The “Purpose” of a Business by yurtgc548

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									            Welcome to
“Entrepreneurship and Business
              for
  Engineers and Scientists” !!
          TG 401, Section A

            Course website:
       stevens.edu/sse/tgcourse


             Dr. Carl Pavarini
     Distinguished Service Professor
   Course Objective
   Investigate the business-related issues
critical for successful commercialization
              of new technology,
  in start-ups and existing businesses

          - understanding the business side
               of a company (goals and roles)
          - identifying the key business issues
                in making products successful
          - learning how to address
                these issues
          - understanding the impact of
                business issues on products,
                and on technical work
          Today’s Agenda

n   Course objective and target audience
n   Course administration/requirements
n   Course outline and learning outcomes

n   The goal of a commercial business
n   Defining product success
n   Introduction to financial measurements
n   Readings and assignment for next week
  Course Objective
   Investigate the business-related issues
critical for successful commercialization
              of new technology,
  in start-ups and existing businesses

          - understanding the business side
               of a company (goals and roles)
          - identifying the key business issues
                in making products successful
          - learning how to address
                these issues
          - understanding the impact of
                business issues on products,
                and on technical work
Critical Business Issues…..
       the five key business issues
    in technology commercialization

n   Market and customer analysis
n   Beating the competition
n   High-tech marketing and sales
n   Planning and managing for
    profitability
n   Partnering with other companies
             Dimensions of
            Commercialization
n   Opportunity selection: deciding on the market
    and the specific product/service

n   Business planning: creating a “winning” plan
    for the business

n   Financing: getting the money and resources
    (people, assets, connections…)

n   Managing: executing the plan, with ongoing
    modifications, to market-entry and eventual
    success
       This Course is NOT….
n   A management course
     (it’s taught from the perspective of
      someone with a technical job)


n   A course on how to launch a start-up
     (the start-ups we’ll study are already
      in existence; and we will study mature
      companies as well)
     Why you need to know about
    “business” in a technical job….
n   Business issues will directly impact the technical
    work you will do each day

n   Technical employees who contribute to resolution of
    business issues are considered more valuable

n   Many people transition from technical to business
    jobs as their career develops (including starting a
    business)

    …this course will make you a better engineer or scientist
     (or help position you for an eventual “business” job)
Here are some decisions that
 typically must be made by
“engineering” or “technical”
          people…

    …how will you make them?

  …what objective(s) and criteria
         will you use in
    making these decisions?
What would you do…?
 You need to decide whether to add a
particular feature to a product you are
               designing.

 The product requirements document
         doesn’t mention it.

You ask someone in Marketing, but she
really can’t recommend with confidence
        whether to add it or not.
What would you do…?
 Your product team is meeting to make some
             important decisions on:
         (1) new product directions,
(2) which customers/markets to focus on, and
      (3) how to improve customer service.

 You are asked to represent the Engineering
         or IT group at the meeting.

  What contributions will you make to these
                  deliberations?
What would you do…?
 You have an idea for an exciting new
 intrusion detection product, based on a
   new signal processing algorithm you
                invented.

You’d like to convince “management” to
  fund the development of this product.

    What arguments/analyses will be
persuasive, and how will you create them?
What would you do…?
You are behind schedule in implementing
an important new process technology for
         the Manufacturing line.

 A Sales person asks you to join him in
visiting an important potential customer.

The customer location is in China and the
        visit will take 3-4 days.
What would you do…?
 You need a new piece of test equipment
          for your design lab.

A Manufacturing engineer on your product
team also needs a (different) piece of test
equipment; there’s not enough money for
                 both.

