1F Quantitative Business Decisions

38 %
63 %
Information about 1F Quantitative Business Decisions
Business-Finance

Published on April 23, 2008

Author: Penelope

Source: authorstream.com

Business Information & Decision Making:  Business Information & Decision Making ICB Fall 2007 Let’s get ‘’warmed up”…:  Let’s get ‘’warmed up”… A. Introduce yourself to the class B. What decisions have you made recently? Examples: Personal Academic Economic or Business What do you think & feel about your decision(s) Let’s get ‘’warmed up”… Me 1st!:  Let’s get ‘’warmed up”… Me 1st! A. Introduce yourself to the class: Richard Derbyshire B. What decisions have you made recently? Examples: Personal: I climbed Mt. Lincoln a week ago: >5K feet Academic: EC & programming goals: Java, Squeak, etc… Economic: I bought lots! of books in the USA What do you think & feel about your decision(s) “My knee still hurts!!! But, I’d do it again, only better prepared next time!” “Need to make spare time to work on programming/EC goals” Let’s get ‘’warmed up”… me 1st…:  Let’s get ‘’warmed up”… me 1st… Mt. Lincoln, New Hampshire “White Mountains” Altitude > 5000 feet (1666 meters) Business Information & Decision Making :  Business Information & Decision Making Introduction: First Day… Textbook: Quantitative Methods for Business, by Donald Waters, 3rd edition. Instructor: Richard (Rich) Derbyshire Ebusiness_icb@yahoo.com Business Information & Decision Making :  Business Information & Decision Making Textbook: Quantitative Methods for Business, by Donald Waters, 3rd edition. Our plan for this semester: (??? = 2 weeks / chapter ???) Ch7: Calculations with Money Ch9: Business Forecasting Ch10: Planning with Linear Programming Ch11: Using Calculus to Describe Changes Ch16: Analyzing Business Decisions Ch17: Controlling Stocks Ch18: Planning Projects with Networks Business Information & Decision Making :  Business Information & Decision Making Our Learning Process: Learn Concepts & Definitions Understand Application of Concepts Practice (problem solving) Lots! of practice will be key to learning Defining the Problem (Modeling) Finding Solutions (Calculations, Analysis, Decisions) Business Information & Decision Making :  Business Information & Decision Making Our Learning Process: Lots! of practice will be key to learning Defining the Problem (Modeling) Situation Analysis Problem Definition (mathematical &/ mental model) Finding Solutions Calculations Analysis Decisions Evaluation Business Information & Decision Making :  Business Information & Decision Making Recommended: Attend every class: this makes learning a difficult subject much easier Do all reading & assignments (keep a workbook) Use class time to perfect your knowledge, take good notes Ask questions Practice a lot Review often Business Information & Decision Making :  Business Information & Decision Making First assignment: (see next slide, also) Look over the entire textbook, to get an idea of the book and its contents Look over Chapters 7,9,10,11,16,17,18 Make sure you have the proper mathematical background to understand these subjects, such as knowledge of basic calculus, basic accounting & finance… report to me any issues Business Information & Decision Making :  Business Information & Decision Making First assignment: Read Chapter 7 in your textbook Study ‘Worked Examples” carefully Answer all “self assessment questions” as you progress through the chapter Work “Problems” at the end of the chapter, as we progress through each topic. Be ready to review in class. Business Information & Decision Making :  Business Information & Decision Making I will try to make this class as interesting as possible: I will need your help (participation) This topic requires a lot of math & analytical skills (& Deep Thinking, i.e. “Critical Thinking”) This topic can be both very interesting & very grueling (hard work), at times. ***If you master this subject, you will have developed a critical and extremely valuable management skill*** Business Information & Decision Making :  Business Information & Decision Making Chapter 7: Calculations with Money Subjects covered: Financial Ratios Break-Even Point Value of Money Over Time Mortgages, Annuities & Sinking Funds Business Information & Decision Making Example1:  Business Information & Decision Making Example1 Chapter 7: Calculations with Money Example: You have decided to purchase a new automobile, and the negotiated price is $20,000. You make a down payment of $2,000 and finance the remaining $18,000. At this point the loan officer of the dealership asks you” “Would you rather go with a 3% APR and no manufacturer's rebate, or select a 9% APR which includes a $1,500 manufacturer’s rebate?” What else do you need to know to choose the better deal? What choice would you make? Business Information & Decision Making Example2:  Business Information & Decision Making Example2 You are studying for your Information and Business Decisions Final and have a craving for a fresh pizza. You can’t spare the time to pick up the pizza and must have it delivered. “Perfect Pizza” offers a 1” thick (including toppings), 20” square pizza with your choice of two toppings for $15 plus 5% sales tax and a $1.50 delivery charge (no sales tax on delivery charge). “Fred’s Pizza” offers the round, deep-dish Pizza Bomb which is 20 inches in diameter. It is 1-3/4” thick, which includes two toppings, and costs $17.25 plus 5% sales tax and free delivery. (a) What is the problem in this