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Building Fundamentals ®. Important Questions. How much do you know about Freeport-McMoRan Corporation’s Key Success Measures ? Let’s find out!. Pop Quiz. (Write your answers on Page 8-9). For fiscal year : 2010. 1 - How much Cash was on hand? $ ______ - PowerPoint PPT Presentation
Citation preview
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Building Fundamentals®
-
How much do you know about Freeport-McMoRan Corporation’s
Key Success Measures?
Let’s find out!
Important Questions
-
1 - How much Cash was on hand? $______
2 - How much Cash was generated by Operating Activities?$______
3 - What was our Total Revenues? $______
4 - What was our Operating Margin? ______%
5 - What was our Net Margin? ______%
6 – What was our Copper Reserves (billion lbs.)? ______
7 – What was our total equity ratio? ______%
8 - How much did Total Revenue change YOY? ______%
9 - How much did Net Income change YOY? ______%
10 - How much did Earnings Per Share (EPS) change YOY? ______%
11- What was FCX’s Total recordable incident rate (TRIR)? ______
12- Where would you go to get access to this information? ______
For fiscal year: 2010
Pop Quiz (Write your answers on Page 8-9)
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What’s your knowledge of Business terminology?
Let’s find out!
Group Activity
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The bills and coins in the register, petty cash, and cash in the bank. It also includes cash equivalents, like CD’s and other highly liquid investments, easily converted into cash within 90 days.
1. _____
Cash generation that is the difference between the cash that flows into the business and the cash that flows out of the business in a given period of time (month, quarter, annual)
2. _____
The total dollar payment received for goods & services during a specific period of time. It is the “top line” figure from which costs are subtracted to determine net income. Also synonymous with sales.
3. _____
The amount of profit realized from a business’s operations after taking out operating expenses such as costs of goods sold (COGS), SG&A, and depreciation. Also known as EBIT.
4. _____
A company's total earnings and is calculated by taking revenues and subtracting “all” expenses. This number is found on a company's income statement and is an important measure of how profitable the company is over a period of time. Often referred to as "the bottom line“.
5. _____
Amount of proven and probable copper available to be pulled out of our mining assets. 6. _____
A number used to help determine how much shareholders would receive in the event of a company-wide liquidation. The number is expressed as a percentage, is calculated by dividing total shareholders' equity by total assets of the firm, and it represents the amount of assets on which shareholders have a residual claim. The figures are taken from the company's balance sheet.
7. _____
An increase of a company's sales when compared to a previous month, quarter or year's revenue performance. 8. _____
An increase of a company’s net earnings compared to a previous month, quarter or year. 9. _____
The portion of a company's profit allocated to each outstanding share of common stock. Calculated as: Net Income – Dividends on Preferred Stock / Average Outstanding Shares.
10. _____
Rate of recordable workplace injuries, normalized per 200,000 hours worked. 11. _____
A. Revenue Growth B. Cash Flow C. GrowthD. Cash E. TRIR
F. Operating Income G. Revenue H. Net Income I. Equity Ratio J. EBITDAK. Net Income Growth L. Cooper Reserves M. Asset N. Liquidity O. EPS
Its OK to guess!
(Write your answers on Page 10-11)Group Activity!
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Accurately define pertinent business and financial terminology such as revenue, cost of goods sold, gross profit, net income, unit costs, etc.
Demonstrate in a team setting, an understanding of the 5 key drivers (cash, profit, assets, growth, people), that every business must focus on and how each driver influences business success.
Accurately describe the key measures and metrics used to assess business performance.
Identify and define each line item on a Basic Profit & Loss statement.
Articulate to one’s team the importance of business and financial acumen and how their individual role impacts the business.
Learning Objectives
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Only 5-10% of business start-ups survive past 5 years.
16% of CEOs lose their job every year. Booz Allen Hamilton 5th annual Study
70% of merger and acquisition activity do not live up to expectation. Wall Street Journal 2007
Why do businesses fail?