Your product team leader (a non-technical
 person from Marketing) asks the two of
 you to decide which one to buy, and to
  explain the reason for your decision.
Technical and Business jobs……..
n   Design and development of technology-based products
    (R&D); engineer or engineering manager
n   Manufacturing engineering; logistics engineering
n   Corporate information technology (infrastructure and/or
    applications)
n   Sales engineering (technical sales)
n   Customer technical support (post-sales support)
n   Technical consulting

n   Marketing and/or product management of technology-
    based products
n   Sales
n   Manufacturing/operations (supply chain management)
n   Financial analysis
n   Business consulting (strategy, operations, …)
n   Leading technology-based companies/divisions
n   Founding high technology businesses
Business and Technical Jobs

                  (New)           Marketing     Manufacturing
Product                                                            Customer
                  Product             &              &
Planning                                                            Support
                Management          Sales         Logistics




                  Product                                          Post-sale
Exploratory                       Technical       Operations
                  Design &                                         Technical
   R&D                              Sales         Engineering
                Development                                         support




              Information Technology/Infrastructure/Applications
       We’ll learn by analyzing
         “Business Cases”
n   WiFi networks (FHP Wireless/Tropos Networks)
n   Online brokerage services (DLJdirect/eTrade)
n   Package delivery (Airborne Express/DHL)
n   Air transport (Linear Air)
n   Auto tires (Goodyear)
n   Coronary surgery products (CardioThoracic Syst)
n   Golf equipment (GolfLogix)
n   Web marketing software (Hub Spot)
n   Pacemakers/defibrillators (Guidant/Boston Sci)
n   Shoes (Crocs)
n   Orthodontic products (Invisalign)
n   Engineering analysis software (Mathsoft)
          Instructor Introduction
                      Carl Pavarini
           -    PhD, electrical and systems engineering,
                     Rensselaer Polytechnic Institute
-   10 yrs applied research and product development (Bell Labs)
     -   15 yrs product & division management (AT&T/Lucent)
         -  12 yrs venture investing and board participation
       -   Adjunct professor at RPI and Stevens Inst of Tech
           (previously taught in Columbia & Rutgers MBA programs)




                 Why am I teaching this course……

               and what makes me qualified to do so?
    Course Requirements/Admin
n   Required text (custom casebook, e-access via HBSP)

n   Required readings each week; articles on business
    concepts, business “cases,” internet searches

n   “One-page, two-sides” written homework each week

n   Class discussion/dialogue on readings and assigned
    homework questions

n   Syllabus, weekly class presentation slides and
    supplementary materials are available on the course
    website: stevens.edu/sse/tgcourse

n   Class attendance and participation: we start on time;
    email pre-notification of missing class
      Accessing the Casebook
n   Harvard Business School Publishing link:

cb.hbsp.harvard.edu/cbmp/access/17303021

n   Complete the registration process to get a
    login and password

n   Pay for the casebook via credit or debit card
    (paper copy available for additional charge)
        Course Grading

n   25% case-based midterm exam

n   25% weekly homework

n   25% case-based final exam

n   25% in-class participation (really!)
            Weekly Homework
n   Questions related to the reading assignment will be
    assigned each week (12 weeks)
n   Each student submits written answers via email;
    no late submissions*
n   target length of “one page (both sides)”
n   Homework questions are “in advance” of covering the
    material in class, so…
n   …the objective is to demonstrate that you’ve thought
    about the questions (not that you necessarily have
    the correct answers -- yet)
n   Graded “acceptable” or “unacceptable”
n   Individual submissions required, but group discussion
    encouraged!
n   No comments returned unless specifically requested *

     * since we will review the homework in class
Course Homework Grades
  # of acceptable    course hw grade
   submissions

       12                 A

       11                 A-

       10                 B

        9                 C

        8                 D

        7 or fewer        F
    Class Participation Grading
n   D,F: poor attendance and participation; inattention
          (web surfing, texting, talking, sleeping, etc)

n   C: good attendance and attention, but little/no active
         in-class participation

n   B: 2-3 active contributions per class (answers,
      comments, questions, stories, disagreements,
      challenges, …)

n   A: particularly insightful or useful contributions
       (not necessarily more frequent!)

