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Confidential and proprietary material for authorized Verizon Wireless personnel only. Use, disclosure or distribution of this material is not permitted to any unauthorized persons or third parties except by written agreement.
Welcome to VZW
BUSINESS ACUMEN®
Acumen Learning, LLC(877) 224-5444
(Terry Tate Video)
Confidential and proprietary material for authorized Verizon Wireless personnel only. Use, disclosure or distribution of this material is not permitted to any unauthorized persons or third parties except by written agreement.
How much do you know about Verizon Wireless’
Key Success Measures?(or Key Performance Indicators (KPIs))
Let’s find out!
Important Question!
Confidential and proprietary material for authorized Verizon Wireless personnel only. Use, disclosure or distribution of this material is not permitted to any unauthorized persons or third parties except by written agreement.
1 - How much Cash was on hand? $______
2 - How much Cash was generated by Operating Activities? $______
3 - What is our Net Income? $______
4 - What is our Gross Margin? ______%
5 - What is our Net Profit Margin? ______%
6 - What is EBITDA as a % of Revenue? ______%
7 - What is VZW’s latest quarter ARPU? $______
8 - What VZW’s latest quarter Data ARPU? $______
9 - What is Return on Assets (ROA)? ______%
10 - How much did Total Operating Revenues grow? ______%
11 - How much did Net Income grow? ______%
Given all the above, how do we stack up to our competition?
For fiscal year: 2010
Its OK to guess!
35
POP QUIZ!
Page 35
Confidential and proprietary material for authorized Verizon Wireless personnel only. Use, disclosure or distribution of this material is not permitted to any unauthorized persons or third parties except by written agreement.
Today's Learning Objectives:
List and describe the 11 key performance measures that are important V W and the Executive Team.
List and describe the 5 business drivers
all successful businesses must focus on.
Create a personal action plan that can positively impact personal performance and company results.
Teach specific components of V W financial statements.
Better articulate company performance & strategy.
Confidential and proprietary material for authorized Verizon Wireless personnel only. Use, disclosure or distribution of this material is not permitted to any unauthorized persons or third parties except by written agreement.
Only 5-10% of business start-ups survive past 5 years.
16% of CEOs lose their job every year. Booz Allen Hamilton 5th annual Study
70% of merger and acquisition activity do not live up to expectation. Wall Street Journal 2007
Business can be tough!
So why do businesses fail?
Confidential and proprietary material for authorized Verizon Wireless personnel only. Use, disclosure or distribution of this material is not permitted to any unauthorized persons or third parties except by written agreement.
Acumen Means?
…the ability to make good business decisions, in a timely manner, with an understanding of how the decision should impact the business.
3
Confidential and proprietary material for authorized Verizon Wireless personnel only. Use, disclosure or distribution of this material is not permitted to any unauthorized persons or third parties except by written agreement.
Confidential and proprietary material for authorized Verizon Wireless personnel only. Use, disclosure or distribution of this material is not permitted to any unauthorized persons or third parties except by written agreement.
Definition: CASH
Cash
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What is required to grow and maintain the business.
Cash:“The bills and coins in the register, petty cash, and cash in the bank. It also includes cash equivalents, like CD’s and other highly liquid investments, that easily convert into cash within 90 days.”
MEASURES
Cash Flow:“Cash generation or “cash flow” is the difference between the cash that flows into the business and the cash that flows out of the business in a given period of time (month, quarter, annual)”
DEFINITION
See Page 58
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(In Millions)
Cash Verizon Wireless
9
Why carry more cash?• Acquisition?• Uncertainty?
Cash
Cash Flow
Partially for the Alltel acquisition: $ 24.0 B assumed debt $ 5.9 B cash $ 29.9 B total (12M Customers!)
(S&P 500 Average Cash: 6%)
Confidential and proprietary material for authorized Verizon Wireless personnel only. Use, disclosure or distribution of this material is not permitted to any unauthorized persons or third parties except by written agreement.
Cash Benchmarks
9
(In Millions)
Cash
Cash Flow
Confidential and proprietary material for authorized Verizon Wireless personnel only. Use, disclosure or distribution of this material is not permitted to any unauthorized persons or third parties except by written agreement.
CASH Review notes on page 9
4. Benchmark the numbers
2008 2009 2010
Cash $9.2 B $607 M $5.3 B
Cash Flow $18.1 B $21.3 B $25.5 B
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1. Define Cash Driver• What is required to grow
and maintain the business.
