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Main Idea

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Christan Ardie Hicban

on 16 August 2015

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Transcript of Main Idea

Financial Statement Analysis
involves the assessment and evaluation of the firm’s past performance, its present condition, and future business potentials.
BRAINSTORM
ELEMENTS
copy and paste as needed and take advantage of an infinite canvas!
SWOT-5m
in terms of the
5 Ms
:

1.
Money
2.
Manpower
3.
Machinery
4.
Market
5.
Materials
1.
Name & Address of the Branch/Unit

2.
Name of the key officer

3.
Statement of objective/s.
INTRODUCTION
The following is the suggested major components:
Executive Summary
The Executive Summary should be written last, but presented first.
1.
Description of Objective/s
2.
Description of the Opportunity & Strategy to profit from it
3.
Description of the Target Market
4.
Summary of Financial Projections
5.
Competitive Advantages – why you will do better
6.
Description of the Key People in the Team

Economic Outlook
This section of the analysis must detail:
1.
the economic climate
2.
the lending/banking industry
3.
the customer profile
4.
the competition
aNALYSIS
mARKET aNALYSIS
It is not enough to say
“everyone who needs money”
Description of the overall
Market & Primary Market Segments
1
Detailed Description of Market Segment/s targeted
2
Demographics of
Target Market
3
Target & General Market Trends
4
Market Research
5
a.
Evidence of input from potential borrowers
b.
Evidence of Concept/Loan Product Offers
c.
Customer Needs Analysis
Borrowers’ Profile
6
Entry Strategy
(initial market penetration)
7
mARKET aNALYSIS
mARKET aNALYSIS
mARKET aNALYSIS
mARKET aNALYSIS
mARKET aNALYSIS
mARKET aNALYSIS
mARKET aNALYSIS
Marketing Process to be used
8
mARKET aNALYSIS
a.
How do customers make the borowing decision?
b.
Role of loan packaging,
c.
How will proper packaging be achieved?
d.
How potential borrowers be reached?
e.
How (and why) will the loan/s be priced.
f.
General statement on advertising and promotion
g.
Customer Service Program

competitor aNALYSIS
One of the traps many new business people fall into is thinking that their new loan product concept has absolutely no competitors.
1
Number of competitors
2
Nature of competition?
(eg. Fragmented, Monopoly)
3
Conditions of entry/
exit of competitors
4
How do competitors
differentiate themselves?
5
Comparison of largest 3-5 competitors on both differentiators and key success factors in industry, using a matrix format
competitor aNALYSIS
industry aNALYSIS
It is important to have a solid grasp on the status of the industry to properly justify the estimates.
competitor aNALYSIS
competitor aNALYSIS
competitor aNALYSIS
competitor aNALYSIS
1
Industry Size
2
Future outlook/trends
3
What is the profitability potential? Production patters and revenue margins?
4
What are the barriers to launching a loan product? What might change these barriers?
5
What is the role of technology in the industry,
and how might this change?
industry aNALYSIS
industry aNALYSIS
industry aNALYSIS
industry aNALYSIS
industry aNALYSIS
Marketing Objectives
Mark
Marketing Plan
operating Plan
financial Plan
Below is an overview of the marketing strategies and objectives of the branch
Marketing Strategies
Pricing
Marketing Plan
Marketing Plan
Marketing Plan
Establish relationships with banks, lending companies, second-hand vehicle dealers and related industries within the target market.
Implement a local campaign with the targeted market via the use of flyers, local newspaper advertisements and word of mouth advertising among local lending institutions.
General overview of the marketing campaign that the branch intends from the onset of the year. The statement must reconcile the marketing objectives and the branch goals for the year.
In this section, describe the proposed interest and charges to be levied on each of the loan products. You should have adequate justification for each of the proposal.
Operating plan
The management will not be impressed if you intend to allocate the funds to loan product/s if the immediate and long term benefits are not defined.
Location
Facilities
Office equipment & personnel
Management Team –
Roles
and
Responsibilities
Timeline of Major Events
Risk Assessment
Operating plan
Operating plan
Operating plan
Operating plan
Operating plan
• 1.
Unreliable production forecasts
• 2.
Competitors’ ability to launch similar
loan products
• 3.
Interest and other charges
• 4.
Personnel availability


5.
Funding shortages


6.
Others

(
Strength
,
Weakness
,
Opportunity
and
Threat
)

As unit manager you do not necessarily need to understand the debits and credits of double entry accounting, but you do need to understand the implications of the information provided in the financial statements.
financial plan
The Plan must be able to determine portfolio and revenue growth rates and other relevant financial ratios.
Analysis and Interpretation
Financial statements serve as the communication link between the company and the various interested parties (
creditors
,
suppliers
,
customers
,
investors
,
stockholders and management
).
Users are interested in the following:
1.
Profitability of the business firm
2.
The firm’s ability to meet its obligations
3.
Safety of the investment in the business
4.
Effectiveness of management in running the firm

Analytical Tools and Techniques
1.
Analysis of variation in gross profit and net income
2.
Statement of change in financial position
3.
Cash flow statement
4.
Vertical analysis (common ratios and percentage)
5.
Horizontal analysis (trend ratios and percentage)
6.
Financial ratios

Variance Analysis
HORIZONTAL ANALYSIS
- Involves comparing figures shown in the financial statements of two or more consecutive period.
Formula for Percentage Change:
Percentage Change = ------------------------------------------------
Most Recent value – Base Period Value
Base Period Value
vertical ANALYSIS
- Is the process of comparing figures in the financial statements of a single period

- Involves converting the figures in the statements to a common base

Conversion Procedures
1.
Balance Sheet
- Total assets represents 100%. Other items on the balance sheet are expressed as percentages of total assets by dividing each item by total assets.