    You will receive an interim cp grade at mid-term;
    If you want to know how you’re doing……ASK ME
   Typical Grade Distribution
        individual semesters vary considerably!
                    D/F        C         B           A

homework              0+     5%        10%        85+% 

class participation   0+    25%        50%         25%

mid-term exam         5%    35%        40%         20%

final exam            0+    25%        50%         25%

course final grade    0+    15%        60%        25%

out of 12 students    0+       2         7           3
Percent A or A- Final Grade
    (last three semesters)

Fall 2012              27%

Spring 2012           38%

Fall 2011              4%
            Carl Pavarini
         Contact Information
n   Office hours: before and after class
                  and by appointment
                 (in-person, phone, e-mail, IM)


n   Email:        carlpavarini@aol.com
                  cpavarin@stevens.edu

n   Telephone:    973-543-9496 (home)
                  973-809-8336 (cell)
    What you get in return…...
n   Useful concepts, information and insights
    about the business world…..will make you
    a better engineer/scientist

n   The benefit of my practical experience as
    an engineer and business person…..what’s
    important, and what works

n   A productive, stimulating, interactive and
    fun environment…..if you do your part
    Course Outline – modules 1 & 2
n   Objectives of Commercial Businesses
n   Financial Measures
n   Structure and roles within a company
n   Creating winning Business Plans

n   Market and customer analysis
n   Beating the competition: competitive
    advantage and differentiation
n   Making decisions about products
n   Case-based midterm exam – on product
    decisions (Goodyear: Aquatred Launch)
    Course Outline – modules 3 & 4

n   Marketing, and its interfaces with R&D
n   Sales and sales channels
n   Market-focused product development
n   Operations (manuf, logistics, service)

n   Launching a product (esp. marketing &
    sales decisions)
n   Case-based final exam – on product
    launch (Mathsoft (A))
         Learning Outcomes:
          you will learn to …
n   analyze a company’s financial performance and
    assess its opportunities and challenges for future
    growth
n   assess the barriers to success in a particular
    market and select the appropriate target
    customers
n   identify a company’s competitive advantages by
    performing a comprehensive analysis of its direct
    and indirect competition
n   define the “whole product” and decide on
    appropriate product differentiators
     You will learn to… (cont’d)
n   select appropriate sales/distribution channels and
    promotional messages and methods
n   identify best practices in new product
    development and the challenges in integrating
    the marketing, operations and product
    development functions
n   understand how technical people interact with
    marketing, sales and operations personnel, and
    how they contribute to resolution of business
    issues
n   understand how business issues can and should
    impact technical work
    …because you’ll understand and
      apply these Concepts (13)
n   Definition of       n   Competitive
    product success         advantage
n   Whole product       n   Marketing mix
n   Product plan: key       (C+4P)
    success factors     n   Product positioning
n   Differentiation     n   Sales functions
n   Market              n   Channel options
    attractiveness      n   Channel value-
n   Target customers        added
                        n   Operations balance
… and you’ll be able to use these
      Methods/Tools (13)
n   Income statement           n   Product decisions
    analysis                   n   Decision criteria
n   Financial                  n   Identifying
    benchmarks                     competitive options
n   Target customer            n   Product
    description                    competitive
n   Target customer                positioning
    selection                  n   Channel economics
n   5 Forces analysis          n   Process dimensions
n   Competitive                n   Product
    analysis (10 dimensions)       development best
                                   practices
         Today’s Topics


n   The “purpose” of a business;
    objectives of business leaders

n   Introduction to financial
    measurements
How do you know if a
product or service is
   “successful”?
     Definition of success,
               and
its market/competitive/financial
             drivers

    (class discussion and dialogue)
The “Purpose” of a
     Business
Understanding the Objectives
 of Commercial Businesses
  (and Business Managers)
      A Commercial Business’
         Objective is to…?
n   Provide quality goods and services
n   Provide jobs
n   Beat competitors
n   Contribute to the overall economy
n   Contribute to economic/national security
n   Make money (profits)
n   Increase the wealth of its executives
n   Increase the wealth of its owners
n   Some combination of the above
On What Basis Should We Decide on
          the Answer?

            How about:
    Examine how the business’
      leader is evaluated and
          compensated?

