KEY FINANCIAL MANAGEMENT TOOLS

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KEY FINANCIAL MANAGEMENT TOOLS

• PRESENTED AT MASTER BUILDERS
• FIRST ANNUAL
• REGIONAL ECONOMIC OUTLOOK
• MANAGEMENT FORUM
• BY
• ALLEN ASSOCIATES

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KEY TOOL AREAS

• FINANCIAL
• OPERATIONS
• SALES
• MANAGEMENT

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TOOLS COVERED TODAY

• BALANCE SHEET
• PL
• BENCHMARKING
• BREAKEVEN ANALYSIS
• JOB PRODUCT COSTING/PRICING
• JOB CUSTOMER CONTRIBUTION

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THE TWO KEY FINANCIAL TOOLS

• BALANCE SHEET
• PROFIT LOSS STATEMENT

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BALANCE SHEET

• SNAP SHOT OF THE COMPANYS FINANCIAL HEALTH
• CURRENT PERIOD
• LAST YEAR
• VARIANCE
• WORKING CAPITAL
• RATIOS
• DSOs

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TYPICAL BALANCE SHEETOTHER SSETS
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TYPICAL BALANCE SHEETCURRENT LIABILITIES
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TYPICAL BALANCE SHEETLONG TERM LIABILITIES
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TYPICAL BALANCE SHEETEQUITY
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TYPICAL BALANCE SHEETRATIOS
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PROFIT LOSS STATEMENT

• MOTION PICTURE OF A COMPANYS SALES, COSTS
  EARNINGS OVER A PERIOD OF TIME
• VARIABLE AND FIXED COST CATERGORIES
• DOLLARS
• PER CENT TO SALES
• COST PER UNIT
• VARIANCE FROM PLAN

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COSTS

• VARIABLE COSTS DEFINED AS
• COST INCURRED WHEN A SALE IS MADE
• TYPES
• MATERIAL
• PLANT
• DELIVERY

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COSTS

• FIXED COSTS DEFINED AS COSTS FIXED IN RELATION
  TO TIME
• TYPES
• DIRECT
• SALES
• GA

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VARIABLE FIXED COSTS
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EDITDA

• EBITDA 2,952 5.90 10.7

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BENCHMARKING

• ASSISTS IN HELPING TO ANALYZE THE COST OF DOING
  BUSINESS
• ASSISTS IN HELPING TO ANALYZE THE EFFICIENCY OF
  AN OPERATION

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Cement Prices vs Ready Mix Prices
1st Quarter of 1980 to 2nd Quarter of 1996
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FINACIAL RATIOS

• lt1M 1M-3M 3M-5M gt5M
• CURRENT 1.8 2.0 1.6 1.7
• CASH 29.9 40.5 13.1 16.9
• D/E 1.1 0.6 1.1 0.4
• AR DSO 32.9 46.2 54.7 46.3
• INVENT 10.8 11.9 10.8 10.2

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BREAK-EVEN POINT

• BE PT FIXED COST DIVIDED BY MARGIN
• DATA REQUIRED
• CURRENT TOTAL FIXED COSTS 1,000,000
• CURRENT AVG SELLING PRICE 60.00/YD
• CURRENT AVG VARIABLE CST 40.00/YD
• CURRENT MARGIN 20.00/YD
• BE PT IN YDS FC/UNIT MARGIN
• BE PT IN FC/MARGIN RATIO
• 1,000,000/20 50,000 YDS
• 1,000,000/.33 3,030,303

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ADDITIONAL SALES REQUIRED TO COVER INCREASED
FIXED COSTS

• CURRENT SP 60/YD
• CURRENT VC 40.00/YD
• CURRENT FC 1,000,000
• CURRENT BE PT 50,000 YDS
• NEW FC 1,500,000
• MARGIN 20
• NEW BE PT 75,000 YDS
• (1,500,000/20)
  
• INCREASE OF 25,000 YDS/50

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VOLUME REQUIRED TO MAINTAIN CURRENT PROFIT LEVEL
IF PRICES ARE INCREASED

• NEW SP 65.00
• INCREASE 8.33
• NEW MARGIN 25.00
• NEW BE PT 40,000 YDS
• (1,000,000/25)
• DECREASE 20

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VOLUME REQUIRED TO MAINTAIN CURRENT PROFIT LEVEL
IF PRICES ARE DECREASED