situation? (b) Assuming that your common unit of measure is $ (i.e., cost), what is the better value for getting a pizza based on the criterion of minimizing cost per unit of volume? (c) What other criteria might be used to select which pizza to purchase? What is your choice? Business Information & Decision Making :  Business Information & Decision Making Chapter 7: Learning Objectives Financial Ratios Consider Financial Ratios Understand Use of Ratios & Importance Business Information & Decision Making :  Business Information & Decision Making Chapter 7: Learning Objectives Break-Even Point Construct a Break-Even Graph Calculate Break-Even Points Understand “Economies of Scale” Business Information & Decision Making :  Business Information & Decision Making Chapter 7: Learning Objectives Value of Money Over Time Calculate Investment Values Simple Interest Compound Interest Calculate PV (Present Value) Calculate IRR (Internal Rate of Return) Calculate Depreciation of Assets Business Information & Decision Making :  Business Information & Decision Making Chapter 7: Learning Objectives Mortgages, Annuities & Sinking Funds Calculate payments: Sinking Funds Mortgages Annuities Business Information & Decision Making :  Business Information & Decision Making Slide21:  An Experiment! Beijing Olympic Lemonade!!! Phase One: Our Ideas… How to make money selling lemonade? Brain Map Main Idea PMI Refined Idea Slide22:  An Experiment! Beijing Olympic Lemonade!!! Phase Two: Analysis (Angel Investment 20,000RMB) What do we need? (How we’re going to do it?) Break-even? (7.2 in our book) Economy of Scale? (7.2.2 in our book) Looking at some ratios… (7.1 in our book) “Go?”, or “No Go?” … or “How to Make a Go?” Business Information & Decision Making :  Business Information & Decision Making Fourteen Key Business Ratios Used by D&B   Ratios are a means of highlighting relationships between financial statement items. Generally, ratios are used in two ways: for internal analysis of items in a balance sheet; and/or for comparative analysis of a company’s ratios at different time periods and in comparison to other firms in the same industry. Business Information & Decision Making :  Business Information & Decision Making Fourteen Key Business Ratios Used by D&B D&B uses fourteen key financial business ratios to measure a company’s solvency, efficiency and profitability. The ratios are divided into three groups:   Business Information & Decision Making :  Business Information & Decision Making Fourteen Key Business Ratios Used by D&B   Solvency Ratios – measure the financial soundness of a business and how well the company can satisfy its short- and long-term obligations   Business Information & Decision Making :  Business Information & Decision Making Fourteen Key Business Ratios Used by D&B   Efficiency Ratios – measure the quality of the firm’s receivables and how efficiently it uses and controls its assets, how effectively the firm is paying suppliers, and whether the firm is overtrading or undertrading on its equity (using borrowed funds).   Business Information & Decision Making :  Business Information & Decision Making Fourteen Key Business Ratios Used by D&B   Profitability Ratios – measure how well a company performs; analyze how profit was earned relative to sales, total assets and net worth. Business Information & Decision Making :  Business Information & Decision Making Fourteen Key Business Ratios Used by D&B Solvency Ratios (6) Quick Ratio "Acid test" or "liquid" ratio   Measures the extent to which a business can cover its current liabilities with those current assets readily convertible to cash.   Shows number of dollars of liquid assets available to cover each dollar of current debt.   Any time the ratio is 1:1 (1.0), the business is said to be in a liquid condition. The larger the ratio, the greater the liquidity.   Cash + Accounts Receivable ÷ Current Liabilities Business Information & Decision Making :  Business Information & Decision Making Fourteen Key Business Ratios Used by D&B Solvency Ratios (6) Current Ratio   Measures the degree to which current assets cover current liabilities.   The higher the ratio, the more likely the company will be able to meet its liabilities. A ratio of 2 to 1 (2.0) or higher is desirable.   Current Assets ÷ Current Liabilities Business Information & Decision Making :  Business Information & Decision Making Fourteen Key Business Ratios Used by D&B Solvency Ratios (6) Current Liabilities to Net Worth Ratio (%) Indicates the amount due creditors within a year as a percentage of the owners' or stockholders' investment.   Measures the funds creditors are risking with a business temporarily against the funds permanently invested by its owners.   Normally a business starts to have trouble when this relationship exceeds 80%.   Current Liabilities ÷ Current Net Worth Business Information & Decision Making :  Business Information & Decision Making Fourteen Key Business Ratios Used by D&B Solvency Ratios (6) Total Liabilities to Net Worth Ratio (%) Shows how all of the company’s debt relates to the equity of the owner or stockholders.   The higher this ratio, the less protection there is for creditors.   If total liabilities exceed net worth then creditors have more at stake than stockbrokers.   