Business Can Be Tough!
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Every business must focus on five business drivers.
If they do, they will be successful.
If they don’t, they’ll fail.
Let’s Start a Business!
7
Introduction to the 5 Drivers
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Can a company have too much cash?
13
• Earn it • Cash from Operation
• Sell Assets• Cash from Investing
• Borrow it• Cash from Financing
Pro: No Cost -Con: Time
Pro: Immediate -Con: Reduces Assets
Pro: Immediate -Con: Cost (Interest)
Sources of Cash
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Can a company have too much Cash?
1) More attractive in a buy-out.2) Low return.3) Shareholders don’t like it.4) May make poor decisions.
13
Cash Challenges of Too Much Cash
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DEFINITION:What is required to Grow and Maintain the business.
HOW MUCH CASH SHOULD A COMPANY HAVE?
“Companies ought to keep just enough cash to cover their o Operational expenseso Interest expenseso Capital expenditureso ….plus a little bit more in case of emergencies.”
~Investopedia
Fred Smith - FedEx
People
Cash
Profit
Assets
Growth
®
Cash: Definition
12
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Cash (Cash position):“The bills and coins in the register, petty cash, and cash in the bank. It also includes cash equivalents, like CD’s and other highly liquid investments, that is easily converted into cash within 90 days.”
KEY MEASURES
Cash Flow:“Cash generation or “cash flow” is the difference between the cash that flows into the business and the cash that flows out of the business in a given period of time (month, quarter, annual)”
Cash: Measures
12
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Cash generated from operations activities Cash generated from investing activities Cash from financing activities
Cash management Liquidity Cash Equivalents
Cash: Related Terms
Cash generation or Cash from Operations refers to cash flow. Core operations or operating activities means the primary activities we perform in our business.
What are our core operating activities?
13
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Balance Sheet - Entry:Cash and Cash Equivalents (some companies add short-term and long-term investments/securities when considering their Cash Position.
Statement of Cash Flows – Entry:From Operations, or Cash Generated from Operations.
Cash: Where Measured
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“Cash is more important than your mother." Al Shugart Former Seagate CEO
“Cash is a company’s oxygen supply.”
-Ram Charan
What happens to a company who runs low on cash?
Cash: Insights & Importance
Cash is King!
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(In Millions)
Cash Freeport McMoRan Corporation
13
Business Measures and Metrics
Freeport McMoRan-
FCX
Freeport McMoRan-
FCX
Freeport McMoRan-
FCX
Freeport McMoRan-
FCX
2010 2009 2008 2007
Revenues $18,982 $15,040 $17,796 $16,939
Cash
Cash and Equivalents $3,738 $2,656 $872 $1,626
Cash from Operating Activities $6,273 $4,397 $3,370 $6,225
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WHY? • They sell commodities• Short sales cycle• Predictable business model
High Cash vs. Low Cash
1.8%
2.0%
1.7%
High Cash % of Revenue
WHY? • Acquisitions• Long sales cycle• High risk industries (pharma, tech)
S&P 500 Average: Cash = 14%
Low Cash % of Revenue
75%42%32%
13
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High Cash Low Cash
Business Measures and Metrics
Freeport McMoRan-FCX Microsoft Pfizer ExxonMobil Wal-mart
2010 6/30/2011 2010 2010 1/31/2011
Revenues $18,982 $69,943 $67,809 $383,221 $421,849
Cash
Cash and Equivalents $3,738 $52,772 $28,479 7,827 7,395
Cash as % of Revenue 19.69% 75.45% 42.00% 2.04% 1.75% Cash from Operating Activities $6,273 $26,994 $11,454 $48,413 $23,643
CashExamples
(In Millions)
13
S&P 500 Average: Cash = 14%
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To increase CASH:
Paying slower Collecting faster … with the same sales revenues and costs.
