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Jeff Cope
Welcome to Raytheon’s
BUILDING BUSINESS ACUMEN®
Raytheon
1. 7-days: Teach one of the principals learned in class, to someone in your department.
2. 7 days: Discuss your action items with your manager in the next.
3. 30 days: Read the first 90 pages of: “What The CEO Wants You to Know“
3. 30 days: Get with your class coach and give an accounting of your progress on the action items.
Start now:
Build and practice your new business acumen skills.
When making decisions, determine how the outcome will impact Cash, Profit, Assets, Growth, People…
HINT: Tear out page 47 and use it at your desk!
Post-Course Action Items
Important Question!
What’s your “Business Acumen”?
How much do you know about Raytheon’s
Key Success Measures?
Let’s find out!
1 - How much Cash was on hand? $________
2 - How much Cash was generated by Operating Activities? $________
3 - How much Free Cash Flow was on hand? $________
4 - What was our total Net Sales? $________
5 - What was our Operating Income/EBIT? $________
6 - What was our Net Income? $________
7 - What was our EPS? $________
8 - What was our Backlog? $________
9 - How much did Net Sales grow (Y/Y)? _______%
10 - What was our Operating Income growth? _______%
11 - What was our Net Income growth? _______%
12 - What was our EPS growth (Y/Y)? _______%
*Given all the above, how do we stack up against other companies?
Pop Quiz!
For fiscal year: 2012
35
Clear Learning Objectives:
1. List and describe the 12 measures most important to our CEO and Executive team, and how you can impact them.
2. Understand the 5 Business Drivers that all successful businesses focus on.
3. Create a personal action plan that can positively impact personal performance and company results.
4. Develop a better understanding of the company’s financial statements and be able to teach them to others.
5. Better articulate company performance and strategy!
People
Cash
Profit
Assets
Growth
®
Acumen means?
3
…the ability to make good business decisions, in a timely manner, with an understanding of how the decision should impact the business.
8
Cash
Growth Growth
Cash Assets
Profit
Cash is a company’s oxygen supply … and allows you to stay in business.”-Ram Charan
Cash is more important than your mother.“ -Al Shugart, Former Seagate CEO)
Cash is King!
Cash : Lack of cash - #1 reason why companies fail! X
People Employees Customers
Growth Top Line
Bottom Line
Assets StrengthUtilization
ProfitRevenuesExpenses
CashOn HandGeneration
Definitions:
8
People
Cash
Profit
Assets
Growth
®
8
Cash: Cash in the bank, register, cash equivalents. (p.58)
MEASURES
Cash Flow: Cash that comes from your core business. Most important indicator of a company’s financial
health and strength. (p.58)
Cash
Cash: What is required to Grow and Maintain the business.
• Profit is an Opinion
• Cash is a Fact
Free Cash Flow: The cash that a company is able to generate (cash
flow), after spending the money required to run or expand it’s business. (p.60)
Merck: Cash flow - capital expenditures Free Cash Flow
What is it used for??
Pay debt, providing dividends to investors, buying back stock, expansion, acquisitions, and/or financial stability to weather difficult market conditions.
DEFINITION:
Cash Flow is NOT Profit
People
Cash
Profit
Assets
Growth
®
9
Cash in, Cash out
Influenced by timing of Accounts Payable & Receivable
Change in Cash includes Investing & Financing Activities
Calculated for financial reporting & tax purposes
Match Revenue with Expense
GAAP & SEC rules
Expenses & revenue which are not Cash
Cash Flow Profit
Why do you think Peter
Drucker would say…
“Cash Flow is
more important
than profit.”
Top 6 Uses of Cash
1 - Dividend Pay-outs 4 - Research & Development (R&D)
2 - Stock Buy-Back 5 - Capital Expenditures (CAP-EX)
3 - Mergers & Acquisitions (M&A) 6 – Debt Retirement
$643M
$825M
$301M
$704M
$339M
$970M
Top Uses of Cash at Raytheon
People
Cash
Profit
Assets
Growth
®
Pro: Con:
Pro: Con:
Pro: Con:
Too much Cash?
Too little Cash?
Too much Cash Flow?
Earn it
Sell Assets
Borrow it
Yes! Banks offer low interest /return, not using cash wisely. Investors want company to: “Either invest it or return it to us in dividends!”
Yes! #1 reason why companies fail.
No Cost Not Immediate
Immediate Reduce Assets
Immediate Cost (Interest)
1.
2.
3.
Can a company have:
1.
2.
