BREAKOUT SESSION 1 Financial Acumen for Sales Marketing

BREAKOUT SESSION 1 Financial Acumen for Sales & Marketing and Other Non-Accounting Managers Allison Therwhanger Sponsored by:

Financial Acumen for Sales, Marketing and Other Non-Accounting Professionals June 12, 2018 Allison Therwhanger President, Shippert Medical Technologies

About the Speaker Allison Therwhanger President, Shippert Medical Technologies Treasurer, PWH Allison Therwhanger is the President of Shippert Medical Technologies. Shippert Medical is an ENT and Plastic/Cosmetic Surgery products manufacturer, part of the Innovia Medical Platform of products. She has served in an officer capacity for Shippert Medical since 1992. Her education includes a B. S. degree in finance from University of Colorado, MBA degree with accounting/finance emphasis from Regis University and her CPA designation. As a charter member of PWH since 2004, Allison contributes her time to the PWH organization as Treasurer of PWH. 3

Today’s Agenda What Will We Cover in This Hour? Financial statements – the basics How to read a balance sheet and income statement Budget building recommendations Key ratios to see how your company is performing Key metrics to monitor – how to excel as a manager 4

Financial Acumen: “The Numbers” Why Look at the Numbers? Gives you information to make decisions ü Helps you plan, predict and forecast ü Helps you critique ü Shows you where you are doing well and where improvement is needed ü Gives you the opportunity to diagnose a problem before it gets too far into the year ü Gives you a way to measure your own performance and others ü Helps you move to the next level when you can meet or exceed your numbers ü Many managers don’t take the time to analyze the numbers, you can be that better manager and control and predict your results Today’s Goal After this hour, I hope you gain more confidence in reading and working with financial statements, using key metrics and delivering top performances! 5

Financial Acumen: 3 Key Financial Statements Balance Sheet Income Statement of Cashflows 6

Financial Acumen: The Balance Sheet • • Gives you a snapshot on the company’s financial position as of a particular date Components: Assets, Liabilities, Equity The Balance sheet must be in “balance” Assets = Liabilities + Equity Assets • o o o o Any item of economic value owned by an individual or corporation Listed on the Balance Sheet in order of liquidity and its tangible/Intangible nature Current Assets: Cash (Bank accounts) Accounts Receivable Inventory Long Term-Term Assets Furniture – fixed asset Equipment – fixed asset Vehicles – fixed asset Leasehold Improvements Building Land Goodwill (intangibles) Intellectual Property (Intangibles) Liabilities • Money the company owes to creditors, banks employees, vendors etc. • o Current Liabilities: A/P, Taxes Payable, Short-term portion of long term debt Long Term Liabilities: Portion of loans due more than one year from now • o 7

Financial Acumen: The Balance Sheet Equity • o o o The part of the assets that are owned by the shareholders (free and clear of debt) Shareholder/Partner Stock (Common, preferred)** Retained Earnings Net Income – closes out to Retained Earnings Contributions/Distributions Additional Paid in Capital **Names of accounts varies depending upon the type of entity Key Takeaway: Assets = Liabilities + Equity Or, said another way: Assets – Liabilities = Equity 8

Real-Life Example: The Balance Sheet Company XYZ Balance Sheet (12/31/2017) 9

Real-Life Example: The Balance Sheet Liabilities and Shareholders’ Equity 10

Financial Acumen: The Income Statement • • • This report shows the financial activities for a specified period of time (monthly, quarterly, annually). Tells you how much money the company brings in and how much goes out of the company. Gives the reader a wealth of information by type of revenue and expense. Components o Revenue o Cost of goods Sold o Expenses o Net income or loss Types of Revenues and Expenses • o o o o o Revenue: General Sales (less discounts and returns) Royalty Income Investment Income Expenses: Cost of Goods Sold G&A Marketing and Selling R&D expenses Depreciation / Amortization Expense Interest Taxes Misc. Income and Expenses Typically listed at the end of the Income Statement is Non-operating Income and expenses These are items that are not part of the normal course of business, one time sales, one-time gains, one-time write-offs, etc. Separating these items out can help you distinguish between the main success of a company and perhaps a one-time gain. 11

Financial Acumen: Types of Profit Sales (Cost of Goods Sold) Gross Profit This measures the profit made after direct costs of sales. Gross Profit (Operating Expenses) Operating Profit (This measure the company’s profit from its ongoing operations) Net Profit (is the amount remaining after all costs are deducted from all income) EBIT (Earnings Before Interest and Taxes) EBITDA (Earnings Before Interest Taxes Depreciation and Amortization) EBITDA is popular because it allows you to compare the profits to other companies without having it distorted with financing (interest) activities raising money (stock) or certain accounting decisions (taxes, depreciation, etc. ) 12

Real-Life Example: The Income Statement Company XYZ Income Statement (12/31/2017) 13

Questions? 14

Financial Acumen: The Statement of Cashflows • • • Demonstrates the flow of cash in and out of the business Divides into operating, investing and financing activities Incorporates both changes in the income statement and the balance sheet Company XYZ Statement of Cashflows (12/31/2017) Net income for the year Adjustment for: Amortization Loss on disposal of property, plan and equipment Gain on disposal of investment Cash derived from operations Decrease (increase) in working capital items Accounts receivable Deposits and prepaid expenses Inventory Accounts payable and accrued liabilities Long-term debt - current portion Income tax payable Cash flows from operating activities $ 78, 516 $ 17, 854 $ (16, 149) $ 80, 221 $ 7, 625 $ (254) $ (2, 487) $ (9, 290) $ 25, 200 $ 14, 387 $ 115, 402 15

Financial Acumen: The Statement of Cashflows (Cont. ) Company XYZ Statement of Cashflows (12/31/2017) 16

