Controlling in the Wood Products Industry

Transkript

1 Controlling in the Wood Products Industry SS 2016 Albert Sickl

2 Take aways from Module 1 FROM BEAN COUNTER TO BUSINESS PARTNER Two basic responsibilities Management Service responsibility (before the fact or anticipatory) Financial Reporting & Internal Control responsibility (after the fact or reactive) Four types of controller roles Involved controller Independent controller Split controller Strong controller Service function & Leadership & Interpersonal relationship with management expected from (strong) Controllers Managers have to accept and cooperate with the Controller 2

3 Basic Tools Financial Concepts: Efficiency in value creation (ROCE > WACC) Strength to cope with uncertainty (D/E, Equity ratio) Ability to reward stakeholders (Cash) MUST: Ability to cope with all three dimensions 3

4 Basic Tools The magic triangle regarding the financial body: Profit & Loss Statement ( the muscles) KPIs Balance Sheet ( the bones) Cash Flow ( the blood) 4

5 Basic Tools Income Statement or P&L One of the major financial statements beside Balance Sheet and Cash Flow Statement. Muscles of the financial body. Shows the profitability of a company during a PERIODE of time. It does not show cash receipts (money you receive) nor cash disbursements (money you pay out). The profit-&loss statement measures profitability, not cash flow! Prepared monthly, quarterly and / or annually. Two formats: Total Expenditure Format (Gesamtkostenverfahren) Cost of Sales Format (Umsatzkostenverfahren) 5

6 Basic Tools Income Statement or P&L Total Expenditure Format (Gesamtkostenverfahren) 1. Umsatzerlöse 2. Erhöhung oder Verminderung des Bestands an fertigen und unfertigen Erzeugnissen 3. andere aktivierte Eigenleistungen 4. sonstige betriebliche Erträge 5. Materialaufwand: a) Aufwendungen für Roh-, Hilfs- und Betriebsstoffe und für bezogene Waren b) Aufwendungen für bezogene Leistungen 6. Personalaufwand: a) Löhne und Gehälter b) soziale Abgaben und Aufwendungen für Altersversorgung und für Unterstützung, davon für Altersversorgung 7. Abschreibungen: a) auf immaterielle Vermögensgegenstände des Anlagevermögens und Sachanlagen b) auf Vermögensgegenstände des Umlaufvermögens, soweit diese die in der Kapitalgesellschaft üblichen Abschreibungen überschreiten 8. sonstige betriebliche Aufwendungen BETRIEBSERFOLG 6

7 Basic Tools Income Statement or P&L Cost of Sales Format (Umsatzkostenverfahren) 1. Umsatzerlöse 2. Herstellungskosten der zur Erzielung der Umsatzerlöse erbrachten Leistungen 3. Bruttoergebnis vom Umsatz 4. Vertriebskosten 5. allgemeine Verwaltungskosten 6. sonstige betriebliche Erträge 7. sonstige betriebliche Aufwendungen BETRIEBSERFOLG 8. Erträge aus Beteiligungen, davon aus verbundenen Unternehmen 9. Erträge aus anderen Wertpapieren und Ausleihungen des Finanzanlagevermögens, davon aus verbundenen Unternehmen 10. sonstige Zinsen und ähnliche Erträge, davon aus verbundenen Unternehmen 11. Abschreibungen auf Finanzanlagen und auf Wertpapiere des Umlaufvermögens 12. Zinsen und ähnliche Aufwendungen, davon an verbundene Unternehmen 13. Ergebnis der gewöhnlichen Geschäftstätigkeit 14. außerordentliche Erträge 15. außerordentliche Aufwendungen 16. außerordentliches Ergebnis 17. Steuern vom Einkommen und vom Ertrag 18. sonstige Steuern 19. Jahresüberschuß/Jahresfehlbetrag 7

8 Basic Tools Income Statement or P&L Total Expenditure Format (Gesamtkostenverfahren) Shows the total performance and all costs for a selected period with change in inventories Expenses are shown according to their origin (material, personnel, maintenance, etc.) Cost of Sales Format (Umsatzkostenverfahren) Shows the cost of goods sold (COGS) for a selected period Expenses are shown according to functions (production, general & administration, sales) Regarding 1) Financial result, 2) extraordinary items and 3) taxes, both methods have the same structure and results. 8