To increase CASH and CASH FLOW:
Increase revenues/sales Reduce/cut costs Adjust inventories
Key Ways to Increase Cash & Cash Flow
13
-Action Plan:
What Single Action are You Committed to do to Positively Impact CASH and CASH
FLOW?
• Better training/faster ramp up• Increase employee/customer retention• Have clear policies & procedures that will
enable better efficiencies• Reduce/conserve utilities• Reduce conflicts (systems, people, processes, IT
technologies) Your own idea…
Review:CASH: Increase Profits by increasing sale and/or reducing costs (next
section) Pay slower/JIT: (to Vendors strategies – A/P) Collect faster (from customers strategies – A/R) Manage inventory levels Scrutinize capital expenditures
• Increase sales/revenues• Compress A/R – Extend A/P• Increase operational efficiencies• Control expenses• Reduce waste, re-work• Manage/Reduce OT• Maintain schedule/ship dates• Vendor owned/Managed inventory 3
8
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DEFINITION:
The money made after all expenses are subtracted from your sales. It can be expressed in dollars ($) or as a percent (%). You can improve profit in two fundamental ways:
People
Cash
Profit
Assets
Growth
®
Profit: Definition
1) Increase Sales Price (Revenues)
2) Reduce Expenses
14
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Gross Profit/Margin: Total Revenues (Sales) less Cost of Goods Sold.
KEY MEASURES
Net Profit/Net Profit Margin:Profit after all expenses have been subtracted from sales.
Earnings Per Share (EPS):Profit allocated to each outstanding share of Common Stock.
People
Cash
Profit
Assets
Growth
®
Profit: Measures
14
Operating Profit/ Margin: Reflects earnings before interest and taxes.
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Sales Price: $1.50Water - .04Label - .11Bottle & cap - .15 Packaging - .20 Direct LaborTotal: ( .50)
$1.50 - .50 = $1.00 Gross Profit 66.7% Gross Margin
Rent - .03Salaries, Gen, Admin. (SG&A) - .30Marketing - .08 Shipping - .19 Depreciation /Amortization - .02 Total: ( .62)
$1.50 - $.50 - $.62 = $.38 EBIT (Operating Income) 25.3% Margin
Interest Expense - .04Taxes - .06Total: ( .10)
$1.50 - $.50 - $.62 - $.10 = $.28 Net Profit 18.6% Net Profit Margin
Life Spring
Artesian Water
COGS
Controllables
Less-Controllables
Difference Between Profit ($) & Margin (%)
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Profit = Earnings = Income
Gross profit, gross margin, gross income:Sales from core operations less direct costs associated with those sales (before deducting overhead or indirect costs).
Net profit, net margin, net income:Total sales/revenue less all expenses.
All these terms represent what is left over after certain categories of expense are deducted from revenue.
Profit: Related Terms
15
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Consolidated Statement of Operations:Also referred to informally as the Profit and Loss Statement or P&L. Profit (earnings) is usually measured in dollars. Margin is frequently stated as a percent of sales (as in, “6% Profit Margin”) meaning Profit is 6% of Sales/Revenues.
Profit: Where Measured
15
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“Every business must earn a return that is greater than the cost of using other people’s money.”
~Ram Charan
“No Margin, No Mission.”
~Stephen R. Covey
Profit: Insights & Importance
15
-ProfitFreeport McMoRan
Corporation
11
(In Millions)
Business Measures and Metrics
Freeport McMoRan-
FCX
Freeport McMoRan-
FCX
Freeport McMoRan-
FCX
Freeport McMoRan-
FCX
2010 2009 2008 2007
Revenues $18,982 $15,040 $17,796 $16,939
Net Income $4,273 $2,527 $(11,341) $2,769
Profit
Operating Margin 47.8% 43.2% -71.4% 38.7%
Net Margin 22.5% 16.8% -63.7% 16.3%
Unit Cash Cost Copper (per lbs.) $0.79 $0.55 $1.16 $1.31
EPS $4.57 $2.93 $(14.86) $3.75
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WHY?