2.
Income Statements
- The net sales figures or net operating revenue is set at 100%. Each item in the income statement is items as percentage of the sales.

Comparison with Other Firms Statements
A Company may choose to compare its own financial statements with those of the other firms in the industry, i.e firms engaged in the same line of business, so it can evaluate its own performance vis a vis the performance of its competitors.
Ratio analysis
- Most widely known and most commonly used tool for financial statements analysis

- A ratio is a mathematical relationship between two numbers, expressed as a portion, a fraction, a percentage, or a decimal.

- The number to be compared and expressed as a ratio should be meaningfully related to each other so that the resulting ratio can serve the purpose for which it is computed.

Different Ratios for Different Users
A. Test of Liquidity
B. Tests of Solvency

C. Tests of Profitability
1
Current Ratio
-also called working capital ratio, measures the number of times that the current liabilities could be paid with the available current assets.
Current Ratio = ------------------------------
Current Assets
Current Liabilities
Example:
For Compare Corporation, the current ratios for 2014 and 2013 are :
2014
2013
--------------- = 2.07 to 1
PhP 292
----------------------------
2
ACID TEST RATIO
- Use only the quick or liquid current assets, through the use of the so called quick ratio or acid test ratio.
Quick Ratio = ------------------------------
Quick Assets
Current Liabilities
Example:
------------------------------
Cash + Marketable securities + Receivables
Current Liabilities
or
PhP 605
--------------- = 1.88 to 1
PhP 276
PhP 519
2014
2013
--------------- = 1.28 to 1
PhP 292
----------------------
PhP 375
--------------- = 1.25 to 1
PhP 276
PhP 345
3
Turnover
Example:
- Is the time required to complete one collection cycle
---------------------
PhP 180 + PhP 210
PhP 3,280
-------------------------------------------------------------------------
Cash
Marketable securities
Accounts receivables

Total Quick Assets
2014
2013
PhP 120
45
210
PhP 375
_____
PhP 150
15
210
PhP 345
_____
Receivables Turnover
Receivables Turnover
=
---------------------
Net Credit Sales
Ave. Receivables
Average Receivable
=
---------------------------------------
Beginning Balance + Ending Balance
2
---------------------------------------------------------------------
Receivables Turnover
= =



=
------------------
2
---------------------
PhP 195
PhP 3,280
16.82 Turnovers
Example:
- Measures the number of times that inventory is replaced during the period
Inventory Turnover
Inventory Turnover
=
------------------------------
Cost of Goods Sold
Ave. Merchandise Inventory
Ave. Merchandise Inventory
=
---------------------------------------
Beginning Balance + Ending Balance
2
-----------------------------
Ave. Age of Inventory
=
------------------------------
Number of Working Days
Inventory Turnover
Merchandise Inventory, Dec. 31
Cost of Goods Sold
Number of Working Days
2014
2013
250,000
2,640,000
360 days
190,000
2,200,000
360 days
= --------------------- =
Cost of Goods Sold
Ave. Merchandise Inventory
= --------------------- =
PhP 2,640,000
PhP 220,000
12 times
Merchandising firm:
Example:
- Measures the number of times that inventory is replaced during the period
Inventory Turnover
Raw Materials Turnover
=
------------------------------------
Cost of Raw Materials Used
Average Raw Materials Inventory
Goods in Process Inventory
=
---------------------------------------
Cost of Goods Manufactures
-----------------------------
Finished Goods Inventory
=
---------------------------------------
Cost of Goods Sold
Average Finished Goods Inventory
Raw materials Inventory, Dec 31
Goods in process inventory Dec 31
Finished goods inventory Dec 31
Cost of raw materials used
Cost of goods manufactured
Cost of goods sold
Number of working days in a year
2014
2013
23,000
34,000
80,000
Manufacturing firm:
Average Goods in Process Inventory
1,080,000
930,000
924,000
360 days
25,000
28,000
74,000
900,000
950,000
890,000
360 days
-----------------------------------------------------
= --------------------- =

Beg. + Ending Bal.

2
= --------------------- =
25,000+23,000
2
220,000
Raw Materials
Example:
= --------------------- =
Cost of Raw Mat. Used
Ave. Inventory
= --------------------- =
1,080,000
24,000
45 times
Inventory Turnover
= --------------------- =
360 days
Turnover
= --------------------- =
360 days
45 Times
8 days
Average Age
Average Inventory
= --------------------- =
No. of Working Days
Inventory Turnover
= --------------------- =
360 days
12 times
30 days
-----------------------------------------------------
= --------------------- =

Beg. + Ending Bal.

2
= --------------------- =
28, 000 + 34,000
2
31,000
Goods in Process
Example:
= --------------------- =
Cost of Goods
Manufactured
Ave. Inventory
= --------------------- =
930,000
31,000
30 times
Inventory Turnover
= --------------------- =
360 days
Turnover
= --------------------- =
360 days
30 Times
12 days
Average Age
Average Inventory
-----------------------------------------------------
= --------------------- =

Beg. + Ending Bal.