    Which raises the question:
      Who does the leader
           “report” to?
Corporate Governance

           Owners




      Board of Directors




         President/
       Chief Executive
        Officer (CEO)
       Who are the owners?
n   Normally, a company has many owners
n   Owners may be individuals, other
    companies, investment firms, …...
n   The units of ownership are “shares of
    stock”
n   Each owner owns a percentage of the
    company (equal to the percentage of
    the total shares of stock)…….if a company
    has 10M shares outstanding, an owner with
    500,000 shares owns 5% of the company
n   Shares can (normally) be sold to others
S&P 500 Stock Price Index
         (log scale)
        The Board of Directors
        represents the Owners
n   The (share)owners of a company elect a board of
    directors to represent the interests of the
    owners; the board elects a chairman

n   The management of a company is selected by,
    and reports to, the board of directors; the highest
    member of management is the Chief Executive
    Officer (CEO), who is also often the President

n   One or more members of management may also
    serve as members of the board; at a minimum,
    the CEO is on the board
  The Difference Between
Public and Private Companies
n   Public: shares of its stock are sold
    through “public” exchanges (NYSE,
    Nasdaq, etc)…. anyone can purchase stock,
    and its price is known and public information


n   Private: all sales of shares of its stock
    are arranged through “private”
    transactions….. price is determined through
    private negotiation (at the time of a
    transaction) and is not publicly known
    The Objective of a
Commercial Business is to…?
n   Provide quality goods and services
n   Provide jobs
n   Beat competitors
n   Contribute to the overall economy
n   Contribute to economic/national security
n   Make money (profits)
n   Increase the wealth of its executives
n   Increase the wealth of its owners
n   Some combination of the above
       Answer:
Increase the Wealth
   of the Owners
The total value of the owners’
  interests in the company
 ( “total shareowner value”)
Shareowner Wealth is Most
Directly Measured By……?

  n   Revenues
  n   Profits/earnings
  n   Stock price per share
  n   Market capitalization
  n   Dividends paid to shareowners
  n   Combination of the above
   Ans: Market Capitalization
        plus dividends
            The “market cap” of the firm* =

                 stock price per share
                           x
   number of shares outstanding (held by shareowners)



                        Dividends =

Cash payments ($/share) made by the firm to shareowners
       upon the approval of the board of directors


       * For private companies, this is called “valuation”
Market Cap (Stock Price) is
Primarily Driven By…….?
n   Revenues
n   Revenue growth
n   Earnings (profits)
n   Earnings growth
n   Beliefs about the future values of
    revenues and earnings
n   Combination of the above
 Ans: beliefs about future earnings
          (and revenues)

            By definition:
 Stock price/share = (P/E ratio) x
           earnings/share



 Empirically, it has been observed that:
P/E ratio ~ k x % earnings growth
    (so, k is often called the “PEG ratio”)
   P/E and PEG, empirically…
      For the S&P500 from 1950-2008:
     Average long-term earnings growth ~ 7%
     Average P/E (trailing=most recent) ~ 16
                Average PEG ~ 2.2


     Interesting article on “current” P/E:
        http://finance.yahoo.com/banking-
budgeting/article/110510/the-decline-of-the-pe-ratio
    [note: both “trailing” (last 12 months earnings) and
     “forward” (expected earnings) P/Es are discussed]
PEG varies by industry and over time
  Average PEG by industry as of July 2002

             
             Financials         0.84
             Utilities          0.88
             Health Care        1.03
             Consumer-discr     1.10
             Industrials        1.10
             Consumer-staples   1.32
             Info Tech          1.33
             Materials          1.40
             Energy             1.47
             Telecom            1.93
     …as does Earnings Growth
Annual Earnings Growth by industry--- 2Q08
   Information Technology          24.3%
   Industrials                     20.5%
   Utilities                       17.2%
   Telecommunications
                                   17.2%
      Services
   Healthcare                      9.6%
   Consumer Staples
                                   8.3%
      (mostly soft goods)
   Energy                          7.2%
   Consumer Discretionary
                                  -53.8%
     (mostly hard goods)
   Financials                     -96.8%



   All S&P 500 – average          -22.1%

   Median sector                   9.6%
The money to pay dividends
 usually comes from…….

  n   Revenues
  n   Earnings (profits)
  n   Company borrowing (loans)
  n   Selling more stock
  n   “Excess” cash on hand
  n   Combination of the above
          Answer: Earnings

    Current revenues not spent on
business operations such as marketing, new
  product development, manufacturing, sales, etc
               (current earnings)


         or saved earnings from
             previous periods
              (retained earnings)
So, if earnings and earnings growth are
  the primary drivers of shareowner
                 wealth;

and, businesses are trying to maximize
  earnings and earnings growth……..

     when is a product or service
            “successful”?
    The Technology
Commercialization Mantra !!

