li></ul><ul><ul><li>Revenue is greater than expenses </li></ul></ul><ul><li>Net Loss: </li></ul><ul><ul><li>Expenses are greater than income </li></ul></ul>
  50. 51. Information for Financial Statement – Cash flows <ul><li>Difference between the number of dollars (in) and the number that (out) </li></ul><ul><li>Cash flow from assets = cash flow to credits + cash flow to stockholders </li></ul>
  51. 52. Information for Financial Statement – Cash flows <ul><li>Cash flow from assets: </li></ul><ul><ul><li>Operating cash flow </li></ul></ul><ul><ul><li>Capital spending </li></ul></ul><ul><ul><li>Change in net working capital </li></ul></ul><ul><li>Operating cash flow </li></ul><ul><ul><li>Cash flow that results from the company’s day-to-day activities of producing and selling </li></ul></ul><ul><li>Capital spending </li></ul><ul><ul><li>Net spending on fixed assets </li></ul></ul><ul><li>Change in net working capital </li></ul><ul><ul><li>Measured as the net change in current assets relative to current liabilities for the period </li></ul></ul>
  52. 53. Information for Financial Statement – Cash flows <ul><li>Operating cash flow </li></ul><ul><ul><li>Calculate revenues minus costs </li></ul></ul><ul><ul><li>But not include depreciation (not cash outflow), interest (financial expense) </li></ul></ul><ul><ul><li>But include tax (paid in cash) </li></ul></ul><ul><ul><li>Let you know if the cash generated from business is sufficient to fund everyday cash outflows (operation) </li></ul></ul><ul><ul><li>Negative operating cash flow </li></ul></ul><ul><ul><ul><li>A sign of trouble </li></ul></ul></ul><ul><ul><ul><li>Capital injection may be required </li></ul></ul></ul>
  53. 54. Information for Financial Statement – Cash flows <ul><li>Capital Spending (CAPEX) </li></ul><ul><ul><li>Net Capital = money spent on fixed assets – </li></ul></ul><ul><ul><ul><li> money received from the sale of fixed assets </li></ul></ul></ul><ul><li>Change in Net Working Capital </li></ul><ul><ul><li>Investment in current assets </li></ul></ul><ul><ul><li>Difference between the beginning and ending net working capital </li></ul></ul>
  54. 55. Usage of Financial Statement - Management <ul><li>Review business performance for a certain period </li></ul><ul><li>Use to compare business performance of the current period with the performance of last month or last year </li></ul><ul><li>Assets increase and liabilities decrease </li></ul><ul><ul><li>Better financial position </li></ul></ul><ul><li>Rapid rise in liabilities or decline in owner’s equity </li></ul><ul><ul><li>Raise concern </li></ul></ul><ul><li>Net income increases </li></ul><ul><ul><li>Try to maintain and continue to improve </li></ul></ul><ul><li>Expense increases but revenue is not </li></ul><ul><ul><li>Need to determine the reasons for the problem and make changes </li></ul></ul><ul><li>Business performance is no better than similar business </li></ul><ul><ul><li>Lower sales </li></ul></ul><ul><ul><li>Higher expenses </li></ul></ul>
  55. 56. Understanding Financial Performance Ratios <ul><li>Financial performance ratios </li></ul><ul><ul><li>Comparisons of a company’s financial elements that indicates how well the business is performing </li></ul></ul><ul><ul><li>provide indicators of past performance in terms of critical success factors of a business </li></ul></ul><ul><li>Ratio Analysis </li></ul><ul><ul><li>A ratio on its own has little or no meaning at all. </li></ul></ul>