3. No! Most important indicator of a company’s financial health and strength.
How to Obtain Cash:3 Sources
Key ways to increase CASH and CASH
FLOW:
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
People
Cash
Profit
Assets
Growth
®
9
DRIVER: Raytheon Raytheon Raytheon Raytheon
2009 2010 2011 2012Net Sales $24,881 $25,183 $24,857 $24,414
Net Income $1,935 $1,879 $1,896 $1,888
Cash: Cash $2,642 $3,638 $4,000 $3,188
Cash as % of Sales 10.6% 14.4% 16.1% 13.1%
Cash from Operations $2,745 $1,931 $2,156 $1,951
Free Cash Flow $3,111 $1,599 1,719* $1,473
CASH: RaytheonPeople
Cash
Profit
Assets
Growth
®
Cash
Cash Flow
Cost of Capital: The required return necessary to make a capital budgeting project, such as building a new factory, worthwhile. Cost of capital includes the cost of debt and the cost of equity.
Free cash flow: Operating cash flow minus capital expenditures. It is the cash available to a company to use for paying debt, providing dividends to investors, buying back stock, expansion, acquisitions, and/or financial stability to weather difficult market conditions.
S&P 500 Average: Cash = 6%
3,188 = 13.1%24,414
CASH: RaytheonPeople
Cash
Profit
Assets
Growth
®
DRIVER: Raytheon
General Dynamics
Lockheed Martin Boeing Northrop
Grumman
2012 2012 2012 2012 2012Net Sales $24,414 $31,513 47,182 81,698 25,218
Net Income $1,888 -$332 2,745 3,900 1,978
Cash: Cash $3,188 $3,296 $1,898 $10,341 $3,862
Cash as % of Sales 13.1% 10.5% 4.0% 12.7% 15.3%
Cash from Operations $1,951 $2,687 $1,561 $7,508 $2,833
Free Cash Flow $1,473 $2,634 $1,803 $2,197 $2,309
S&P 500 Average: Cash = 6%
Cash
Cash Flow
4. Action Plan• Accounts Payable: pay slower
• Accounts Receivable: Collect Faster
• Capital Expenditures:
• Better inventory management: lower levels
• Don’t give customers excuses not to pay…
1. Define Cash Driver• What is required to grow
and maintain the business.
2. Measures of Cash1. Cash: Easily converted into cash
in 90 days or less.
2. Cash Flow: Difference: Cash In and Cash Out over a given period of time.
3. Free Cash Flow: Cash Flow minus Cap Ex.
3. Importance of Cash Driver• Have sufficient cash to run the business
• What is the cost of that cash (capital)
• Enhance shareholder value
• Improve attractiveness to suppliers and customers.
CASH - Review
9
People
Cash
Profit
Assets
Growth
®
Action Plan: What Single Action are You Committed to do to Positively Impact CASH and CASH
FLOW?
People
Cash
Profit
Assets
Growth
®
1. Increase Sales or Price2. Reduce Costs3. Better manage Accounts Receivable (preserve customer relationships)4. Better manage Accounts Payable (preserve supplier relationships)5. Better manage Inventories Minimize DSO (Days Sales Outstanding) Reduce/Conserve operating costs Manage billing milestones – efficiently execute completion milestones Minimize time from task completion to payment (Days Sales
Outstanding – DSO) Ensure timecard compliance
Timely – DAILY input / accurate entry of time worked Establishment and communication of proper charge numbers Pre-emptive discussion on how to charge in weather calamities,
training, etc. Timely review/approval of subcontractor and consultant invoices Fully participate and understand monthly financial reviews Maximize profitability Excellent contract performance
Equates to happy customer who don’t protest invoices or delay payments due to dissatisfaction
9
10
Profit
Growth Growth
Cash Assets
Profit
“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
People Employees Customers
Growth Top Line
Bottom Line
Assets StrengthUtilization
ProfitRevenuesExpenses
CashOn HandGeneration
Profit
People
Cash
Profit
Assets
Growth
®
Definition: PROFIT
10
MEASURES
Net Income($) / Net Margin(%)
SALES – ALL expenses
Gross Profit ($) / Gross Profit Margin(%)
SALES – COGS
Earnings Per Share (EPS)
Net Income / # of outstanding shares
DEFINITION: Profit is the money made after expenses are subtracted from your revenues. It can be expressed in dollars ($) or as a percent (%).
You can improve profit in two fundamental ways:#1 Increase Revenues
• charge more• sell more
#2 Decrease Expenses
#3 - Both!
Operating Income (EBIT)($) / Operating Margin(%)
SALES – COGS – Operating Expenses
“Profit” = $“Margin” = %
PROFIT: Measures
NotesProfit = Income = EarningsProfit = $ Margin = %Profit = Expressed in Dollars ($) or as a Percent (%)
Gross Margin = Sales A good indication of how profitable a company is at the - COGS most fundamental level. Companies with higher gross margins
will have more money left over to spend on other business operations, such as research and development or marketing.
