Building Blocks Balance Sheet What is an asset?.

Balance Sheet

What is an asset?

Building Blocks

Balance Sheet

What is an asset?

Economic resources controlled by an entity as a result of past transactions or events and from which future economic benefits may be obtained.

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Balance Sheet

Assets are separated between:

• Current Assets (Short Term) – cash or used within a year + Inventory

• Non-Current Assets (Long Term)

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Current Assets (Short Term)Cash and equivalentsShort-Term InvestmentsAccounts Receivable InventoryPrepaid ExpensesOther current assets

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Non-Current (Long Term)Long-Term InvestmentsProperty, Plan and Equipment (Fixed Assets)Intangible Assets

• Goodwill• Trademarks• Patents• Development Costs

Building Blocks

Non-Current (Long Term)Long-Term InvestmentsProperty, Plan and Equipment (Fixed Assets)Intangible Assets

• Goodwill• Trademarks• Patents• Development Costs

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Balance Sheet

What is a liability?An entities debts and obligations arising from past transactions. They represent future outflows of assets (mainly cash) or services to the creditors that provided the entity with the resources needed to conduct its business.

Liabilities and obligations are often created but not recognized in financial statements.

Building Blocks

Balance Sheet

What is a liability?An entities debts and obligations arising from past transactions. They represent future outflows of assets (mainly cash) or services to the creditors that provided the entity with the resources needed to conduct its business.

Liabilities and obligations are often created but not recognized in financial statements. (contracts, manipulation, financial instruments)

Separated between current and long term liabilities.

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Current Liabilities (due within a year)Bank indebtednessAccounts PayableAccrued LiabilitiesCurrent Portion of Long Term debtOther current liabilities

Long Term Liabilities (coming due beyond one year)Notes and mortgages payableLease obligationsBonds PayableOther long-term liabilities

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Balance Sheet

Equity

Financing provided to the firm by both its owners and the operations of the business.

Owners invest to earn two types of return: • Dividends• Capital appreciation/Capital gains

What is realized and unrealized?

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Debt

Equity

Assets

Debt is “preferred” over Equity

When the firm is no longer a “going concern” its creditors have first right to its’ assets.

With equity you have a high risk and reward position.

Investing through debt is low risk and a predictable reward.

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In the “red”In the “black”

Going Concern

Not a Going Concern

Government Creditors Employee

s Owners

Value

Accounting – value in monetary terms

Economics (1) utility (2) worth of good or service to exchange for other items of value

Marketing/Consumption: Relative value placed on good or service. This is perceived.

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Value Proposition Relevant – how does it solve a problem or serve or a need?Quantified – what benefits does it deliver?Differentiated - how is it different than the competition (or no action)?

The key to any successful value proposition is that the perceived value of what you offer – be it a product, service – outweighs the perceived cost or alternatives.

Think of it as a question:

If I am customer why should I buy this rather than that (or buy nothing)?

Value Proposition

Value Proposition (CVP)

Attributes of a product/service• Price• Quality• Speed of Delivery• Completeness of the service

Relationship customer experiences by interacting with the company• Service• Process• Systems

Emotional Appeal • How do you feel about the company or the product • Moral or ethical connection• How others’ perceive you

Value Proposition

Thinking through it

• Intended User – who is the predominant user of the product

• The next best alternative - closest competitor

• Value delivery – how does this product deliver a better, same or worse experience than competition

• Measure – can the difference be quantified? Is the difference a range? Or is it an intangible?

• Cost - Does it cost more, less or same for competition? If no competition, does it provide more value than not buying?

Value Proposition

Value Proposition – a marketing statement Relevant – how does it solve a problem or serve or a need?Quantified – what benefits does it deliver?Differentiated - how is it different than the competition (or no action)?

The key to any successful value proposition is that the perceived value of what you offer – be it a product, service – outweighs the perceived cost or alternatives.

Think of it as a question:

If I am customer why should I buy this rather than that (or buy nothing)?

Value Proposition

Your goal in business is to “create” value for your customers and business.

How do we create value?

Innovation EfficiencyCulture

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Value Chain A set of activities performed by one firm to bring a product of service to market.

Value Chain

Industry Value Chain A set of activities performed by a number of firms to bring products and services from creation to market.

What has happened to the music industry?

Value Chain

Industry Value Chain

Artist Publishers Manufacturers

Distributors Retailers Customers

Music Industry Past

Industry Value Chain

Music Industry Present

Artists Publishers

Retailers

Customers

RisksStrategic RiskOperational RiskFinancial RiskBrand/Reputation RiskCompliance/Legal Risk

Amazon Starbucks

Risks

Theorized in 1990

Completely revolutionized and changed management and strategy.

Before this theory, companies focused around core products and made variations of those products and wanted to achieve vertical integration.

Changed the theory to focus around core competencies which lead to core products.

The Core Competency

Identify top strengths/assets/intangibles

Use competencies as building blocks

Develop strategies to become an industry leader focused around your core competencies

Develop products, systems, talent and businesses to leverage your core competencies.

• Provides benefits to the customer• Hard to imitate• Provides access to a wide variety of markets

The Core Competency

Identify top strengths/assets/intangibles

Use competencies as building blocks

Develop strategies to become an industry leader focused around your core competencies

Develop products, systems, talent and businesses to leverage your core competencies.

• Provides benefits to the customer• Hard to imitate• Provides access to a wide variety of markets

The Core Competency

The Core Competency

Identify Competencies

Develop Competencies

Structure organization around competencies

Involve competencies in all products

Evolve organization around competencies

The Core Competency

The Core Competency

The Core Competency

Identify the core competency

• Google

• Apple

• Netflix

• Honda (1980)

The Core Competency