    A product (or service) is
     successful if and only if
    it generates, over time,
       earnings at or above
    the levels targeted for it
      by the company itself
   Company and/or Product
Earnings are Determined By…?
  n   Sales/revenues
  n   Cost of goods sold
  n   Gross margins
  n   Expenses
  n   Interest paid/received
  n   Taxes
  n   Combination of the above
Ans: A combo of all of these

   Earnings are calculated via
              the
      “income statement”
                   The Income Statement
                                     (simplified)


                                  Revenues (Sales)                          
                                - Cost of Goods Sold (COGS)
                                = Gross Margin (gross profit) 
                                - Marketing & Sales expense                  
                                - Research & Development expense              
                                - General & Administrative expense
                                = Operating income (~EBIT)   
                                - Interest paid or received                            
                                - Taxes paid or credited
                                = Net income (earnings)         
    Standard Financial Measures

n   A firm’s income statement, as well as ……

n   Cash flow and balance sheet statements
    (next week)
                So far……….
n   Companies try to maximize their market cap (or
    stock price) plus dividends

n   Stock price and the ability to pay dividends are
    both driven by earnings, and beliefs about
    future earnings growth

n   Individual products and services are expected
    to contribute to earnings/growth; successsful
    products meet or exceed their earnings targets

n   Earnings growth (ultimately) requires revenue
    growth, which is “easier” in fast(er) growing
    markets

n   Firms use financial statements to develop plans,
    and measure/analyze/report on their performance
Let’s try an example……
What can we learn about the
      performance of
    Apple, Inc. (AAPL)
     by looking at its
   income statements ?

             (Sources:
        finance.yahoo.com,
        google.com/finance,
    reuters.com/finance/stocks,
           www.sec.gov)
Apple FY2012 Income Statement
Year ending Sep; 
$M                       2012

Revenue ($M)           156,508

COGS                    87,846

Gross margin            68,662

R&D expense              3,381

SG&A expense            10,040

Operating income        55,241

interest & other inc      522

taxes                   14,030

Net income              41,733
Apple FY2012 Income Statement
Year ending Sep; 
$M                       2012 %revenue

Revenue ($M)           156,508   100%

COGS                    87,846    56.1

Gross margin            68,662    43.9

R&D expense              3,381     2.2

SG&A expense            10,040     6.4

Operating income        55,241    35.2

interest & other inc      522      0.3

taxes                   14,030     9.0

Net income              41,733    26.7
Apple Income Statement , 2011 & 2012
Year ending Sep; 
$M                       2012    %revenue     2011 %revenue

Revenue ($M)           156,508      100%    108,249   100%

COGS                    87,846       56.1    64,431    59.5

Gross margin            68,662       43.9    43,818    40.5

R&D expense              3,381        2.2     2,429     2.2

SG&A expense            10,040        6.4     7,599     7.0

Operating income        55,241       35.2    33,790    31.2

interest & other inc      522         0.3      415      0.4

taxes                   14,030        9.0     8,283     7.7

Net income              41,733       26.7    25,922    23.9
  Apple Income Statement, 2011 & 2012
Year ending Sep; 
$M                       2012    %revenue   %growth     2011 %revenue

Revenue ($M)           156,508      100%       44.6   108,249   100%

COGS                    87,846       56.1      36.3    64,431    59.5

Gross margin            68,662       43.9      56.7    43,818    40.5

R&D expense              3,381        2.2      39.2     2,429     2.2

SG&A expense            10,040        6.4      32.1     7,599     7.0

Operating income        55,241       35.2      63.5    33,790    31.2

interest & other inc      522         0.3      25.8      415      0.4

taxes                   14,030        9.0      69.4     8,283     7.7

Net income              41,733       26.7      61.0    25,922    23.9
             Income Statements, 2010-2012
Year ending Sep; 
$M                    2012 %revenue %growth     2011 %revenue %growth    2010 %revenue