9 Basic Tools Income Statement or P&L Contribution margin: The contribution margin is the amount that remains of our sales after deducting all variable costs. It is used to cover fixed costs and eventually to make profits. Gross Sales - Sales deductions (rebates, cash discounts,..) Net sales - Freight costs, Commissions,.. - Variable Costs. Contribution margin Can also be expressed as %-age of sales, i.e. a contribution margin of 15% indicates that out of 1Euro sales, 15 cents remain for coverage of fixed costs Contribution margin can also be shown in several steps by allocating fixed costs to articles, article groups, business areas, 9

10 Basic Tools Income Statement or P&L Practical Example VBW: Opern- und Musicalproduktionen in drei Häusern: Theater a.d. Wien (TAW), Raimund Theater (RAI), Ronacher (RON) Besucher: RON: ; RAI ; TAW Kosten Intendanz: Musical: ; Oper: Leading Team Kosten: RON: 300T ; RAI: 350T ; TAW: 500T Produktionsausstattung: RON: Bühne (450T ); Ton (50T ); Licht (50T ); Kostüm (200T ) RAI: Bühne (500T ); Ton (50T ); Licht (50T ); Kostüm (200T ) TAW: Bühne (600T ); Ton (50T ); Licht (50T ); Kostüm (300T ) Personalkosten Haustechnik: RON: 25 Personen; RTH: 30 Personen; TAW: 20 Personen (durchschnittliche Kosten: / Person) Orchester: RON: 10 Personen; RAI: 15 Personen; TAW: 20 Personen (Durchschnittskosten pro Person: ) 10

11 Basic Tools Income Statement or P&L Practical Example VBW: Opern- und Musicalproduktionen in drei Häusern: Theater a.d. Wien (TAW), Raimund Theater (RAI), Ronacher (RON) Technik (produktionsbezogene Überstunden): RON: h; RAI: h; TAW: 6.000h (durchschnittliche Kosten: 30 /h) Marketing (produktionsbezogen): RON: 300T ; RTH: 450T ; TAW: 600T Hausbezogener Materialaufwand: RON: 400T ; RTH: 350T ; TAW: 300T Durchschnittlicher Ticketpreis: RON: 45 ; RAI: 50 ; TAW 60 Personalkosten FM Haus: RON: 25 Personen; RTH: 30 Personen; TAW: 20 Personen (durchschnittliche Kosten: / Person) Cast: RON: 2.750T ; RAI: 3.125T ; TAW: 2.000T Overhead: Sonstiger Aufwand (Material, bezogene Leistungen): 2.500T ; Zentrale Technik: 1.000T ; Zentrales FM: 700T ; Generaldirektion: 1.500T 11

12 Basic Tools Income Statement or P&L Practical example Stora Enso: 1) How big is the contribution margin? 2) How big is the margin %-age? 1000 CUR Sales, sawngoods Ext Sales, sawngoods Int Prod unit Sales, sawngoods Int Sales unit Sales, distribution Ext Sales, distribution Int End Product Sales Sales, by-products Ext Sales, by-products Int Sales, logs Ext Sales, logs Int Wood Sales Energy Sales FX on Sales and Operative Receivables Sales of Stora Enso Products Transportation & Freight Sales Commission Income Maintenance Materials & Services Income Other Sales FX cashflow hedge derivatives Sales of Stora Enso Services and other Sales non Stora Enso products SALES Transportation & Freight Costs, sawn Transportation & Freight Costs, by-products Transportation & Freight Costs, other Transportation & Commissions Costs Commission costs, sawn Commission costs, other Total Commission costs SALES AT MILL PRICE Change in Finished Goods Inventory & WIP Change in net value of biological assets Other Operating Income, other Ext Other Operating Income, other Int Wood costs By-product purchases Total Energy costs TOT Supplied sawn goods Total Other purchases, production Total Other purchases, distribution Total End Product Purchases Chemicals & fillers costs Packaging material Other Operating Variable Costs Total variable costs, CUR

