Business Acumen for Compensation Professionals-World at Work
Balance sheet
A _____ has a list of what is owned, what is owed, and the equity of an entity
EBIT-Interest - Taxes
Net income
DEF 14A (Definitive Proxy Statement)
Once a proxy statement is filed with the SEC, what is it called?
bottom line
The ________ of an org impacts how aggressive a stance an org can take in terms of where it positions itself against the market, such as market median or market upper quartile.
Mission
The intention or purpose of the business
Increased market value and reinvested dividends paid
The return represented by the Total Shareholder Return metric is the increase in what?
depreciation and amortization
The two largest non-cash expenses
1. Investment in resources. 2. Fixed and variable compensation 3. Market competitive posture
Three elements of compensation plans that are directly influenced by the organization's business strategy
1.Understanding HR 2.Mastering resource management 3. Understanding finance
Three key competency categories for Comp Pros
1. standardize data across companies and industries 2. Promote consistency of communication regarding company performance and value 3. Provide objective info to key constituents
Three reasons orgs use financial reports
1.Contributions to org success 2.Engaging with Executive Leadership 3.Self-improvement and career development
Three reasons to develop business acumen
Balance sheet, Income Statement, and Cash Flow Statement
Three reports that together provide a comprehensive view of the company's financial situation
profits, equity, debt
Three sources of capital
1. accounts receivable turnover/days receivable 2. inventory turnover/days inventory 3. Payable turnover/days outstanding
Three working capital metrics
New income and EPS
Two types of depreciation and amortization profit measures
financials, customers, internal processes, innovation and learning
Types of metrics in a balanced scorecard
return on capital
describes how effectively the organization is investing in capital
working capital efficiency
describes how quickly the org is converting short-term capital into cash
net income
earnings available to equity owners after paying debt and taxes
EBIT
how much the org earns before financing the business
accellerate
if an org grows its revenue faster than its costs, the profit growth will _____
Product/service leadership
innovation based strategy that focuses on product development and market exploitation, creating the best products, generating more/better ideas, and commercializing them faster than their competitors
gross margins
look at how efficiently the org is operating
net margins
looks at how efficiently the the org is operating but also includes costs like taxes and loan interest
growth rate
looks at how fast the organization is growing
margins
looks at how much the org earns per dollar of revenue
shock price/book value per share
market to book ratio
market metrics
measures the potential gap between shareholder and management expectations for the future
total shareholder return
measures the total return shareholders have earned on their investment
profit
money that comes in from sales
equity
money that investors pay to own a share of the business
debt
money that is borrowed, usually in the form of loans or notes
return on equity
net earnings/shareholder equity
return on assets
net earnings/total assets
economic value added
net operating profit after taxes (capital x cost of capital)
return on capital/invested capital
net operating profit after taxes/invested capital
stock price/net EPS
price to earnings ratio
Operational Excellence
price/cost based strategy that can include a combo of price, quality, dependability and ease of purchase, minimizing waste and rewarding efficiency.
accrual accounting
revenues and expenses are recorded when they occur, regardless of when the cash flows
balanced scorecard
seeks to use multiple metrics to capture tradeoffs when it comes to making decisions and investments
annual report
shows the results for a full 12 month period compared to previous years
business analytics
the skills, technologies, applications, and practices of continuous iterative exploration and investigation of past business to gain insights and drive business planning
revenue - cost of good sold
Gross profit
Values
Guiding principles and/or beliefs shared by stakeholders. How we work and who we are
total reward
Comp professionals should know the _____ costs of their organization as a percentage of the total operating costs.
publicly held and privately owned
Accrual accounting is most common for what types of companies?
HR resources
An organization's bottom line is directly related to how much it is willing to invest in _____.