2
= --------------------- =
74,000 + 80,000
2
77, 000
Finished Goods
Example:
= --------------------- =
Cost of Goods Sold
Ave. Inventory
= --------------------- =
924,000
77,000
12 times
Inventory Turnover
= --------------------- =
360 days
Turnover
= --------------------- =
360 days
12 Times
30 days
Average Age
Average Inventory
1
Times interest Earned Ratio
- Determine the extent to which operation cover interest expense.
Times Interest Earned = ---------------------------------
Income before tax + Interest expense
Interest Expense
Example:
2014
2013
--------------- = 13 Times
PhP 30
----------------------------
2
Debt- Equity Ratio
- to determine the amount provided by creditors relative to that provide by the owners, the debt-equity ratio is computed by expressing liabilities as a percentage of total owners or stockholders equity.
Debt-equity Ratio = ------------------------------
Total Liabilities
Total Owners or Stockholder’s Equity
PhP 360 + PhP 30
--------------- = 18.12
PhP 25
PhP 428 + PhP 25
- refers to the company’s ability to pay its short-term current liabilities as they fall due
- Refers to the Company’s ability to pay all its debts, whether such liabilities are current or noncurrent.
- Similar to liquidity, except that solvency involves a longer time horizon.
Times interest Earned Ratio
Example:
2014
2013
--------------- = 1.10
PhP 858
----------------------------
PhP 942
--------------- = 1.13
PhP 774
PhP 876
Debt- Equity Ratio
3
Debt Ratio
- Indicates the percentage of total assets provided by creditors.
Debt Ratio = ------------------------------
Total Liabilities
Total Assets
Example:
2014
2013
--------------- = 52.33
PhP 1,800
----------------------------
PhP 942
--------------- = 53.09%
PhP 1,650
PhP 876
Debt Ratio
4
Equity Ratio
- Indicates the percentage of total assets provided by the owners or stockholders.
Equity Ratio = ------------------------------
Total Owners or Stockholders’ Equity
Total Assets
Example:
2014
2013
--------------- = 47.67%
PhP 1,800
----------------------------
PhP 858
--------------- = 46.91%
PhP 1,650
PhP 774
Equity Ratio
- A business firm can survive and continue to exist as a going concern if it can survive and continue to satisfy all obligations and provide a satisfactory return on the owner’s investment.
1
Return on Sales
- Or profit margin, measures the amount of income provided by the average peso sales.
Return on Sales = ---------------------------------
Income
Net Sales
Example:
2014
2013
--------------- = 35.4%
PhP 3,280
----------------------------
2
Return on Total Assets (ROA)
- is a measure of operating efficiency. It indicates its control to generate income.
Return on Assets = ------------------------------
Income before Interest and Taxes
Average Total Assets
PhP 1,160
--------------- = 35%
PhP 2,950
PhP 1,033
Gross Profit Ratio
Example:
2014
Return on Total Assets (ROA)
3
Return on Owners’ Equity
- Measures the amount earned on the owners (or stocks) investment.
Net Income
Average Owners’ Equity
Return on Owners Equity = ------------------------------
4
Earnings per share (EPS)
- is determined by dividing the net income (after preferred dividends) by the weighted average number of common shares.
EPS = ---------------------------------------
Net Income - Preferred Dividends (if any)
Weigted Average Number of Common Shares
Example:
2014
2013
--------------- = PhP 2.14
PhP 100
----------------------------
PhP 234 - PhP 20
--------------- = PhP 2.58
PhP 100
PhP 278.2 - PhP 20
Earnings per share (EPS)
- Indicates the “average” mark-up obtained on products sold.
Gross Profit Ratio = ---------------------------------
Gross Profit
Net Sales
Example:
2014
2013
--------------- = 7.1%
PhP 3,280
----------------------------
PhP 234
--------------- = 9.4%
PhP 2,950
PhP 278.2
Net Profit Ratio
- measure of the overall profitability of operation.
Net Profit Ratio = ---------------------------------
Net Profit
Net Sales
= ------------------------------
Net Income + Interest Expense + Income Tax
Average Total Assets
or
= --------------------- =
PhP 390
PhP 1,650 + PhP 1,800
= --------------------- =
PhP 390
2
23%
Return on Assets
------------------
PhP 1,725
Example:
2014
Return on Total Assets (ROA)
= --------------------- =
PhP 234
PhP 744 + PhP 858
= --------------------- =
PhP 234
2
29%
Return on
stockholders’ equity
------------------
PhP 816
What Is a
SWOT

