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 l FINANCIAL l OPERATIONS l SALES l
MANAGEMENT
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TOOLS COVERED TODAY l BALANCE SHEET l P&L l BENCHMARKING l
BREAKEVEN ANALYSIS l JOB & PRODUCT COSTING/PRICING l JOB &
CUSTOMER CONTRIBUTION
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THE TWO KEY FINANCIAL TOOLS l BALANCE SHEET l PROFIT & LOSS
STATEMENT
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l SNAP SHOT OF THE COMPANYS FINANCIAL HEALTH CURRENT PERIOD
LAST YEAR VARIANCE WORKING CAPITAL RATIOS DSOs BALANCE SHEET
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TYPICAL BALANCE SHEET OTHER SSETS
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TYPICAL BALANCE SHEET CURRENT LIABILITIES
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TYPICAL BALANCE SHEET LONG TERM LIABILITIES
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TYPICAL BALANCE SHEET EQUITY
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TYPICAL BALANCE SHEET RATIOS
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PROFIT & LOSS STATEMENT l 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 l VARIABLE COSTS DEFINED AS: COST INCURRED WHEN A SALE IS
MADE TYPES: l MATERIAL l PLANT l DELIVERY
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COSTS l FIXED COSTS DEFINED AS: COSTS FIXED IN RELATION TO TIME
l TYPES: l DIRECT l SALES l G&A
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VARIABLE & FIXED COSTS
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EDITDA l EBITDA =$2,952$5.9010.7%
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BENCHMARKING l ASSISTS IN HELPING TO ANALYZE THE COST OF DOING
BUSINESS l ASSISTS IN HELPING TO ANALYZE THE EFFICIENCY OF AN
OPERATION
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1st Quarter of 1980 to 2nd Quarter of 1996 Cement Prices vs
Ready Mix Prices
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MODULE III: SESSION 1 - 0H39
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MODULE III: SESSION 1 - 0H40
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FINACIAL RATIOS 5M CURRENT1.82.01.61.7 CASH29.940.513.116.9
D/E1.10.61.10.4 AR DSO32.946.254.746.3 INVENT10.811.910.810.2
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l BE PT = FIXED COST DIVIDED BY MARGIN l DATA REQUIRED l
CURRENT TOTAL FIXED COSTS = $1,000,000 l CURRENT AVG SELLING PRICE
= $60.00/YD l CURRENT AVG VARIABLE CST = $40.00/YD l CURRENT MARGIN
= $20.00/YD l BE PT IN YDS=FC/UNIT MARGIN l BE PT IN $ = FC/MARGIN
RATIO l $1,000,000/$20 = 50,000 YDS l $1,000,000/.33 = $3,030,303
BREAK-EVEN POINT
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ADDITIONAL SALES REQUIRED TO COVER INCREASED FIXED COSTS l
CURRENT SP=$60/YD l CURRENT VC=$40.00/YD l CURRENT FC =$1,000,000 l
CURRENT BE PT=50,000 YDS l NEW FC=$1,500,000 l MARGIN = $20 l NEW
BE PT =75,000 YDS ($1,500,000/$20) l INCREASE OF 25,000
YDS/50%
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MODULE III: SESSION 2 OH64 VOLUME REQUIRED TO MAINTAIN CURRENT
PROFIT LEVEL IF PRICES ARE INCREASED l NEW SP=$65.00 l %
INCREASE=8.33% l NEW MARGIN=$25.00 l NEW BE PT=40,000 YDS
($1,000,000/$25) l % DECREASE=20%
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MODULE III: SESSION 2 OH65 VOLUME REQUIRED TO MAINTAIN CURRENT
PROFIT LEVEL IF PRICES ARE DECREASED l NEW SP=$50.00/YD l %
DECREASE=16.6% l NEW MARGIN=$10.00 l NEW BE PT=100,000 YDS
($1,000,000/$10) l % INCREASE =100%