• NEW SP 50.00/YD
• DECREASE 16.6
• NEW MARGIN 10.00
• NEW BE PT 100,000 YDS
• (1,000,000/10)
• INCREASE 100

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BREAK-EVEN POINT

• BE PT FIXED COST DIVIDED BY MARGIN
• DATA REQUIRED
• CURRENT TOTAL FIXED COSTS 1,000,000
• CURRENT AVG SELLING PRICE 60.00/YD
• CURRENT AVG VARIABLE CST 40.00/YD
• CURRENT MARGIN 20.00/YD
• BE PT IN YDS FC/UNIT MARGIN
• BE PT IN FC/MARGIN RATIO
• 1,000,000/20 50,000 YDS
• 1,000,000/.33 3,030,303

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ADDITIONAL SALES REQUIRED TO COVER INCREASED
FIXED COSTS

• CURRENT SP 60/YD
• CURRENT VC 40.00/YD
• CURRENT FC 1,000,000
• CURRENT BE PT 50,000 YDS
• NEW FC 1,500,000
• MARGIN 20
• NEW BE PT 75,000 YDS
• (1,500,000/20)
  
• INCREASE OF 25,000 YDS/50

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VOLUME REQUIRED TO MAINTAIN CURRENT PROFIT LEVEL
IF PRICES ARE INCREASED

• NEW SP 65.00
• INCREASE 8.33
• NEW MARGIN 25.00
• NEW BE PT 40,000 YDS
• (1,000,000/25)
• DECREASE 20

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VOLUME REQUIRED TO MAINTAIN CURRENT PROFIT LEVEL
IF PRICES ARE DECREASED

• NEW SP 50.00/YD
• DECREASE 16.6
• NEW MARGIN 10.00
• NEW BE PT 100,000 YDS
• (1,000,000/10)
• INCREASE 100

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KEY OPERATIONAL TOOLS

• PAYROLL ANAYLSIS
• NUMBER OF EMPLOYES BY CATEGORY
• OVERTIME
• FRINGES

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KEY OPERATIONAL TOOLS

• PRODUCTION
• YDS PER YR PER PLANT
• YDS PER YR PER TRUCK
• AVG DAILY LOADS PER TRUCK
• AVG YDS PER LOAD
• AVG YDS PER MAN HOUR
• VARIABLE DELIVERY COST PER MINUTE

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SALES TOOLS

• DAILY/M-T-D/Y-T-D SALES YARDS BY PLANT
• JOBS AVAILABLE
• JOBS BID
• YDS/PRICE/COMPETITION
• JOBS SOLD
• YDS/PRICE
• COMPETITION
• BACKLOG
• YDS/WEIGHTED AVERAGE PRICE
• COMPETITION

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SALES TOOLS

• JOB COSTING
• TARGET MARGIN PRICING
• PRICE LISTS

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C0ST COMPARISON SHEET
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JOB 1

• MARKET PRICE 60.00
• VARIABLE COST 59.70
• MARGIN 00.30
• JOB CONTRIBUTION 3,000
• PRE-TAX PROFIT ?
• AFTER TAX PROFIT ?

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JOB 2

• MARKET PRICE 60.00
• VARIABLE COSTS 41.57
• MARGIN 18.43
• JOB CONTRIBUTION 184,300
• PRE-TAX PROFIT 8.43
• AFTER TAX PROFIT 5.05

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JOB 1

• MARKET PRICE 55.00
• VARIABLE COST 59.70
• MARGIN (4.70)
• JOB CONTRIBUTION (47,000)

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JOB 2

• MARKET PRICE 55.00
• VARIABLE COSTS 41.57
• MARGIN 13.43
• JOB CONTRIBUTION 134,300
• PRE-TAX PROFIT 3.43
• AFTER-TAX PROFIT 2.05

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JOB 2

• MARKET PRICE 50.00
• VARIABLE COST 41.57
• MARGIN 8.43
• JOB CONTRIBUTION 84,300
• PRE-TAX PROFIT ?

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SALES MANAGEMENT TOOLS

• DAILY J-T-D JOB INFORMATION
• YARDS
• VARIABLE DELIVERY COST PER YD
• UNIT MARGIN PER YARD
• CONTRIBUTION
• VARIANCE FROM BID DATA
• JOB SUMMARY

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OTHERMANAGEMENT TOOLS

• BUDGETS
• CASH FORECASTS
• 3-5 YEAR PLAN
• MODELS

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SUMMARY

• ONLY THE INTELLIGENT WILL SURVIVE
• ONLY THE INFORMED WILL BE INTELLIGENT
• MANAGEMENT MUST BE ABLE TO IDENTIFY AND QUANTIFY
  ALL PROBLEMS IF IT IS GOING TO SOLVE THEM
• MANAGEMENT MUST USE ALL TOOLS AND TECHNOLOGY
  AVAILABLE TO MANAGE