During many consulting projects, you will have to do a lot of financial analysis and draw conclusions about specific companies or industries. This is especially true during due diligence projects, strategic projects and turn-arounds. Financial analyses will help you decide which option is better, what investments you should take, estimate potential improvements or estimate the impact on the profit and the balance sheet. On top of that, during consulting projects, you have to do everything 3x faster and with little data. Therefore, I will teach you in this course how to do fast and efficiently financial analyses and how to draw conclusions from them
In the course you will learn the following things:
1. How to do financial analyses in Excel fast and efficiently
2. How to draw conclusions from the analyses
3. How to analyze financial statements in Excel
4. How to use financial indicators
5. How to model a business in Excel
6. How to analyze business units of the firm
7. How to carry out analyses related to M&A
8. How to evaluate potential investment in Excel
9. How to estimate the value of the firm using simple methods
For more check the following course: http://bit.ly/FinancialAnalysisExcel
2. 2
In business you have to make a lot of important decisions
During consulting projects you will have to do a lot of financial
analyses to see whether proposed changes make sense or not
3. 3
In business you have to make a lot of important decisions
A lot of such analyses require some skills in Excel but also a specific
approach to available data. Usually they don’t teach that at the university
4. 4
Luckily, there is a way to do fast and efficiently financial analyses in
Excel and I will show you how to do that in this course.
5. 5
In business you have to make a lot of important decisions
Thanks to this presentation you will have a look at the most important essential financial
analysis you need to know to work without any problems during consulting projects
6. 6
We will cover all the essential things that you need to know to work well during
consulting
Analyzing Financial
Statements Financial indicators Modeling P&L
Introduction to Valuation
Analysis of Business Units
Financial analysis related to
M&A Investments Analysis
7. 7
What you will see in this presentation is a part of my online course where you
can find case studies showing analyses along with detailed calculations in Excel
Financial Analysis for Management
Consultants
$190
$19
Click here to check my course
10. 10
In this section we will discuss the following things
3 financial
statements –
overview
Amazon financial
statements – Analysis
in Excel
11. 11
In this section we will discuss the following things
3 financial
statements –
overview
Amazon financial
statements – Analysis
in Excel
LPP financial
statements – Analysis
in Excel
Disney financial
statements – Analysis
in Excel
13. 13
There are 3 financial statements that you have to look at when
analyzing the firm
Profit & Loss /
Income Statement
Balance Sheet Cash flow
Shows how much money you
have earned, and did you
make a profit or a loss?
Shows how you did it, what
where the revenue and how
much you had to spend in
terms of costs to generate
them?
Shows what you have / what
you need to have a
legitimate business
Shows you also where you
got the money from to buy
the things you have
(shareholders, banks,
suppliers, other borrowers
etc.)
Shows how much money the
firm has actually generated
and what has consumed the
cash on 3 levels
You can see what the firm
spends the cash on:
investment, paying off debts,
buying back shares or maybe
paying of dividends
Cash is divided into 3
streams: Operating CF,
Investing CF and Financing
CF
18. 18
There are plenty of profitability ratios used. Below the most popular
ones
% Gross Margin
% Gross Profit
% EBIT
Return on Sales ROS
% Net Income
% EBITDA
ROE
ROA
19. 19
Let’s have a look at the definition of ratios and what they tell us
Gross Margin
% Gross Margin =
Net Sales
20. 20
Let’s have a look at the definition of ratios and what they tell us
Operating Income EBIT
% EBIT
Return on Sales - ROS =
Net Sales
21. 21
Let’s have a look at the definition of ratios and what they tell us
Net Income
Net Profit
% Net Income
Profit Margin =
Net Sales
22. 22
Let’s have a look at the definition of ratios and what they tell us
EBITDA
% EBITDA =
Net Sales
23. 23
Let’s have a look at the definition of ratios and what they tell us
Net Income
ROA
(Return on Assets) =
Assets
24. 24
Let’s have a look at the definition of ratios and what they tell us
Net Income
ROE
(Return on Equity) =
Equity
26. 26
ROE can be decomposed into other ratios. Below one example
Net Income
ROE =
Assets
x
Assets
Equity
ROE = xROA Equity Multiplier
Net Income
Equity
=
Net Income
Equity
=
27. 27