Operating Profit (EBIT) = Sales Earnings Before Interest and Taxes (non-controllables)
- COGS EBIT is a good gauge of how well a company is being
managed. - Operating Exp. Controllables
Net Profit Margin = Sales - COGS - Operating Exp. Controllables
- Interest & Taxes Non-Controllables (All Expenses)
Sales Price: $1.50
Water - $ .04Label - $ .11 COGSBottle & cap - $ .15 Packaging - $ .20 Direct LaborTotal: ($ .50)
$1.50 - $.50 = $1.00 Gross Profit = 67% Gross Margin
Rent - $ .03Salaries, Gen, Admin. (SG&A) - $ .30Marketing - $ .08 (Controlables) Shipping - $ .19 Total: ($ .60)
$1.50 - $.50 - $.60 = $.40 Operating Income (EBIT)
Interest Expense - $ .04 (Non-controlables) Taxes - $. 06Total: ($ .10)
$1.50 - $.50 - $.60 - $.10 = $.30 (EBITDA)
Depreciation /Amortization - $ .02
$1.50 - $.50 - $.60 - $.10 - .02 = $.28 Net Profit = 18.6% Net Margin
Gross & Net Profit($) / Margin(%)People
Cash
Profit
Assets
Growth
®
11
Life Spring
Artesian Water
2012(in millions)
“Net Earnings = Net Profit” and “Net Earnings”
People
Cash
Profit
Assets
Growth
®
4 Profit Calculations
11
Sales (Revenues) $100 100% - Costs of Goods Sold $ 35
= Gross Profit/Margin $ 65 65%
- R&D, SG&A, etc. $ 50
= Operating (EBIT) Income/Margin $ 15 15%
- Taxes, Interest $ 2
= Net Earnings/Margin $ 13 13%
/ Total Shares (diluted) 6.5
= EPS (Public Company) $ 2
1
2
3
4
High Margin vs. Low Margin
11To drive Profit($) you need either: High Margin (%) or High Volume
HIGH MARGIN LOW MARGIN
WHY? They sell commodities. (Lower demand than supply)
“If you’re not unique, you better be cheap!”
WHY?
They sell commodities. (Lower demand than supply)
“If you’re not unique, you better be cheap!”
30%
34%
24%
3.7%
8.7%
1.7%
WHY?
They offer something Unique! (Higher demand than supply)
S&P 500 Average: Net Margin = 13%
Patent
Market Share
Brand
[2012]
People
Cash
Profit
Assets
Growth
®
Earning Per Share (EPS) = $ 1,866 M (Net Income available to common stockholders) ÷ 353.6 M (Diluted Shares)
$ 5.28 On Statement of Operations
Profit: Raytheon
DRIVER: Raytheon Raytheon Raytheon Raytheon
(in millions) 2009 2010 2011 2012
Net Sales $24,881 $25,183 $24,857 $24,414
Net Income $1,935 $1,879 $1,896 $1,888
Profit:
Gross Margin % 77.6% 64.2% 26.0% 30.9%
Operating Margin (%) 12.2% 10.4% 11.4% 12.2%
Net Income/Profit Margin (%) 7.8% 7.5% 7.6% 7.7%
Earnings Per Share (EPS) $4.88 $4.79 $5.28 $5.65
S&P 500 Averages: Gross Margin = 30% Operating Margin = 15% Net Margin = 10%
People
Cash
Profit
Assets
Growth
®
Profit: Benchmarks
S&P 500 Averages: Gross Margin = 30% Operating Margin = 15% Net Margin = 10%
DRIVER: Raytheon
General Dynamics
Lockheed Martin
BoeingNorthrop Grumman
(in millions) 2012 2012 2012 2012 2012
Net Sales $24,414 $31,513 47,182 81,698 25,218
Net Income $1,888 -$332 2,745 3,900 1,978
Profit:
Gross Margin % 30.9% 52.1% 59.8% 82.7% 44.1%
Operating Margin (%) 12.2% 2.6% 9.4% 7.7% 13.1%
Net Income/Profit Margin (%) 7.7% -1.1% 5.8% 4.8% 7.8%
Earnings Per Share (EPS) $5.65 -$0.94 $8.36 $5.11 $7.81
Raytheon Sales
11
Raytheon Operating Profit
Raytheon EPS
1. Define Profit Driver What is left over after you have subtracted
expenses.
Can be expressed in dollars ($) or as a percent (%).
2. Measures of Profit
1. Gross Profit (Margin) – subtract COGS
2. Operating Income - EBIT – Earnings Before Interest and Taxes
3. Net Income – subtract ALL expenses
3. Importance of Profit Driver Net Profit is one of the most important
#’s for the business.