13 Basic Tools Income Statement or P&L Break-Even Analysis: The break-even point defines the sales volume which is needed to cover all costs, i.e. neither produces a profit nor a loss. Break Even Point means: Profit = 0 Fixed costs = Total contribution margin Revenues = Total costs Profitability increase by: Increase of Sales Improvement of Contribution Margin (price increase, reduction of variable costs, improved product mix) Reduction of Fixed costs Capacity Reduction 13

14 Basic Tools Income Statement or P&L Break-Even Analysis: Break Even Point (Vol) = Fixed costs / Contribution margin per piece Break Even Point (Value) = Fixed costs / Contribution margin %-age Safety margin [value] = (Planned sales-minimum sales) / Planned sales * 100 Safety margin [volume] = (Planned volume-minimum volume) / Planned volume * 100 Targeted Turnover = (Fixed costs + Profit) / Contribution margin %-age 14

15 Basic Tools Income Statement or P&L Example 2: A company has the following planned parameters: Sales volume: bicycle shoes Production volume: shoes Variable costs/shoe: 120EUR Net sales / shoe: 180EUR Fixed costs: EUR 1) How big is the minimum sales value? 2) How big is the minimum sales volume? 3) What are the safety margins? 4) Return of Sales? 5)The owner's target is a profit of 9TEUR. Which turnover is necessary? 6) How much additional sales are necessary if a new sales rep is employed for EUR p.a.? 7) The head of sales suggests a 5% price decrease. How many % more sales is the minimum requirement? 15

16 Basic Tools Income Statement or P&L Practical example Stora Enso: 1) Minimum sales value? 2) Minimum sales volume? 3) Safety margins? 4) ROS? Wages and Salaries, Production Wages and Salaries, Maintenance Wages and Salaries, Admin Personnel costs Maintenance Materials Total Maintenance Services Maintenance materials & services costs Other fixed costs, excl. production cost Total Other fixed costs, incl. in production cost Total Contractors costs (log/truck/other) Other fixed costs, admin Other fixed costs, cost pool Bad debts and credit losses Wood proc related fixed Other fixed costs total Total fixed costs, CUR Total invoicing, m Mill net price Total wo hedging CUR/m3 (ext) 429,38 Total variable costs, CUR -306,69 16

17 Basic Tools Income Statement or P&L Plan P&L Example 3: A company has the following planned parameters: Production volume: aero-helmets Sales volume: aero-helmets Net sales / helmet: 240EUR Production time / helmet: 15min Production wages / hour: 130EUR Overhead production costs: 100% Production materials / helmet: 28EUR Overhead production materials / helmet: 3EUR Basis for overhead material costs are production materials and for overhead production costs the production wages. Fixed costs: Personnel EUR Other fixed costs EUR Depreciation EUR Interest costs EUR 17 1)Establish a plan P&L (Gesamtkostenverfahren) 2)Calculate the ROS

18 Basic Tools Kostenarten (Cost elements), Kostenstellen (Cost centers), Kostenträger (Cost unit) Kostenarten (Cost Elements): Kategorisierung nach der Natur der Kosten Exkurs: Österreichischer Kontenrahmen Kontenklasse: 0 Anlagevermögen 1 Vorräte und unfertige Aufträge Bestandskonten 2 Sonstiges UV und RAP 3 Verbindlichkeiten, RSt, RAP 4 Betriebliche Erträge 5 Materialaufwand und Aufwand für bez Leistungen 6 Personalaufwand Erfolgskonten 7 Abschreibungen und sonst betr Aufwendungen 8 Finanzkonten, Ao Erträge / Aufwendungen, Steuern 9 Kapitalkonten, Abschlußkonten 18

19 Basic Tools Kostenarten (Cost elements), Kostenstellen (Cost centers), Kostenträger (Cost unit) Kostenstellen (Cost Centers): Wo sind die Kosten angefallen? Management Construction Post & Beam Sales office CE Light Frame Joinery Sales SEA BL Trading Sales administration team 2600 Marketing 2612 Publikationen (Printwerbung) 2613 Aussenwerbung (Plakate) 2614 Medien 2601 Grafik 2604 Kooperationen 2605 Hilfskräfte / Verteiler 2606 Marktforschung 19