ROE can be decomposed into other ratios. Below one example
Sales
=
Assets
x
Assets
Equity
Net Income
Sales
x
Net Income
Equity
ROE = xAsset Turnover Equity Multiplierx% Net Income
29. 29
There are plenty of liquidity ratios used. Below the most popular ones
Current Ratio (CR)
Quick Ratio (QR)
Cash Ratio (CshR)
Operating Cash Flow
Ratio
30. 30
Let’s have a look at the definition of ratios and what they tell us
Current Assets
Current Ratio (CR) =
Current Liabilities
31. 31
Let’s have a look at the definition of ratios and what they tell us
Current Assets
Quick Ratio (QR) =
Current Liabilities
-
Inventory &
Prepayments
32. 32
Let’s have a look at the definition of ratios and what they tell us
Cash & Cash
Equivalents
Cash Ratio (CshR) =
Current Liabilities
33. 33
Let’s have a look at the definition of ratios and what they tell us
Operating Cash Flow
Operating Cash Flow
Ratio
=
Total Debt
35. 35
There are plenty of activity / efficiency ratios used. Below the most popular
ones
Inventory conversion
period
Receivables
conversion period
Payables conversion
period
Cash Conversion
Cycle
Asset turnover
36. 36
Conversion periods have alternative names that are widely used
Inventory conversion
period
Receivables
conversion period
Payables conversion
period
Days Inventory
Outstanding (DIO)
Days Sales
Outstanding (DSO)
Days Payable
Outstanding (DPO)
=
=
=
37. 37
Let’s have a look at the definition of ratios and what they tell us
Inventory
Inventory conversion
period
=
COGS
x 365 days
38. 38
Let’s have a look at the definition of ratios and what they tell us
Receivables
Receivables
conversion period
=
Net Sales
x 365 days
39. 39
Let’s have a look at the definition of ratios and what they tell us
Account Payables
Payables conversion
period
=
COGS
x 365 days
40. 40
Cash Conversion Cycle (CCC) we calculate using previous ratios
Cash Conversion
Cycle (CCC)
= -
Receivables
conversion period
Payables
conversion period
+
Inventory
conversion period
Cash Conversion
Cycle (CCC)
= -
Days Sales
Outstanding (DSO)
Days Payable
Outstanding (DPO)
+
Days Inventory
Outstanding (DIO)
41. 41
Let’s have a look at the definition of ratios and what they tell us
Net Sales
Asset Turnover =
Assets
43. 43
There are plenty of debt ratios used. Below the most popular ones
Debt Ratio
Debt to Equity ratio
(D/E)
Net Debt-to-EBITDA
Ratio
44. 44
Debt Ratio can be defined in 2 ways
Debt
Debt Ratio =
Assets
Liabilities
Debt Ratio =
Assets
45. 45
Let’s have a look at the definition of ratios and what they tell us
Debt
Debt to Equity ratio
(D/E)
=
Equity
46. 46
Let’s have a look at the definition of ratios and what they tell us
Debt
Net Debt-to-EBITDA
Ratio
=
EBITDA
-
Cash & Cash
Equivalents
47. 47
For more details and content check my online course where you can find case
studies showing analyses along with detailed calculations in Excel
Financial Analysis for Management
Consultants
$190
$19
Click here to check my course
50. 50
In business you have to make a lot of important decisions
You can learn a lot by analyzing the business model in Excel. This is
one of the most insightful yet also most difficult financial analysis
51. 51
Modeling of the business in Excel should be done in stages. You first have to
understand the drivers
# transactions
Average
revenue per
transaction
Total revenuex
% Fee of the
marketplace
Average
transaction value
Total searches % conversion
x
x
Total Costs
Total margin
-
Rent
People
Cost of traffic
Ratio of visitors
to searches
Average cost of 1
visit
+
x
Development
52. 52
In this section we will discuss the following things
How to model Retail
in Excel
How to model SMCG
businesses in Excel
Moving from SMCG
to selling services –
financial analysis
53. 53
Main challenges in the business model
Main drivers / KPIs for the business model
The model of the business in Excel
Short introduction to the business model
For every business model we will do the following things
55. 55
Let’s have a look at the main challenges in Retail
Margin Management
Stock / Inventory
Management
Multichannel Strategy
Managing price across
channels
Expansion to new
markets
Saturation of existing
markets
New product
development
Managing customer
experience across
channels
Format evolution
(possible death)
People rotation and
knowledge
management
Disruption esp. from
external forces /
business models
Automation
57. 57
The retail business model is driven by some basic KPIs
# Transactions
Average Value
Transaction
Total store revenue Total store costs
x
Store EBITDA
Average Value
Transaction of basic
purchase
Average Value
Transaction of
additional purchase
# of Visitors % Conversion
Rent
People
# of People
Average wages
+
x
x
Others
+
# of sq. m
Fee per sq. m x
% Gross Margin
Gross Margin generated
by the store
x -
59. 59
SMCG are all branded goods that you consume infrequently during your life.