Analysis
?
The
SWOT Matrix
- A matrix of these factors can be constructed to develop strategies that take into account the SWOT profile.
How to
perform
a
SWOT analysis
SWOT profile
- The internal analysis is a comprehensive evaluation of the internal environment's potential strengths and weaknesses.
As the cells multiply, they will also separate into two distinctive masses: the outer cells will eventually become the placenta while the inner cells will form the embryo.
- The true value of this exercise is in using the results to maximize the positive influences on your business and minimize the negative ones.
Developing Strategies from your SWOT
If you know your enemies and know yourself, you can win a hundred battles without a single loss. If you only know yourself, but not your opponent, you may win or may lose. If you know neither yourself nor your enemy, you will always endanger yourself.
The Art of War

by

Sun Tzu
- is a structured planning method used to evaluate the strengths, weaknesses, opportunities and threats involved in a project or in a business venture.
Analysis Framework
Situation Analysis
Internal Analysis
External Analysis
Strengths
Weaknesses
Opportunities
Threats
SWOT Profile
----
SWOT Profile
SWOT Profile
----
----
----
----
----
----
Internal Analysis
Factors should be evaluated across the organization in areas such as:
• - Company culture
• -- Company image
• --- Organizational structure
• ---- Key staff
• ----- Position on the experience curve
• ------ Operational efficiency
• ------- Operational capacity
• -------- Brand awareness
• --------- Market share
• ---------- Financial resources
• ----------- Exclusive contracts
• ------------ Patents and trade secrets

- Opportunities or threats can arise when changes occur in the external environment.
External Analysis
Changes in the external environment may be related to:
• -• Customers
• -- Competitors
• --- Market trends
• ---- Suppliers
• ----- Partners
• ------ Social changes
• ------- New technology
• -------- Economic environment
• --------- Political and regulatory environment


Multiple Perspectives Needed
- To get the most complete, objective results, a SWOT analysis is best conducted by a group of people with different perspectives and stakes in your company.
''Teamwork is encourage''
Strengths
- describe the positive attributes, tangible and intangible, internal to your organization, that gives an advantage over others.
Weaknesses
- capture the negative aspects internal to your business that detract from the value you offer, or place you at a disadvantage relative to others.
• strong brand names
• good reputation among customers
• cost advantages from proprietary know-how
• favorable access to distribution networks
• positive attributes of the people involved
• available capital, equipment, credit, established customers
• copyrighted materials and patents
• information and processing systems

Examples of such
Strengths
include:
• lack of patent protection
• a weak brand name
• poor reputation among customers
• high cost structure
• lack of access to key distribution channels
• lack of expertise,
• limited resources,
• lack of access to skills or technology
• inferior service offerings
• the poor location of your business
Examples of such
Weaknesses
include:
Opportunities
- assess the external attractive factors that the project could exploit to its advantage.
• an unfulfilled customer need
• arrival of new technologies
• loosening of regulations
• removal of international trade barriers
• market growth
• lifestyle changes
• resolution of problems associated with current situations
• the ability to offer greater value that will create a demand for your services
Examples of such
Opportunities
include:
- include factors external and beyond your control that could place your marketing strategy, or the business itself, at risk, but you may benefit by having contingency plans to address them if they should occur.
••shifts in consumer tastes away from the firm's products
• emergence of substitute products
• increased trade barriers
• Competition
• intolerable price increases by suppliers
• new governmental regulation
• economic downturns,
• devastating media or press coverage
Examples of such
Threats
include:
• S-O - strategies pursue opportunities that are a good fit to the company's strengths.
• W-O - strategies overcome weaknesses to pursue opportunities.
• S-T - strategies identify ways that the firm can use its strengths to reduce its vulnerability to external threats.
• W-T - strategies establish a defensive plan to prevent the firm's weaknesses from making it highly susceptible to external threats.

The following table might help you organize the strategies in each area:
Topic 1
Topic 3
Topic 4
Business Plan Report
Topic 5
Financial Budgeting
SWOT is an opportunity to bring your team together and encourage their participation in and adherence to your company’s resulting strategy.
Business plans
preparation
Seminar 2015

Use of a
four-square SWOT analysis template
A SWOT analysis is typically conducted using a four-square SWOT analysis template, but you could also just make a lists for each category. Use the method that makes it easiest for you to organize and understand the results.
A brainstorming session is recommended to identify the factors in each of the four categories. Alternatively, you could ask team members to individually complete our free SWOT analysis template, and then meet to discuss and compile the results.
As you work through each category, don’t be too concerned about elaborating at first;
bullet points may be the best way to begin
. Just capture the factors you believe are relevant in each of the four areas.
Once you are finished brainstorming, create a final, prioritized version of your SWOT analysis, listing the factors in each category in order from highest priority at the top to lowest priority at the bottom.
THE ANALYSIS
Compare Corporation
Income Statement
For Years Ended December 31
(In Thousand of pesos)
HORIZONTAL ANALYSIS
Compare Corporation
Balance Sheets
For Years Ended December 31
(In Thousand of pesos)
HORIZONTAL ANALYSIS
Compare Corporation
Income Statement
For Years Ended December 31
(In Thousand of pesos)
Vertical ANALYSIS
Compare Corporation
Balance Sheets
For Years Ended December 31
(In Thousand of pesos)
Vertical ANALYSIS
STRATEGIC PLANNING/
ELEMENTS OF MARKETING
Topic 2
Strategic Planning
Defined as the managerial process of matching a company’s resources with its marketing opportunities over the long run
Consists of:
(1) defining the company’s mission
(2) setting company objectives
(3) selecting the strategies and tactics that will enable the company to reach its goals.

• MISSION = “
What business are we in?

Strategic Business Units
Large or diversified company may be divided into major product divisions called “
Strategic Business Units (SBUs)
” for more effective planning and operation.
A separate strategic plan can be prepared for each division by:
1. Assigning profit responsibility
2. Producing and marketing different products or services.