The difference between this ratio and Current Liabilities to New Worth Ratio is that it pinpoints the relative size of long-term debt, which can burden a firm with substantial interest charges. Total Liabilities ÷ Net Worth Business Information & Decision Making :  Business Information & Decision Making Fourteen Key Business Ratios Used by D&B Solvency Ratios (6) Fixed Assets to Net Worth (%) Shows the percentage of assets centered in fixed assets compared to total equity.   Generally the higher this percentage is over 75%, the more vulnerable a concern becomes to unexpected hazards and business climate changes. Capital is frozen in the form of machinery and the margin for operating funds becomes too narrow to support day-to-day operations. Fixed Assets ÷ Net Worth Business Information & Decision Making :  Business Information & Decision Making Fourteen Key Business Ratios Used by D&B Efficiency Ratios (5) Collection Period Ratio (Days)   Helpful in analyzing the collectibility of accounts receivable, or how fast a business can increase its cash supply.   Accounts Receivable ÷ Sales x 365 Days Business Information & Decision Making :  Business Information & Decision Making Fourteen Key Business Ratios Used by D&B Efficiency Ratios (5) Sales to Inventory Ratio   Measures how fast inventory is moving the cash flow into the business.   When this ratio is high, it may indicate a situation where sales are being lost because a concern is understocked and/or customers are buying elsewhere.   If the ratio is too low, this may show that inventories are obsolete or stagnant.   Annual Net Sales ÷ Inventory Business Information & Decision Making :  Business Information & Decision Making Fourteen Key Business Ratios Used by D&B Efficiency Ratios (5) Assets to Sales Ratio (%) Rates sales to the total investment that is used to generate those sales.   If percentage is abnormally high, it indicates that a business is not being aggressive enough in its sales efforts, or that its assets are not being fully utilized. A low ratio may indicate a business is selling more than can be safely covered by its assets.   Total Assets ÷ Net Sales Business Information & Decision Making :  Business Information & Decision Making Fourteen Key Business Ratios Used by D&B Efficiency Ratios (5) Sales to Net Working Capital Ratio Measures the number of times working capital turns over annually in relation to net sales. Should be viewed in conjunction with the assets to sales ratio.   A high turnover rate can indicate overtrading (excessive sales volume in relation to the investment in the business). A high turnover may indicate that the business relies extensively upon credit granted by suppliers or the bank as a substitute for an adequate margin of operating funds.   Sales ÷ Net Working Capital or Sales ÷ (Current Assets – Current Liabilities) Business Information & Decision Making :  Business Information & Decision Making Fourteen Key Business Ratios Used by D&B Efficiency Ratios (5) Accounts Payable to Sales Ratio (%) Measures how the company pays its suppliers in relation to the sales volume being transacted.   A low percentage would indicate a healthy ratio. A high percentage indicates the firm may be using suppliers to help finance operations.   Accounts Payable ÷ Net Sales Business Information & Decision Making :  Business Information & Decision Making Fourteen Key Business Ratios Used by D&B Profitability Ratios (3) Return on Sales (%) Profit Margin Measures profits after taxes on the year’s sales (profits earned per dollar of sales).   The higher this ratio, the better prepared the business to handle downtrends brought on by adverse conditions.   Net Profit After Taxes ÷ Net Sales Business Information & Decision Making :  Business Information & Decision Making Fourteen Key Business Ratios Used by D&B Profitability Ratios (3) Return on Assets Ratio (%) The key indicator of profitability.   A high percentage tells you the company is well run and has a healthy return on assets.   Net Profit After Taxes ÷ Total Assets Business Information & Decision Making :  Business Information & Decision Making Fourteen Key Business Ratios Used by D&B Profitability Ratios (3) Return on Net Worth (%) Return on Equity   Measures the ability of a company’s management to realize an adequate return on the capital invested by the owners.   Net Profit After Taxes ÷ Net Worth Business Information & Decision Making :  Business Information & Decision Making Let’s look at some real businesses: Seven-Eleven Convenience Stores Starbuck’s Coffee Shops CVS Pharmacy Stores Take a look over the annual reports and see what you think… What types of data, information do you see? How about financial & performance ratios &/ statistics? Business Information & Decision Making :  Business Information & Decision Making Business Information & Decision Making :  Business Information & Decision Making Business Information & Decision Making :  Business Information & Decision Making Business Information & Decision Making :  Business Information & Decision Making Chapter 7: Calculations with Money Financial Ratios Break-Even Point Value of Money Over Time Mortgages, Annuities & Sinking Funds Business Information & Decision Making :  Business Information & Decision Making Business Information & Decision Making :  Business Information & Decision Making Business Information & Decision Making :  Business Information & Decision Making Business Information & Decision Making :  Business Information & Decision Making Business Information & Decision Making :  Business Information & Decision Making Business Information & Decision Making :  Business Information & Decision Making