20 Basic Tools Kostenarten (Cost elements), Kostenstellen (Cost centers), Kostenträger (Cost unit) Kostenträger (Cost Units): Wofür sind die Kosten angefallen? RON Produktion mit der Endung 12 - bis zur Premiere inkl. Audition 13 - ab (einschließlich) Premiere 51 - Premieren- und Dernièrefeiern 52 - Merchandising 54 - Tonträger z.b. Tanz der Vampire Profit Center Mapping Stora Enso Wood Products CEU SAP Company code Profit Center Brand Mill Brand Post Ybbs Mill Ybbs Post Ybbs CLT Sollenau Mill Wood Products Head Office BSL Sawn BSL CLT SE WP Holzverarb. 20

21 Basic Tools Kostenarten (Cost elements), Kostenstellen (Cost centers), Kostenträger (Cost unit) 1) Im Februar 2014 besuchten Besucher im Ronacher die Vorstellungen zu "Der Besuch der alten Dame". Der durchschnittliche Kartenpreis betrug 58,1. 2) Im Raimundtheater benötigte der Leiter der Tonabteilung für allgemeines Bühnenmaterial. 3) Für das Ronacher wurde im Jänner Beleuchtungsmaterial i. H. v angeschafft. 4) Die Versicherung hat für einen Wasserschaden im Theater a.d. Wien überwiesen. 5) Für die Produktion "Der Besuch der alten Dame" wurde in das Bühnenbild investiert (Aufwand: ) 6) Die Kostüme der Produktion "Elisabeth" wurden endgereinigt. Kostenpunkt ) 8) Das Ensemble der Produktion "Der Besuch der alten Dame" bekam im Jänner Probegagen in Höhe von ausbezahlt. (Lohnnebenkosten 30%) Für den Aufbau der Lichtanlage für die neue Opernproduktion im Theater an der Wien wurde Fremdpersonal benötigt ( ) 9) Im Ronacher wurden neue Saiten für Streichinstrumente angeschafft ) 11) Die Versicherung hat die Jahresbeträge für die Feuerversicherung für alle drei Häuser vorgeschrieben ( je Haus) Für die Produktion "Der Besuch der alten Dame" mußten 10 Lautsprecher zu je im Februar angeschafft werden. 12) Die Verpachtung der Kantine brachte ein. 13) Die Wien Energie AG hat dem Raimund Theater eine Stromrechnung übermittelt ( ). 14) Für die Produktion "Der Besuch der alten Dame" mußten 5 weiße Scheinwerfer zu je angeschafft werden. 15) Im Februar wurden Programmhefte (Der Besuch der alten Dame) zu je 6,5 verkauft. 21

22 Basic Tools Kostenarten (Cost elements), Kostenstellen (Cost centers), Kostenträger (Cost unit) Kostenstelle 4304 Licht Produktion Ronacher IST PLAN ABW allg Bühnenmaterial Beleuchtungsmaterial Fremdpersonal Fremdleistungen Total Kostenstelle 2304 Licht Produktion Raimundtheater IST PLAN ABW allg Bühnenmaterial Beleuchtungsmaterial Fremdpersonal Fremdleistungen Total Kostenstelle 1304 Licht Produktion Theater an der Wien IST PLAN ABW allg Bühnenmaterial Beleuchtungsmaterial Fremdpersonal Fremdleistungen Total 22

23 Basic Tools Kostenarten (Cost elements), Kostenstellen (Cost centers), Kostenträger (Cost unit) Kostenträger Der Besuch der alten Dame IST 2014 PLAN 2014 ABW Erlöse Kartenerlöse Sonstige Umsatzerlöse Total Ausstattung Bühne Ton Licht Kostüm Maske Total Musik Orchester Musikdirektion Total Cast Solisten / Ensemble Kinder Total Marketing Marketing Corporate Communications Sales Department Total 23 Gesamtkosten Ergebnis

24 Basic Tools Income Statement or P&L Value Creation and Value Capturing Services Price Functions/ Reliability Other Maintenance Personnel Quality Logs Perceived Value Costs Value Comp. Profit benefit created created discount 24