Indicates price strength & cost controls
Identifies ability to manage costs
4. Action Item Increase Revenue
Sell more Charge more
Lower Expenses
Satisfy customers & employees to reduce turnover…
People
Cash
Profit
Assets
Growth
®
PROFIT - Review
Discussion: Action Plan-What Single Action are You Committed to
do to Positively Impact PROFIT?
People
Cash
Profit
Assets
Growth
®
1. Increase Sales: - Sell more, increase pricing, increase employee product knowledge to better up-sell or cross-sell,
increase accessory sales (higher margin business)
2. Decrease Costs: - Decrease operating expenses: Reduce product failures/returns/replacements, reduce utilities, better maintain equipment, no color copies, book flights 4 weeks in advance, etc. - Manage cost budgets, approve only costs that have relevance and a business need - Manage/Reduce OCC’s (other credits & charges), decrease delinquent paying customers
3. Improve staffing practices• Minimize turnover and anticipate needs (vacancies can = loss in revenues)• Faster on-boarding & effective training: Have people with contingent offers lined up for
backfills• Support staffing efforts by participating in job fairs• Emphasize /encourage job referrals with your employees
4. Effective program execution5. Continuous process improvement : minimize waste, and reduce costs
6. High Customer satisfaction : award fees
7. Understand the various contract vehicles that are available, how each one works – i.e. Firm Fixed Price, Cost Plus, etc., and the impact on profit
11
12
Assets
Growth Growth
Cash Assets
Profit
People Employees Customers
Growth Top Line
Bottom Line
Assets StrengthUtilization
ProfitRevenuesExpenses
CashOn HandGeneration
Anything you own or control… which has value.
Definition: Assets
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.
What we have and how well we use what we have.
DEFINITION
People
Cash
Profit
Assets
Growth
®
12
Definition: AssetsPeople
Cash
Profit
Assets
Growth
®
Definition:What we have and how well we use what we have.
Assets: Include cash, property, plant, equipment (PP&E), technology, intellectual property, and people. Work processes are key “assets.”
“People are considered, by many organization, their most important asset.”
Asset Strength (Have): Refers to the amount of liquidity your company has, including cash, cash equivalents, and unused lines of credit. The greater your company’s liquidity, the greater your Asset Strength.
Asset Utilization (Use): Refers to the return you obtain from your Assets. The more you can increase an asset’s ability to make or save money, the higher the utilization. In general Asset Utilization means the efficient use of assets—how hard a company’s assets work to make money, to produce revenue profitably.
We can increase Asset Utilization in two fundamental ways: (1) Decrease the amount of assets used to get results, and (2) Increase the results obtained from using the same assets.
13
Definition: Assets(Page 12)
People
Cash
Profit
Assets
Growth
®
Balancing…
Asset AssetStrength Utilization
The costs of excess inventory: - Cost of capital - Storage costs - Obsolescence - Inventory shrinkage
Benefit of a strong credit rating:- Can borrow more money… - at a cheaper rate.
What a company may sacrifice to have a high rating:
- Borrow less money- Hold more cash- Take less risk thus lower returns
A strong asset base = financial strength = …costs MONEY!
Strong asset utilization = higher efficiencies = higher productivity
…more profit or MONEY!
13
Asset Utilization Measures
Ways Companies Track Asset Utilization
Inventory Turnover Return on Assets (ROA)
Revenue (Sales) / Employee Return on Equity (ROE)
Net Earnings / Employee Return on Investment (ROI)
Unit Production / Worker Mean Time Between Failures (MTBF)
Cycle Time Measures - Time per Unit Error Rate per Volume Produced
Cost per Unit Produced Steps / Stations in Work Processes
13
Book to Bill Ratio: DEFINITION: The ratio of orders received to units shipped and billed for a specified period.
EXAMPLE: A book-to-bill ratio of 1.10 implies that $110 of orders were booked for every $100 of product billed during the period.
A ratio of above 1 implies that more orders were received than filled, indicating strong demand, while a ratio below 1 implies weaker demand.
It is closely watched by investors & analysts as an indication of performance and future outlook.
Raytheon: ASSETS
13
People
Cash
Profit
Assets
Growth
®
ROA = Net Income How efficient is the company in using Total Assets its assets to generate profits.
Assets: Raytheon
ROIC = Net Income – Dividends Total Capital
People
Cash
Profit
Assets
Growth
®
13
S&P 500 Averages for 2012:
Inv. Turnover = 8.6ROA = 5.8%R&D Spend = 5%Cap Ex = 5%
Bookings: New/awarded contract that year.
Backlog: Contracts won, but not yet delivered.
Book-to-Bill New business booked vs. current Ratio: business delivered and billed.
