Financial Aspects
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Transcript Financial Aspects
Financial Aspects of Marketing
Management
Marketing 6201
Chip Besio
Cox School of Business
Relevant Accounting Concepts
Variable Costs
Costs of Goods Sold
Indirect Variable Costs
Fixed Costs
Programmed Costs
Committed Costs
Relevant Accounting Concepts
Relevant Costs
Expected Future Marketing Related
Vary According to Alternative Chosen
Sunk Costs
Past Expenditures Irrelevant to Future Planning
Research & Development
Previous Advertising Expenditures
Sunk Cost Fallacy
Relevant Accounting Concepts
Gross Margin
Total Revenue - Total C.O.G.S.
Unit Selling Price - Unit C.O.G.S.
Expressed as Dollars or Percentage
Can Be Impacted by a Change in:
Volume
C.O.G.S.
Selling Price
Mix of Products Sold
Relevant Accounting Concepts
Trade Margin
Each Level of Distribution Chain
“Markup or Mark-On”
Usually Determined on Selling Price
Net Profit Margin
Sales Revenue less:
C.O.G.S.
Other Variable Costs
Fixed Costs
Equal Net Profit Margin (Before Taxes)
Contribution Analysis
Break Even Analysis
Total Revenue = Total Variable Costs + Total Fixed
Costs
Unit Break Even = Total $ Fixed Costs / Unit Selling
Price - Unit Variable Costs
Unit Contribution = Unit Selling Price - Unit
Variable Cost
Contribution Analysis
Sensitivity Analysis
Contribution Margin Has Many Applications
Vary Each Element to Look at Alternative
Strategies
Contribution Analysis
Contribution Analysis & Market Size
Variety of Contribution Analysis Choices
Market is Smaller than Desired Sales
Contribution Analysis & Profit Impact
Break-even Not Enough
Businesses Must Make Profit to Survive
Unit Volume to Achieve Profit Goal = Total $
Fixed Cost + $ Profit Goal / Contribution per
Unit
Contribution Analysis
Contribution Analysis & Performance
Measurement
Evaluate Each Product in Mix
Managers Should Evaluate Each Element:
Unit Price
Sales Volume
Unit Variable Costs
Total Variable Costs
Unit Contribution
Total Contribution
Net Profit
Contribution Analysis
Cannibalization Assessment
New Products May Attract Existing Product’s
Customers
Determine the Financial Impact of New Product on
Existing Products
Financial Concepts
Liquidity
Meet Short Time Financial Obligations
Working Capital = Current Assets - Current
Liabilities
Operating Leverage
Relationship of Fixed to Variable Costs
Hi-leverage: airlines/heavy
equipment
Low-leverage: wholesalers
internet retailers
Financial Concepts
Pro-Forma Income Statements
Anticipated Revenues vs. Related Costs
Based on Managers Strategic Scenarios