In this category we have cars, domestic appliances and other similar products
60. 60
There are 2 ways in which you can model SMCG
SMCG – sold as a product SMCG – sold as a service
61. 61
In this section I will talk about 3 main things
Main challanges in SMCG KPIs for SMCG business
Business models of SMCG
in Excel
63. 63
Brand Awareness
& Reach
Controling and
constantly lowering
production costs
Your strategy across
many channels
Managing customer
experience across
channels
Saturation point in
consumption and
penetration
Spreading beyond
original target group and
leveraging brand
Taking care of faulty
products
Managing older versions
of your product
Switch from product to
service
The software part of the
product / IoT
The value of your
customer base
Below a list of the most important aspect for SMCG business model
65. 65
The SMCG business model is driven by some basic KPIs
# sold
Unit production
cost
Gross Margin Head office
Operational profit
Fixed Cost /
Quantity produced
Unit variable cost
+
Cost of sales &
marketing
Net Margin
-
-
Average price
Unit Gross Margin
-
x
Market share Market size
67. 67
There are 2 ways in which you can model SMCG
SMCG – sold as a product SMCG – sold as a service
68. 68
Vaccum cleaner producer – modeled
as product seller
Smartphone firm– modeled as a
provider of a service
We will go through those 2 approaches using different cases
70. 70
Vaccum cleaner producer – modeled
as product seller
Smartphone firm– modeled as a
provider of a service
Let's start with the modelling vacuum cleaner producer
71. 71
Vaccum cleaner producer – modeled
as product seller
Smartphone firm– modeled as a
provider of a service
Let's start with the modelling vacuum cleaner producer
72. 72
Let’s go through basic assumptions of the model. We want to get to the
operational profit
SMCG product MarketingSales Channels
Vacuum cleaners
1 production site
Own e-commerce
Retail chain
TV ads
Market research
Social Media
Mailing
Loyalty program
Outdoor campaigns
74. 74
Vaccum cleaner producer – modeled
as product seller
Smartphone firm– modeled as a
provider of a service
We said we will do modelling for 2 different products and also in
different way
75. 75
Vaccum cleaner producer – modeled
as product seller
Smartphone firm– modeled as a
provider of a service
We said we will do modelling for 2 different products and also in
different way
76. 76
He currently sells around 600 K
smartphones and has a bas of around 1
M customers
He has to acquire new customers to
cover for the lost ones and grow
He considers switching to offering
annual subsription model
To make the change more obvious we will first do a case of a firm that moves
from product to service and wants to do calculate whether it makes sense
77. 77
To make the change more obvious we will first do a case of a firm that moves
from product to service and wants to do calculate whether it makes sense
Why moving from
product to service
makes sense?
Case study of a
smartphone producer
Solution in Excel to
the case study
Modeling Head Office
costs
Modeling Head Office
profit & loss
statement
78. 78
For more details and content check my online course where you can find case
studies showing analyses along with detailed calculations in Excel
Financial Analysis for Management
Consultants
$190
$19
Click here to check my course
81. 81
In many cases the business you want to analyze are very complicated. You have to look
deeper. You have to analyze specific business units to understand the result and the future
82. 82
This obviously means that you have to divide into business units that you
want to analyze separately and draw conclusions on their performance
83. 83
In this section we will discuss the following things
Why analysis of Business
Units makes sense
Analysis of Business
Units – Disney
Analysis of Business
Units – Grocery
Discounter
85. 85
Let’s have a look why it makes sense to look at business units in details
On aggregated level you have
averaging effect
Business units may have different
business models
Business units may have different
growth perspectives
Business units may have different
margins
Business units may require
different Capex
Business units may have different
competitors
Business units usually have
different drivers & KPIs
You can sell some business units
87. 87
SaaS
E-commerce
Media site
2-sided market
User Generated Content
Mobile Applications
Retail
B2C Service
B2B Service
FMCG
SMCG
Commodity
There are 6 offline business models and 6 online models. Every business
model has its set of KPI
90. 90
Imagine that you have to analyze the performance of difference concepts
and regions of a Grocery Discounter. You have data on the store level.
