Winning Business : How to Use Financial Analysis and Benchmarks to Outscore Your Competition

Today's business environment is a competition, and business managers need the right game plan if they want to win. Successful businesses do a lot of the same things well. They track inventories, expenses, growth, break-even units, margins, employee turnover, compensation plans, return on training, sales, earnings per employee, and a host of other statistics. But to win in business, managers need to do more than track these benchmarks. They need to improve results. Winning Business provides the benchmarks business managers should track. It shows managers how to calculate each benchmark, AND presents ways to improve their results. In short, this book provides a company with a blueprint for success. Each benchmark produces a value that managers can track over time to monitor the impact on their operations. To help managers evaluate their performance, it provides industry-wide benchmarks that list the results retailers, manufacturers, and even publishers should target. Winning Business provides benchmarks for: Managerial accounting Sales and marketing Employee benefits Financial performance Market indicators Inventory analysis Many others Included FREE is a full, multimedia version of Winning Business. The CD-ROM includes Winning Business MultiMedia in Adobe pdf (Portable Document Format) file format for Win 95/98/NT 3.51 or above, Mac System 7.5 or higher, UNIX, and other platforms. You'll get all 257 tips from the book complete with their workable equations. BONUS for Windows 95, 98, NT 3.51 or above users: Financial Analysis Calculator, Version 1.1.0. With this free program, you can enter your company's financial statement information and watch as the program automatically performs all of the ratio calculations for you. In an instant, you can have a vast array of critical performance characteristics mapped out for you. Winning Business......Page 1 Imprint......Page 2 Title page......Page 3 Copyright......Page 4 Contents......Page 5 Acknowledgments......Page 12 Introduction......Page 13 Considerations......Page 15 Argo, Inc. Financial Statements......Page 17 Financial Statement Analysis Methods......Page 19 1 Using Vertical Analysis to Analyze Financial Statements......Page 20 2 Using Horizontal Analysis to Analyze Financial Statements......Page 21 3 Exploring Variance Analysis......Page 22 4 Studying Ratio Analysis......Page 23 Income Analysis......Page 24 5 Determining Gross Profit......Page 25 6 Examining the Gross Profit Ratio......Page 27 7 Calculating Income from Operations......Page 29 8 Examining the Operations Income Ratio......Page 31 9 Measuring Pretax Profit......Page 33 10 Evaluating the Pretax Profit Ratio......Page 35 11 Calculating Net Income......Page 37 12 Comparing Net Income to Sales......Page 39 13 Finding the Percentage of Net Sales and Net Income that are Domestic......Page 41 14 Finding the Percentage of Sales and Net Income that are Foreign......Page 42 15 Determining the Cost of Capital......Page 43 16 Measuring Economic Value Added (EVA)......Page 44 17 Comparing Economic Value Added (EVA) to Net Income......Page 45 18 Examining the Size of Residual Income......Page 46 19 Comparing Residual Income to Net Income......Page 48 20 Determining the Return on Equity (ROE)......Page 49 21 Finding the Return on Assets (ROA)......Page 51 22 Determining the Return on Invested Capital (ROIC)......Page 53 23 Comparing Cash Provided by Operations to Net Income......Page 55 24 Comparing Short-Lived Income to Net Income......Page 56 25 Determining the Significance of Short-Lived Sales to Net Sales......Page 57 26 Operations to Total Cash Flow......Page 58 27 Comparsing Cash Flow from Investing Activities to Total Cash Flow......Page 60 28 Comparing Cash Flow from Financing Activities to Total Cash Flow......Page 61 Investment Analysis......Page 62 29 Determining Revenues Earned Per Share of Stock......Page 63 30 Finding the Amount of Earnings Per Share of Common Stock......Page 64 31 Examining Dividends Per