Strategic Marketing Planning
The planning for marketing can be done after the high level strategic planning is completed for the company (as a whole and for each strategic business unit)
This should be integrated with total-company planning discussed by the top management level
• A company strategy often translates into a marketing goal
Steps for Strategic Marketing Planning
1. Conduct a situation analysis w/ SWOT





2. Set the marketing objectives
3. Select and analyze the target market
4. Design and develop a strategic marketing mix

a. Markets
b. Competition
c. Products
d. Distribution systems
e. Promotional programs
The Marketing Mix
The combination of the four interrelated Inputs/ Elements that constitute the core of a company’s marketing system:
This is controllable by company management but constrained by external environmental forces
1. Product offerings
2. Price structure
3. Promotional activities
4. Distribution system

What is a Market
The demand made by a certain group of potential buyers for a product or service (“
market demand
“)
Defined as - People with needs to satisfy, money to spend, and willingness to spend it.
There are three factors to consider:
1. People with needs - financing needs
2. Their purchasing power - back-up resources / ability
3. Their buying behavior - willingness to payback in return


Need
- is the lack of anything that is required, desired, or useful.
SELECTING A TARGET MARKET
Target Market
- is a group of customers at whom the company specifically intends to aim its marketing effort.
Careful selection and accurate definition (identification) of the target market are essential to the development of an effective marketing mix.
By the same token, the target-market selection is influenced by the type of marketing mix that the company is capable of developing.
GUIDELINES REGARDING MARKET SELECTION
Target markets should be compatible with the company’s goals and image. To match the marketing opportunity with the company’s resources.
The company should consciously seek markets that will generate a sufficient sales volume at a low enough cost to result in a profit (Profitable Sales Volume)
TARGET-MARKET STRATEGY
Two general approaches to choose from, in defining the market or markets it will sell to:
1.
Market Aggregation
-
total market is viewed as a single unit

2.
Market Segmentation
-
total market is seen as being composed of many smaller, homogeneous segments
MARKET FACTORS TO ANALYZE
We defined a market as people with:
1. Wants to satisfy
2. The money to spend
3. The willingness to spend

In the course of selecting its target markets, the Company should analyze these three components in detail:
1. Geographic distribution and Demographic composition
2. The distribution of customer income and customer expenditure patterns
3. The sociological and psychological factors (willingness to spend / pay)

MEASURING THE SELECTED MARKETS
A company should make quantitative estimates of the sales-volume size of the market for the seller’s product or service:
Market Potential
- estimated total-industry potential for the company’s product in the target market.
Sales Potential
- the seller’s estimated share of this total target market
Management prepare a sales forecast, usually for a 1-year period
Sales forecast is the foundation of all budgeting and short-term operational planning in all company departments - Marketing, Production, Finance
MARKET AGGREGATION OR MARKET SEGMENTATION
The choice here will greatly affects the marketing mix and possibly its production, research and development, and other operating departments
1.
Market Aggregation
(a total mass market)
2.
Market Segmentation
(smaller, homogeneous market segments)
a.
Treats its total market as a unit - as one mass, aggregate market whose parts are considered to be alike in all major respects.
b.
Management then develops a single marketing mix to reach as many customers as possible in this aggregate market.
c.
The company develops a single product for this mass audience
d.
It develops one pricing structure and one distribution system for its product
e.
Uses a single promotional program that is aimed at the entire market
f.
When to adopt this viewpoint? Generally, when a large group of customers in the total market tends to have the same perception of the product’s want-satisfying benefits.
g.
Adopted by firms that are marketing a non-differentiated, staple product: Gasoline, Salt, Sugar
h.
This is a Production-oriented strategy – enables a company to maximize its economies of scale in production, physical distribution, and promotion.
i.
Producing and marketing one product for one market -means longer production runs at lower unit costs.

Market Aggregation
a.
Total market for most types of products is too varied-too heterogeneous for management to consider it as a single, uniform entity.
b.
The total market for each product consists of sub markets that differ significantly from one another.
c.
This lack of uniformity may be traced to differences in buying habits, in ways in which the product is used, in motives for buying, or in other factors.
c.
The total, heterogeneous market for a product is divided into several segments, each of which tends to be homogeneous in all significant aspects
e.
Management then selects one or more of these segments as the company’s target market.
f.
A separate marketing mix is developed for each segment in this target market.
g.
This is a customer-oriented philosophy, we first identify the needs of the customers within a submarket and then satisfy those needs.

Market Segmentation
3.
Single
and
Multiple Segmentation
?
a. involves selecting as the target market one homogeneous group from within the total market
b. One marketing mix is then developed to reach this single segment
c. A small company may want to concentrate on a single market segment, rather than to take on many competitors in a broad market.
d. This strategy enables a company to penetrate one small market in depth, and to acquire a reputation as a specialist or an expert in this limited market.
e. A company can enter such a market with limited resources.
f. Big risk is that seller has all its eggs in one basket.
g. If that single segment declines in market potential, the sell can suffer considerably

Single segmentation
a.
Two or more different groups of potential customers are identified as target-market segments
b.
A separate marketing mix is developed to reach each segment
c.
Most likely , will develop a different variety of the basic product for each segment
d.
Or segmentation can also be accomplished with no change in the product, but rather, with separate marketing programs, each tailored to a given market segment
e.
This strategy normally results in a greater sales volume than a single-segment approach
f.
The unit cost of production and marketing also increase when multiple segments are targeted.