91. 91
Let’s have a look at the data that we have on the Grocery Discounter
He currently has 700 stores
He operates 4 concepts: Mini,
Express, Regular, Big
He operates in 10 regions
Have a look at results on the level
of concepts & regions
Look at revenue and EBITDA per
store
94. 94
In this section we will discuss the following things
Introduction to
Valuation
Introduction to DCF
methods
Difference between FCFF
and FCFE
Introduction to using
multipliers for valuation
Case study
95. 95
We are going back to our example of ceramic tiles producer and we will
see what kind of methods we can use to estimate its valuation.
96. 96
They have 4 groups of products
We have DCF models
Use DCF and multiplier method to
estimate their value
Just as a reminder a few information about the firm
98. 98
You can try to estimate the value of 2 different categories
Enterprise Value
Equity Value Net Debt Value
99. 99
For valuations you can use 2 groups of valuations methods
DCF methods
DCF of Free Cash Flows to
Firm (FCFF)
DCF of Free Cash Flows to
Equity (FCFE)
Multiplier methods
EV/EBIT
EV/EBITDA
P/E ratio
101. 101
In DCF model you use forecast of cash flows to estimate the value of the
company
Step 1 – Calculate the cash
flows
2018 2019 2020 2021 2022
𝐶𝐹2018 𝐶𝐹2019 𝐶𝐹2020 𝐶𝐹2021 𝐶𝐹2022
t+1
𝐶𝐹𝑡+1
𝐶𝐹2018
(1 + 𝑟)
𝐶𝐹2019
(1 + 𝑟)2
𝐶𝐹2020
(1 + 𝑟)3
𝐶𝐹2021
(1 + 𝑟)4
𝐶𝐹2022
(1 + 𝑟)5
𝐶𝐹𝑡+1
(1 + 𝑟) 𝑡+1
𝒊=𝟏
𝒕
𝑪𝑭𝒊
(𝟏 + 𝒓)𝒊
Step 2 – Calculate the
present value of CF
Step 3 – Calculate the
Valuation
𝑻𝒆𝒓𝒎𝒊𝒏𝒂𝒍 𝑽𝒂𝒍𝒖𝒆
(𝟏 + 𝒓) 𝒕+𝟏
Step 3 – Calculate the
Valuation
+
𝑇𝑒𝑟𝑚𝑖𝑛𝑎𝑙 𝑉𝑎𝑙𝑢𝑒 =
𝐶𝐹𝑡+1
(𝑟 − 𝑔)
Step 3 – Calculate the
Valuation
Step 3 – Calculate
Terminal (Continuing)
Value
𝑇𝑒𝑟𝑚𝑖𝑛𝑎𝑙 𝑉𝑎𝑙𝑢𝑒 = 𝐸𝐵𝐼𝑇𝐷𝐴 𝑥 𝑀𝑢𝑙𝑡𝑖𝑝𝑙𝑖𝑒𝑟
102. 102
In the next lecture we will use 2 different methods for DCF valuation
Free Cash Flows to Firm
(FCFF)
Free Cash Flows to Equity
(FCFE)
Cash flow before financial
activities
104. 104
In the next lecture we will use 2 different methods for DCF valuation
Free Cash Flows to Equity
(FCFE)
DCF Cash Flow before
financial activities
As a discounting rate we use
Weighted Average Cost of
Capital (WACC)
The Terminal Value is
calculated using 3% growth
rate assumed after the
period of forecast
DCF Free Cash Flows to
Equity
As a discounting rate we use
cost of equity
The Terminal Value is
calculated using 3% growth
rate assumed after the
period of forecast
Free Cash Flows to Firm
(FCFF)
105. 105
FCFF and FCFE evaluate different things
Enterprise Value
Net Equity Value Net Debt Value
Cash flow before financial activities / Free Cash
Flows to Equity (FCFF) estimates the Enterprise
Value
Afterwards using the Net Debt Value you can
estimate Equity
Free Cash Flows to Equity (FCFF) estimates
Equity Value
107. 107
For simplicity often valuation is calculated using multipliers. Multipliers also
help you check the valuation from DCF which is subject to many assumptions
EV/EBIT EV/EBITDA P/E ratio
108. 108
Using the Multiplier method of valuation is relatively easy
Find comparable
companies
Estimate the
multipliers for the
comparable.
