Performance Dashboards and Analysis for Value Creation E-Book

Jack Alexander

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Serie: Wiley Finance Editions
• Sprache: Englisch
• Veröffentlichungsjahr: 2011

Seitenzahl: 338

Beschreibung

No matter what industry your company competes in, you need to have a firm understanding of how to create a direct link between shareholder value and critical business processes in order to improve performance and achieve long-term value. Performance Dashboards and Analysis for Value Creation contains the information and expertise you need to do just this--and much more.

Leseprobe

Table of Contents

Praise

Title Page

Copyright Page

Dedication

List of Dashboards

Preface

WHY THIS BOOK?

USING THIS BOOK

ABOUT THE CD - ROM

QUESTIONS FOR CONSIDERATION

About the Author

Acknowledgments

CHAPTER 1 - The Management Challenge: Integrating Performance, Finance, and Value

WHAT IS SHAREHOLDER VALUE?

THE MEASUREMENT CHALLENGE

ABOUT THE VALUE PERFORMANCE FRAMEWORK

PART One - Creating Context and Covering the Basics

CHAPTER 2 - Fundamentals of Finance

BASICS OF ACCOUNTING AND FINANCIAL STATEMENTS

FINANCIAL RATIOS AND INDICATORS

OPERATING MEASURES

ASSET UTILIZATION MEASURES

CAPITAL STRUCTURE/LIQUIDITY MEASURES

OVERALL MEASURES OF PERFORMANCE

CASH GENERATION AND REQUIREMENTS

LIMITATIONS AND PITFALLS OF FINANCIAL RATIOS

PUTTING IT ALL TOGETHER

SUMMARY

QUESTIONS FOR CONSIDERATION

CHAPTER 3 - Key Valuation Concepts

ESTIMATING THE VALUE BY DISCOUNTING ESTIMATED FUTURE CASH FLOWS

ESTIMATING VALUE BY USING THE VALUATION OF SIMILAR FIRMS: MULTIPLES OF ...

BUILDING SHAREHOLDER VALUE IN A MULTIPLE FRAMEWORK

FACTORS THAT AFFECT MULTIPLES

USE OF MULTIPLES IN SETTING ACQUISITION VALUES

INTEGRATED VALUATION SUMMARY FOR SIMPLE CO.

SUMMARY

QUESTIONS FOR CONSIDERATION

CHAPTER 4 - The Business Model and Financial Projections

COMPREHENSIVE BUSINESS MODEL FRAMEWORK

REVIEW OF BUSINESS MODELS

VARYING BUSINESS MODELS WITHIN ACOMPANY

OPERATING LEVERAGE:THE BUSINESS MODEL AND VARIABILITY

LIMITATIONS OF THE BUSINESS MODEL CONCEPT

PROJECTING FINANCIAL PERFORMANCE

SUMMARY

QUESTIONS FOR CONSIDERATION

PART Two - Linking Performance and Value

CHAPTER 5 - Drivers of Shareholder Value and the Value Performance Framework

SIX DRIVERS OF SHAREHOLDER VALUE

BUILDING THE FRAMEWORK

MEASURING PERFORMANCE AND PROGRESS: THE CORPORATE DASHBOARD

ASSESSING PERFORMANCE AND IDENTIFYING PRESSURE POINTS

IDENTIFYING HIGH-LEVERAGEIMPROVEMENT OPPORTUNITIES AND ESTIMATING FULL ...

