2.008 For-Profit manufacturing firms Performance Measures Cost • Ownership: Market value = PV (Earning) + PV (Growth Opportunity) • Management: Performance Targets 2.008 - Spring 2004 1 2.008 - Spring 2004 2 Automotive Market Share in the U.S. 35% 30% 25% 20% 15% 10% 5% 0% Oct-99 Jul-00 Apr-01 Dec-01 Oct-02 GM (w/S aab) DaimlerChrysler (w/Mercedes)Honda Ford (w/Volvo, Jaguar, & Land Rover) Toyota Nissan 2.008 - Spring 2004 3 GM Financials $ billions Income Statement Dec-02 Dec-00 Dec-99 Dec-98 Dec-97 Revenue 177.3 Gross Profit Margin 26.1% Operating Margin 5.7% Total Net Income 0.6 Net Profit Margin 0.3% 184.6 167.4 154.0 166.4 28.4% 21.0% 23.4% 21.9% 9.1% 5.6% 4.2% 2.2% 4.5 6.0 3.0 6.7 2.4% 3.6% 1.9% 4.0% Balance She e t De c-02 Dec-00 Dec-99 Dec-98 Dec-97 Cash 18.6 Net Receivables 141.4 Inventories 10.0 Other Current Assets 23.9 Total Current Assets 193.8 Net Fixed Assets 34.9 Other Noncurrent Assets 95.2 Total Assets 324.0 10.3 10.4 10.9 11.3 100.2 123.1 76.9 66.4 10.9 10.6 12.2 12.1 24.8 19.8 37.4 11.7 146.3 164.0 137.3 101.4 34.0 32.8 37.2 34.6 122.8 77.9 82.9 92.9 303.1 274.7 257.4 228.9 Accounts Payable 26.2 25.7 21.5 20.0 15.8 Short-Term Debt 2.4 2.2 2.0 0.0 0.0 Other Current Liabilities 35.6 35.2 33.9 0.0 0.0 Total Current Liabilities 64.2 63.2 57.4 20.0 15.8 Long-Term Debt 163.9 142.4 129.7 114.2 93.0 Other Noncurrent Liabilities 75.4 66.5 59.6 97.7 98.7 Total Liabilities 304.3 272.9 254.1 242.4 211.4 Preferred Stock Equity 0.0 0.0 0.0 0.0 0.0 Common Stock Equity 19.7 30.2 20.6 15.0 17.5 Total Equity 19.7 30.2 20.6 15.0 17.5 2.008 - Spring 2004 4 Toyota Financials Financial Comparison $ billions Income Statement Mar-02 Mar-02 Mar-00 Mar-99 Mar-98 Revenue 107.4 106.0 119.7 105.8 88.5 Gross Profit Margin Operating Margin Total Net Income 26.5% 7.6% 4.2 24.9% 6.0% 5.4 27.4% 5.5% 4.5 27.8% 5.9% 3.7 27.0% 6.4% 3.4 GM TOYOTA Net Profit Margin 3.9% 5.1% 3.8% 3.5% 3.9% 2001 2000 1999 2001 2000 1999 Balance Sheet Mar-02 Mar-02 Mar-00 Mar-99 Mar-98 Current Ratio 3.02 2.32 2.86 1.21 1.24 1.22 Cash Net Receivables 12.4 29.9 12.2 26.3 14.4 26.2 11.1 21.8 9.3 8.9 Days Receivable 291 198 269 102 91 80 Inventories Other Current Assets 7.2 11.0 7.1 9.8 7.4 11.2 6.3 8.0 5.6 24.6 Asset Turnover 0.57 0.64 0.63 0.76 0.73 0.84 Total Current Assets Net Fixed Assets 60.6 38.3 55.4 36.0 59.2 43.9 47.3 41.2 48.3 34.9 Inventory Turnover 16.90 17.11 14.65 15.04 14.61 17.35 Other Noncurrent Assets 46.0 46.0 51.7 43.0 21.7 Total Assets 144.9 137.4 154.9 131.5 105.0 ROA 0.2% 1.5% 2.2% 2.9% 4.0% 2.9% Accounts Payable Short-Term Debt 10.7 22.4 10.4 17.6 12.2 20.5 10.3 14.8 8.0 11.5 ROE 3.0% 14.8% 29.1% 7.7% 9.5% 7.0% Other Current Liabilities Total Current Liabilities 17.0 50.1 16.8 44.8 15.9 48.6 17.4 42.5 14.6 34.1 Gross Margin 26.1% 28.4% 21.0% 26.5% 24.9% 27.4% Long-Term Debt Other Noncurrent Liabilities 27.9 6.7 24.9 4.6 27.5 6.2 24.9 5.5 21.1 3.5 Operating Margin 5.7% 9.1% 5.6% 7.6% 6.0% 5.5% Total Liabilities 90.4 80.2 89.8 76.2 59.3 Profit Margin 0.3% 2.4% 3.6% 3.9% 5.1% 3.8% Preferred Stock Equity Common Stock Equity Total Equity 0.0 