  56. 57. Understanding Financial Performance Ratios <ul><li>Types of Ratios </li></ul><ul><ul><li>Liquidity Ratios </li></ul></ul><ul><ul><li>Asset Management / Activity Ratios </li></ul></ul><ul><ul><li>Financial Leverage (Gearing) Ratios </li></ul></ul><ul><ul><li>Profitability Ratios </li></ul></ul><ul><ul><li>Market Value Ratio </li></ul></ul>
  57. 58. Understanding Financial Performance Ratios <ul><li>Significance of Using Ratios: </li></ul><ul><ul><li>It is compared with other ratios in the same set of financial statements. </li></ul></ul><ul><ul><li>It is compared with the same ratio in previous financial statements (trend analysis). </li></ul></ul><ul><ul><li>It is compared with a standard of performance (industry average ). Such a standard may be either the ratio which represents the typical performance of the trade or industry, or the ratio which represents the target set by management as desirable for the business. </li></ul></ul>
  58. 59. Understanding Financial Performance Ratios <ul><li>Liquidity Ratios: </li></ul><ul><ul><li>Liquidity refers to the ability of a firm to meet its short-term financial obligations </li></ul></ul><ul><ul><li>liquidity ratio is to measure the ability of the firms to meet their short-term maturing obligations </li></ul></ul><ul><ul><li>Failure will result in the total failure of the business – liquidation </li></ul></ul><ul><ul><li>Current Ratio </li></ul></ul><ul><ul><li>Quick Ratio </li></ul></ul>
  59. 60. Understanding Financial Performance Ratios <ul><li>Current Ratio </li></ul><ul><ul><li>Current Assets </li></ul></ul><ul><ul><li>Current Liabilities </li></ul></ul><ul><ul><li>Current Assets: cash, marketable securities, account receivable and inventories </li></ul></ul><ul><ul><li>Current Liabilities: account payable, short term notes payable, short-term loans, current maturities of long term debt, accrued income taxes and other accrued expenses (wages) </li></ul></ul><ul><ul><li>Current ratio = </li></ul></ul><ul><ul><ul><li>1:1 : Just sufficient to pay short term debts </li></ul></ul></ul><ul><ul><ul><li>2:1 : Healthy business (rule of thumb) </li></ul></ul></ul><ul><ul><ul><li>Less than 1:1 : unable to support long term debt </li></ul></ul></ul><ul><ul><ul><li>Much larger than 1: 1: ??? </li></ul></ul></ul>
  60. 61. Understanding Financial Performance Ratios <ul><li>Quick Ratio </li></ul><ul><ul><li>Quick Assets </li></ul></ul><ul><ul><li>Current Liabilities </li></ul></ul><ul><ul><li>Quick Assets: Easily convertible current assets such cash, marketable securities, account receivable </li></ul></ul><ul><ul><li>Current Liabilities: account payable, short term notes payable, short-term loans, current maturities of long term debt, accrued income taxes and other accrued expenses (wages) </li></ul></ul><ul><ul><li>Examines the ability of the business to cover its short-term obligations from its quick assets only </li></ul></ul><ul><ul><li>Quick ratio < Current ratio </li></ul></ul><ul><ul><li>Difference between Quick vs Current: Stock (Inventory ) </li></ul></ul>
  61. 62. Understanding Financial Performance Ratios <ul><li>Asset Management/Activity Ratios: </li></ul><ul><ul><li>Measure the effective utilization of assets for business </li></ul></ul><ul><ul><li>High ratio: high turnover </li></ul></ul><ul><ul><li>Activity ratios use to assess how active various assets are in the business </li></ul></ul><ul><ul><li>Inventory Turnover </li></ul></ul><ul><ul><li>Total Assets Turnover </li></ul></ul><ul><ul><li>Fixed Asset Turnover </li></ul></ul>