2. Measures of Cash1. Cash: Easily converted into cash in 90 days or
less.
2. Cash Flow :Difference of cash in and cash out over a given period of time.
3. Importance of Cash Driver• Have sufficient cash to run the business
• What is the cost of that cash (capital)
• Enhance shareholder value
• Improve attractiveness to suppliers and customers.
Confidential and proprietary material for authorized Verizon Wireless personnel only. Use, disclosure or distribution of this material is not permitted to any unauthorized persons or third parties except by written agreement.
Confidential and proprietary material for authorized Verizon Wireless personnel only. Use, disclosure or distribution of this material is not permitted to any unauthorized persons or third parties except by written agreement.
Definition: PROFIT
10
Profit
Profit = Earnings = Income and is the money made after expenses are subtracted from sales.
Gross Profit ($) and Gross Profit Margin (%)Sales (Revenues)
- Cost of Goods Sold (COGS)
EBITDA: Earnings Before Interest, Taxes, Depreciation & Amortization
Sales (Revenues) - Cost of Goods Sold (COGS) - Controllable expenses
Net Profit ($) and Net Profit Margin (%): Sales (Revenues) - all expenses (COGS, Controllables, non-controllables)
MEASURES
DEFINITION
Profit = $ Margin =
% #1 - Increase price
#2 - Lower costs
#3 - Both!
Can be expressed in dollars ($) or percent (%).
Confidential and proprietary material for authorized Verizon Wireless personnel only. Use, disclosure or distribution of this material is not permitted to any unauthorized persons or third parties except by written agreement.
Sales Price: $1.50
Water - .04Label - .11 Bottle & cap - .15 Packaging (Direct Labor) - .20 Total: .50
$1.50 - .50 = $1.00 Gross Profit = 66.7% Gross Profit Margin
Rent - .03Selling, Gen, & Admin. (SG&A or Overhead) - .30Marketing - .08 Shipping - .19 Total: .60
$1.50 - $.50 - $.60 = $.40 EBITDA = 26.7% EBITDA Margin Interest Expense - .04Taxes - .06 Depreciation /Amortization - .02 Total: .12
$1.50 - $.50 - $.60 - $.12 = $.28 Net Profit = 18.6% Net Profit Margin
(Take notes on Page 11)
Life Spring
Artesian Water
Profit ($) / Margin (%)
COGS
Controllables
Non-Controllables
Confidential and proprietary material for authorized Verizon Wireless personnel only. Use, disclosure or distribution of this material is not permitted to any unauthorized persons or third parties except by written agreement.
WHY? They sell commodities.“ I f y o u ’re n o t u n iq u e , y o u b e t te r b e c h e a p ! ”
WHY?
They sell commodities.“If you’re not unique, you better be cheap!”
To drive Profit($) you need either: High Margin (%) or High Volume
High Margin vs. Low Margin(Take notes on Page 11)
30%
32%
21%
3.9%
8.0%
1.7%
High Margins
Low Margins
WHY?
They offer something Unique!
S&P 500 Averages: Net Margin = 11%
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= Gross Profit $44,154 Gross Profit Margin 69.08%
Sales (Revenues) $63,919 100% - Costs of Goods Sold (COGS) - $19,765
2010(in Millions)
= Net Profit $16,676 Net Profit Margin 26.09%
- Interest and Taxes - $1,293
$1.00
Roaming, Cell tower leasing, rent & Maint., rent ($845m)
Hand sets, Head sets, Accessories
Income
Earnings
VZW Gross Profit & Net Profit
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- Selling, General & Adm.(SG&A) - $18,727
= EBITDA $25,427 EBITDA Margin 39.78%
Cost of Goods Sold (COGS) Cost of Service $ 8,342
+ Cost of Equipment $11,423 $19,765
- Depreciation & Amortization - $7,458
Confidential and proprietary material for authorized Verizon Wireless personnel only. Use, disclosure or distribution of this material is not permitted to any unauthorized persons or third parties except by written agreement.
Profit Verizon Wireless
Gross Profit Margin (%) = Total Revenues – COGS (Cost of Goods Sold)
EBITDA (%) = Earnings Before Interest, Taxes, Depreciation, & Amortization: (CONTROLABLES)
Net Profit Margin (%) = Total Revenues – All Expenses
11
(In Millions)
Confidential and proprietary material for authorized Verizon Wireless personnel only. Use, disclosure or distribution of this material is not permitted to any unauthorized persons or third parties except by written agreement.