SUMMARY

QUESTIONS FOR CONSIDERATION

CHAPTER 6 - Revenue Growth and Pricing Strength

REVENUE GROWTH: KEY DRIVERS

PROJECTING AND TESTING FUTURE REVENUE LEVELS

KEY PERFORMANCE MEASURES: REVENUE GROWTH

REVENUE DASHBOARD

RELATIVE PRICING STRENGTH

MEASURES OF RELATIVE PRICING STRENGTH

GROSS MARGIN AND PRICING STRENGTH DASHBOARD

SUMMARY

QUESTIONS FOR CONSIDERATION

CHAPTER 7 - Operating Effectiveness

DRIVERS OF OPERATING EFFECTIVENESS

KEY PERFORMANCE INDICATORS: OPERATING EFFECTIVENESS

TOOLS FORASSESSING AND IMPROVING OPERATING EFFECTIVENESS

OPERATING EFFECTIVENESS DASHBOARDS

SUMMARY

QUESTIONS FOR CONSIDERATION

CHAPTER 8 - Capital Effectiveness: Working Capital

CRITICAL SUCCESS FACTORS

OPERATING CAPITAL MANAGEMENT

UNDERSTANDING THE DYNAMICS OF OPERATING CAPITAL

UNLEASHING THE VALUE TRAPPED IN OPERATING CAPITAL

ACCOUNTS RECEIVABLE

INVENTORIES

SUMMARY

QUESTIONS FOR CONSIDERATION

CHAPTER 9 - Capital Effectiveness: Long-Term Assets

CAPITAL INTENSITY

TOOLS FORIMPROVING THE MANAGEMENT OF LONG-TERM CAPITAL

KEY PERFORMANCE INDICATORS FOR CAPITAL INTENSITY

INTANGIBLE ASSETS

KEY PERFORMANCE INDICATORS: GOODWILL AND INTANGIBLE ASSETS

EXCESS CASH BALANCES

LONG-TERM CAPITAL DASHBOARD

SUMMARY

QUESTIONS FOR CONSIDERATION

CHAPTER 10 - Cost of Capital and the Intangibles

COST OF CAPITAL DRIVERS

ESTIMATING THE COST OF CAPITAL

KEY WAYS MANAGERS CAN REDUCE THE COST OF CAPITAL

THE INTANGIBLES

PERFORMANCE MEASURES

DASHBOARD: COST OF CAPITAL AND INTANGIBLES

SUMMARY

QUESTIONS FOR CONSIDERATION

PART Three - Driving Performance and Value

CHAPTER 11 - Building a Performance Management Framework

OBJECTIVE OF APERFORMANCE MANAGEMENT FRAMEWORK

THE MEASUREMENT CHALLENGE

THE IMPLEMENTATION PROCESS

AVOIDING COMMON MISTAKES

SAMPLE DASHBOARDS FOR SELECTED INDUSTRIES

SUMMARY

QUESTIONS FOR CONSIDERATION

CHAPTER 12 - The Economics of Mergers and Acquisitions

THE ACQUISITION CHALLENGE

KEY ELEMENTS IN VALUING AN ACQUISITION

M&A VALUATION METHODS AND METRICS

COMMON MISTAKES IN M&A

BEST PRACTICES AND CRITICAL SUCCESS FACTORS

UNDERSTANDING SELLER BEST PRACTICES

KEY PERFORMANCE INDICATORS FOR M&A

SUMMARY

QUESTIONS FOR CONSIDERATION

CHAPTER 13 - Benchmark Takeaways and Summary

THE VALUE PERFORMANCE FRAMEWORK BENCHMARK STUDY: SUMMARY FINDINGS

VALUE PRESSURE POINTS

SUMMARY

QUESTIONS FOR CONSIDERATION

Glossary

About the CD-ROM

Index of Performance Measures

Subject Index

Additional Praise for

Performance Dashboards and Analysis for Value Creation

“Jack Alexander has clearly and concisely shown business leaders how to proactively manage and direct their businesses. If you are a business leader and want to achieve a higher level of success, you need to get hold of the concepts and principles in this book.”

—Paul J. DiCicco, Vice President, Operations Summer Infant, Inc.

“Mr. Alexander provides you with the tools to custom-build a dashboard for your specific business and continually reminds us of the need to link business dynamics to the creation of shareholder value.”

—Sally J. Curley, Vice President, Investor Relations Genzyme Corporation

“Having had Jack Alexander as a professor, I can testify that his methodology works both in and out of the classroom.”

—Pamela A. Pantos, Financial Analyst W. R. Grace and Babson College, MBA 2006

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For a list of available titles, visit our web site at www.WileyFinance.com.

Copyright © 2007 by Jack Alexander. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, [phone], fax [phone], or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, [phone], fax [phone], or online at http://www.wiley.com/go/permissions.

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Library of Congress Cataloging-in-Publication Data:

Alexander, Jack, 1956-

Performance dashboards and analysis for value creation / Jack Alexander. p. cm.—(Wiley finance series)

Includes bibliographical references and index.

ISBN-13 978-0-470-04797-2 (cloth/cd-rom)

1. Corporations—Valuation. 2. Corporate profits. 3. Performance standards. 4. Organizational effectiveness—Evaluation. I. Title. II. Series.