  62. 63. Understanding Financial Performance Ratios <ul><li>Inventory Turnover </li></ul><ul><ul><li>Measures the stock in relation to turnover </li></ul></ul><ul><ul><ul><li>stock turns over in the business </li></ul></ul></ul><ul><ul><li>Indicates the efficiency of the firm in selling its product </li></ul></ul><ul><ul><li>High stock turnover suggests that the business deals in fast moving consumer goods </li></ul></ul><ul><ul><li>If trend shows a marginal increase in days  slow down of stock turnover </li></ul></ul><ul><ul><li>The high stock turnover ratio  little chance of the firm holding damaged or obsolete stock </li></ul></ul>Inventory turnover = Sales Average inventory Average Inventory or Stock Period = Average stock X 365 days Sales or COGS
  63. 64. Understanding Financial Performance Ratios <ul><li>Total Assets Turnover </li></ul><ul><ul><li>Total Assets: all assets of a company </li></ul></ul><ul><ul><li>Measures the efficiency with which the company uses all its assets to generate sales </li></ul></ul><ul><ul><li>Manage its assets efficiently to maximise sales </li></ul></ul><ul><ul><li>Higher the total asset turnover  more efficiently its assets have been utilized </li></ul></ul>Total Asset Turnover = Sales Total Assets
  64. 65. Understanding Financial Performance Ratios <ul><li>Fixed Assets Turnover (preferred) </li></ul><ul><ul><li>Net Fixed Assets : all assets of a company for producing sales or services, e.g ., equipment </li></ul></ul><ul><ul><li>Measures the efficiency with which the company uses its fixed assets to generate sales </li></ul></ul><ul><ul><li>Higher the fixed asset turnover  more efficiently its assets have been utilized </li></ul></ul>Fixed-asset Turnover = Sales Net fixed assets
  65. 66. Understanding Financial Performance Ratios <ul><li>Financial Leverage (Gearing) Ratios: </li></ul><ul><ul><li>Indicate the degree to which the activities of a firm are supported by creditors </li></ul></ul><ul><ul><li>Good indicator of financial strength </li></ul></ul><ul><ul><li>Greater the proportion of equity funds, greater the degree of financial strength </li></ul></ul><ul><ul><li>Identify the financial strength and risk of the business </li></ul></ul><ul><ul><li>Equity Ratio </li></ul></ul><ul><ul><li>Debt Ratio </li></ul></ul><ul><ul><li>Debt to Equity Ratio </li></ul></ul><ul><ul><li>Times Interest Earned Ratio </li></ul></ul>
  66. 67. Understanding Financial Performance Ratios <ul><li>Equity Ratio </li></ul><ul><ul><li>Shareholder’s interest: excluding financing (debt) </li></ul></ul><ul><ul><li>High equity ratio reflects a strong financial structure of the company </li></ul></ul><ul><ul><li>Relatively low equity ratio reflects a more speculative situation </li></ul></ul><ul><ul><ul><li>High leverage </li></ul></ul></ul><ul><ul><ul><li>Greater possibility of financial difficulty from excessive debt burden </li></ul></ul></ul>Equity Ratio = Ordinary Shareholder’s Interest X 100% Total Assets
  67. 68. Understanding Financial Performance Ratios <ul><li>Debt Ratio </li></ul><ul><ul><li>High debt ratio reflects a very small cushion for creditors </li></ul></ul><ul><ul><li>Difficult to raise additional funds from external sources </li></ul></ul>Debt Ratio = Total Debt X 100% Total Assets
  68. 69. Understanding Financial Performance Ratios <ul><li>Debt to Equity Ratio </li></ul><ul><ul><li>Indicates the extent to which debt is covered by shareholders’ funds </li></ul></ul><ul><ul><li>Reflects the relative position of the equity holders and the lenders </li></ul></ul><ul><ul><li>2.12: 1 indicates that for 1 dollar of shareholders funds, there is a 2.12 dollars of debt </li></ul></ul>Debt to Equity Ratio = Total Debt Total Equity