Multiple segmentation
BENEFITS OF MARKET SEGMENTATION
By tailoring marketing programs to individual market segments, the company can :
1.
Do better marketing job
2.
Make more efficient use of marketing resources
3.
Design products that really match the market demands
4.
Use advertising media more effectively, specifically aimed toward each segment of the market.

CONDITIONS FOR EFFECTIVE SEGMENTATION
Managements goal should be to segments its markets in such a way that each segment responds in a homogeneous fashion to a given marketing program
1. The basis for segmenting – the characteristics used to categorize customers must be “
measurable
”, and the data must be accessible

2. The market segments itself should be “
accessible
” through existing marketing institutions channels of distribution, advertising media, company sales force, and so on with a minimum of cost and waste.

3. Each segment should be large enough to be “
Profitable
”.

bases for market segmentation
A company can segment its market in many ways. And the bases for segmentation vary from one product to another.
1.

Ultimate consumers
- buy and/or use products or services for their own personal or household use, satisfying strictly non-business wants, called “consumer market”
2.

Industrial users
- are business, industrial, or institutional companies that buy products or services to use in their own businesses or to make other products, called “industrial market”
3.
These two markets buy differently
4.
The composition of a seller’s marketing mix
: the products, distribution, pricing and promotion will depend upon whether it is directed toward the consumer market or the industrial market


Reason for Buying
” one very important way:
bases for market segmentation
Some of the widely used bases for further segmenting the consumer market:
1. Regional population distribution
2. Urban-suburban-rural population
3. Age
4. Sex
5. Family life –cycle stage
6. Others: race, religion, nationality, education, occupation
People with wants:
1. Distribution of disposable income
With money to spend:
1.
Sociological Factors:


a
. Cultural Groups

b
. Large social classes

c
. Small groups, including the Family
2.
Psychological Factors:
a
.

Personality
b
.

Attitude
c
.

Product benefits desired
Willingness to spend it:
THE PRODUCT
Product Line
- a broad group of products, intended for essentially similar uses and possessing reasonably similar physical characteristics

Product Mix
- the full list of all products offered for sale by a company
MAJOR PRODUCT-MIX STRATEGIES
Several major strategies in managing their product mix :
1.
Expansion of product mix
2.
Contraction of product mix
3.
Alteration of existing products
4.
Positioning the product
5.
Trading up and trading down
6.
Product differentiation and market segmentation
THE PRICE

Prices are always on trial
” –an offer or an experiment to test the pulse of the market, if the customer accept the offer, then the price is fine. If they reject it, the price will be changed or the product may even be withdrawn from the market.
The price of a product or service is a major determinant of the market demand for the item
•Price affects the firm’s competitive position and its share of the market
•Price has a considerable bearing on the company’s revenue and net profit
Price affects the firm’s marketing program
MEANING OF PRICE
After the barter system, we use money as a common denominator of value
Price
- the money value of an item.
NEW FLEXIBILITY IN PRICING
Traditional Pricing:
Today - Competition would force some deviations
a.
add a fixed mark-up percentage onto their costs to arrive at a selling price,
b.
follow the customary price charged by the industry leader
c.
price that bring them a certain percentage return on their investment over the long run

a.
Flexibility -

willingness to cut prices to hold a market share
b.
Less rigid adherence to a fixed mark-up over cost or a follow-the-industry-leader policy
c.
Government deregulation became effective

PRICING OBJECTIVES
Pricing – must be directed toward the achievement of a goal
1.
Profit-oriented

a.
Achieve target return on investment or on net sales

b.
Maximize profit
2.
Sales-oriented

a.
Increase sales

b.
Maintain or increase market share
3.
Status quo-oriented
a.
Stabilize prices
b.
Meet competition
Management should decide on its pricing objective before determining the price itself:
PROFIT-ORIENTED GOALS
Achieve target return
1.
price its products or services to achieve a certain percentage return on its investment or on sales. (used by both middlemen and manufacturers)
2.
The percentage of profit may remain constant, but the peso profit will vary according to the number of units sold

Maximize profits

1.
Pricing objective of making as much money as possible

2
. Profit maximization has an ugly connotation

3.
Connected to profiteering, high prices, monopoly
Disadvantages :

a.

If Profits become unduly high because supply is short in relation to demand, new capital will be attracted into
the field, this will increase supply and eventually reduce profits to normal levels
Competition:

a.
To maximize profits over the long run, firms may have to accept short run losses

b.
Setting low prices to build a large clientele

c.
Some don’t expect to show a profit for the first few years, but they are laying a solid foundation for adequate
profits over the long run

SALES-ORIENTED GOALS
• Increase sales volume
1.
This pricing goal is usually stated as a percentage increase in sales volume over some period of time: say, 1 year or 3 years

2.
A company’s goal may be to increase sales volume, but still to maintain its profitability

3.
Increase volume by discounting or some other aggressive pricing strategy, perhaps incurring a loss to get a foothold in its market.

• Maintain or increase market share
1.
Market share is a better indicator of corporate health and thus a better pricing goal than target return on investment, this is good especially when the total market is growing.

2.
If management is not aware that the market is expanding the company may be getting a decreasing share of that market

STATUS QUO GOALS
• Stabilize prices
1.
This is the goal in industries with a Price Leader
2.
Large companies will try to maintain stability in their pricing
3.
Price leadership means only that there is some relationship between the leader’s prices and those charged by other firms.
4.
Major reason for seeking stability in pricing is to avert price wars

• Meet competition
1.
Countless firms, regardless of size, consciously price their products simply to meet the competition.