Revenue ($M)        156,508   100%     44.6   108,249   100%     66.0   65,225   100%

COGS                 87,846    56.1    36.3    64,431    59.5    62.9   39,541    60.6

Gross margin         68,662    43.9    56.7    43,818    40.5    70.6   25,684    39.4

R&D expense           3,381     2.2    39.2     2,429     2.2    36.3    1,782     2.7

SG&A expense         10,040     6.4    32.1     7,599     7.0    37.7    5,517     8.5
Operating
income               55,241    35.2    63.5    33,790    31.2    83.8   18,385    28.2
interest & other 
inc                    522      0.3    25.8      415      0.4   167.7     155      0.2

taxes                14,030     9.0    69.4     8,283     7.7    83.0    4,527     6.9

Net income           41,733    26.7    61.0    25,922    23.9    85.0   14,013    21.5
    Method: How to Analyze an
        Income Statement
n   Operating income vs. net income

n   In-period operating performance:           costs,
    expenses and earnings as a % of revenue


n   Cross-period performance (trends):               relative
    change in revenues, costs, expenses, earnings…
    improvements vs. deteriorations, and why


n   One more item to come…           (next week)
  Apple Income Statement, 2011 & 2012
Year ending Sep: $M      2012    %revenue   %growth     2011 %revenue

Revenue ($M)           156,508      100%       44.6   108,249   100%

COGS                    87,846       56.1      36.3    64,431    59.5

Gross margin            68,662       43.9      56.7    43,818    40.5

R&D expense              3,381        2.2      39.2     2,429     2.2

SG&A expense            10,040        6.4      32.1     7,599     7.0

Operating income        55,241       35.2      63.5    33,790    31.2

interest & other inc      522         0.3      25.8      415      0.4

taxes                   14,030        9.0      69.4     8,283     7.7

Net income              41,733       26.7      61.0    25,922    23.9
 For the year ending Sep ‘12 (FY12), what were AAPL’s
revenues ($), and relative (%rev) gross margin, operating
                income, and net income?
 For the year ending Sep ‘12 (FY12), what were AAPL’s
revenues ($), and relative (%rev) gross margin, operating
                income, and net income?

          n   Revenues = $156.5 B

          n   GM% = 43.9%

          n   OI% = 35.2%

          n   NI% = 26.7%
 For the year ending Sep ‘12 (FY12), what were AAPL’s
revenues ($), and relative (%rev) gross margin, operating
                income, and net income?

          n   Revenues = $156.5 B

          n   GM% = 43.9%

          n   OI% = 35.2%

          n   NI% = 26.7%
      Next week: are these results “good”?
How did 2012 net income compare
 to 2012 operating income? Why?
         How did 2012 net income compare
          to 2012 operating income? Why?

n   Net income ($41.7B) was less than operating
    income ($55.2B) …

n   Largely because of taxes paid ($14.0B) …

n   Slightly offset by other income ($522M, mostly
    interest received)

n   Since taxes grew faster than revenues (69% vs
    44%), relative net income (26.7%) was less than
    relative operating income (35.2%)
How did operating income change from FY11 to FY12 (on
 both a total $ and relative basis)? What were the major
 financial determinants of the total $ change (revenues?
COGS? R&D exp? SG&A exp?)? Of the relative change?
How did operating income change from FY11 to FY12 (on
 both a total $ and relative basis)? What were the major
 financial determinants of the total $ change (revenues?
COGS? R&D exp? SG&A exp?)? Of the relative change?

n   Total$OI: grew from $33.9 B to $55.2 B, up 63.5% !