25 Basic Tools From Operations to Profits Business Model Income Statement or P&L 25

26 Basic Tools Balance Sheet (B/S) One of the major financial statements beside Income Statement and Cash Flow Statement. Bones of the financial body. Shows the assets and liabilities of a company at a single POINT of time. Snapshot of a company's financial condition. Prepared monthly, quarterly and / or annually. A standard B/S has three parts: Assets Liabilities Equity 26

27 Basic Tools Balance Sheet (B/S) ASSETS: The left-hand side of a B/S shows how a company uses the capital given by owners (equity) or external sources (debt). The assets represent things of value that a company owns and has in its possession or something that will be received. Fixed assets are expected to remain in the use of the company for a longer period of time (> 1 year). Current assets are not expected to remain long in the use of the company (consumed within 1 year). 27

28 Basic Tools Balance Sheet (B/S) 28

29 Basic Tools Balance Sheet (B/S) EQUITY & LIABILITIES: The right-hand side of a B/S shows where the capital of a company comes from or in other words how the assets are financed (equity, debt). Liabilities are those funds that a company owes to other external sources. They are used to finance operations and pay for expansions. Equity represents retained earnings and funds contributed by the company's shareholders. 29

30 Basic Tools Balance Sheet (B/S) 30

31 Basic Tools Balance Sheet (B/S) The fundamental B/S equation: ASSETS = EQUITY + LIABILITIES The equation HAS to be always in balance! A reasonable mix of equity and liabilities is a must for a financially healthy company. Example: Components of the Balance Sheet 31

32 Basic Tools Balance Sheet (B/S) How we use our money Where the money comes from Land Plant Equipment Replacement / Development Strategic Fixed Assets Investments Equity Lt Liabilities Share Capital Retained Earnings Lt Accruals (Pensions,..) Lt Loans Accounts receivables Inventories Cash Current Assets Current Liabilities Accounts payables St Borrowings 32

33 Basic Tools Balance Sheet (B/S) Working Capital: Delta between current assets and current liabilities. Liquidity indicator: Shows the ability of a company to cover current liabilities out of its current assets. Management approach: Inventories + Accounts receivables - Accounts payables Working Capital Lean working capital management means among others: decreased costs (inventory space, ) reduced bad debts increased cash flow 33

34 Basic Tools Balance Sheet (B/S) Working Capital / Inventories: Trade-off Model, => while focusing on one item, e.g. Lead Time, another item might be impacted as a result of the previous change Lead Time Capacity Inventory Information Demand 34

35 Basic Tools Balance Sheet (B/S) Working Capital / Inventories: 35

36 Basic Tools Balance Sheet (B/S) Working Capital / Accounts receivables: A tight receivables management is more than ever important to prevent revenue leakage and bad debts to occur! Sales is interested in selling (and not in administration of outstanding receivables ). Payment terms need to be managed efficiently and reviewed periodically. Cash discounts are expensive tools and need to be handled restrictively. Example: Effective cash discount rate = Cash discount rate * 360 / (Term for payment Cash discount period) 36

37 Basic Tools Balance Sheet (B/S) Working Capital / Accounts receivables: WP overdues by days thousand Month Total O/D All rec O/D % Dec ,65% Jan ,10% Feb ,03% Mar ,67% Apr ,39% May ,51% Jun ,49% Jul ,10% Aug ,68% Sep ,98% Oct ,76% Nov ,96% Dec ,49% AVG ,47% AVG ,71% AVG ,99% 37

38 Basic Tools From Operations to Profits Business Model Income Statement or P&L and Balance Sheet 38

39 Basic Tools Cash Flow (CF) One of the major financial statements beside Income Statement and Balance Sheet. Blood of the financial body. Shows the flow of cash in and cash out of the business. It reflects a company's liquidity during a PERIODE of time. Prepared monthly, quarterly and / or annually. A standard Cash Flow statement has three parts: CF from operating activities CF from investing activities CF from financing activities 39