  69. 70. Understanding Financial Performance Ratios <ul><li>Times Interest Earned Ratio </li></ul><ul><ul><li>Measure the extent to which earnings can decline without causing financial losses to the company </li></ul></ul><ul><ul><li>Ability to meet the interest cost </li></ul></ul><ul><ul><li>Ratio shows how many times the business can pay its interest bills from profit earned </li></ul></ul><ul><ul><li>Indicates the interest payment ability for bondholders </li></ul></ul><ul><ul><li>Indicates the ability of the business to service fixed interest charges </li></ul></ul>Times interest earned = Earnings Before Interest and Tax (EDIT) Interest Changes
  70. 71. Understanding Financial Performance Ratios <ul><li>Profitability Ratios: </li></ul><ul><ul><li>Indicate the ability of a business to earn profit over a period of time </li></ul></ul><ul><ul><li>Profits are essential, but not all aimed at maximising profits, irrespective of social consequences </li></ul></ul><ul><ul><li>Profitability ratios show the combined effects of liquidity, asset management (activity) and debt management (gearing) on operating results </li></ul></ul><ul><ul><li>Gross Profit Margin </li></ul></ul><ul><ul><li>Net Profit Margin </li></ul></ul><ul><ul><li>Return on Investment (ROI) </li></ul></ul><ul><ul><li>Return on Equity (ROE) </li></ul></ul><ul><ul><li>Earning Per Share (EPS) </li></ul></ul>
  71. 72. Understanding Financial Performance Ratios <ul><li>Gross Profit Margin </li></ul><ul><ul><li>Gross Profit rises in proportion with Sales </li></ul></ul><ul><ul><li>Should compare the Gross Profit with similar businesses </li></ul></ul><ul><ul><ul><li>Indicating the performance of inbound logistics (sourcing), production (wastage) </li></ul></ul></ul><ul><ul><li>Increase in GP Margin indicates the rate in increase in cost of goods sold are less than rate of increase in sales (efficiency) </li></ul></ul>Gross Profit Margin = Sales – Cost of Sales X 100% Sales
  72. 73. Understanding Financial Performance Ratios <ul><li>Net Profit Margin </li></ul><ul><ul><li>Measure of company performance and its comparable across companies in similar industries </li></ul></ul><ul><ul><li>Low margin may not be a problem </li></ul></ul><ul><ul><ul><li>Market norm </li></ul></ul></ul><ul><ul><ul><li>E.g. supermarket (large turnover, small margin) </li></ul></ul></ul><ul><ul><li>Trend is to be observed </li></ul></ul><ul><ul><li>Changes over different period, changes over market norm </li></ul></ul>Net Profit Margin = After Tax Earnings X 100% Sales
  73. 74. <ul><li>Return on Investment (ROI) </li></ul><ul><ul><li>Indicates the efficiency of production  imply profitability </li></ul></ul><ul><ul><li>Indicates the management’s ability  for utilizing the equity to make profit </li></ul></ul><ul><ul><li>Increase in ROI, implies than a higher return for investors </li></ul></ul><ul><ul><li>Investors use this an indicator for making their investment decision </li></ul></ul><ul><ul><ul><li>Seek for high return with the same investment </li></ul></ul></ul>ROI = After Tax Earnings X 100% Total Assets
  74. 75. <ul><li>Return on Equity (ROE) </li></ul><ul><ul><li>Shows profit attributable to the amount invested by the owners of the business </li></ul></ul><ul><ul><li>Excluding the financing </li></ul></ul>ROE = After Tax Earnings X 100% Stockholders’ equity
  75. 76. <ul><li>Earning Per Share (EPS) </li></ul><ul><ul><li>EPS is for the shareholders ’ interest in knowing the performance of company </li></ul></ul><ul><ul><li>It is used to determine the dividend amount and ratio for the reporting period </li></ul></ul>EPS = Net Income after Tax – Preference Dividend X 100% Number of Issued Ordinary Share