Common Share......Page 65 32 Calculating the Growth Rate of Revenues......Page 67 33 Calculating the Growth Rate of Earnings......Page 69 34 Finding the Common Stock Dividend Growth Rate......Page 71 35 Determining the Price-to-Earnings (P/E) Ratio......Page 72 36 Measuring the Price-to-Earnings-to-Growth- Rate Ratio (PEG)......Page 73 37 Examining the Earnings Yield......Page 74 38 Determining the Market Price Return Ratio......Page 75 39 Stock Dividend Return Ratio......Page 76 40 Determining the Size of the Common Stock Dividend Payout......Page 77 41 Determining the Size of the Dividend Payout in Relation to Operations Cash Flow......Page 78 42 Determining the Preferred Dividend Return Ratio......Page 80 43 Determining the Size of the Preferred Dividend Payout......Page 81 44 Determining the Size of the Preferred Dividend Payout in Relation to Operations Cash Flow......Page 82 45 Determining the Size of the Total Return on Common Stock......Page 83 46 Computing the Cash Flow Per Share of Outstanding Common Stock......Page 84 47 Computing the Operating Cash Flow Per Share of Outstanding Common Stock......Page 86 48 Determining the Volatility, or Beta, of a Stock......Page 88 Product and Factory Costs......Page 89 49 Calculating the Total Amount of Direct Costs Per Production Unit......Page 90 50 Determining the Total Labor Cost Per Production Unit......Page 91 51 Calculating the Total Cost Per Production Unit......Page 92 52 Examining Variable Costs......Page 93 53 Comparing Variable Costs with Total Costs......Page 95 54 Examining Variable Costs Per Production Unit......Page 97 55 Examining Fixed Costs......Page 99 56 Comparing Fixed Costs to Total Costs......Page 101 57 Finding the Fixed Cost Per Unit......Page 103 58 Finding the Contribution Margin......Page 105 59 Determining the Break-Even Point in Sales Volume......Page 107 60 Determining the Break-Even Point in Sales Dollars......Page 109 61 Finding the Sales Volume Necessary to Generate a Desired Operating Income......Page 111 62 Finding the Sales Dollars Necessary to Generate a Desired Operating Income......Page 113 63 Finding the Break-Even Plant Capacity......Page 115 Expense Analysis......Page 117 64 Comparing the Cost of Goods Sold to Sales and Net Income......Page 118 65 Calculating the Amount of Sales and Cost of Goods Sold Per Employee......Page 120 66 Determining Sales, Net Income, and the Cost of Goods Sold Per Direct Labor Employee......Page 121 67 Comparing the Cost of Direct Labor and Direct Labor Hours Worked to Sales, Net Income, and the Cost of Goods Sold......Page 122 68 Comparing Direct Labor Costs, Direct Labor Employees, and Direct Labor Hours Worked to the Cost of All Labor......Page 124 69 Finding the Labor Cost and Hours Worked Per Direct Employee......Page 126 70 Determining the Percentage of All Employees Who Are Direct Laborers......Page 128 71 Determining the Direct Labor Costs Per Production Unit and Other Direct Labor Efficiency Ratios......Page 130 72 Comparing the Direct Overhead Cost to Sales, Net Income, and the Cost of Goods Sold......Page 131 73 Comparing Raw Materials Costs to Sales, Net Income, and the Cost of Goods Sold......Page 132 74 Comparing Other Direct Costs to Sales, Gross Profit, Net Income, and the Cost of Goods Sold......Page 133 75 Comparing R&D Costs to Sales and Net Income......Page 134 76 Comparing Selling, General, and Administrative Costs (SG&A) to Sales and Net Income......Page 136 77 Comparing Individual Overhead Expenses to Total Overhead Expenses and Sales......Page 137 78 Finding Plant Equipment Costs Per Hour......Page 139 79 Comparing the Cost of Fixed Asset Maintenance to Sales......Page 140 80 Comparing the Cost of Fixed Asset Maintenance to the Value of Fixed Assets......Page 141 81 Relating Insurance Costs to Sales Revenue......Page 142 82 Relating Insurance Expenses to the Value of Fixed Assets......Page 143 83 Examining Book Depreciation......Page 144 84 Examining Tax Return Depreciation......Page 145 85 Relating Book Depreciation Expenses to Sales Revenue......Page 146 86 Comparing