They sell commodities.“If you’re not unique, you better be cheap!”
To drive Profit($) you need either: High Margin (%) or High Volume
28%
32%
22%
3.6%
8.0%
1.7%
High Margins
Low Margins
WHY?
They offer something Unique!
S&P 500 2011 Averages: Net Margin = 13%
High Margin vs. Low Margin
15
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9
High Profit Low Profit
Business Measures and Metrics
Freeport McMoRan-FCX Coca-Cola Microsoft ExxonMobil Wal-mart
2010 6/30/2011 2010 2010 1/31/2011
Revenues $18,982 $35,119 $69,943 $383,221 $421,849
Profit
Operating Margin 47.8% 24.1% 38.8% 13.8% 6.1%
Net Margin 22.5% 33.6% 33.1% 7.9% 3.9%
ProfitExamples
(In Millions)
-
11
United Parcel Services (UPS) – Avoiding left-hand turns
-92,000 trucks worldwide-Saved over 28,541,472 miles-Saved 3 million gallons of fuel-Reduced insurance premiums-Reduced maintenance frequency and costs
Profit in Action
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• Increase product sales prices• Increase company sales• Increase accessory sales (higher margin
sales)• Reduce/eliminate color copies • Reduce expenses• Decrease utilities• Decrease equipment returns • Decrease equipment replacement • Decrease discounting• Decrease credits
• Effective management of operational costs• Educate employees on company products to
enhance up-selling and cross-selling • Manage/Reduce OCC’s (Other Credits & Charges)• Decrease delinquent customers • Book flights 4 wks in advance• Faster on-boarding• Reduce 0 – 12 month turnover ($24,000)• Reduce overall company turnover• Effective training
(Personal action plan - page 11)
What Single Action are You Committed to do to Positively Impact PROFIT?
Action Planning:
38
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What we have and how well we use what we have.
DEFINITION
Asset Strength:The ability to remain viable during ups and downs in the marketplace.
Asset Utilization:The ability to remain viable during ups and downs in the marketplace.
People
Cash
Profit
Assets
Growth
®
Assets: Definition
16
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Copper Reserves (Billion Lbs.)total estimated proven and probable copper reserves remaining
KEY MEASURES
Equity Ratio:indicates what proportion of equity and debt the company is using to finance its assets
Asset Strength (Have)
• People:
• Property:
• Cash:
• Inventory:
• Plant & Equipment:
• Information:
Asset Utilization (Use)
Increase employee productivity.
increase usage with lower number of buildings.
Buy back stock, acquire another company, invest in higher returns.
“just in time” inventory increasing inventory turnover.
Decrease cycle time.
Increase number of patents per year.
Asset: Measures
17
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Assets:Resources, investments, property.
Asset Strength:Liquidity, risk, measurement, risk profile.
Asset Utilization:Efficiency, effectiveness, operations, return on investment, return on assets, return on equity, return on investment, sales per employee, income per employee, worker productivity, process efficiency, process improvement.
ROA = Net Income Total Assets
Inventory Turnover = Sales Inventory
Assets: Related Terms
17
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Balance Sheet - Entry:Current assets, and other (long-term) assets, Measurements include current ratio, quick ratio, debt-to-equity ratio, and others ratios and their trends, return on assets (ROA), return on equity (ROE), and return on investment (ROI).
Assets: Where Measured
17
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Assets are what the company has to work with to generate revenue. Asset Utilization is directly related to profitability.
Leaders must balance Asset Strength with Asset Utilization.
