Posted by: Charles G. Yacoobian in Articles
Here is a reprint of an article that appeared on Businessweek.com
What Chief Executives Really Want
by Frank Kern
Wednesday, May 19, 2010
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A survey from IBM's Institute for Business Value shows that CEOs value one leadership competency above all others. Can you guess what it is?
What do chief executive officers really want? The answer bears important consequences for management as well as companies' customers and shareholders. The qualities that a CEO values most in the company team set a standard that affects everything from product development and sales to the long-term success of an enterprise.
There is compelling new evidence that CEOs' priorities in this area are changing in important ways. According to a new survey of 1,500 chief executives conducted by IBM's Institute for Business Value (NYSE: IBM - News), CEOs identify "creativity" as the most important leadership competency for the successful enterprise of the future.
That's creativity—not operational effectiveness, influence, or even dedication. Coming out of the worst economic downturn in their professional lifetimes, when managerial discipline and rigor ruled the day, this indicates a remarkable shift in attitude. It is consistent with the other major finding of the study: Global complexity is the foremost issue confronting these CEOs and their enterprises. The chief executives see a large gap between the level of complexity coming at them and their confidence that their enterprises are equipped to deal with it.
Until now creativity has generally been viewed as fuel for the engines of research or product development, not the essential leadership asset that must permeate an enterprise.
Let’s review some key analytical tools to aid you in maximizing the success of your business.
Working Capital/Current Ratio Of primary concern to all parties is the solvency – the ability of the business to meet its current (those due within one year) obligations. Basic accounting equation: Working Capital = Current Assets – Current Liabilities. Accordingly, assets and liabilities are generally divided and classified as (1) current or short-term items and (2) noncurrent or long-term and (3) fixed assets/equipment/machinery.
Examples of Current Assets (assets that will turn into cash or offset liabilities within one year):
- Cash and short-term investments/marketable securities
- Accounts Receivable
- Inventory
- Prepaid Expenses
Examples of Current Liabilities (amounts that are due to be paid within one year):
- Accounts Payable
- Portion of LT debt due within the next twelve months
- Accrued liabilities (taxes, payroll, other expenses, etc.)
A business should have a minimum Current Ratio of 1:1…in other words, Current Assets equal Current Liabilities. A Current Ratio of 2:1 or higher is preferred.
Other Ratios and Earnings Tests
Acid-Test Ratio – Inventory of raw materials, work in progress and finished goods (or merchandise) often represent a large portion of total current assets. A considerable amount of time may be required to convert inventories into cash in the normal operating process. There is also the possibility of declines in market prices and a reduction in demand, both of which will adversely affect the ability to pay current liabilities. The acid-test ratio gives recognition to these factors. It is the ratio of the sum of cash, receivables and marketable securities, which are sometimes called quick assets, to current liabilities. Although there is no definite standard, an acid-test ratio in excess of 1:1 is usually considered to be satisfactory:
&nbs.... Read more...
Posted by: Charles G. Yacoobian in Articles
In this tough economy, it is important for the business owner to review two critical analytical tools to ensure the success of his/her firm.
Breakeven Analysis
Let’s take a look at how increases and decreases in sales and expenses affect your bottom line.
It is very helpful to breakdown expenses into “fixed” and “variable” categories to better understand how each expense category is affected by an increase/decrease in sales. Fixed expenses are those that remain level/constant regardless of the sales level. Variable expenses are those that will go up or down in relation to a change in sales. Some expenses have both fixed and variable aspects to them.
Examples of “fixed” expenses are rent (not tied to a percentage of sales), telephone, depreciation, most utilities and administrative salaries. Examples of “variable” expenses are sales commissions (tied solely to a percentage of sales), cost of goods sold, shipping expenses and supplies. Examples of expenses that have both fixed and variable aspects to them include rent (which may have a fixed portion and a portion based on a percentage of sales, license/franchise fees, sales commissions (commissions paid once sales reach a certain level) and insurance (premium based on sales).
Sales $1,000,000
Variable Expenses $ 750,000 75% of sales
Profit left over to offset fixed expense $ 250,000
Fixed Expenses $ 200,000
Profit .... Read more...