  76. 77. <ul><li>Market Value Ratios: </li></ul><ul><ul><li>Indicate the relationship of the firm’s share price to dividends and earnings </li></ul></ul><ul><ul><li>Market value ratios are strong indicators of what investors think of the firm’s past performance and future prospects </li></ul></ul><ul><ul><li>Use for evaluating listed companies with market value </li></ul></ul><ul><ul><li>Dividend Yield Ratio </li></ul></ul><ul><ul><li>Price/Earning Ratio (P/E Ratio) </li></ul></ul><ul><ul><li>Dividend Cover </li></ul></ul><ul><ul><li>Dividend Pay-out Ratio </li></ul></ul>
  77. 78. Understanding Financial Performance Ratios <ul><li>Dividend Yield Ratio </li></ul><ul><ul><li>Indicates the return that investors are obtaining on their investment in the form of dividends </li></ul></ul><ul><ul><li>A strong relationship between dividend yields and market prices </li></ul></ul><ul><ul><ul><li>Some investment funds invest in high dividend stocks </li></ul></ul></ul><ul><ul><li>Very high dividend yields signals potential financial difficulties </li></ul></ul>Dividend Yield = Dividends per share Stock Price Dividend per share = Total dividend Number of shares outstanding
  78. 79. Understanding Financial Performance Ratios <ul><li>Price/Earning Ratio (P/E ratio) </li></ul><ul><ul><li>Indicates of what premium or discount investors are prepared to pay or receive for the investment </li></ul></ul><ul><ul><li>Higher P/E ratio indicates the higher the premium an investor is prepared to pay </li></ul></ul><ul><ul><li>Also indicates the potential strong growth and earnings of the share as perceived by investors </li></ul></ul>P/E Ratio = Market Price per share Current earnings per share
  79. 80. Understanding Financial Performance Ratios <ul><li>Dividend Cover </li></ul><ul><ul><li>Measures the extend of earnings that are being paid out in the form of dividends </li></ul></ul><ul><ul><li>Higher cover indicates a larger percentage of earnings are being retained and re-invested in the business </li></ul></ul>Dividend Cover (times) = Earning per Share Dividends per Share
  80. 81. <ul><li>Dividend Pay-out Ratio </li></ul><ul><ul><li>Indicates of the dividend payment in relation to net income </li></ul></ul>Dividend Payout Ratio = Dividends per share X 100% Earnings per share
  81. 82. Limitations of Ratio Analysis <ul><li>Only an epoch of performance but cannot tell how good the business is doing in comparing with: </li></ul><ul><ul><li>the previous performance in the same period </li></ul></ul><ul><ul><li>The performance of competitors and industrial norm </li></ul></ul><ul><li>History data that cannot be used to project current business performance </li></ul><ul><li>Rely on the raw business data to derive the ratio </li></ul><ul><ul><li>Accuracy </li></ul></ul><ul><ul><li>Reliability </li></ul></ul><ul><ul><li>Assumption </li></ul></ul><ul><li>Single ratio cannot tell if the business is healthy or not </li></ul><ul><li>Poor ratio may not be a good indicator of the company’s performance in the market versa vice </li></ul>
  82. 83. Income Statement (P & L) - example
  83. 84. Balance Sheet - example
  84. 85. Balance Sheet - example
  85. 86. Balance Sheet - example