DRIVER: Raytheon Raytheon Raytheon Raytheon
(in millions) 2009 2010 2011 2012Net Sales $24,881 $25,183 $24,857 $24,414
Net Income $1,935 $1,879 $1,896 $1,888
Assets: Inventory Turnover 57.4 55.9 58.5 67.9
Return On Assets (ROA) 13.2% 7.7% 7.3% 7.1%
Days Sales Outstanding (DSO) 65 63 66 67
Ending A/R 4,493 4,414 4,526 4,543
Bookings 25,058 24,449 26,555 26,504
Backlog 36,877 34,551 35,312 36,181
Book-to-Bill Ratio 1.09
Inventory = COGSTurnover Inventory
DSO = Ending A/R A measure of the average number of (Sales/360) days that a company takes to collect
revenue after a sale has been made.
People
Cash
Profit
Assets
Growth
®
Assets: Benchmarks
13
DRIVER: Raytheon
General Dynamics
Lockheed Martin Boeing Northrop
Grumman
(in millions) 2012 2012 2012 2012 2012Net Sales $24,414 $31,513 47,182 81,698 25,218
Net Income $1,888 -$332 2,745 3,900 1,978
Assets: Inventory Turnover 67.9 11.1 14.6 1.8 24.6
Return On Assets (ROA) 7.1% -2.1% 7.1% 2.5% 7.5%
Days Sales Outstanding (DSO) 67 105 50 25 41
Ending A/R 4,543 9,166 6,563 5,608 2,858
Bookings 26,504
Backlog 36,181 57,410 80,700 355,500 39,515
Book-to-Bill Ratio 1.09
S&P 500 Averages for 2012:
Inv. Turnover = 8.6ROA = 5.8%R&D Spend = 5%Cap Ex = 5%
Assets - Review
1. Define Asset Driver
• What we have and
• How well we use what we have.
2. Measures of Asset• ROA – Percent value of total revenue to
total assets.
• Backlog
3. Importance of Asset Driver• Demonstrates ability to work smarter rather
than harder.
• Indicates company invests in “right” assets
• Indication of execution
4. Action Item• Increase efficiencies (personal & company)
• Improve processes and systems
• Manage Inventories
• Invest and upgrade in the right assets…
ASSETS = Efficiencies, productivity, speed,
making assets work harder
• Increase efficiencies (employee/company)• Increase employee productivity• Measure employee output• Increase performance • Increase process efficiencies• Reduce under-performing assets• Reduce steps in work processes• Increase cross-training of employees• Reduce cycle time• Decrease travel distance for US Trainers• Increase multi-sales• Increase smart road mapping
(page 13)
People
Cash
Profit
Assets
Growth
®
• Decrease customer churn• Increase FCR (First Call Resolution)• Decrease average handle time (AHT) per call• Use resources better within the company • Least cost network design• Schedule more efficiently• Encourage web meetings• Least cost routing• Reduce unplanned absences• Your own idea…
REVIEW:
Action Plan: What Single Action are You Committed to
do to Positively Impact ASSETS?
13
Growth
Growth
Growth
Cash Assets
Profit
14
Why is GROWTH so important to business?
People Employees Customers
Growth Top Line
Bottom Line
Assets StrengthUtilization
ProfitRevenuesExpenses
CashOn Hand
Generation
Grow or die!
DEFINITION: Growth is defined as an increase over a period of time such as: year/year, quarter/quarter, or month /month.
There are two types of Growth:1. Organic Growth:
Comes from a company’s existing business Slower. More controlled growth.
2. Inorganic Growth:Comes from a merger or an acquisition Faster. Less controlled growth.
MEASURES: Growth is most commonly measured by:
Definition: Growth
14
Growth
Sales(Top Line)
Op. Profit(EBIT)
Profit(Bottom Line)
EPS(Investor)
People
Cash
Profit
Assets
Growth
®
“Change is a constant in today’s business world so you are either growing with it or dying from it. Growth forces a company to change and adapt, to anticipate customer needs, and to look for new opportunities.”
Investors expect it Employees are more energized Growth provides opportunities for employees Customers are generally more attracted to it Attracts better suppliers Executives are measured by it.
It takes 5 times as much to win a new customer as it does to keep an existing one.
Why is Growth so important?
People
Cash
Profit
Assets
Growth
®
15
How do I Impact Organic Growth?
• Listen to your customers– What keeps your customer up at night– How can we improve the mission– Will innovation improve the process or output
• Performance: Leads to organic growth and demonstrates capability to perform new business through past/present performance
People
Cash
Profit
Assets
Growth
®
Growth: Raytheon
S&P 500 Average Revenue Growth: 10.5%
DRIVER: Raytheon Raytheon Raytheon Raytheon
(in millions) 2009 2010 2011 2012Net Sales $24,881 $25,183 $24,857 $24,414
Net Income $1,935 $1,879 $1,896 $1,888
Growth: Net Sales Growth 7.4% 1.2% -1.3% -1.8%
Operating Income Growth 16.1% -14.3% 8.6% 5.6%
Net Income Growth 15.7% -2.9% 0.9% -0.4%
EPS (diluted) Growth 24.7% -2.0% 10.2% 7.0%
R&D as a % of Sales 2.3% 2.5% 2.5% 2.9%
People
Cash
Profit
Assets
Growth
®
Growth: Benchmarks
Operating Income:The only way to determine if a companies operating margin is good is to compare it to that of other companies in the same industry.
