Archive for category performance objectives
The fundamentals of credit valuation
Posted by admin in Save Money, performance objectives, profit margin, profit projections, revenue, understanding finances, variable costs on October 24th, 2009
Besides market fundamentals valuation is the major driver of market performance for the longer term. The other two drivers that are commonly mentioned in investment literature, technicals and market sentiment, are more likely to explain short- to medium-term fluctuations of credit spreads.
The subject of valuation arises on every level of the investment process. Generally, it is a question of relative attractiveness of one investment vis-avis another one. In this chapter, we will outline four approaches that may support asset allocation decisions in fixed income portfolios with an aggregate benchmark as well as help to determine the beta of a pure credit portfolio.
Particularly troubling stock options
Posted by admin in material costs, ownership, performance objectives, production cycles on September 7th, 2009
Stock options are particularly troubling. In theory, employees who own stock will work to make the price of the stock rise. Therefore they are given the right to buy shares at a discount. Unfortunately, when new stock is issued to employees who exercise their stock options, your interest is diluted. In some companies, you will find your interest cut in half in a few years. CEOs of large companies average $4 million a year in stock options.
In addition, studies show that the share prices of companies that issue large amounts of stock options underperform the market. Even worse, employees benefit when the stock price collapses. Stock options are repriced or new stock options issued so employees can dilute your interest at a fraction of the cost. You get no benefit from a stock price collapse.
The grant of stock options also increases the volatility of your shares. Stock options are only valuable if the price of the stock rises above the option price. If the value declines, the options are worthless, and employees will not spend money to exercise them. This gives employees an incentive to bet the company on risky ventures such as mergers, acquisitions, untested products, untested markets, untested technology, and untested corporate structures. Employee stock options are no benefit to you whatsoever.
What’s So Important About Accounting? – part 2
Posted by admin in communication, incentive, management skills, paperwork, performance objectives, production cycles on August 2nd, 2009
In the dark recesses of their numerical souls, even some accountants may worry that their function is only a necessary evil, an overhead expense that in some organizations is no more than a glorified bookkeeping function. Not so. Sales, manufacturing, research and development, and management all generate raw financial data through their various activities. It’s up to accountants to turn that data into useful information.
A good accounting function—whether in a large company headed by a highly trained chief financial officer (CFO) or a small company with a bookkeeper—produces and communicates information. This information shows department heads how they’re spending the company’s money and whether they’re getting the results they want. Sure, accountants are still number-crunchers and bean-counters, but the true value of what they do is in how they interpret and present the results of all that crunching and counting.
Plain and simple, a company’s accountants, whoever they may be, are guides to its finances. The way this group or this individual organizes figures and turns it into meaningful information provides the measures that help determine the success or failure of the company. Understanding those measures may make all the difference between the manager who’s a well-rounded professional and the manager who’s just another specialist with little sense of the larger financial implications of his or her decisions.
The Management Function in Budgeting – part 2
Posted by admin in incentive, market demand, material costs, performance objectives, profit projections on August 2nd, 2009
Shipping/Delivery seems to have climbed precipitously in the last year. Why? Clearly, this is a case where vendor price had exceeded market value. It may be a case of a long-term supplier who has gotten used to raising its prices a certain percentage each year with little incentive to remain competitive. Management should review any contracted relationship with the vendor and check the last three years’ delivery and shipping charges to note the percentage increase. Chances are it’s time to put the service out for competitive bid.
There are dozens of questions that can and should be raised, but the preceding three make the point: Setting up the budget is only half the task. The document must then be put through management scrutiny, not only to check the accuracy of its numbers and suppositions, but also to raise those issues that will enable the company to be more efficient and cost-effective.
If these questions aren’t part of the budget creation, then management is doing only half its job.
Fixed and Variable Costs in fiction – part 3
Posted by admin in management skills, manufacturing, marketing, material costs, performance objectives on August 1st, 2009
Decisions over semi-variable costs, such as marketing expenses, may be made based on the number of units you need to sell, but they likely are not unit-specific—unless, for example, the marketers decide to give away something free with each purchase. However, if we were to add an additional $5,000 in marketing expense to our 5,000-unit run, we add an additional dollar in semi-variable cost to each item. The same $5,000, spent on the 10,000-unit run, would add an additional 50 cents per piece.
The net cost, then, on the 5,000 unit run jumps to $8 per unit. Costs for the 10,000 unit run jump to $6.50. The net profit margins are $1 and $2.50 per unit, respectively.
Even with these costs applied, it should be evident that the higher this particular production run, the wider the profit margin. That’s all part of the sales income, to be sure. But the profitability per unit is determined primarily by the fixed and semi-variable costs. And that’s influenced by the budgeting procedure.
Stepping into the Budgeting Process
Posted by admin in consulting, effective budgeting, performance objectives, production cycles, revenue on July 31st, 2009
Define the tactics that will help a department or company achieve its objectives. Goals and objectives can be achieved only if the company sets out a tactical game plan. There are different ways to get from Point A to Point B and a company’s success will depend on choosing effective tactics to reach those goals. The cost of pursuing those tactics also will be part of the overall budget, reflected as part of the cost of doing business.
The best tactics usually yield the highest reward, whether that’s in terms of annual earnings, market share gain, or growth potential. But tactics vary with each situation, each company, and each strategy. The important thing is that those tactics are reflected in the budget in terms of their effect on both the revenue and expense side.
Identify procedures to help achieve that goal. Procedures are to tactics what objectives are to goals. They are more specific, more operationally oriented—almost mechanical.
Stepping into the Budgeting Process – part 2
Posted by admin in consulting, effective budgeting, financial growth, performance objectives on July 30th, 2009
What company goals does the budget embrace? These goals usually include profitability, but they also include investing in the company’s ability to develop new product and service offerings to customers to help assure the company will be around tomorrow. Nearly all budgets help managers develop a balance between making money today and making money tomorrow.
What objectives can be identified in the budget? Goals are important, but only clearly identified performance objectives will make them happen. Objectives clearly spelled out are crucial so that all parts of the company understand and pursue the same goals.
If your company’s business is manufacturing and marketing luxury powerboats, its objective might be to increase sales 15 percent or establish a new outlet in a neigh-boring city. Increased sales of related paraphernalia as a financial objective might be a secondary objective. All such initiatives need to be reflected in the budget because all are strategic goals that will have either a positive or a negative impact on the bottom line.