n   Relative%OI: increased from 31.2 to 35.2% of revenue

n   Total$ change (up 63.5%) mostly driven by 44.6%
    revenue growth

n   Relative OI improvement of 4.0% comprised of:
               3.4% GM% improvement
               0.6% SG&A exp improvement
    Method: How to Analyze an
        Income Statement
n   Operating income vs. net income

n   In-period operating performance:           costs,
    expenses and earnings as a % of revenue


n   Cross-period performance (trends):               relative
    change in revenues, costs, expenses, earnings…
    improvements vs. deteriorations, and why


n   One more item to come…           (next week)
For FY12 what % of revenue came from
 each of AAPL’s product categories?
      For more detailed info….
n   Access Apple’s 10Q (quarterly) and 10K (annual)
    reports at www.sec.gov (or through Yahoo Finance)

n   Particularly useful 10K/10Q sections:
     financial reports (incl. income statement)
     management’s discussion of financials …. (incl. net sales,
        gross margin, operating expenses, other income, taxes)


n   Interesting (older) article on Apple’s financial
    growth:
     http://tech.fortune.cnn.com/2010/07/12/how-apple-
    maintains-explosive-earnings-growth/
            For FY12 what % of revenue came from
             each of AAPL’s product categories?
Desktops                            $     6,040          (6 )% 
Portables                                17,181          12% 

 Total Mac net sales                     23,221           7% 
                                                            
Mac peripherals and other                 2,778          19% 
Mac software, service and other
                                          3,459          17% 

iPod (c)(i)                               5,615          (25 )% 
Other music related products and 
services (d)                              8,534          35% 
iPhone and related products and 
services (e)(i)                          80,477          71% 
iPad and related products and 
services (f)(i)                          32,424          59% 

 Total net sales                   $  156,508            45% 
Apple Stock Price, 2008 - 12
How has AAPL stock performed over 2012?
         Speculate as to why.
How has AAPL stock performed compared to the Nasdaq
  tech stock index over 2012? Speculate as to why.
  Readings for Next Class
Appendix to Writing a Business Plan: The Basics (in casebook)

                            …and…

               How to Read a Financial Report
       (course website under “Supplementary Materials”)
               read about the income statement,
       pages 1-3, 6, 26-36, 42-43; note glossary at back

                            …and…

     Google’s (GOOG) financial and stock performance
         http://finance.yahoo.com/q?s=GOOG&ql=0

                            …and…

Google’s SEC 2011 Annual Report (10K) filed 26-Jan-2012
    (access via Yahoo Finance or SEC website www.sec.gov)
        read “Management’s Discussion…” pages 26-37
   Assignment Question #1
understanding that technical people affect
        income statement results

  How can technologists impact the
line items of the income statement?

    (cite two examples for each line item:
revenues, COGS, M&S expense, R&D expense,
      G&A expense, interest, and taxes)
       Assignment Question #2
      analyzing Google’s (GOOG) income statement

n   For FY11 (calendar year 2011), what were
    GOOG’s revenues ($), and relative (%rev) gross
    margin, operating income, and net income?

n   Why did relative operating income and relative
    net income change differently from FY10 to FY11?
    Taxes? Interest? Other?

n   How did operating income change from FY10 to
    FY11 (on both a total $ and relative (% of rev)
    basis)? What were the major financial
    determinants of the total $ change (revenues?
    COGS? R&D exp? SG&A exp?)? What were the
    major determinants of the relative change?
      Assignment Question #2
                    …continued
n   For FY11 what % of revenue came from each of
    GOOG’s three product categories? Which
    product categories would you guess had the
    highest and lowest gross margin %? Why?

n   How did GOOG stock perform compared to the
    Nasdaq tech stock index over the year 2011?
    Speculate as to why.

n   What was the stock market’s reaction to Google’s
    2011 earnings announcement and annual report?
    Why?
                     Reminders
n    “How to Read a Financial Report,” today’s slides and
    slides for next week’s class are on course website

n   Hand-in your name card at the end of each class

n   Register on HBSP site to purchase e-casebook:
    cb.hbsp.harvard.edu/cbmp/access/17303021

n   Notify me via email if you will be missing a class

n   Discuss readings and homework in small groups

n   Submit written homework via email before class
    (preferred), or on paper at beginning of class

								
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