54.5 54.5 0.0 57.1 57.1 0.0 65.1 65.1 0.0 55.2 55.2 0.0 45.6 45.6 2.008 - Spring 2004 5 2.008 - Spring 2004 6 1i 7 • • • • i 8 Time Value of Money • Discount rate: i 9 1 2 3 4 5 6 7 8 n i 10 Mfg Cost Example Peri lPeri lGri iGri i) /3 i )SAE 1045, i l ii2.008 - Sprng 2004 Manufacturing Investment Decision •NPV Payback Period Average Return on Book Internal Rate of Return Profitability Index 2.008 - Sprng 2004 $1 today is worth more than $1 tomorrow Return foregone by investing in the project rather than in other opportunities 2.008 - Sprng 2004 Cash Flow During Product Cycle Cash Flow NPV 2.008 - Sprng 2004 31.73 Total 100.00 Total 8.19 shab e tools and gages, per piece 17.10 shab e tools and gages, per piece 0.26 Inspect 0.26 Inspect 0.53 Deburr 0.53 Deburr 5.93 nd ends perpend cular to pitch diameter 5.93 nd ends perpend cular to pitch diameter 1.92 Harden 1.92 Harden 2.56 Sinter 47.50 Hob teeth 2.37 Compact (100-ton press3.17 Broach keyway Operations: 8.49 Bar chuck, cut off and bore Operations: 9.97 MPIF FC-0208-S (7.0 g cmdens ty 5% scrap 15.10 nc ud ng 2% setup scrap and 46% ch ps Material: Material: Percent of Hobbed Total P/M Gear Percent of Total Hobbed Gear i 11 Elements of Product Cost + = Pri+ i (+ + = = iiniiii25% it 2.008 - Sprng 2004 Direct Material Cost Direct Labor Cost me Cost Over-head Cost Full Product on Cost or Inventory Cost) Full Cost Distribut on Cost General & Adm strative Cost 2.008 - Sprng 2004 Admsales, marketProf15% Selling Price Full cost (cont’d) 26% 12%5% 15% 40% Indirect Labor Plant & machinery, depreciat-ion, energy R&D Engineering n., ng Manufacturing 12 40% Di12% Manufact-uring rect Labor Manufacturing Costs 2• • i 14 a ki i i1 10 100 1 2 103 103 104 105 106 i ) l i ( ) Direct/Indirect vs. Fixed/Variable Traceability: Accountant Volume-dependence: Economist 2.008 - Sprng 2004 Production Cost Relative to Volume One of nd Batch product on Mass product on 1000 10 10Relat ve cost per part ($Re ative Product on Rate parts/timei 13 i 15 iFi ( ) i ) (∗VC 2.008 - Sprng 2004 2.008 - Sprng 2004 Fixed and Variable Cost Volume, n Cost per un t, $ xed Cost FCVar able Cost (VCTotal Cost TC) TC = FC + nHow Man, Machine, and Material Spend Time in the Factory Val -Val -Val -i ls, i ii lookii iing i iti ii ii iWaste u e adde d Waste ue adde d Waste ue adde d People Materials Machines “Waste”: wait ng for materiawatching machne runn ng, produc ng defects, ng for tools, fix ng mach ne breakdowns, produc“Waste”: transportation, storage, nspect on and rework “Waste”: unnecessary movement of machine, setup me, mach ne breakdown, unproduct ve ma ntenance, produc ng defect ve products, i 16 i ii 17 iial and flifi ic i 18 Allocation Bases of Overhead • • • • 2.008 - Sprng 2004 unnecessary tems, etc. produc ng products when not needed, etc. 2.008 - Sprng 2004 Product cost by industry Industry Direct Materials Direct Labor Manufacturing overhead Aerospace 51.7 19.3 29.0 Computers 69.9 7.5 22.5 Electron cs 48.6 15.1 36.3 Industr arm equipment 46.0 12.8 41.2 Meta products 52.0 15.7 32.3 Motor vehicles and parts 63.8