  86. 87. Definition of Project <ul><li>Project is considered to be one having the following characteristics :- </li></ul><ul><ul><li>it has to produce a set of products to meet the business needs ; </li></ul></ul><ul><ul><li>it requires a corresponding set of activities to construct the required products; </li></ul></ul><ul><ul><li>it needs certain amount of resources to carry out the activities; </li></ul></ul><ul><ul><li>it has a finite life-span ; </li></ul></ul><ul><ul><li>it runs under an organisation structure with properly defined responsibilities; and </li></ul></ul><ul><ul><li>it is a temporary structure , created to achieve a specified </li></ul></ul>
  87. 88. Items to be Managed <ul><li>Functions – scope of work </li></ul><ul><li>Time - schedule </li></ul><ul><li>Resources – cost related </li></ul><ul><li>Quality - deliverable </li></ul><ul><li>Risk – all of the above </li></ul><ul><li>These items are inter-related and a balance is to be struck to optimise these factors properly under a project environment . </li></ul>
  88. 89. PRINCE ( Pr ojects in C ontrolled E nvironments) <ul><li>Project Definition under PRINCE: </li></ul><ul><ul><li>A series of management stages without overlap </li></ul></ul><ul><ul><li>Focus on the products to be produced </li></ul></ul><ul><ul><li>Different levels of plan are used </li></ul></ul><ul><ul><li>Defines control mechanism on </li></ul></ul><ul><ul><ul><li>Progress </li></ul></ul></ul><ul><ul><ul><li>Resources </li></ul></ul></ul><ul><ul><ul><li>Quality </li></ul></ul></ul><ul><ul><ul><li>Risks </li></ul></ul></ul><ul><ul><ul><li>Product delivery </li></ul></ul></ul>
  89. 90. Benefits of PRINCE <ul><li>The project organisation encourages user participation at all levels . </li></ul><ul><li>The planning and control mechanisms are tailored and structured to one another . </li></ul><ul><li>The end-product orientation facilitates better estimating, planning and control. </li></ul><ul><li>The stage concept provides the basis for conscious management control. </li></ul><ul><li>Quality is planned, controlled and assured from the outset of the project. </li></ul><ul><li>Procedures provide a good vehicle for encouraging the right people to make the right decisions at the right time. </li></ul>
  90. 91. Principles and Techniques used in PRINCE <ul><li>Project Organization al Structure </li></ul><ul><li>Product-based Planning </li></ul><ul><li>Project Control Mechanisms </li></ul>
  91. 92. Project Organization <ul><li>Project Organization </li></ul><ul><ul><li>Two Principles: </li></ul></ul><ul><ul><ul><li>A project is a joint responsibility of users, supplier and customer </li></ul></ul></ul><ul><ul><ul><li>A project has a distinct nature and demands a special structure to manage it as opposite to normal line management activities </li></ul></ul></ul>
  92. 93. Project Organization <ul><li>PSC - oversees overall project management </li></ul><ul><li>PM - performs day to day management; </li></ul><ul><li>TM - oversees the production of end products (Optional); </li></ul><ul><li>Project Assurance delegated by PSC assures the quality of end-products. </li></ul>Project Organization
  93. 94. Project Organization - PSC <ul><li>Project Steering Committee has the ultimate responsibility for the project. It is responsible for assurance that the project remains on course to deliver products of the required quality to meet the Business Case as defined in the Project Initiation Documents. </li></ul>Executive - represents the interest of the overall business of the organization - provides overall departmental guidance and assessment throughout the project development cycle Senior User - represents the users of the system (product); Senior Technical - represents developer(s) or procurers, the resources which will deliver the technical products of the project.