DRIVER: Raytheon
General Dynamics
Lockheed Martin Boeing Northrop
Grumman
(in millions) 2012 2012 2012 2012 2012Net Sales $24,414 $31,513 47,182 81,698 25,218
Net Income $1,888 -$332 2,745 3,900 1,978
Growth: Net Sales Growth -1.8% -3.6% 1.5% 18.9% -4.5%
Operating Income Growth 5.6% -78.2% 11.4% 8.0% 1.0%
Net Income Growth -0.4% -113.1% 3.4% -2.9% -6.6%
EPS (diluted) Growth 7.0% -113.8% 7.0% -4.3% 3.9%
R&D as a % of Sales 2.9%
3. Importance of Growth Driver “Investors expect it, employees are energized
by it, customers are generally attracted to it and executives are measured by it.”
1. Define Growth Driver
The ability to increase year over year, quarter over quarter, and/or month over month.
2. Measures of Growth• Net Sales Growth: Top-line/Sales
• Operating Income Growth:
• Net Income Growth: Bottom-line/Profit
• EPS Growth:
4. Action Item• Everything we do to improve performance
around all the other Drivers, results in Growth.
• Bundle products/services.
• Solution based: Understand client objectives…
Growth - Review
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.
• Perform well on a daily basis – performance is key to retaining AND acquiring new business
• Keep customers informed about contract options• Know the program deliverables, risks, scope and opportunities• Anticipate customers’ needs• Keep BD Process and PM Involvement• Know what Raytheon contract vehicles are available to have customers shift new
work to, or to consolidate work under one of our prime contracts• Help with proposals• Provide insight into customer/business intelligence being careful NOT to compromise
OCI (Organizational Conflict of Interest)• Understand and tell management what other contractors are doing in our customer
spaces
(page 15)
People
Cash
Profit
Assets
Growth
®
Action Plan: What Single Action are You Committed to
do to Positively Impact GROWTH?
15
8
People
“People are considered, by many organizations, their most important asset.”Why are “People” at the heart of this model?
Customers and employees are the key to driving profitable & sustainable growth.
People Employees Customers
Growth Top Line
Bottom Line
Assets StrengthUtilization
ProfitRevenuesExpenses
CashOn Hand
Generation
DEFINITION:People are the:
• External customers, • Internal customers,, • In-direct influences such as affiliates, vendors,
and suppliers.
MEASURES:There are several ways to measure People. Some example are:
Sales/Revenues Number of customersRevenue per Employee Number of employeesProfit per Employee Customer churnEmployee Turnover
People
16-17
PeoplePeople
Cash
Profit
Assets
Growth
®
17
1. A’s hire A+’s and B’s hire C’s
2. “People don’t leave companies, they leave their managers” ~First Break All the Rules by Marcus Buckingham
“People will forget what you said, people will forget what you did, but people will never forget how you made them feel.” ~Maya Angelou (American Poet, b.1928)
External People:
3. “Management is doing things right. Leadership is doing the right things.”
~Peter Drucker
16-17
4. Meet monthly/quarterly with your boss and ask:#1) Are there any gaps in my performance, and #2) Have my priorities changed?”
Internal People:
Anticipate Customer Needs & Expectations!
Know your business so you can anticipate Build your Business Acumen skills!
Have a formal process for listening to your customers. (Net Promoter Score (NPS).
Raytheon Leadership Competencies
Leader of the Future Profile
Experiences
• Multifunctional professional experience • Multiple Raytheon Businesses or multiple
industry experiences• Led teams in distinctly different
environments– Turnaround, Site Lead, Growth
Opportunity, Increased Scope, High Visibility, Enterprise Initiative, Resource Constrained, Org Transition
• Proven success driving business growth – Adjacent markets, M&A, international
• Strong business fundamentals • Lived and worked outside the USA
Behaviors
Has vision & leads with courage Exhibits 100% integrity Leads organizational change Vigilantly cultivates talent pipeline Exhibits global mindset & inclusivity Drives growth through innovation, taking
appropriate risks Has “Board Room” level presence Fosters strong relationships
– Promotes matrix effectiveness & alignment – Operates “from the market back”
Strategic and Visionary Thinking Influential Communication People Development Innovative / Creative
Customer Focus Business Acumen Performance / Results Ethical Leadership
Courage Alignment Achievement Diversity / Inclusive Self-Management
People: Raytheon & Competitors
DRIVER: Raytheon
General Dynamics
Lockheed Martin Boeing Northrop
Grumman
(in millions) 2012 2012 2012 2012 2012 Net Sales $24,414 $31,513 47,182 81,698 25,218
Net Income $1,888 -$332 2,745 3,900 1,978 People:
Employees 71,000 92,200 123,000 171,700 72,500 Revenue Per Employee 343,859 341,790 383,593 475,818 347,834
Income Per Employee 26,592 -3,601 22,317 22,714 27,283
1. Define People Driver
Anyone who has the ability to impact the success of the business:
• Internal customers
• External customers
• Vendors, Re-sellers, Suppliers.
