Download Sam Holt, Grace Lewis

Sam Holt, Grace Lewis
Goals
• Achieve the highest Shareholder Value (SHV)
– Price/Volume strategies
– Net Income
– Market share: Creating awareness
– Spend money to earn money, within reason
Decisions
• Year 1
– Product Quantity (production & forecast)
– Sales price
– Advertising & PR (Tv, Magazine, Internet)
• Year 2
–
–
–
–
Year 1 Decisions +..
Distribution Assistance
Distributor Margins (notice different types of stores)
Branding
Basics to Keep in Mind: Supply &
Demand
Price
Demand
Supply
Surplus
(inventory)
Equilibrium
Price
Shortage
(Lost Sales)
Quantity Produced
Equilibrium QuantityQuantity Produced
Quantity of
Bikes
Decisions cont…
• Year 3
– Year 2 +…
– Capacity planner (SCU, Efficiency, Quality)
– Debt
• Year 4
– Year 3 +…
– 1 New Product (including all its advertising,
production, pricing decisions, etc.)
– Equity (shares & dividends)
Modifying Existing & Creating New
Products
• Once you are able to create new bikes, you can
also modify existing products to make their
specifications conform with market demand, OR
to reduce production costs, OR both!
• COSTS:
–
–
–
–
$1,000,000 to modify specs
$1,000,000 to reduce production costs
$2,000,000 to do both
$1,000,000 to launch a new product
**Information about product launch and modification available on “The Year Ahead”
page of year that these become available
***Inventory left from before modifying product will no longer be sellable
Modifying Existing Products
• Production = 21,000
• Cost of Production (COP) = $185/unit: $3,885,000 total
• REDUCE COSTS to $133/unit: $2,793,000
Savings = COP – (REDUCED COST + EXPENDITURE)
Savings = $92,000… and that’s if production stays the
same. It should increase annually as a reflection of
increasing product awareness, branding, distribution,
etc…
(if you raise production by 2,000, you save $196,000)
Modifying Existing Products
• Similarly, modifying a product’s specs will
increase demand for your bikes because it will
match them closer to what consumers are
looking for**
• Change in QD from previous year is hard to
calculate, it is a bit of a guessing game
**Preferences are likely to change annually, always check product specs (See
next slide)
Spend on Efficiency to Reduce Wastage (increases Idle time, allows
for increased production without purchasing SCU)
Spend on Quality to Reduce Rework (Faulty products having to be
scrapped, re-built, warranty claims, etc.), increases demand for
Quality sensitive bike markets…
**Rework Found in “Products Marketing: Products- Sales, Margin, Production” Report
under ALL REPORTS, MARKETING REPORTS
***sensitivity to Quality found in “Market Information” Report- KEY REPORTS
Helpful hints…
• Spend money to make money- advertise and use
PR/branding to gain awareness, gain market share
• Pricing strategies- low price/low volume doesn’t make
money- and high price/high volume is unrealistic
• Use forecast results to speed up the simple math (it
adds up all your spending and subtracts that from your
forecasted sales x price)
• Invest in Quality + Efficiency to reduce costs / raise
sales
• Evaluate creating new products / modifying existing
ones to see if it can save you money… $$ saved goes
directly to profit
Helpful hints cont…
• Distribution is important- help your suppliers and they
will help you, but don’t waste money. The more stores
you’re in, the better
• Dividends are a guaranteed increase in SHV because it
is a guaranteed payment to the shareholder- spend the
cash if you have it after other product spending
decisions
• Debt can be helpful if you need money- it is also a
burden on value
• When you can, try creating new products
• Use the reports’ data to influence your decisions!!
More Basics: Accounting
Assets = Liabilities + Owner’s Equity
**D/E Ratio = Liabilities(debt)/Equity. Factors into SHV
Net Income = Revenue – Expenses
**If you think you’ve minimized expenses, optimize them to raise more
revenue, i.e. Net Income- directly effects SHV… is each dollar being spent in the
best possible place?
***If you think you’ve maximized revenue (you haven’t), cut expenses to raise
N.I. (do it anyways- it’s good for you)
Total Retained Earnings
= R.E.(beginning) + Net Income – Dividends
**Retained Earnings is another way of saying CASH. Make sure you have a
stockpile (check statement of cash flow), but pay a dividend! Less R.E. doesn’t
necessarily mean lower SHV, because paying a dividend directly increases it
Good Luck!!
Sam Holt: [email protected]
Grace Lewis: [email protected]