Questions? How Are We Doing So Far? 17

Financial Acumen: Non-Profit Financials • Balance Sheet = Statement of Financial Position • Income Statement = Statement of Activities • Non Profits can also have an additional statement called the Statement of Functional Expenses o Fundraising, program services, etc. • Non Profits also have various Net Asset Classes o Unrestricted o Temporarily Restricted o Permanently Restricted • Equity = Net Assets 18

Check-In Point How Are We On Time? 19

Financial Acumen: Budgeting Department Budgets To Start… • • • Don’t be intimated by the numbers! Find out what you are accountable for. Find out how the timing of the purchases affects your budget Find out if you are allocated certain expenses out of your control Review previous years’ data to see if you are being realistic Don’t Forget… • • Find out which budget items are fixed or variable Fixed items – you can budget with certainty Variable items – expenses that change as sales change For sales, make sure you know the timing of the revenue, contractual purchases, etc. 20

Financial Acumen: Budgeting (Cont. ) Department Budgets Revenue Ideas • • Confirm timing Build a monthly estimate Change as you go and get numbers monthly if possible Keep all of your backup data for reference and for justification Expenses • • Confirm timing Build a monthly estimate Tie variable expenses to volume in a spreadsheet to automatically adjust for volume Change as you go and get numbers monthly if possible Before we leave budgeting, does anyone have specific questions and/or specific budgeting situations that they want to discuss? 21

Financial Acumen: Performance Metrics How is Your Company Performing? Key Ratios • Liquidity • Financing • Profitability Ratios • Shareholder Ratios RATIO Liquidity Ratios Please Remember • Use the ratios to compare and trend over numerous years • Use the ratios to compare to the industry averages FORMULA DEFINITION Measures the ability of a company to spend and invest and run their business Current Ratio Current Measures a company’s ability Assets/Current to pay short-term obligations Liabilities Quick, or Acid (Current Assets. Measures a company’s ability Test Ratio Inventory)/ to pay short-term obligations Cur (with more liquid assets) rent Liabilities 22

Financial Acumen: Performance Metrics (Cont. ) How is Your Company Performing? RATIO Asset Management Ratios FORMULA Inventory Turnover Sales/Inventory Average Collection Period Receivables/Sales/360 Fixed Asset Turnover Sales/Fixed Assets Total Asset Turnover Sales/Total Assets DEFINITION Measures how well a company manages its assets, such as inventory, receivables, etc. How quickly a company turns (goes through and sells) its inventory How quickly (in days) a company collects its receivables Measures the utilization of plant and equipment Measures the utilization of all assets 23

Financial Acumen: Performance Metrics (Cont. ) How is Your Company Performing? RATIO Debt Management FORMULA Debt to Total Assets Total Debt/Total Assets DEFINITION Measures how well a company manages its debt (leverage) How much leverage a company uses, how dependent they are on debt versus equity 24

Financial Acumen: Performance Metrics (Cont. ) How is Your Company Performing? RATIO Profitability FORMULA Profit Margin on Sales Net Income/Sales Basic Earning Power Return on Total Assets (ROA) Return on Equity (ROE) DEFINITION Measures a company’s ability to generate earnings relative to sales, assets and equity The amount of profit a firm earns as a percentage of its sales Earnings before The profitability or earning Interest and Tax/Total power of a business before Assets taxes or interest – this ratio makes it easy to compare EBIT/Total Assets across companies Net Income/Total The profitability the company Assets has as a percentage of its assets. Net Income avail. to Measure the rate of return of Common the common shareholders. Sher. /Common Equity 25

Financial Acumen: Performance Metrics (Cont. ) How is Your Company Performing? RATIO FORMULA DEFINITION Market Value Price/Earnings (P/E) ratio Price per share/Earnings per Share Shows the relationship between the stock price and the earnings of the stock Market/Book Market price per Gives the investor an share/Book Value per idea of whether or not share a stock is over or undervalued. It can also represent the premium you may lose if the company went under, declared bankruptcy, etc. 26

Financial Acumen: Key Metrics Top Metrics Sales and Marketing Should Know ü Key competitive strengths ü Competitors ü Gross Margin % and $ by total business and key product/product families compared to plan ü Sales of new products (total sales, sales at new accounts) ü ASP- Average Sales Price ü Sales by product category, geography, customer and plant. ü Budget – performance to budget in areas you are responsible for ü Average sales price for critical product line items and product families ü Clinical/cost benefits of your product line ü Sales performance by rep/sales group ü Market Growth of your product line as compared to your growth ü Pipeline reporting – activity, opportunities ü Market share compared to competition ü Program profitability – advertising, mailers, campaigns 27

Financial Acumen: Key Metrics Top Metrics Manufacturing and Engineering Should Know ü Open orders ü Backorders ü Budget – performance to budget in areas you are responsible for (op ex and cap ex) ü Lead Time/On Time delivery to goals (especially critical components ü Forecast mo/qtr/yr ü Quality metrics (complaint trends, out of box failures, etc. ) ü IP Associated with products ü On time delivery report ü Production Yield ü Manufacturing variances (labor efficiency, ü materials, overhead) ü ü Safety metrics ü ü Material, per hour labor, OH costs for ü products ü ü Absorption ü History of cost fluctuations Inventory metrics (turnover, trends) Cost reduction results vs. target Contribution margin Performance by hour/shift/day/week Performance by work center/plant/product line ü % Revenue generated by new products 28

Financial Acumen: Key Metrics 29

Conclusion Thank You! • Remember numbers give you the power to make good decisions! • Taking time to understand the numbers set you apart from the rest! Questions? Please feel free to contact me: 303 -754 -5184 alt@innoviamedical. com 30