2. VALUE
• Company’s Accountant: based on cost
• Customer: perceived benefit gained from a
product/service compared with the cost of
purchase
• Shareholder: determined by the best alternative
use of a given investment; greatest where the
return on investment is highest
3. Shareholder Value
• Shareholder gets better return by investing in your
business than from a comparable investment
• comparable investment - similar level of risk
• Superior share value - must have a competitive
advantage
• ROI - important measure that is widely used to assess
shareholder value
4. Shareholder Value
• Shareholder value - to end the year with a lot
more money than at the start
✔ profitable trading
✔ improving the productivity of capital
5. Return on investment (ROI)
• Measured as profit before interest and tax as a
percentage of capital employed:
% ROI = 100 x Profit / Capital employed
• “investment” - capital employed is equivalent to the
money invested in the business
• ROI: outcome of profitability and asset utilization:
6. ROI
• Working Capital - combination of inventory, cash
and debtors less creditors
• Inventory - a major asset in many businesses
- buffer uncertainty of supply and
demand
- permit immediate availability when
replenishment times are too lengthy
- hindrance rather than a help: it ties up
cash
• Cash and debtors - to make the time between
receipt of customer order and receipt of
the cash as short as possible
7. ROI
• Creditor – suppliers; lengthy payment terms -
suppliers factor in the credit terms to their
prices,
and their own balance sheets become
Saddled with debt.
• Fixed assets - value-generating assets of a
business that form the focus of supply chain
management are a heavy drain on capital
(manufacturing facilities, transport and
distribution, etc.) PPEs
9. Financial ratios
• Essential when formulating an organization's supply chain strategy;
• Based on historical information;
• Advantages:
1. a benchmark for comparing one organization with another;
2. used as a comparator for a particular industrial sector;
3. used to track past performance;
4. a motivator for setting performance targets;
5. an early warning indicator if the organization's
performance starts to decline.
11. - Direct Costs
expenses that are directly
linked to the goods or services a
business sells
- Reveal raw performance.
- Using its assets to make money;
- Value of its inventory and the length of time
it takes to collect accounts receivable;
- Efficiency.
12. Reductions in working capital will have a beneficial effect on
an organization's RO
Inventory
reductions
Profitability Capital
*Reduced Costs *Increased asset utilization
Editor's Notes
Resources for inventory and became obsolete
key determinants for increasing ROI and hence shareholder value
fixed asset turnover ratio reveals how efficient a company is at generating sales from its existing fixed assets