  94. 95. Project Organization – Project Assurance <ul><li>PSC’s responsibility to monitor all aspects of the project’s performance and products independent of PM </li></ul><ul><li>Areas to be assured: </li></ul><ul><ul><li>viability of the Business Case </li></ul></ul><ul><ul><li>effectiveness and usability of the solution </li></ul></ul><ul><ul><li>feasibility of technical solution </li></ul></ul><ul><ul><li>compliance to organisational and business strategy </li></ul></ul><ul><ul><li>Security </li></ul></ul><ul><ul><li>Users will normally take up project assurance regarding the Business and the User’s interest while officers from OGCIO or the Supplier may take up project assurance regarding Technical interest . </li></ul></ul>
  95. 96. Project Organization – PM & TM <ul><li>Project Manager – </li></ul><ul><ul><li>all team members to report to, </li></ul></ul><ul><ul><li>is responsible for the timely production of all end-products </li></ul></ul><ul><ul><ul><li>agreed quality standards </li></ul></ul></ul><ul><ul><ul><li>within the tolerances of time set by the PSC </li></ul></ul></ul><ul><ul><ul><li>and cost set by the PSC </li></ul></ul></ul><ul><li>Team Manager (TM) - who possessing specialised skills and knowledge, to manage the team to produce some products. </li></ul><ul><ul><li>Authority delegated by PM for the beneficiary of the project </li></ul></ul>
  96. 97. Planning <ul><li>Product-Based Planning </li></ul><ul><ul><li>Focusing on goals not the process </li></ul></ul><ul><ul><li>All products required can be identified and described before development </li></ul></ul><ul><li>Staging </li></ul><ul><ul><li>Not overlapping stages </li></ul></ul><ul><ul><li>facilitate project mgnt and control </li></ul></ul><ul><ul><li>Checkpoints to assess progress </li></ul></ul>
  97. 98. Planning - Staging <ul><li>Benefits of breaking a project into stages includes: </li></ul><ul><ul><li>it allows management to assess the project progress by discrete packages of work for review at management checkpoints (stage start/end); </li></ul></ul><ul><ul><li>it encourages a re-appraisal of the Business Case at stage start/end; and </li></ul></ul><ul><ul><li>it requires detailed estimates be produced immediately prior to the commencement of each stage enabling more realistic estimating and monitoring. </li></ul></ul>
  98. 99. Planning - Staging <ul><li>Project Assessment on each stage by PSC to decide go or not go : </li></ul><ul><ul><li>Requirements </li></ul></ul><ul><ul><ul><li>the start and finish dates of the stage; </li></ul></ul></ul><ul><ul><ul><li>the end-products to be produced; and </li></ul></ul></ul><ul><ul><ul><li>all of the resources needed to produce the end-products. </li></ul></ul></ul>
  99. 100. Planning - Staging <ul><li>The number of stages for a project is a PSC decision reflecting the level of management time to be spent to maintain control </li></ul><ul><ul><li>Stage breaks may be set at checkpoints: </li></ul></ul><ul><ul><ul><li>Upon the completion of major end-products (any stage boundary should not divide a major end-product); </li></ul></ul></ul><ul><ul><ul><li>Where decisions have to be made about the ongoing viability of the project ; and </li></ul></ul></ul><ul><ul><ul><li>At parts of the project, which are the most critical, where visible tight control is necessary . </li></ul></ul></ul>
  100. 101. Planning - Plans <ul><li>Plans provide information as the basis for decision-making and control </li></ul><ul><li>PRINCE provides a structured set of technical and resource plans to achieve effective technical and managerial control of a project. </li></ul>
  101. 102. Planning - Plans <ul><li>Plans may be classified by levels (project or stage) or by plan types (technical or resources) </li></ul><ul><ul><li>By Levels </li></ul></ul><ul><ul><ul><li>Project Plan </li></ul></ul></ul><ul><ul><ul><ul><li>Progressive monitoring </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Identify major activities, end-products, major resources requirements, total costs </li></ul></ul></ul></ul><ul><ul><ul><li>Stage Plan </li></ul></ul></ul><ul><ul><ul><ul><li>Work responsible by the involved parties </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Details required for day-to-day control by PM </li></ul></ul></ul></ul><ul><ul><li>By Plan Types </li></ul></ul><ul><ul><ul><li>Technical Plan (a bar chart or Gantt Chart) </li></ul></ul></ul><ul><ul><ul><ul><li>Identify