2.
In industries where there is a price leader and where the product is highly standardized, most firms have a follow the leader policy.

FACTORS INFLUENCING PRICE DETERMINATION
Base Price
(or
list price
) of product or services - the price of one unit of the product at its point of production or resale - is the heart of price management.
Factors that influence the final price determination :
1.
Demand for the product
2.
Target share of the market
3.
Competitive reactions
4.
Use of cream skimming pricing or penetration pricing
5.
Other parts of the marketing mix the product, distribution channels and promotion
6.
Costs of producing or buying the product

TARGET SHARE OF MARKET
• A company striving to increase its market share may price more aggressively (
lower base price
,
larger discounts
) than a firm that wants to maintain its present market share.
COMPETITIVE REACTIONS
1.
The threat of potential competition is greatest when the field is easy to enter and the profit prospects are encouraging.

2.
Profit-oriented pricing goals are particularly susceptible to competitive reactions

3.
On the other hand, in a company with status quo pricing goals, management is likely to set its price at the competitive level

THE DISTRIBUTION
Middleman (Broker / Agent for Services)
Importance of Middlemen
Channel of Distribution called Trade Channel
Wholesaling
Retailing
THE PROMOTION
Promotional Mix
The combination of advertising, personal selling, sales promotion, and other promotional tools used to help reach the goals of the marketing program.
Promotional Methods
1. Personal Selling
2. Advertising
3. Sales Promotion
4. Publicity
5. Public relations

Basic Nature of Promotion
Promotion is an exercise in information, persuasion, and communication.
- to inform is to persuade, and conversely, a person who is persuaded is also being informed.
Need for Promotion
Even the most useful and want-satisfying product will be a marketing failure if no one knows it is available.
Determination of
Promotional Mix
Management has to determine what combination of advertising, personal selling and other promotional tools will make the most effective promotional program for a company.
Factors Influencing
Promotional Mix
1.
Funds Available
2.
Nature of the Market


a.
Geographic scope of the market

b.
Type of customer

c.
Concentration of the market
3.
Nature of the Product
4.
Stage of the product’s life cycle


a.
Introduction Stage

b.
Growth Stage

c.
Maturity Stage

d.
Sales Decline Stage

Questions of Basic
Promotional Strategy
When should personal selling be the main ingredient?
1.
When the company has insufficient funds with which to carry on an adequate advertising program
2.
When the market is concentrated
3.
When the personality of a sales person is needed to establish rapport
4.
Product has a high unit value
5.
Product requires demonstration
6.
Product must be fitted to the individuals customer’s need (securities and insurance)
7.
Product Involves a trade-in
When should Advertising be the main ingredient?
1.
If the market for the product is widespread.
2.
when the seller wishes to inform many people quickly.

The Five Criteria for “
Advertisability
” of a Product are as follows:
1.
The primary demands trend for the product should be favorable.
2.
There should be considerable opportunity to differentiate the product.
3.
The product should have hidden qualities
4.
Powerful emotional buying motives should exist for the product.
5.
The company must have sufficient funds to support an advertising program adequately.

DETERMINATION OF TOTAL
PROMOTION APPROPRIATION
Promotional activities usually are budgeted as current operating expenses, implying that their benefits are used up immediately.
Method of Determining
Appropriation
1. Relation to Income
2. Task or objective
3. Used of all available funds
4. Follow competition
BUDGET
is plan, expressed in quantitative terms, on how to acquire and use the resources of an entity during a certain future period of time.
A BUDGET
IS QUANTITATIVE

• A plan may either be in a descriptive
(Strategic Plan)
or quantitative
(Financial Plan)
Budget is a plan in quantitative terms.
unit of measure such as:
- pesos, units, pieces, hours, etc.
A BUDGET REFERS TO A CERTAIN ENTITY
OR TO A SPECIFIC ACTIVITY OF AN ENTITY
= --------------------- =
Beg. + Ending Bal.
2
= --------------------- =
190,000 + 250,000
2
PhP 220,00
Merchandise Inventory Turnover
Average Inventory
Inventory Turnover
Average Age
Business budget must apply to a specific entity, which may be the business firm as a whole, or merely a part of the business firm such as Department, Division, Section, Branch or any other business segment.
A BUDGET IS FOR A SPECIFIC
FUTURE PERIOD OF TIME
Prepared for a specific period of time in the future called budget period

( One year, a semester, a quarter, a month, a week, five years, ten years, etc.)

PLANNING AND
BUDGETING

Planning
- in a broader perspective, is a well thought-out operational plan which involves setting of goals or objectives.
Budgeting
- may be considered merely as a tool of profit planning
a.
Sales planning programs and strategies
b.
Programs for control of all manufacturing and non manufacturing costs
c.
Programs affecting working capital and plant investment
d.
A review of all factors affecting the return on investment

SETTING PROFIT
OBJECTIVES

Prior method
- management specifies a desired rate of return and then draws up plans to achieve such rate.
Posterior method
- management draws up plans and then sets the profit rate resulting from the plans.
Pragmatic method
- management uses an acceptable profit standard that is set based on the company’s own business experience.
USES/ADVANTAGES
OF BUDGETING

 Budgeting compels periodic planning
 Budgeting enhances coordination, cooperation and communication
 Budgeting compels quantification of plans and proposal
 Budgeting provides a framework for performance evaluation
 Budgeting enables members of the organization to be aware of business costs
 Budgeting satisfies some legal and contractual requirements
 Budgeting directs the firm’s activities toward the achievement of organizational goals.
FUNCTIONS OF
BUDGETING


1.