Assets: Insights & Importance
17
Asset Strength(Have)
• Solid base of liquidity
• Low debt • High capital• Low risk
Asset Utilization(Use)
Efficiencies/Productivity
• Higher Inventory Turnover
• Higher ROA (Return on Assets)
-Assets Freeport McMoRan
Corporation
Equity Ratio = Total Equity $14,560 Total Assets $29,386 1
7
(In Millions)
Business Measures and Metrics Freeport
McMoRan-FCX Freeport
McMoRan-FCX Freeport
McMoRan-FCX Freeport
McMoRan-FCX
2010 2009 2008 2007
Revenues $18,982 $15,040 $17,796 $16,939
Net Income $4,273 $2,527 $(11,341) $2,769
Assets
Copper Reserves (Billion lbs) 120.50 104.20 102.00 93.20
Equity Ratio 49.5% 41.4% 30.4% 44.8%
= 49.5%Bought Phelps Dodge
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High ROA Low ROA
Business Measures and Metrics
Freeport McMoRan-FCX Coach RIMM Proctor &
Gamble Abbott Labs
2010 6/2/2011 2-26-2011 6-30-2011 2010
Revenues $18,982 $4,158 $19,907 $82,559 $35,166
Assets
Return on Assets (ROA) 14.8% 33.4% 26.5% 8.5% 7.8%
(In Millions)
FCX ROA = Net Income = 4,336 = 14.8% Total Assets 29,386
Assets: High-Low ROA
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An increase over a period of time such as year, quarter, or month. Growth is most commonly measured by:
DEFINITION
There are two types of Growth:1. Organic Growth:
Comes from a company’s existing business2. Inorganic Growth:
Comes from a merger or an acquisition
“In today’s business world, no growth means lagging behind in a world that grows every day…”
People
Cash
Profit
Assets
Growth
®
Sales Profit EarningsTop-Line Bottom-Line Per-Share
Growth: Definition
18
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Revenue Growth:Increase in revenues/sales
KEY MEASURES
Net Income Growth:Increase in Net Income
EPS Growth:Earnings per share increase
Growth: Measures
People
Cash
Profit
Assets
Growth
®
18
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• Organic Growth: Growth that comes from company increase.
• Inorganic Growth: Growth through acquisitions.
• Top Line Growth: An increase is sales/revenues.
• Bottom Line Growth: An increase in net income, or profit.
• Other Terms: Merger & acquisition (M&A), expansion, business development, customer base, number of employees, number of offices, asset growth.
Growth: Related Terms
19
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Any financial statement or other report can be used, by comparing figures from one time frame to another time frame. For example: Year over year, quarter over quarter, month over month, etc.
26.2%
16.7%
16.1%
5.7%
Growth: Where Measured
19
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Business in Growth Mode
• Best & brightest leave first• Productivity goes down• Morale goes down• Costs are cut, which limits ability to grow,
and the company becomes less profitable.
Business in Rapid Decline
• Attracts/Retains the best & brightest!• Productivity goes up = more profit =
more cash = more ability to grow!• Morale is typically higher.• You have the ability to grow in your
career!
Growth: Insights & Importance
-Growth
Freeport McMoRan Corporation
(In Millions)
Business Measures and Metrics Freeport
McMoRan-FCX Freeport
McMoRan-FCX Freeport
McMoRan-FCX Freeport
McMoRan-FCX
2010 2009 2008 2007
Revenues $18,982 $15,040 $17,796 $16,939
Net Income $4,273 $2,527 $(11,341) $2,769
Growth
Revenue Growth 26.2% -15.5% 5.1% 193.0%
Net Income Growth 69.1% 122.3% -509.6% 98.4%
EPS Growth 56.0% 119.7% -496.3% 11.8%
Recorded Reserve Growth Copper
15.6% 2.2% 9.4% 72.2%
19
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High Revenue Growth Low Revenue Growth
Business Measures and Metrics
Freeport McMoRan-FCX Apple Amazon Wal-mart Yahoo!
2010 9-10/9-11 2010 2010 2010
Revenues $18,982 $108,249 $34,204 $421,849 $6,324
Growth
Revenue Growth 26.2% 65.9% 39.6% 3.4% (2.1)
(In Millions)
FCX Revenue Growth = 2010 Rev - 1 x 100 = 26.2% 2011 Rev
Growth: High-Low Revenue Growth
-
GROWTH = Increase: -Sales, and/or
-Profits, and/or -Earnings per share (EPS) for public companies.