Eliminate outliers
Estimate the EBIT,
EBITDA and net profit
for the company and
adjust them
Apply the multiplier Estimate Equity Value
109. 109
The methods we discussed estimate different values
Enterprise Value
Equity Value Net Debt Value
Using EV/EBITDA multiplier and EV/EBIT you can
estimate the Enterprise Value
Using P/E ratio you can estimate Equity Value
110. 110
Below how we can use the EV/EBIT multiplier to estimate the Equity
Value in 2 steps
EV/EBIT
multiplier
x =
EBIT of the
company
Enterprise Value of
the company
Enterprise Value of
the company
- =
Debt of the
company
Equity Value of the
company
111. 111
Using P/E ratio is even easier
P/E ratio x =
Net profit of the
company
Equity Value of the
company
112. 112
For more details and content check my online course where you can find case
studies showing analyses along with detailed calculations in Excel
Financial Analysis for Management
Consultants
$190
$19
Click here to check my course
115. 115
Many companies grow by acquiring other firms. In this cases consultants do a lot of financial
analyses related to M&A. We will discuss examples of such analyses in this section.
116. 116
In this section we will discuss the following things
What kind of financial
analysis consultants do
when it comes to M&A
Estimating the impact of
expanding via M&A –
plywood producer case
study
Vertical Consolidation
via M&As – fitness
sector case study
Sell non-core assets –
general framework
Sell non-core assets –
case study
118. 118
Let’s have a look at different types of analyses management consultants
do
Estimation of Potential Synergies
Valuation of potential targets
Value Creation Plan in Excel
Comparison of M&A vs organic
growth options
Forecasting of the firm after the
M&A
Valuation of the firm after the
M&A
Divestment analyses
120. 120
Let’s have a look at plywood producer that has 2 factories and is
considering taken over another one
2 plants
Considers taking over a
plant in Lithuania
Try to estimate the possible
benefits
122. 122
Let’s have a look at plywood producer that has 2 factories and is
considering taken over another one
2 plants
Considers taking over a plant in
Lithuania
Try to estimate the possible
benefits
123. 123
There are plenty of potential benefits that you can expect from this
particular M&A
Reducing Head Quarters costs
Savings on Capex
Less competition on price
Cross-selling among customer
baes
Lower Purchasing price on wood
Exchange of best practices
124. 124
From the analysis of benefits we can see that we can gain up to $17 M
from acquiring the Lithuanian factory
2 100
3 500
3 720
2 739
576
4 280
16 915
Reducing Head
Quarters costs
Savings on Capex Less competition on
price
Lower Purchasing
price on wood
Exchange of best
practices
Cross-selling among
customer baes
Total benefit from
M&A
Annual additional benefits from M&A
In million of USD
126. 126
Let’s imagine that you have to help a fitness card operator decide what will be
the impact of M&A on his strategy to vertically integrate
Fitness card operator wants to have 40%
of his revenue delivered by his own
fitness clubs
He is considering 2 options: only organic
growth or M&A with organic growth
Check what will be the impact of both
options on Revenues, EBITDA and
Market Cap
127. 127
Let’s have a look at value chain in the fitness segment
Operator of the
fitness card
Fitness Clubs HR Managers
Developers
Landlords
Equipment
Producers
Others
Producers of
raw materials
and
components
Financing Fitness Clubs
Elements of value chain
where he is currently
present
130. 130
Firms do a lot of investment. During consulting project quite often you have to check whether
they make sense. We will discuss investment analysis in detail using different case studies.