40 Basic Tools Cash Flow (CF) 40

41 Basic Tools Cash Flow (CF) 41 Jahresüberschuss/-fehlbetrag nach Steuern + Abschreibungen auf das Anlagevermögen - Zuschreibungen zum Anlagevermögen +/- Gewinn (-) / Verlust (+) aus dem Abgang von Anlagevermögen +/- Zunahme (+) / Abnahme (-) lfr Rückstellungen = Cash Flow aus dem Ergebnis (cash earnings) +/- Zunahme (-) / Abnahme (+) der Vorräte +/- Zunahme (-) / Abnahme (+) der Forderungen LuL +/- Zunahme (-) / Abnahme (+) sonstiger Aktiva und ARA +/- Zunahme (+) / Abnahme (-) der kfr Rückstellungen +/- Zunahme (+) / Abnahme (-) der Verbindlichkeiten LuL +/- Zunahme (+) / Abnahme (-) sonstiger Passiva und PRA = Cash Flow Operating Activities - Investitionen - Aktivierte Eigenleistungen + Buchwert abgegangener Anlagen +/- Gewinn (+) / Verluste (-) aus dem Abgang von Anlagevermögen +/- Erhöhung (-) / Verminderung (+) der Finanzdarlehen an verbundene Unternehmen = Cash Flow Investing Activities + Einzahlungen von den Gesellschaftern - Auszahlungen an die Gesellschafter +/- Erhöhung (+) / Tilgung (-) von Finanzkrediten und Anleihen = Cash Flow Financing Activities Veränderung des Finanzmittelbestandes

42 Basic Tools Cash Flow (CF) Cash is King! A lot of capital is usually tied up in receivables and inventory. Importance to optimize working capital level becomes more evident than in the past. Longer term, companies need to create a culture in which everyone takes responsibility for the balance sheet! There are six common mistakes that companies make in managing cash: 1. Don't manage to the income statement. 2. Don't reward the sales force for growth alone. 3. Don't overemphasize production quality. 4. Don t tie receivables to payables. 5. Don t manage by current and quick ratios. 6. Don t benchmark competitors. 42

43 Basic Tools From Operations to Profits Business Model Income Statement or P&L and Balance Sheet and Cash Flow Statement 43

44 Basic Tools Cash Flow (CF) A CF-statement is tied to the P&L and B/S via net earnings and depreciation (P&L) on the one side and via working capital, fixed asset investments, etc. (B/S) on the other side. P&L: Sales +/- Change in inv - Variable costs - Fixed costs - Depreciation = Operating Profit B/S: Fixed Assets Inventories Trade Receivables Equity Accruals Trade payables 44 CF: Operating Profit + Depreciation +/- Change in inventories +/- Change in Receivables +/- Change in Payables

45 Basic Tools CF & B/S Finanzplan & Planbilanz Example 4: A company has the following planned parameters: Planned P&L Sales var costs: Materials: Material overheads Wages & Salaries Production overheads Contribution margin Profit from disposal of assets fixed costs: Depreciations Other fixed costs EBIT Income from shares Depreciation of financial assets Interest expenses Financial result Profit before taxes Income taxes Profit / Loss for the period

46 Basic Tools CF & B/S 46 Finanzplan & Planbilanz Example 4: A company has the following planned parameters: B/S: prior year Fixed Assets Equity Inventory Raw mat Fin goods Accounts receivables Cash / banks Retained earnings Profit of the year Accruals Accounts payables Liab banks LT Liab banks ST Total Assets Total Liabilities

47 Basic Tools CF & B/S 47 Finanzplan & Planbilanz Example 4: A company has the following planned parameters: Raw material purchases: Trade receivables turnover: 13,33 (including 20% VAT) Trade payables are reduced by EUR The plan P&L includes a LT accrual of EUR (Abfertigung & Pensionen) The B/S includes a tax accrual of EUR which is used as planned. Tax prepayments (Köstvorauszahlung) are EUR. An investment of a machine ( EUR) is planned. 1/3 is financed by a new loan. Depreciations are included in the plan P&L. LT Loans of EUR have to be paid back in the planning period. Retained earning (Gewinnrücklage) of EUR should be booked. A dividend of EUR is to be paid. A positive or negative liquidity should be used to balance ST bank accounts. LT long-term ST short-term