HG4028.V3A42 2007

658.15’54—dc22

2006011782

To my family:

My parents, Marian and Jack AlexanderMy wife Suzanne, and our sons Rob and TomMy sisters, Karen and Carol, and their familiesMy mother-in law, Kay

List of Dashboards

Benchmarking, 90 Cost of Capital, 205 Gross Margin and Pricing Strength, 116 Key Performance Trends, 267-269 Long-Term Capital, 192 Mergers and Acquisitions Process, 259 New Product Development, 143 Operational Effectiveness, 142 Quarterly Corporate, 87, 223 Revenue Growth and Innovation, 111 Revenue Process and Accounts Receivable, 160 Ski Resort, 231 Specialty Retail: Lawn and Garden, 230 Specific Acquisition, 259 Supply Chain Management and Inventory, 170 Weekly Corporate, 88

Preface

WHY THIS BOOK?

There has been substantial progress in a number of business disciplines over the past 15 years, including measuring business and financial performance and managing shareholder value. However, in my experience as a CFO, educator, and consultant, it became clear to me that these subjects were not fully integrated in many organizations or in the minds of many students and managers. Most managers and employees want to do the right things but often do not understand how their role relates to the success of the company, including building long-term value. Over a long period of time, I found that students, managers, and employees responded very positively to progressive attempts at linking performance and value through improved analytical models, performance measures, and “dashboards.” In addition to these tools, positive results were achieved by creating various wiring diagrams to provide context and visual integration of value drivers, financial performance, and operating processes and activities. Success with these tools and models led to the development of the Value Performance Framework (VPF). The objectives of the VPF and this book are to strengthen the links among operating performance, financial measures, and shareholder value and to provide tools to enable managers to improve the effectiveness of performance management in their organizations to build long-term sustainable value for shareholders.

USING THIS BOOK

This book presents three major topics:

1. Creating Context and Covering the Basics

2. Linking Performance and Value

3. Driving Performance and Value

Chapter 1, The Management Challenge: Integrating Performance, Finance, and Value, frames the challenges facing managers in building effective performance management systems and provides an introduction to the Value Performance Framework.

Part One, Creating Context and Covering the Basics, provides a foundation for the concepts utilized in the VPF, including basic finance concepts and valuation principles. It contains the following chapters:

Chapter 2. Fundamentals of Finance

Chapter 3. Key Valuation Concepts

Chapter 4. The Business Model and Financial Projections

Part Two, Linking Performance and Value, presents key elements of the VPF. Each of the value drivers is linked to critical business activities and processes. Key performance measures, analytical models, dashboards, and tools for improving each value driver are explored. Chapters include:

Chapter 5. Drivers of Shareholder Value and the Value Performance Framework

Chapter 6. Revenue Growth and Pricing Strength

Chapter 7. Operating Effectiveness

Chapter 8. Capital Effectiveness: Working Capital

Chapter 9. Capital Effectiveness: Long-Term Assets

Chapter 10. Cost of Capital and the Intangibles

Part Three, Driving Performance and Value, describes how managers can use these tools to build shareholder value. Topics include effective implementation of a performance management framework, including integrating with other management practices; using these tools to improve the effectiveness of mergers and acquisitions; and finally a review of best practices and performance results based on the author’s research into the performance of more than 125 companies. Part Three includes the following chapters:

Chapter 11. Building a Performance Management Framework

Chapter 12. The Economics of Mergers and Acquisitions

Chapter 13. Benchmark Takeaways and Summary

A glossary of commonly used financial, value, and performance measurement terms is included in the back of the book.

ABOUT THE CD - ROM

A number of illustrative performance dashboards and Excel models used in the book are included in the accompanying CD-ROM. These items are identified in the book with a CD-ROM logo, shown in the margin here. The dashboards and spreadsheets are intended as working examples and starting points for the reader’s use. An important theme of this book is to underscore the importance of selecting the appropriate measures and dashboards. It is very important to carefully select the measures that are most appropriate for each circumstance. Accordingly, most of the dashboards and models will have to be tailored to fit the specific needs of the user.