2. Measures of People Employee turnover
Customer churn.
Others…
3. Importance of People Driver• People (employees and customers) are our
most important assets.
• Without People, we have no company.
• Customer service is for everyone; Internal, External, Vendors
4. Action Item Select, train, advance and retain
Employees more efficiently.
Listen to Customer needs and have a process for responding.
Meet Exceed Anticipate (employees and customers)…
People - Review
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!
(page 17)
EXTERNAL:
• Accurately set customer expectations• Listen with empathy to resolve unhappy customers• Possess good product knowledge when selling • Qualify each customer• Better educate customers• Increase customer negotiations• Increase customer awareness
People
Cash
Profit
Assets
Growth
®
Action Plan: What Single Action are You Committed to
do to Positively Impact PEOPLE?
1. How do you anticipate your customers’ needs?• Meet Exceed Anticipate!• Ask Listen Follow Through!
2. How are you attracting, developing, and retaining your employees? Meet monthly and ask: “Are there any gaps in my performance and have my priorities
changed”
17
Financial Statements:-Training & Analysis Module-
The Five Drivers and the Three Financial Statements
30
Balance Sheet
Statement of Income (P&L)
Statement of Cash Flow
Equation:Sales – Expenses = Income
= Top Line
= Bottom Line
Statement of Operations• Statement of Earnings• Profit & Loss (P&L)
General & Administrative (G&A) or Overhead
Gross Profit ($) $ 24,857 - $ 19,697
Gross Margin (%) $ 5,322 ÷ 24,414 x 100
S&P 500 = 30%
Operating Income ($)
Operating Margin (%) $ 2,989 ÷ 24,414 x 100
S&P 500 = 13%
Net Income ($)
Net Margin (%) $ 1,888 ÷ 24,414
S&P 500 = 10%
SG&A· Salaries· Benefits/Severance· Sales commissions· Advertising· Call center costs· Rent· Bad debt charges· Merger integration costs· Professional Services: attorney
fees, accounting
$5,322
21.8%
$2,989
12.2%
$ 1,888
7.7%
Earnings Per Share (EPS)
Net Income
÷Dil. Number of Shares ÷ 334.2
$ 1,888
$ 5.65
Variance Analysis
This year - 1 x 100Last year
To Increase Profit: You can impact:• Cash Management• Accounts Receivable
(A/R)• Accounts Payable (A/P)• Inventory• Capital
Expenditures(Cap Ex)
Cost of Goods Sold (COGS)
R&D
Indicates:Profitability
REVIEW Teach 1 Question
Tax Rate: 878 / 2,779 x 100 = 31.6%
24,414 – 21,425 = 2,989
Variance Analysis
4.04%
3.91%
13.58%
0.55%
6.61%
-12.05%
-0.19%
-5.56%
24
Variance Analysis2011 vs. 2010
(In Millions)
Equation:Assets = Liabilities + Equity
Raytheon CompanyPreliminary Balance Sheet Information
REVIEW Teach 2 Questions
Most Liquid
Least Liquid
Due First
Due LastTOTAL Liabilities: $ 18,496 $ 17,509
Balance
Current Ratio: Total Current AssetsTotal Current Liabilities
9,246 = ____5,902
S&P 500 Ave = _______
Equity Ratio:Total EquityTotal Assets
8,190 x 100 = _____26,686
S&P Aver: _______
?
Becomes Cash < 1 year
Due in < 1 year
1.6
30.7%
Working Capital: = Current Assets - Current Liabilities
Positive: a company is able to pay off its short-term liabilities.
Negative: a company currently is unable to meet its short-term liabilities with its current assets (cash, accounts receivable and inventory).