Planning
a.
Entire budgeting process involves planning

b.
Provides the basis for control

2. Control
a.
Comparison of actual results with budgeted figures

b.
The objective is not merely to minimize cost; monitor
activities; take necessary corrective actions; learn from
their mistakes, improving operational efficiency and
effectiveness
THE
MASTER BUDGET

The overall plan of the organization for a given budget period

Major composition

a.
Operating

b.
Financial budget (Assets, liabilities and capital)


OPERATING BUDGET
 Budgeted or projected income statement
 Contains the projected revenues, cost and expenses and the forecast net income
SALES FORECAST
Factors considered in making a sales forecast
a.
The company’s past sales volume
b.
Economic and political conditions
c.
Conditions in the industry to which the company belongs
d.
Competition
e.
Market research studies
f.
Pricing policies of the firm as well as those of the competitors
g.
Government control and regulations affecting the company
h.
The company’s own sales force and its planned advertising and promotional activities
i.
The company’s productive capacity and other limitations affecting production
j
. Change in demand for the product due to seasonal variations

The company should not enter a market that is already saturated with competition unless it has some overriding competitive advantage that will enable it to take customers away from existing firms.
SALES FORECASTING
PROCEDURES

Plays a very important role in the development of the master budget
All the other budgets in the entire master plan depend upon it
Extra care should be exercised
Gross overstatement or understatement in the sales forecast might bring about errors in the master budget plan
Depending on the company’s budgetary system, Organization structure, Objectives, and Other factors

Basic Approaches:

a.
Statistical
b.
Internal Estimates

STATICAL APPROACH
Involves the study of general business and market conditions with the use of trend and correlation analyzes
a. Trend analysis

b. Correlation analysis
INTERNAL ESTIMATES
APPROACH

1. Sales Staff Procedure
 sales estimates originate from the salesmen
 best source of sales forecasting data, they know what is really going on in the market
 sales estimate per product, customer type, area or any other classification
 submitted to the salesmen’s immediate sales supervisor
 sales supervisors summarize and adjust these estimate and submit the same to their manager
 so on, up to the highest or chief sales officer who in turn summarized and adjusts such estimates, considering all the previously discussed internal and external factors affecting sales forecast.
 Basis for preparing the formal sales budget
2. Executive judgement
The committee members forecast sales by sharing their ideas, knowledge, experiences and other pertinent data from their respective segments
SALE BUDGET
Sales volume, expressed in pesos and/or physical units
Based on the sales forecast, classified by:
a.
Product lines
b.
Periods – months, quarters, years
c.
Sales areas or territories
d.
Sales outlets
e.
Branches, divisions and other business segments
f.
Types of customers
g.
Salesman

BUDGETED OPERATING
EXPENSES

The amount of selling and administrative expenses that the company expects to incur during the budget period
a. Selling expense budget - prepared together with that preparation of the sales budget

b. administrative expense budget
FINANCIAL BUDGET
Usually composed of the following:
 capital expenditure budget
 Cash budget
 Budgeted balance sheet

CAPITAL EXPENDITURE
BUDGET

 Contains planned acquisitions of major items like plant and equipment
 Involves some critical budgeting decision in an organization
 Usually require larger cash outlays and cover longer time periods

CASH BUDGET
 Liquidity
 Good cash management
 Shows the expected cash balance at the beginning of the budget period, the projected cash receipts, and disbursements during the period, and the expected ending cash balance.
 With cash budgeting, appropriate courses of action may be planned even before the occurrence of possible cash shortage or overage.

BUDGETED BALANCE
SHEET

Shows the projected balances of all the asset, liability and capital accounts
BUDGET REVIEW
PROCESS

 Preparation of plans and budget
 Review of the higher officer
 Revision
 Review and approval for implementation

BUDGET PERFORMANCE
REPORTS

 Usual procedure for the exercise of budgetary control
 Done through comparison between the budgeted and actual figures
 Highlighting the deviations (or variances) between the two figures
 Prepared weekly, monthly, quarterly or as frequently as management desires
 Reports must be prepared only when the information that may be obtained from them may be cost-benefit justified.
 An item by item analysis of the variances (and not just the summary or net amount), is recommended, since individual favorable or unfavorable variances may net out or offset other variances of real importance.
 To be of real importance as a control tool, performance reporting must be tied with the company’s reward structure.

BUDGET REVISION
Continuous follow-up on actual performance as compared with budget estimates through the preparation of budget performance reports may bring to light the needs for revising the budget
This happens if, it will be difficult to meet the sales forecast, and budget must be adjusted in terms of a revised sales estimate.
Budget revisions must be made only when necessary
A weak policy along this line would discourage careful budgeting at the time the original budget is prepared.

ZERO-BASE
BUDGETING

In zero-base budgeting, the present expenditures are not accepted as the starting point. Instead, every budget period is a fresh start, where the managers are required to justify the entire budget, not just the increase over the last period’s expenditures.
Thank You!
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