The spreadsheets contain the data used in the examples provided in the book. In all cases, the input fields are highlighted in blue. Readers can save these files under a different name and use them to begin developing dashboards and analysis for their specific needs. Using the models on the CD-ROM requires Microsoft Excel software and an intermediate skill level in the use of that software. Additional information on the use of the CD-ROM can be found in the About the CD-ROM section on page 281.

QUESTIONS FOR CONSIDERATION

Each chapter ends with a set of questions for consideration. These are intended to encourage readers to apply some of the concepts and tools to the company they work for or to a business with which they are familiar. Accordingly, there are no “solutions” to these questions. In many cases, the reader is encouraged to utilize the analytical models and sample dashboards included on the CD-ROM.

JACK ALEXANDER

Southborough, MassachusettsJune 2006

About the Author

Jack Alexander is the founder and president of Value Advisory Group, LLC, a consulting and executive development firm with a focus on business performance management and shareholder value. Prior to establishing the consulting practice, he held a number of senior operating and financial positions in industry. Mr. Alexander served in several financial and operational management positions including corporate controller and chief financial officer at EG&G Inc., a global $2.5 billion technology and services company. He also served as senior vice president and chief financial officer for Mercury Computer Systems.

Mr. Alexander’s prior experience includes positions at General Refractories Company and in the Philadelphia office of Coopers & Lybrand, now part of Pricewaterhouse Coopers. He is a certified public accountant and a member of the Financial Executives Institute and the American Institute of Certified Public Accountants. He has an MBA from Rider University and a BS in Business Management from Indiana University of Pennsylvania.

Mr. Alexander is also an adjunct professor at Babson College, where he has taught corporate finance and advanced finance electives covering valuation, strategic investments, and mergers and acquisitions in both the MBA and undergraduate programs.

Acknowledgments

As a user and participant in the evolution of performance measures and other tools to build shareholder value, I am appreciative of the good work of others, including Aswath Damodaran and Tom Copeland on the subjects of valuation and shareholder value management.

I have been blessed to have exposure to a number of businesses, work with and for great people, and observe and participate in business from several different perspectives. The experience gained as a division finance and general manager, CFO, educator, and consultant has all contributed to the development of the tools incorporated in the Value Performance Framework and this book. I was first introduced to performance measures in the mid-1980s, primarily related to manufacturing and inventory management. Over time, the scope, depth, and use of performance measures has greatly expanded, as has the need to integrate these with financial results and value.

Prior to embarking on my teaching and consulting track, most of my professional career was with a terrific company, EG&G, Inc. The company had a large and diverse portfolio of businesses that provided ample opportunity for learning, as did the period of radical transformation during the 1990s. I had the pleasure of working with and learning from a number of terrific people at the division, group, and corporate level.

The time spent teaching at Babson College has been both rewarding and enlightening. I have learned a lot by teaching, especially how people learn and process information. I also received encouragement and feedback from students and colleagues on the tools incorporated in this book. The team at Mercury Computer Systems was very receptive to and supportive of many of the tools in the Framework. I also learned a great deal from my time at Coopers & Lybrand in Philadelphia. The exposure to a wide range of client companies, process orientation, accounting and reporting, and great people provided a solid foundation for future growth.

I also benefited greatly by knowing and working with a number of external business partners over the years, including bankers, consultants, and public accountants. Working with many directors, analysts, and investors over the years also contributed to my understanding of business, finance, and value.

A number of friends and colleagues were helpful in providing encouragement and feedback on this project, including Warren Davis, Phil Franchois, Dan Heaney, John Howard, Paul Crivello, Earl Kivett, Mike Vance, and especially Gary Olin. Special thanks to Bob Becker, Will Weddleton, Diane Basile, and Gary Olin for reviewing and commenting on the manuscript. Thanks to the team at John Wiley & Sons for their patience, guidance, and assistance with this first-time author, especially Emilie Herman, Bill Falloon, Laura Walsh, and Mary Daniello.

J. A.

CHAPTER 1

The Management Challenge: Integrating Performance, Finance, and Value

One of the primary objectives of corporate managers and directors is to create value for the company’s shareholders. Much has been said and written on this subject over the past 15 years. Yet many managers and most employees still have difficulty in fully understanding the drivers of shareholder value and how their activities relate to these drivers. The objective of this book, and the Value Performance Framework (VPF), is to assist managers and employees in developing a comprehensive understanding of valuation and creating a direct link between shareholder value and critical business processes.