Book Depreciation Expenses to the Value of Fixed Assets......Page 147 Assets......Page 148 87 Determining the Size of Fixed Assets......Page 149 88 Examining the Relationship Between Fixed Assets and Sales......Page 150 89 Examining the Relationship Between Fixed Assets and Net Income......Page 151 90 Examining the Relationship Between Fixed Assets and Operations Cash Flow......Page 153 91 Comparing Fixed Assets to Total Assets......Page 154 92 Assessing the Fixed-Asset- to-Equity Ratio......Page 155 93 Determining the Relationship Between Fixed Assets and Long-Term Debt......Page 156 94 Comparing Fixed Assets to Short-Term Debt......Page 157 95 Examining Fixed Asset Turnover......Page 158 96 Assessing the Age of Fixed Assets......Page 159 97 Determining the Turnover Rate of Total Assets......Page 160 98 Finding the Total Asset Coverage Ratio......Page 161 99 Comparing Intangible Assets to Sales Revenue......Page 162 100 Comparing Intangible Assets to Net Income......Page 163 101 Comparing Intangible Assets to Total Assets......Page 165 102 Comparing Intangible Assets to Owner’s Equity......Page 167 103 Comparing Changes in Intangible Assets to Changes in Net Income......Page 168 104 Comparing Individual Intangible Assets to Sales......Page 169 105 Comparing Individual Intangible Assets to Net Income......Page 170 106 Comparing Individual Intangible Assets to Total Assets......Page 171 107 Measuring the Rate of Fixed Asset Reinvestment......Page 172 108 Determining the Productivity of Fixed Assets......Page 173 109 Comparing Fixed Asset Replacement Cost and Book Value......Page 174 110 Comparing High-Risk Assets to Sales Revenue......Page 175 111 Relating High-Risk Assets to Total Assets......Page 176 Debt......Page 177 112 Comparing Debt to Sales......Page 178 113 Examining the Debt-to-Operating Income Ratio......Page 179 114 Examining the Debt-to-Asset Ratio......Page 180 115 Examining the Debt-to-Equity Ratio......Page 181 116 Comparing Debt to the Market Value of Assets......Page 182 117 Determining Debt Turnover......Page 183 118 Comparing Debt and Total Invested Capital......Page 184 119 Relating Short-Term Debt to Long-Term Debt......Page 185 120 Determining the Cost of Debt Capital......Page 186 Equity......Page 187 121 Comparing Equity to Sales Revenue......Page 188 122 Comparing Equity to Total Assets......Page 189 123 Comparing Equity to Total Debt......Page 190 124 Determining the Turnover of Equity......Page 191 125 Examining the Turnover of Invested Capital......Page 192 126 Comparing Net Income to Invested Capital......Page 193 127 Comparing Stock to Invested Capital......Page 194 128 Comparing Retained Earnings to Invested Capital......Page 195 Liquidity......Page 196 129 Finding the Current Ratio......Page 197 130 Using the Acid Test......Page 198 131 Determining the Cash Flow Ratio......Page 199 132 Calculating Cash Turnover......Page 200 133 Finding How Many Days of Cash Expenses are Available......Page 201 134 Examining How Many Days of Sales in Cash are Available......Page 202 135 Using Altman’s Z-score to Determine the Probability of Bankruptcy......Page 203 136 Comparing Sales to Current Assets......Page 205 137 Comparing Liquid Assets to Current Liabilities......Page 206 138 Relating Liquid Assets to Cash Expenses......Page 207 139 Relating Current Debt to Sales......Page 208 140 Comparing Current Debt to Total Debt......Page 209 141 Examining Working Capital......Page 210 142 Finding the Turnover of Working Capital......Page 211 143 Comparing Working Capital to Sales......Page 212 144 Comparing Working Capital to Net Income......Page 213 145 Relating Working Capital to Current Debt......Page 214 146 Relating Working Capital to Long-Term Debt......Page 215 147 Relating Working Capital to Total Debt......Page 216 148 Comparing Working Capital to Current Assets......Page 217 149 Comparing Working Capital to Specific Current Assets Such as Cash and Inventory......Page 218 150 Comparing Working Capital to Total Assets......Page 219 151 Relating Liquid Assets to Total Current Assets......Page 