Agribusiness test 2

competition

rivalry between companies selling similar products and services with the goal of achieving higher revenue, profits, and market share growth

businesses should understand their

competitive situation and work toward strengthening it

understanding how to strengthen your firms competitive advantage stems from a segment of business management called

strategic management

strategic management

process by which managers choose a set of strategies (broad approaches) that will allow their firm to be the first choice

why is strategic management important

so firms can achieve superior financial performance

Return on invested capital ROIC

what you get out of what you put in

ROIC is a measurement of

profitability

Purpose of strategic management

increase money

step one in developing a strategic plan

vision and mission statement must be created

mission and vision statement define

values and objectives

vision statement begins

by stating what the firm aspires to be

Good vision statement should include

BIG PICTURE, what you are ASPIRING to be, and value statement on HOW the firm will run,

mission statement

defines the firms purpose

Mission statement should answer what

what group of customers, and what do those customers want

Step 2 in developing a strategic plan is

creating a SWOT analysis

SWOT analysis is broken into 2 groups

internal and external environment

competition is always a

threat

external environment is analyzed

first to identify opportunities and threats

market opportunities

things that could increase firms ROIC and profits

Market threats

things that could reduce firms ROIC and profits

internal environment

once external is understood, examine strengths and weaknesses

external (first)

opportunities and threats

internal (second)

strengths and weaknesses

What questions do strengths answer

what are you doing well, what sets you apart, what are your good qualities

what questions does weaknesses answer

where can you improve, are resources adequate, what do others do better

what questions does opportunities answer

what are your goals, are demands shifting, how can you improve

what questions do threats answer

what are the blockers, what are factors that are out if your control

strengths

things that will enable the firm to realize its objective

weaknesses

things that will prevent the firm from realizing objectives

step 3 in developing a strategic plan

putting it all together

forecasting AKA

planning

forecasting allows firms to

plan for the future

forecasting is vital to a firms ability to

achieve its purpose and objectives

forecasting =

good business planning and decision making

what do we want to look at when planning

GDP, interest rates, inflation, income

Forecasts must also consider these variables

individual firms sales, profits, production levels, inventories, prices, input costs

forecasts study explanations of past customers buying habits to

predict future customer buying habits

it is important to forecast

frequently

selecting a forecasting procedure depends on

5 factors

what are the 5 factors of selecting a forecasting procedure

accuracy, time to develop, complexity, time period to be forecasted, level of resources available

two ways to look at data

cross sectional, time-series

forecasting is extra beneficial to a

new business

cross sectional data

data collected from different groups/locations at the same time

what is cross sectional data used for

to understand a situation at a single point in time

time-series data

collected from one or more groups/locations at different points in time

what is time-series data useful for

helps to identify recurring patterns

extrapolation

what happened in the past will happen again

example of extrapolation

if a product price increased last year, it will do the same this year

graphical analysis

plotting of data on a graph so a manager can see what patterns are present in data

moving averages

help reduce impact of short-term fluctuations in data by plotting average value of several points rather than every single one

the development of forecasts is only the

first step in effective usage of these predictions

what 3 factors should a manager understand and do

understand assumptions behind a forecast, update forecasts, use alternate outcomes

assumptions are

what can be changed/influenced

forecasts should be updated when

uncontrollable events take place such as disasters like floods droughts diseases

alternative outcomes should include

best outcome, most likely outcome and worst case scenario

budget

financial plan of managements expectations for the business in the future

a budget is a model of what the management

realistically thinks the future holds for a firm

purpose of a budget

to be a blueprint for action for a specific period (one year)

budgeting process forces managers to ask not only what can be achieved but also

whether the marketing plan will meet the firms financial objectives

variable expenses (costs)

costs that can change depending on farm or firms consumption

examples of variable expenses

fuel, seed, chemicals, hourly labor

fixed expenses (costs)

costs that must be paid out but are not dependent on production

examples of fixed cost

rent, loans, insurance

accounts receivable

money owed to the firm by debtors; payments the firm can expect to receive

accounts payable

money owed to the firm by creditors; payments the firm must make to others

cash flow

the amount of cash that went IN and OUT of the firm

operating budget

estimate of sales and income plus the fixed and variable expenses the firm must incur in order to support the expected sales during the specific time

step one of developing an operating budget

develop a sales estimate for the year

step 2 of developing an operating budget

prepare an estimate of the costs of providing products for sale

what are the 3 types of budgets

operating, cash flow, capital expenditure

cash flow budget

amount and timing of cash that is expected to flow IN and flow OUT of the business during a period of time

cash inflow

comes from a collection of accounts receivable, sales of goods/services, borrowings, loans

cash outflow

comes from payments for goods / services, loan payments, purchase of assets, payments of accounts payable

purpose of cash flow budget

to help manage the firm’s cash balances so sufficient cash is available to meet obligations as they come due

capital expenditure budget

shows how the money budgeted for capital expenditures is to be allocated among competing projects

capital expenditures

money spent by a firm to purchase or maintain fixed assets

examples of capital expenditures

land, buildings, equipment

at the top of the operating budget

operating budget

after “operating budget”, the

business name

top 3 benefits of creating a budget

measure business performance, financial implications of their business decisions, quickly spot deviations such as stealing money

a budget is simply an

an attempt to provide a financial plan for a firm

4 things to remember when preparing and implementing a budget

estimates, not automatic, cannot replace good management, requires time and patience