Quarter over quarter, or year over year increases Organic growth: comes from a company’s existing business Inorganic growth: comes from merger and acquisitions.
• Increase: customers, revenues, and product offerings
• Up sell product sales• Increase R2B sales• Reduce churn (retain customers!)• Increase subscribers/customers• Increase add-a-line sales• Sell value• Create customer loyalty
• Increase global services• Increase network forecasting• Provide exceptional service (Int’l & Ext’l)• Increase open protocol• Invest in employees• Better utilize marketing utilization • Play a part in culture shaping and acquisition
integration• Hire talent that is strong and adaptable• Develop great leaders• Anticipate employee needs that will support a growth
strategy
What Single Action are You Committed to do to Positively Impact GROWTH?
Action Planning:
38
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People: The “external customer”
or consumer of your product.
The “internal customer” or employees.
“Communicate a persons potential so clearly that they are inspired to see it within themselves.”
Many great organizations have stumbled because they failed to anticipate their customers changing needs.
In a competitive world wide market place, a company’s ability to innovate around customers needs or to improve the efficiency of core processes depends on having the right people.
Keeping the right people requires having the right leaders.
People
People: Definition
20
-
What is more important than meeting customer expectations?
Exceeding?Anticipating Customer Needs & Expectations!
“If I would have asked my customer what they wanted, they would have said a faster horse!”
~Henry Ford
People:
21
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What companies have failed to anticipate customer expectations? What were the results?
What limits companies from anticipating their customers’ wants and needs?
Anticipating External People
-
• There are no direct measures on financial statements. Revenues on the P&L measure customer sales and cost categories such as labor, measure associate payroll expenses and benefits.
• Companies keep track separately of data on external customers such as numbers of customers, patients, members, or other consumer and users of products and services; Customer satisfaction levels; turnover rates of customers; and numbers of new customers per period. Employees, or internal customers, are measured by management as to their satisfaction levels, turnover, productivity, etc.
People: Measures
21
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• People are the most important part of any organization – its most important “asset” or resource. People, through making decision, govern, control or direct all other resources.
• It is 3-5 times more expensive to obtain new external Customers than to retain existing Customers.
• It is simply more expensive to replace an Employee with a new hire than to retain and train, or redeploy, a current employee.
• As desirable as it is to meet and/or exceed Customer needs, it is better yet to anticipate those needs!
People: Insights & Importance
21
-
PeopleFreeport McMoRan Corporation
21
(In Millions)
Business Measures and Metrics Freeport
McMoRan-FCX Freeport
McMoRan-FCX Freeport
McMoRan-FCX Freeport
McMoRan-FCX
2010 2009 2008 2007
Revenues $18,982 $15,040 $17,796 $16,939
Net Income $4,273 $2,527 $(11,341) $2,769
People
Total Recordable Incident Rate (TRIR-(Per 200K Man Hours Worked)
0.65 0.74 1.25 1.18
Mine Safety & Health Admin TRIR Average: 2010= 2.53 2009= 2.61 2008= 3.14 2007= 3.30
-
High Revenue Growth Low Revenue Growth
Business Measures and Metrics
Freeport McMoRan-FCX Apple Amazon Wal-mart Yahoo!
2010 9/2011 2010 2010 2010
Revenues $18,982 $108,249 $34,204 $421,849 $6,324
Profit $4,336 $25,922 $1,152 $16,389 $1,231
People
Employees 29,700 60,400 43,200 2,100,000 13,600
Revenue Per Employee $639,124 $1,792,201 $791,759 $200,880 $465,000
Profit Per Employee $145,933 $429,172 $26,666 $7,804 $90,514
(In Millions)
People: High-Low Metrics
-
INTERNAL:
• Develop teams into leaders• Invest in employees• Develop a learning culture• Exceed deadlines• Be positive• Always follow through• Increase vision• Anticipate needs and expectations• Increase employee education• HR: Hire the best!