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l BE PT = FIXED COST DIVIDED BY MARGIN l DATA REQUIRED l
CURRENT TOTAL FIXED COSTS = $1,000,000 l CURRENT AVG SELLING PRICE
= $60.00/YD l CURRENT AVG VARIABLE CST = $40.00/YD l CURRENT MARGIN
= $20.00/YD l BE PT IN YDS=FC/UNIT MARGIN l BE PT IN $ = FC/MARGIN
RATIO l $1,000,000/$20 = 50,000 YDS l $1,000,000/.33 = $3,030,303
BREAK-EVEN POINT
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ADDITIONAL SALES REQUIRED TO COVER INCREASED FIXED COSTS l
CURRENT SP=$60/YD l CURRENT VC=$40.00/YD l CURRENT FC =$1,000,000 l
CURRENT BE PT=50,000 YDS l NEW FC=$1,500,000 l MARGIN = $20 l NEW
BE PT =75,000 YDS ($1,500,000/$20) l INCREASE OF 25,000
YDS/50%
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VOLUME REQUIRED TO MAINTAIN CURRENT PROFIT LEVEL IF PRICES ARE
INCREASED l NEW SP=$65.00 l % INCREASE=8.33% l NEW MARGIN=$25.00 l
NEW BE PT=40,000 YDS ($1,000,000/$25) l % DECREASE=20%
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VOLUME REQUIRED TO MAINTAIN CURRENT PROFIT LEVEL IF PRICES ARE
DECREASED l NEW SP=$50.00/YD l % DECREASE=16.6% l NEW MARGIN=$10.00
l NEW BE PT=100,000 YDS ($1,000,000/$10) l % INCREASE =100%
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KEY OPERATIONAL TOOLS l PAYROLL ANAYLSIS NUMBER OF EMPLOYES BY
CATEGORY OVERTIME FRINGES
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KEY OPERATIONAL TOOLS l 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 l DAILY/M-T-D/Y-T-D $ SALES & YARDS BY PLANT l
JOBS AVAILABLE l JOBS BID YDS/PRICE/COMPETITION l JOBS SOLD
YDS/PRICE COMPETITION l BACKLOG YDS/WEIGHTED AVERAGE PRICE
COMPETITION
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l JOB COSTING l TARGET MARGIN PRICING l PRICE LISTS SALES
TOOLS
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MODULE III: SESSION 1 - 0H81
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MODULE III: SESSION 1 - 0H82
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C0ST COMPARISON SHEET
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JOB 1 l MARKET PRICE = $60.00 l VARIABLE COST =$59.70 l
MARGIN=$00.30 l JOB CONTRIBUTION=$3,000 l PRE-TAX PROFIT=? l AFTER
TAX PROFIT=?
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JOB 2 l MARKET PRICE=$60.00 l VARIABLE COSTS=$41.57 l
MARGIN=$18.43 l JOB CONTRIBUTION=$184,300 l PRE-TAX PROFIT= $8.43 l
AFTER TAX PROFIT= $5.05
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JOB 1 l MARKET PRICE =$55.00 l VARIABLE COST=$59.70 l
MARGIN=($4.70) l JOB CONTRIBUTION=($47,000)
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JOB 2 l MARKET PRICE=$55.00 l VARIABLE COSTS=$41.57 l
MARGIN=$13.43 l JOB CONTRIBUTION=$134,300 l PRE-TAX PROFIT=$3.43 l
AFTER-TAX PROFIT=$2.05
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JOB 2 l MARKET PRICE=$50.00 l VARIABLE COST=$41.57 l
MARGIN=$8.43 l JOB CONTRIBUTION=$84,300 l PRE-TAX PROFIT=?
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DAILY & J-T-D JOB INFORMATION l YARDS l VARIABLE DELIVERY
COST PER YD l UNIT MARGIN PER YARD l $ CONTRIBUTION l VARIANCE FROM
BID DATA l JOB SUMMARY SALES & MANAGEMENT TOOLS
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OTHER MANAGEMENT TOOLS l BUDGETS l CASH FORECASTS l 3-5 YEAR
PLAN l MODELS
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SUMMARY l ONLY THE INTELLIGENT WILL SURVIVE l ONLY THE INFORMED
WILL BE INTELLIGENT l MANAGEMENT MUST BE ABLE TO IDENTIFY AND
QUANTIFY ALL PROBLEMS IF IT IS GOING TO SOLVE THEM l MANAGEMENT
MUST USE ALL TOOLS AND TECHNOLOGY AVAILABLE TO MANAGE