Add a comment

Related presentations

Related pages

Quantitative Methods for Business Decisions | Chron.com

Quantitative data analysis often supplements management experience in business decisions. John Foxx/Stockbyte/Getty Images
Read more

Quantitative Analysis for Business Decision-Making | Chron.com

Quantitative Analysis for Business Decision-Making by Sam Ashe-Edmunds, Demand Media
Read more

QUANTITATIVE ANALYSIS FOR BUSINESS DECISIONS

Quantitative analysis for business decisions introduces students to a collection of quantitative tools designed to enhance managerial decision-making.
Read more

Quantitative Techniques for Decision Making

Decision making is important for survival of any business. The article discusses in detail the various quantitative techniques used in decision making process.
Read more

Wiley: Quantitative Methods: An Introduction for Business ...

An accessible introduction to the essential quantitative methods for making valuable business decisions Quantitative methods-research techniques used to ...
Read more

Quantitative Analysis for Decision Making

Quantitative Analysis for Decision Making ... quantitative analysis to business decision making and problem solving. It familiarizes the student with a
Read more

Quantitative Methods for Business Decisions (with Pictures ...

Quantitative Methods for Business Decisions. Successful business decisions rely on quantitative methods to narrow possibilities and help predict what ...
Read more

Qualitative vs. Quantitative - BusinessDictionary.com ...

Qualitative vs. Quantitative. ... quantitative factors that would impact decision making. Common quantitative factors include ... a Business Plan for ...
Read more

Quantitative Business Model - Australian Essay Writers ...

quantitative business model. DQ 1 Present an example of a business situation that you believe would lend itself to the use of a quantitative business model.
Read more