EXTERNAL:
• Listen with empathy to resolve unhappy customers• Ensure equipment functionality before customer takes it
home• Possess good product knowledge when selling • Qualify each customer• Better educate customers• Set up customer phones• Increase customer negotiations• Increase customer awareness• Accurately set customer expectations
What Single Action are You Committed to do to Positively Impact PEOPLE?
Action Planning:
39
-5 Business Drivers & Financial Statements
Income Statement
Balance Sheet
Statement of Cash Flows
People
Assets
Profit
Cash
Growth
-
1. What is the basic equation for each statement?
2. What is the purpose of the statement?
3. What are the key numbers and how are they trending?
4. How can you impact each statement?
The Annually Reported Financial Statements• Statement of Cash Flows• Statement of Income (P&L)• Balance Sheet
21
Financial Statements
-Basic Statement of Income
Revenues (Sales) (Millions)$18,982 100%
- Production & Delivery $ 8,354 - Depreciation, Depletion, & Amort. $ 1,036 = Gross Profit/Margin $ 9,592 51% - Selling, General, & Admin. (SG&A) $ 381 - Exploration & Research $ 143= Operating Margin $ 9,068 48%-Interest & Other Expense $ 556
-Taxes $ 2,983
= Net Income$ 5,544 29%
-N.I. attrib. to Noncontrolling interest/Div. $ 1,271 = Net Income Attrib. FCX Com. Sto $ 4,273 23%
-
Net Profit Margin
Net Income: 4,273
Total Revenue: ÷ 18,982
= 22.5%
S&P 500 Ave. = 11%
Indicates:Profitability
(SG&A)
SG&A: • Salaries•Sales commissions•Benefits/Severance• Rental Expense• Bad debt charges• Merger integration costs• Professional services: Attorney fees, Accounting
(Revenue = Sales) = Top Line
= Bottom Line
= EBIT
Equation: Revenues– Expenses = Income
Operating MarginTotal Revenue: 18,982Operating Expense: - 9,914
= 9,068 ÷ 18,982
= 47.76%
COGS
P&L
26%
69%
19% 2%
19% 16%Gross margin = 51%
59%
16%Operating margin = 48%
Net profit margin = 23%
-Impairment Charges
• During fourth-quarter 2008, we evaluated the carrying values of our long-lived assets, including goodwill associated with the acquisition of Phelps Dodge, for impairment.
• These evaluations resulted in the recognition of impairment charges of $10.9 billion associated with long-lived assets and $6.0 billion associated with goodwill.
Refer to Notes 2 and 7 and “Critical Accounting Estimates – Asset Impairments” for further discussion of these impairment charges (pg. 65, 2008 10-K)
-
Increase revenue by 100K
100K
44K5K
49K
49K51K
51K18K
33K 7K
26K
Statement of Operations (P&L)
-
Lower costs by 100K
100K
100K
100K100K
100K35K
65K22K
43K
Statement of Operations (P&L)
-
Raising Revenues $100M = $26 -or-
Cutting Costs by $100M = $43
What are the implications of each action?
Which has a greater impact?
-
Freeport McMoRan Financial Statements
1. What is the basic equation for each statement?
2. What is the purpose of the statement?
3. What are the key numbers and how are they trending?
4. How can you impact each statement?
The Annually Reported Financial Statements• Statement of Income (P&L)• Balance Sheet• Statement of Cash Flows
21
Financial Statements
-
Becomes Cash < 1 year
Most Liquid
Least Liquid
Due First
Due Last
Due in < 1 year
Balance
Equation:Assets = Liabilities + Equity
Equity Position: 50%
Snapshot in time
Indicates:Financial (asset) Strength
?
Current Ratio = 2.6
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The bills and coins in the register, petty cash, and cash in the bank. It also includes cash equivalents, like CD’s and other highly liquid investments, easily converted into cash within 90 days.
