INBS 560 MANAGING INTERNET BUSINESS SYSTEMS

1
INBS 560 MANAGING INTERNET BUSINESS SYSTEMS

• Week 4
• Financial Issues
• Mary Ellen Georgas
• mgeorgas_at_mercy.edu
• http//www.mercy.edu/faculty/georgas

2
Recap from previous weeks

• eBusiness Basics
• Core Competencies
• Creating eBusiness Strategy

3
Professor Gary Hamel

• Corporate survival depends upon being open,
  democratic, tightly networked, nonhierarchical,
  experimental, endlessly adaptable, utterly
  restless.
• Building the postindustrial organization is not
  primarily an IT problem. Its not a
  business-model problem. Its not even a strategy
  problem. It is instead a problem of management
  systems, organizational structures, personal
  capabilities, and most of all, values.

4
Gerstner/ Palmisano at IBM Shareholder Value

• How happy should the shareholders be?!

5
Terms of Art

• Transaction
• an exchange of resources or obligations
• event that has an effect on the business
• Recognize
• capture the data of a transaction as it occurs
• Accrual
• recognize revenues when earned expenses when
  incurred
• matching (in a period)
• Inventory
• raw materials, work in process (wip), finished
  goods
• consignment
• valuation of inventory
• Fixed and variable costs marginal/incremental
  costs
• Opportunity cost

6
The Big Picture

• Income Statement How good the company is at
  making money
• Cash Flow Statement How they're paying for their
  operations and their future growth
• Balance Sheet What the company owns and owes

Source http//www.moneychimp.com/articles/financi
als/fundamentals.htm
7
Reference

• Glossary
• http//www.nytimes.com/library/financial/glossary/
  bfglosa.htm
• Resources
• http//www.hofstra.edu/Libraries/Axinn/axinn_instr
  uctions_busres_finanres.cfm
• http//www.moneychimp.com/
• http//www.investopedia.com/terms/c/costofcapital.
  asp
• Basic Accounting
• http//accountinginfo.com/study/
• Tutorials for stock finance
• http//www.expectationsinvesting.com/tutorialmenu.
  shtml
• http//www.teachmefinance.com

8
The Balance Sheet

• Assets Liabilities Shareholder Equity
• Assets
• Goods and property owned by the company, and
  uncollected amounts due to the company
  (receivables)
• Liabilities
• Debts and amounts owed (payables) to outside
  parties
• Shareholder equity
• Shareholders ownership in the company what the
  companys assets would be worth after all claims
  upon those assets have been paid

9
Sample Balance Sheet
10
The Balance Sheet

• 2001
• WalMart Microsoft
• Revenue 191.3 B 25.3 B
• Net Income 6.3 B 7.3 B
• Assets 78.0 B 59.0 B
• of which 40.1 Bppe1 31.7 bcash/ste2
• 1 property, plant, equipment
• 2 short term equivalents

11
The Income Statement

• Record of companys operating results for the
  whole year
• Guide to anticipate how company may do in the
  future

12
Sample Income Statement
13
Cash Flow Statement

• Presents the changes in cash resulting from
  business activities
• Cash flow analysis is required for making good
  investment decisions and to maintain operations

14
Sample Cash Flow Statement
15
Cash is Cash

• Managers can't play with cash, unless they
  convince someone to pay faster,"
• Messod Daniel Beneish, Professor of Accounting,
  Indiana University
• Earnings quality is measured by comparing net
  income, which can be
• distorted by accounting , with cash flow from
  operations. Cash flow from
• operations, which is taken off the statement of
  cash flows, is seen as a
• better gauge of a company's health because it
  doesn't include non-cash
• boosts to earnings and is harder to manipulate.
• If a company is generating less cash than
  earnings, something may be
• amiss. Matt Kranz, USA Today

16
Google

• Working Capital (2004)
• Current Assets Current Liabilities
• 2.69B - 0.34B 2.35B
• How much interest can Google earn by putting this
  money in a bank?
• Based on todays market close, what are Googles
• Stock price
• Operating margin
• P/E ratio
• Earnings per share
• Goodwill

17
Return on Assets
Return on Assets in 2004

• Why do these companies have such different ROAs
  and other financial indicators?
• What line items are making a difference in the
  ROA calculation for each firm?

18
(No Transcript)
19
(No Transcript)
20
(No Transcript)
21
Creating Financial Statements
Scenario Box for Use in Generating Financial Pro
Forma Statements
22
Cost/Benefit Analysis

• Cost-benefit analysis is a formalized approach
  for identifying and weighing the advantages and
  drawbacks associated with a decision
• No decision is free of cost, whether or not the
  decision leads to the actual commitment of
  organizational resources
• Consider costs in terms of dollar inputs --
  financial resources required to support capital
  investments, personnel, equipment, materials,
  development costs, costs of operations,
  maintenance, replacement, etc.
• Future costs that cannot be easily measured in
  dollar terms may have important implications
  beyond their measurable monetary value
• Future costs are influenced by the following
  factors
• Methods, facilities, and organizational structure
  required to deliver services
• Scope and quality of the services or activities
• Volume of activity required to deliver these
  services or activities
• Qualities and types of labor, materials,
  equipment, and other cost elements
• Price levels of the various cost elements
• Benefits as well as costs have to be factored for
  the time value of money

23
Cost/Benefit

• How do you justify spending money for a good
  cause?
• Demo
• http//www.alertdriving.com/corp-roi.php