Balance Sheet
Balance Sheet, Income Statement (Profit & Loss Acct), or Cashflow Statement?: Lists what is owned, what is owed, and the equity of an entity
Balance sheet
Balance Sheet, Income Statement (Profit & Loss Acct), or Cashflow Statement?: Represents the financial health of a company
Balance sheet
Balance Sheet, Income Statement (Profit & Loss Acct), or Cashflow Statement?: Shows book value of company and only valid on specific date
Income Statement/Profit & Loss Acct
Balance Sheet, Income Statement (Profit & Loss Acct), or Cashflow Statement?: Shows income and expenditure over a period of time (usually a full financial year)
Income Statement/Profit & Loss Acct
Balance Sheet, Income Statement (Profit & Loss Acct), or Cashflow Statement?: Shows revenues earned and expenses incurred over a period of time
Income Statement/Profit & Loss Acct
Balance Sheet, Income Statement (Profit & Loss Acct), or Cashflow Statement?: Shows the profitability of a company
Cash flow statement
Balance Sheet, Income Statement (Profit & Loss Acct), or Cashflow Statement?: explains the change during the period in cash and cash equivalents
Balance sheet
Balance Sheet, Income Statement (Profit & Loss Acct), or Cashflow Statement?: shows statement of financial position as of a specific date
Star
Businesses in markets with HIGH market share and HIGH growth potential. Use cash because of need to sustain growth, but can also result in high profits.
Cash cow
Businesses in markets with HIGH market share but LOW growth potential. Cash is used to develop businesses in other segments, such as question marks
Question Mark
Businesses in markets with LOW market share and HIGH growth potential. Use cash because of the need to sustain growth. The ability to generate profits is unknown because of low market share position
Dog
Businesses in markets with LOW market share and LOW growth potential. Typically uses cash from other segments.
Setting Priorities
Cost benefit thinking is most useful in the context of financial management for purposes of what?
Strategy
Goals, directions to achieve those goals, and policies to support those efforts
Revenue - costs of goods sold
Gross margin is _____ minus _____ as a percent of revenue
Gross profit-expenses
EBIT
operating profit
EBIT is also known as
EBIT + Depreciation + amortization
EBITDA
the annual charge from previous capital investments
EBITDA is the same as EBIT, but it adds _____
Net income/common shares outstanding
EPS
internal and external
Forecasting relies on what types of factors?
Profit Model
Plan for how the org generates revenue and makes money
stock price/net sales per share
Price to EBIT/EBITDA
volume x price
Revenue =
Three month fiscal period
Shows basic financial results for each three month period during the fiscal year.
Customer Intimacy
Solutions-based strategy that focuses on creating results for carefully selected customers by building bonds to meet or exceed customer needs in order to build loyalty.
Evaluating the industry and market. Understanding your business-competitive strengths and weaknesses. Determining possible future changes.
Some issues that strategic analysis can investigate
What will our workforce needs be? How will our pension liability change? How fast will our markets grow or shrink? Can we gain market share? How do we invest? What is our cost investment? Are prices stable, increasing, or decreasing for: goods and services provided AND input put prices such as energy costs?
What are some questions forecasting can attempt to answer?
The Compensation Discussion and Analysis section AND the section on quantitative and qualitative risk
What are the two sections of a proxy statement that are of interest to compensation?
gaps and trends
What can data analysis help with identifying?
Its ability to generate profit is unknown
What challenge is most likely faced by a business with love market share and high growth potential?
risk related to the company and the markets in which it conducts business
What is discussed in the qualitative and quantitative risk section of a BoD annual meeting?
BoD must disclose, discuss, and outline how top executives are paid
What is talked about during the CD&A (compensation discussion and analysts) at a BoD meeting?
revenue
What profit measure is considered the top line?
Vision
What the org wants to see in the future. Who we are and where we are heading together.
filed with SEC in advance of a company's annual meeting of shareholders
When and to whom is a proxy statement submitted?
Bc it can be invested with interest and grow over time
Why is money in hand today worth more than money promised at a future date?
future value FV
____ looks at current holdings and determines how much the investment will grow over time
Present value PV
____ looks at the desired value in the future and determines how much needs to be invested today to realize that amount.
PV, FV, time (n), and interest rate (%)
_____ will increase to a ___ with the inclusion of ____ and ____
forecasting
a "best guess" of what the future holds for the organization
proxy statement
a document required of a company when soliciting shareholder votes
budgeting
a process driven by forecasting and then setting finances in stone based on the org's expectations
data analysis
being able to translate data into organizational action