the sequence of events, timeline, responsibilities, end-products </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Project Technical Plan: mandatory for all projects, identify major control points with the project </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Stage Technical Plan: for each stage, show all products and technical activities within the stage in greater details </li></ul></ul></ul></ul><ul><ul><ul><li>Resources Plan </li></ul></ul></ul><ul><ul><ul><ul><li>Identify type, amount and period of use of the various resources required </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Project Resource Plan: mandatory for all projects </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Stage Resource Plan: may not require </li></ul></ul></ul></ul>
  102. 103. Planning - Plans
  103. 104. Control <ul><li>Management by Exception </li></ul><ul><li>Quality Control </li></ul><ul><li>Control Meetings </li></ul><ul><li>Management of Risk </li></ul><ul><li>Configuration Management </li></ul>
  104. 105. Control – Management by Exception <ul><li>When project exceeds the time and resource tolerances allocated to the PM by PSC </li></ul><ul><ul><li>PM should report the problem and recommend recovery action to the PSC </li></ul></ul><ul><li>Keep the PSC resource to min but still can maintain the overall control of the project </li></ul><ul><li>“ Tolerance Setting ” technique is used: </li></ul><ul><ul><li>Amount of tolerance allotted on any one stage: </li></ul></ul><ul><ul><ul><li>In the light of the plans </li></ul></ul></ul><ul><ul><ul><li>Degree of risk </li></ul></ul></ul><ul><ul><ul><li>Criticality of that stage </li></ul></ul></ul><ul><ul><ul><li>Experience of the PM </li></ul></ul></ul>
  105. 106. Control – Quality Control <ul><li>Part of PRINCE methodology </li></ul><ul><ul><li>Control the quality of the product in addition to Time and budget </li></ul></ul><ul><li>Based on Quality Plan </li></ul><ul><ul><li>included in the Project Initiation Document (PID) for outlining the overall Quality Expectation and Control of the project </li></ul></ul><ul><ul><li>Personnel on Project Assurance may be involved in reviewing the quality of products (quality review) </li></ul></ul><ul><li>Quality Review is a quality control technique applied to supplied the Quality Control Principles </li></ul><ul><ul><li>Review based on the Product Description on PID </li></ul></ul><ul><ul><li>Product Description contains Quality Criteria and Quality Checking Method </li></ul></ul>
  106. 107. Control – Control Meetings <ul><li>Two Levels of Meetings </li></ul><ul><ul><li>By the PSC at formal assessment meetings </li></ul></ul><ul><ul><li>By the PM/TM at Checkpoint meetings/reviews </li></ul></ul><ul><li>PSC Meetings: </li></ul><ul><ul><li>Only held when there is good reason for doing </li></ul></ul><ul><ul><li>Well planned, well structured </li></ul></ul><ul><ul><li>Triggered by events rather than by time or progress </li></ul></ul><ul><ul><li>Key meetings: Project Initiation Meeting, End-stage Assessment Meetings, Project Closure Meeting </li></ul></ul>
  107. 108. Control – Management of Risk <ul><li>PM responsible to ensure that risks are identified, recorded and regularly reviewed </li></ul><ul><li>PSC responsible for: </li></ul><ul><ul><li>Notify PM of any external risk exposure to the project </li></ul></ul><ul><ul><li>Make decision on PM’s recommended reactions to risk </li></ul></ul><ul><li>Risk Log is used by the PM to record and keep track of identified risks </li></ul>
  108. 109. <ul><li>CM is to achieve a controlled and traceable product changes towards production </li></ul><ul><li>PSC is responsible for </li></ul><ul><ul><li>Endorsing the CM Plan </li></ul></ul><ul><ul><li>Overseeing all the CM activities </li></ul></ul><ul><li>PM is authorized to handle Change Requests – with the tolerance </li></ul><ul><li>PSC or personal on project assurance is responsible for assessing Change Requests by conducting impact analysis from the views of business, technical or users </li></ul>
  109. 110. Project Management <ul><li>Reading information: </li></ul><ul><ul><li>G39_pub.pdf – User Guide on Project Management, OGCIO, The Government of the Hong Kong Special Administrative Region </li></ul></ul><ul><ul><ul><li>Except for Session 7: Project Activities </li></ul></ul></ul><ul><ul><li>Review of Software Project Development Cycle </li></ul></ul><ul><ul><li> </li></ul></ul>