48 Basic Tools Key Performance Indicators Key performance indicators (KPIs) are high-level snapshots of a business based on specific predefined measures. KPIs should be: Specific Measurable Acceptable Realistic Timely Should reflect the critical success-factors of a company variations between different industries possible. 48

49 Basic Tools Key Performance Indicators Key performance indicators (KPIs) in the wood-products industry (example Stora Enso): KPIs connected to the P&L: Return on Sales (ROS) = Operating Profit / Sales *100 Return on Capital Employed (ROCE) = Operating Profit / Operating capital *100 Personnel intensity = Personnel costs / Sales *100 Maintenance intensity = Maintenance costs / Sales *100 Raw material intensity = Raw material costs / Sales *

50 Basic Tools Key Performance Indicators Key performance indicators (KPIs) in the wood-products industry (example Stora Enso): KPIs connected to the B/S: Inventory turnover ratio = Sales or COGS / (Average) Inventory Inventory turnover days = 365/ Inventory turnover ratio (also called DIOH) Receivables turnover ratio = Net Sales / (Average) Accounts receivables Receivables turnover days = 365 / Receivables turnover ratio (also called DSO) Payables turnover ratio = Purchases / (Average) Accounts payables Payables turnover days = 365 / Payables turnover ratio (also called DPO) Working Capital turnover = Sales / Working Capital Relationship between the money used to fund operations and the sales generated from these operations. 50

51 Basic Tools Key Performance Indicators Key performance indicators (KPIs) in the wood-products industry (example Stora Enso): KPIs connected to the B/S (continued): Equity ratio = Owners equity / Total assets (Eigenkapitalquote) Fixed Assets usage = accumulated depreciation / acquisition costs (Anlagenabnützungsgrad) Golden B/S rule: Fixed assets should be financed by equity (narrow) or equity + long term liabilities (wider) (Goldene Bilanzregel) 51

52 Basic Tools Key Performance Indicators Key performance indicators (KPIs) in the wood-products industry (example Stora Enso): KPIs connected to the CF: Cash Flow margin = Operating Cash Flow / Sales * 100 Gearing ratios: Debt / Cash Flow Debt / Equity (also known as debt to equity ratio) Cash Flow KPIs are currently not used in monthly reporting. 52

53 Basic Tools From Operations to Profits to Asset based Profitability Business Model Income Statement or P&L and Balance Sheet and Cash Flow Statement ROE and ROCE 53

54 Basic Tools From Operations to Profits to Asset based Profitability Return on Equity Profit Margin Capital Turnover Leverage Ratio Net income Net income Revenues Assets Equity Revenues Assets Equity How good are we in translating revenues into profits? How many units of sales can we squeeze out of one unit of assets? How much debt (i.e. borrowed resources) do we use? 54

55 Basic Tools From Operations to Profits to Asset based Profitability Operational ROCE Operating Profit Operating Capital 100 Higher ROCE means more efficient use of Assets to generate earnings. 55

56 Basic Tools Value Creation Provide Capital Providers with a reasonable rate of return - WACC Buy Capital EVA = (ROCE WACC) * IC Assets ROCE Pay WACC For each Get ROCE 56

57 Basic Tools From Operations to Profits to Asset based Profitability Sales ROCE Operating Profit Sales EBIT Sales Total Costs Var Costs Fixed Costs Operating Profit Operating Capital Sales Operating Capital Sales Assets Prices Volume Mix Working Capital Fixed Assets Cash Inventories A/R A/P Strategic Drivers!!! 57

58 Basic Tools From Operations to Profits to Asset based Profitability Sales ROCE Operating Profit Sales EBIT Sales Increase EBIT Var Costs Total Costs Fixed Costs Operating Profit Operating Capital Sales Operating Capital Sales Assets Prices Volume Mix Decrease Capital Employed Inventories Working Capital A/R Fixed Assets Cash A/P 58

59 Basic Tools Financial Concepts: Efficiency in value creation (ROCE > WACC) Strength to cope with uncertainty (D/E, Equity ratio) Ability to reward stakeholders (Cash) MUST: Ability to cope with all three dimensions 59

60 Basic Tools Key Performance Indicators 60