221 152 Relating Marketable Securities to Total Current Assets......Page 222 153 Comparing Accounts Receivable to Total Current Assets......Page 223 154 Comparing Inventory to Total Current Assets......Page 224 155 Comparing Other Specific Current Asset Accounts to Total Current Assets......Page 225 156 Comparing Specific Expenses Such Interest and Taxes to Total Current Assets......Page 226 Solvency......Page 227 157 Determining How Times Interest Expense is Earned......Page 228 158 Comparing Operations Cash Flow Plus Interest to Interest......Page 229 159 Finding How Many Times Debt Expenses are Covered......Page 230 160 Comparing Operations Cash Flow Plus Debt Expenses to Debt Expenses......Page 231 161 Finding How Many Times the Long-Term Debt is Covered......Page 232 162 Comparing Operations Cash Flow to Long-Term Debt......Page 233 163 Finding How Many Fixed Costs are Covered......Page 234 164 Comparing Operations Cash Flow Plus Fixed Costs to Fixed Costs......Page 235 165 Expenses are Covered......Page 237 166 Comparing Operations Cash Flow Plus Operating Expenses to Operating Expenses......Page 238 167 Determining How Many Days of Operating Expense Payables are Outstanding......Page 239 168 Finding How Many Times Asset Additions are Covered......Page 240 169 Comparing Operations Cash Flow to Changes in Assets......Page 241 170 Comparing Retained Earnings to Total Assets......Page 242 Leverage......Page 243 171 Comparing Debt to the Market Value of Equity......Page 244 172 Comparing Current Debt to the Market Value of Equity......Page 245 173 Comparing Long-Term Debt to the Market Value of Equity......Page 246 174 Determining the Funded-Capital- to-Fixed-Asset Ratio......Page 247 175 Examining Financial Leverage......Page 248 176 Examining Operating Leverage......Page 250 177 Examining Total Leverage......Page 252 Accounts Receivable......Page 254 178 Comparing Accounts Receivable to Sales......Page 255 179 Determining the Turnover of Accounts Receivable......Page 256 180 Determining How Many Days of Credit Sales are in Accounts Receivable......Page 257 181Examining the Ages of Accounts Receivable (Aging Schedule)......Page 258 182 Determining What Percentage of Current-Period Sales Will Be Collected in the Current Period......Page 259 183 Determining What Percentage of Current-Period Sales Will Not Be Collected in the Curren......Page 260 184 Examining Bad Debt and Accounts Receivable......Page 261 185 Relating Bad Debts to Sales......Page 262 186 Determining if Credit Discounts Should be Accepted and Offered......Page 263 187 Examining Accounts Receivable Factoring......Page 265 Accounts Payable......Page 266 188 Comparing Accounts Payable to Sales......Page 267 189 Finding the Turnover of Accounts Payable......Page 268 190 Calculating the Number of Days of Purchases in Accounts Payable......Page 269 191 Comparing Accounts Payable to Purchases......Page 270 192 Finding How Many Days of Purchases Have Been Paid......Page 271 193 Comparing Accounts Payable Cash Disbursements to Accounts Payable......Page 272 194 Comparing Individual Accounts Payable Disbursements to Total Cash Disbursements......Page 273 Inventory......Page 274 195 Relating Inventory and Sales Levels......Page 275 196 Determining the Turnover of the Entire Inventory......Page 276 197 Determining How Many Days of Inventory Are On Hand......Page 277 198 Calculating the Turnover of Finished Product Inventory......Page 278 199 Finding How Many Days of Finished Product Inventory Are Available......Page 279 200 Determining the Turnover of Work in Process Inventory......Page 280 201 Calculating How Many Days of Work in Process Are Available......Page 281 202 Determining the Turnover of Raw Materials Inventory......Page 282 203 Examining How Many Days of Raw Materials Inventory Are Available......Page 283 204 Determining the Inventory Ordering Cost......Page 284 205 Measuring the Inventory Carrying Cost......Page 286 206 Determining the Optimum Inventory Order Quantity......Page 287 207 Determining the Total Cost of Inventory Per Item......Page 