131. 131
In this section we will discuss the following things
Time value of money NPV & IRR
Investment – General
thoughts
Replacement
Investment – case study
Required by customer
investment – case study
Investment in
bottleneck removal –
case study
Cost reduction
Investment – Retail –
case study
Cost reduction
Investment – Ceramic
Tiles – case study
133. 133
Let’s first start by calculating what is the future value of 100 USD
100 100
Today After 1 year
100
After 2 years
Nominal Value
Interest rate you can earn
every year 5% 5%
Future Real Value of 100
that we have today 100 105 110
Nominal
Value x (𝟏 + 𝒓) 𝟏 Nominal
Value x (𝟏 + 𝒓) 𝟐
134. 134
Now imagine that the you are getting 100 USD every year. You want to
calculate the Present value of the money
100 100
Today After 1 year
100
After 2 years
Nominal Value
Interest rate you can earn
every year 5% 5%
Present Value
100 95 91
Nominal
Value
(𝟏 + 𝒓) 𝟏
Nominal
Value
(𝟏 + 𝒓) 𝟐
136. 136
Let’s start with a short definition
NPV stands for Net Present Value
NPV is the difference between the present value of cash
inflows and the present value of cash outflows over a
period of time usually related to some investment
It’s used to determine whether something (action,
investment etc.) makes sense or not
NPV =
137. 137
Just as a reminder Present Value of money is different than the Nominal
Value
100 100
Today After 1 year
100
After 2 years
Nominal Value
Interest rate you can earn
every year 5% 5%
Present Value
100 95 91
Nominal
Value
(𝟏 + 𝒓) 𝟏
Nominal
Value
(𝟏 + 𝒓) 𝟐
138. 138
Let’s have a look at the NPV for a small investment
- 1 000 300
Year 1 Year 3
300
Year 5
Cash flows generated by
the investment in nominal
value
300
Year 2
300
Year 4
- 1 000 272 247
Present value of cash
flows generated by the
investment for interest
rate r=5%
286 259
64
NPV 5 year for the end of
Year 1; rate r=5%
300
(𝟏 + 𝟓%) 𝟏
Formula for the present
value calculations using
interest rate r=5%
300
(𝟏 + 𝟓%) 𝟐
300
(𝟏 + 𝟓%) 𝟑
300
(𝟏 + 𝟓%) 𝟒
139. 139
NPV enables you to make decisions about specific investment
NPV 0>
The investment can generate more cash than it
requires. Can be considered to be done
NPV 0<
The investment will be eating away cash. Rather
consider not doing it
NPV 0=
Neither creates nor destroys value. Look for
other criteria i.e. strategic, tactical factors
140. 140
Let’s have a look at the NPV for a small investment
- 1 000 300
Year 1 Year 3
300
Year 5
Cash flows generated by
the investment in nominal
value
300
Year 2
300
Year 4
- 1 000 272 247
Present value of cash
flows generated by the
investment for interest
rate r=5%
286 259
64
NPV 5 year for the end of
Year 1; rate r=5%
300
(𝟏 + 𝟓%) 𝟏
Formula for the present
value calculations using
interest rate r=5%
300
(𝟏 + 𝟓%) 𝟐
300
(𝟏 + 𝟓%) 𝟑
300
(𝟏 + 𝟓%) 𝟒
142. 142
Let’s start with a short definition
IRR stands for Internal Rate of Return
IRR is a discount rate that makes the net present value (NPV)
of all cash flows from a particular project equal to zero
IRR tells us how much you would have to earn on saving
account every year to get to the same results as from the
investment you are analyzing
IRR =
143. 143
If you want to decide on whether to do certain investment or not
compare IRR with the right interest rate
IRR
Interest
rate
>
The investment can generate higher returns than
the alternatives. Can be considered to be done
IRR
Interest
rate
<
The investment will generate lower returns than the
alternatives. Rather consider not doing it
IRR
Interest
rate
=
The investment is as good as other alternatives.
Look for other criteria i.e. strategic, tactical factors
144. 144
NPV and IRR gives you the same directional information
NPV 1 NPV 2>
Investment 1 is better than Investment 2
IRR 1 IRR 2>
Investment 1 is better than Investment 2
147. 147
Apart from capacity increase there are 4 main reasons why you do
investment
Investments
Replacement
Required by the
customer
Reducing costs Removing bottlenecks
Total cost of Ownership /
Usage – comparison
Margin that may be lost if you
don’t do the investment
Margin that can be gained if
you do the investment
Change in labor costs
Change in materials and
related costs
Change in energy & other
utilities costs
Margin gained thanks to the
removal of the bottlenecks
Reduction of costs related to
production
Reduction of other costs (not
related to production)
Change in maintenance costs
148. 148
To decide whether something makes sense or not we compare Capex and
Benefits
Capex Benefits?
Cash outflow /
Negative cash flow
Cash inflow /
Positive cash flow
?