1. _____
Cash generation that is the difference between the cash that flows into the business and the cash that flows out of the business in a given period of time (month, quarter, annual)
2. _____
The total dollar payment received for goods & services during a specific period of time. It is the “top line” figure from which costs are subtracted to determine net income. Also synonymous with sales.
3. _____
The amount of profit realized from a business’s operations after taking out operating expenses such as costs of goods sold (COGS), SG&A, and depreciation. Also known as EBIT.
4. _____
A company's total earnings and is calculated by taking revenues and subtracting “all” expenses. This number is found on a company's income statement and is an important measure of how profitable the company is over a period of time. Often referred to as "the bottom line“.
5. _____
Amount of proven and probable copper available to be pulled out of our mining assets. 6. _____
A number used to help determine how much shareholders would receive in the event of a company-wide liquidation. The number is expressed as a percentage, is calculated by dividing total shareholders' equity by total assets of the firm, and it represents the amount of assets on which shareholders have a residual claim. The figures are taken from the company's balance sheet.
7. _____
An increase of a company's sales when compared to a previous month, quarter or year's revenue performance. 8. _____
An increase of a company’s net earnings compared to a previous month, quarter or year. 9. _____
The portion of a company's profit allocated to each outstanding share of common stock. Calculated as: Net Income – Dividends on Preferred Stock / Average Outstanding Shares.
10. _____
Rate of recordable workplace injuries, normalized per 200,000 hours worked. 11. _____
A. Revenue Growth B. Cash Flow C. GrowthD. Cash E. TRIR
F. Operating Income G. Revenue H. Net Income I. Equity Ratio J. EBITDAK. Net Income Growth L. Cooper Reserves M. Asset N. Liquidity O. EPS
Its OK to guess!
(Write your answers on Page 10-11)Group Activity!
D
B
G
F
H
LI
AFO
E
-
12
3
4
5
6
7
8
9
10
11
9,068
3,738
47.7718,982
-
9,068
14,560 29,386
18,982 15,040
4,273 2,527
3,738
6,273
18,982
22.51
26.21
55.97
47.7718,982
4,273 18,982
49.55
69.09
2.934.57
120.50
.65
-Google and Reuters
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Time
Cont
ent R
eten
tion Review
ApplyTeach
15%
40
Retaining Content Over Time
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Find a Partner now and:1. Set up a specific date and time in 30 days to report your
progress on your action plan.
2. Exchange emails
3. Exchange phone numbers
4. Decide who will initiate the call
5. Determine a back-up plan
6. Transfer this information to your planner or PDA now.
53
Accountability Conversations
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1. 7 days: Teach one of the principals learned in class today, to someone in your department.
2. 7 days: Discuss your action items with your manager in the next 7 days.
3. 30 days: Read the first 90 pages of: “What The CEO Wants You to Know“
4. 30 days: Get with your class partner and give an account of your progress on your action item(s).
Start now: Build and practice your new business acumen skills. When making decisions, determine how the outcome will impact Cash, Profit, Assets,
Growth, People…
Post Course Action Items
-Building Business Acumen 2 Day Course
• Build on your foundation of the 5 drivers model • Gain greater understanding of Freeport-
McMoRan• Deeper dive into the financials• Analyze our competitors• Enhance your business decision making skills• Develop a greater understanding of our key
strategies• Understand external realities impacting FCX
Next Course May 9-10 Safford AZ
-
Accurately define pertinent business and financial terminology such as revenue, cost of goods sold, gross profit, net income, unit costs, etc.
Demonstrate in a team setting, an understanding of the 5 key drivers (cash, profit, assets, growth, people), that every business must focus on and how each driver influences business success.
Accurately describe the key measures and metrics used to assess business performance.
Identify and define each line item on a Basic Profit & Loss statement.
Articulate to one’s team the importance of business and financial acumen and how their individual role impacts the business.
Learning Objectives
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One final thought…
People will work hard for a paycheck,harder for a person,
and hardest for a reason.
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