Goodwill:
Purchase Price (Market Value)
- Total Assets (Tangible Assets)
= Goodwill (Intangibles Assets)
Goodwill:You are buying a valuable name, a reputation, brand names, a loyal predictable customer list, patents, trained and knowledgeable employees, supplier relationships and agreements, proprietary knowledge,(i.e. operational efficiencies and IP), proven strategic strengths and processes, etc
Indicates:Financial Strength
3.2%
5.6%
25%
1.2
The purpose of the Statement of Cash Flows is to better understand and determine:
1. Where a company gets its cash from
2. Where or how the company uses its cash
3. How the company manages its cash
4. If the company has enough cash to repay its loans and continue to stay in operation
Executives use the statement and an important analysis tool to:
5. Better understand where a company’s cash came from
6. How the company used its cash
7. How the cash is used to pay for operational costs and pay off its loans.
Statement of Cash Flows
28
Equation:Cash In – Cash Out = Net Change in Cash
Raytheon CompanyPreliminary Cash Flow Information
Most important number!
Net Cash from Operating Activities:
Net Cash from Investing Activities:
Net Cash from Financing Activities:
Total: ($716)
Total: ($1,346)
28
Cash from Operations:
Cash from core business
- Cash to run the business
= Operating Cash Flow (OCF)
Most important number!
Healthy operating cash flow means that the company can finance more of its growth internally, without borrowing or selling stock or assets.
Cash from Investing:
Spending on investments suggests management is investing in the future.
Cash from Financing:
Positive = Borrowing
Negative = Reducing debt and/or paying cash (dividends) to Shareholders
3 Ways Companies Get Cash:
1) Earn it = Cash from Operations
2) Sell an Asset = Cash from Investing
3) Borrow it = Cash from Financing
?
?
Purpose:Cash Management
Management Module -Navigating the Financials-
Raytheon: Navigating the Financials Location in the Financials
Component Statement of
OperationsBalance Sheets
Statement of Cash Flows Calculation Enter Results Here Metric
Cash
Cash & Cash Equivalents l
None $ 1 Cash
Cash from Operating Activities l None $ 2
Cash from Operations
(Cash Flow)
Additions to property, plant, equip AND Cash used for internal
use software
l
--
= $ 3 Free Cash Flow
Cash from Operating Activities
Capital Expenditures
Profit
Net Sales l None $ 4 Net Sales
Operating Income l None $ 5 Operating Income (EBIT)
Net Income l None $ 6 Net Income
EPS l
None $ 7 Earnings Per Share (EPS)
Assets Class Notes
From Class Notes $
8 Backlog
Growth
Total Net Sales l
÷ - 1 x 100 % 9 Net Sales Growth
This Year's Total Net Sales Last Year's Total Net Sales
Operating Income
l
÷ - 1 x 100 % 10 Operating Income (EBIT) Growth
This Year's Operating
IncomeLast Year's Operating
Income
Net Income l
÷ - 1 x 100 % 11 Net Income Growth
This Year's Net Income Last Year's Net Income
Earnings per Share (diluted) l
÷ - 1 x 100 % 12 Earnings Per Share (EPS) Growth
This Year's Diluted EPS Last Year's Diluted EPS
People From Internal Data or Market Research
Navigating the Financials
33
3,188M
1,951M
1,546M
24,414M
2,989M
1,888M
26,500M
5.65
-1.5
5.6
1.2
7.0
Cost of Internal software
Management Module
-100 Up vs. 100 Down-
Increase Sales by
$100
Cut Costs by
$100
+ $100
($81.0)
($19.0) (Tax Rate:24%)
$14.44
($100 )
= +$100
($24.0) ( Tax Rate:24%)
$76.0
Raytheon CompanyPreliminary Statement of Operations Information
Raising Revenues $100M = $14.44
orCutting Costs by $100M =
$76.00
What are the implications of each action?
So, which is better?
URGENT NEAR TERM LONG TERM
CASH PROFITS
ASSETS
GROWTH
PEOPLEAirlines
Start-upsAutomobiles
CEO Urgency Continuum
49
Management Module
-Action Planning-
Time
Con
ten
t R
ete
nti
on
15%
Retaining Content Over Time…
52
What new insights did you gain, as a result of attending?
“Management is doing the things right; Leadership is doing the right things.”
~Peter Drucker
Chances of the idea being incorporated into their life
is...When a Person Says …
*Based on a 1993 Brigham Young University Study
“That’s a good idea”... 10%
“I’ll do it!” and commits... 25%
Says when they’ll do it…
40%Plans how to do it… 50%
Commits to another… 60%
Sets a future specific appointment with the person they committed to...
95%
Changing Behaviors: Study
Good Management Technique!
Where to Find Financial Information?
55
Click On: “Investor Relations”
Investopedia.com
“People will work
hard for a paycheck,
harder for a person, and
hardest for a reason.”
~T. S. Monson (Multi-national Leader)
(Life = Risk Video)
One Final Thought…
Thank you!Jeff Cope
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