149. 149
We usually use the NPV or IRR to decide whether the investment makes
sense
NPV IRR
150. 150
In the next lectures we will go through different case studies
Replacement Investment –
Furniture Production
Required by customer
investment – Food Industry
Investment in bottlenecks
removal – Plywood
151. 151
In the next lectures we will go through different case studies
Cost reduction Investment –
Retail
Cost reduction Investment –
Ceramic Tiles
153. 153
Imagine that you work for a furniture producer that operates in Europe
10 factories
Sells most of his production to
France & Germany
You have to calculate whether the
investment in new forklifts makes
sense
155. 155
Just as a reminder you work for a furniture producer that operates in
Europe
10 factories
Sells most of his production to
France & Germany
You have to calculate whether the
investment in new forklifts makes
sense
156. 156
Let’s have a look how to show the results of investment in replacing
forklifts in the Power Point
3 691
7 185
10 875
8 182
2 694
NPV of Difference in Maintenance
Costs
NPV of Difference in Fuel / Electricity
Costs
NPV of Total Benefit NPV of Capex NPV of the whole investment
NPV of benefits and investments
In thousands of USD
158. 158
We will now have a look at a company selling branded juice in Romania.
They were asked to start using plastic bottles
Currently they sell juice in glass,
tetra pak and aluminum cans
One of the customers (a
discounter) wants to get juice in
plastic (PET) bottles
This will require significant
investment
160. 160
Just as a reminder we have to estimate wheter it makes sense to get
into PET bottles as we were asked by the customer
Currently they sell juice in glass,
tetra pak and aluminum cans
One of the customers (a
discounter) wants to get juice in
plastic (PET) bottles
This will require significant
investment
161. 161
Let’s have a look how to show in Power Point the results of PET
investment
34 804
12 489
22 315
13 182
9 133
NPV of Additional margin from PET NPV of fixed costs related to PET NPV of Net Benefit NPV of Capex NPV of the whole Investment
NPV of benefits and investments – 10 year perspective
In thousands of USD
163. 163
Let’s have a look at a plywood producer that considers removing a
bottleneck for one of the factories he has
3 plants
They have a bottleneck in 1 of
the factory
They have a demand for
products from this factory
164. 164
Below you can see the capacity for the factory in question by stages. As
you can see sanding is the bottleneck
200
100
90
80
120
100
50
90
120
Preparation of
the wood
Peeling Drying Repairing Cold Press Hot Press Sanding Foil Triming &
Packing
Production Capacity by stages
In thousands of cubic meters (m3)
167. 167
Just as a reminder we are working for a plywood producer that
considers removing a bottleneck for one of the factories he has
3 plants
They have a bottleneck in 1 of
the factory
They have a demand for
products from this factory
168. 168
Let’s have a look how to show in Power Point the results from the
improvement of sanding line
6 565
1 004
5 561
209
5 352
NPV of Additional margin from
higher sales
NPV of Additional fixed costs NPV of Net Benefit NPV of Capex NPV of the whole Investment
NPV of benefits and investments – 10 year perspective
In thousands of USD
170. 170
Imagine that you are working for a fashion discounter that operates a
retail chain in Easter Europe
The retailer has 2 000 stores in
Europe
The retailer uses traditional lighting
He wants to switch to LED lighting
172. 172
Just as a reminder you are working for a fashion discounter that
operates a retail chain in Eastern Europe
The retailer has 2 000 stores in
Europe
The retailer uses traditional lighting
He wants to switch to LED lighting
173. 173
Let’s have a look how to show the results from the change to LED bulbs
in the Power Point
15 624
1 250
620
17 494
3 636
13 858
NPV of Difference in electricity
costs
NPV of Difference in bulb costs NPV of Difference in labor
costs
NPV of Total Benefit NPV of Capex NPV of the whole investment
NPV of benefits and investments – 10 year perspective
In thousands of USD
175. 175
Imagine that you are working for a ceramic tiles producer that has 10
factories in Eastern Europe
He has 10 factories
Every factory on average has 15
production lines
Currently loading the tiles is done
mannually (2 people per line)
177. 177
Just as a reminder you are working for a ceramic tiles producer that has
10 factories in Eastern Europe
He has 10 factories
Every factory on average has 15
production lines
Currently loading the tiles is done
mannually (2 people per line)
178. 178
Let’s have a look how to show in Power Point the results from the
introduction of robots to ceramic tiles factory
156 890
37 566
16 657
102 668
27 273
75 396
NPV of Difference in labor
costs
NPV of Difference in electricity
costs
NPV of Difference in
maitenance costs
NPV of Total Benefit NPV of Capex NPV of the whole investment
NPV of benefits and investments – 10 year perspective
In thousands of USD
179. 179
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