289 208 Determining the Timing of Inventory Reorders......Page 291 209 Estimating the Size of Inventory Safety Stock......Page 292 210 Examining Just-in-Time (JIT) Systems......Page 294 Product and Service Demand Types......Page 295 211 Examining Elastic Demand for Goods or Services......Page 296 212 Examining Inelastic Demand for Goods and Services......Page 297 213 Understanding Unitary Elasticity for Goods or Services......Page 298 214 Examining Cross-Elasticity for Goods or Services......Page 299 215 Examining Price Elasticity of Supply......Page 300 Capital Investment......Page 301 216 Determining the Payback Period......Page 302 217 Determining the Payback Reciprocal......Page 303 218 Finding the Discounted Payback Period......Page 304 219 Finding the Accounting Rate of Return......Page 306 220 Determining the Net Present Value (NPV)......Page 307 221 Finding the Risk-Adjusted Discount Rate......Page 309 222 Ascertaining the Benefit Cost Ratio......Page 311 223 Finding the Internal Rate of Return (IRR)......Page 312 224 Finding the Modified Internal Rate of Return (MIRR)......Page 314 225 Determining the Certainty Equivalent......Page 315 226 Determining the Future Value of $1......Page 317 227 Finding the Future Value of an Annuity of $1......Page 318 228 Calculating the Future Value of an Annuity Due of $1......Page 319 229 Finding the Present Value of $1......Page 320 230 Determining the Present Value of an Annuity of $1......Page 321 231 Calculating the Present Value of an Annuity Due of $1......Page 322 232 Examining Perpetuities......Page 323 Investment/Loan Interest Rate Information......Page 324 233 Examining Simple Interest......Page 325 234 Exploring Compounded Interest......Page 326 235 Examining the Current Yield on Bonds......Page 327 236 Examining the Yield to Maturity on Bonds......Page 328 237 Examining the Effective Annual Yield on T-bills......Page 329 238 Exploring the Rule of 72......Page 330 239 Exploring Interest Rates and Their Significance: Federal Funds Rate......Page 331 240 Exploring Interest Rates and Their Significance: Discount Rate......Page 332 241 Exploring Interest Rates and Their Significance: Treasury Bills/Notes/Bonds......Page 333 External Indicators......Page 334 242 Examining the Index of Leading Economic Indicators......Page 335 243 Examining the Index of Coincident Economic Indicators......Page 336 244 Examining the Index of Lagging Economic Indicators......Page 337 245 Assessing the Gross Domestic Product (GDP)......Page 338 246 Examining the Gross National Product (GNP)......Page 339 247 Examining the Producer Price Index (PPI)......Page 340 248 Assessing the Consumer Price Index (CPI)......Page 341 249 Examining the Dow Jones Industrial Average (DJIA)......Page 342 250 Exploring the Russel 2000 Average......Page 343 251 Exploring the Wilshire 5000 Average......Page 344 Company Valuation......Page 345 252 Determining the Book Value of a Company......Page 346 253 Finding the Liquidation Value of a Company......Page 347 254 Ascertaining the Market Value of a Company......Page 349 255 Assessing the Price-to-Earnings Value of a Company......Page 350 256 Valuing a Company on Discounted Future Cash Flow......Page 351 257 Determining the Value of a Company with No-Earnings-Per-Share Dilution......Page 352 Appendix A......Page 353 Appendix C......Page 355 References and Suggested Reading......Page 356 Index......Page 357 About the Author......Page 362 "Winning Business helps you determine critical performance indicators. It provides industry-wide benchmarks from many different-sized companies operating in a variety of industries that you can use to see how your company stacks up against the competition."--BOOK JACKET. "This book presents a valuable collection of performance indicators that you and your company can use to track and assess inventories, expenses, growth, break-even units, margins, sales, investments, product costs, assets, and more. It shows you how to calculate these indicators and presents ways to improve performance in areas of concern."--Jacket