Profit Benchmarks
11
(In Millions)
Confidential and proprietary material for authorized Verizon Wireless personnel only. Use, disclosure or distribution of this material is not permitted to any unauthorized persons or third parties except by written agreement.
Profit Review notes on page 12
1. Define Profit Driver What is left over after you have subtracted
expenses.
Can be expressed in dollars ($) or as a percent (%).
3. Importance of Profit Driver Net Profit is one of the most important
#’s for the business.
Indicates price strength & cost controls
Identifies ability to manage costs
4. Benchmark the numbers
2008 2009 2010
Gross 68.1% 67.9% 69.08%
EBITDA 39.3% 38.5% 39.85%
Net 26.4% 23.6% 26.09%
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2. Measures of Profit 1. Gross Profit (Margin):
Revenues/Sales - COGS
2. EBITDA:Earnings before Interest, Tax, Depreciation, & Amortization.
3. Net Profit (Margin) – subtract all expenses.
Confidential and proprietary material for authorized Verizon Wireless personnel only. Use, disclosure or distribution of this material is not permitted to any unauthorized persons or third parties except by written agreement.
Confidential and proprietary material for authorized Verizon Wireless personnel only. Use, disclosure or distribution of this material is not permitted to any unauthorized persons or third parties except by written agreement.
Definition: ASSETS
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AssetsWhat we have and how well we use what we have.
• ROA: (Return on Assets)
MEASURES
• ARPU: (Average Revenue Per Unit/User)
• Asset Strength:The ability to remain viable during ups and downs in the marketplace.
DEFINITION
• Data ARPU: – Average Data
• CHURN - % that leave
• Asset Utilization:The ability to efficiently and effectively use assets to generate profits.
Confidential and proprietary material for authorized Verizon Wireless personnel only. Use, disclosure or distribution of this material is not permitted to any unauthorized persons or third parties except by written agreement.
Assets Verizon Wireless
ROA = Net Income = $16,676 = 12.08% Total Assets $138,044
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(In Millions)
Total Assets have increased due to: purchase of 700 MHz spectrum in March 2008, which drives the return on assets % down. Rural Cellular, Alltel etc.
Confidential and proprietary material for authorized Verizon Wireless personnel only. Use, disclosure or distribution of this material is not permitted to any unauthorized persons or third parties except by written agreement.
Assets Benchmarks
13
(In Millions)
USA TodayComScore/Forrester Research March 25, 2011Money: Page 2B
"A smartphone typically uses 24 times as much spectrum capacity as a regular cellphone. Nearly 66 million people own smarphones now, and that's growing fast, research firm ComScore reports. And tablets -- which provide many of the same features of the smartphone but on a much bigger screen -- can use 122 times more spectrum capacity as an ordinary cell phone. More than 82 million people will have a tablet in 2015, up from 10.3 million last year, Forrester Research projects.”
Confidential and proprietary material for authorized Verizon Wireless personnel only. Use, disclosure or distribution of this material is not permitted to any unauthorized persons or third parties except by written agreement.
Asset Review notes on page 14
1. Define Asset Driver
• What we have and
• How well we use what we have.
2. Measures of Asset• ROA – Percent value of total revenue to
total assets.
• ARPU – Average revenue in dollars gained per user/unit.
• Data ARPU
• CHURN
3. Importance of Asset Driver
• Demonstrates ability to work smarter rather than harder.
• Indicates company invests in “right” assets
• Indication of execution & efficiency
4. Benchmark the numbers
2008 2009 2010
ROA 11.46% 10.93%
12.08%
ARPU $51.72 $50.75
$53.52
13
Confidential and proprietary material for authorized Verizon Wireless personnel only. Use, disclosure or distribution of this material is not permitted to any unauthorized persons or third parties except by written agreement.
Confidential and proprietary material for authorized Verizon Wireless personnel only. Use, disclosure or distribution of this material is not permitted to any unauthorized persons or third parties except by written agreement.
Definition: GROWTH
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Growth
The ability to increase year over year, quarter over quarter, and/or month over month.
• Revenue Growth: Top-line Sales (Revenue increase).
MEASURES
• Customer Growth:Increase/decrease in customer base.
• Net Income Growth:Bottom-line (Profit increase).
“In today’s business world, no growth means lagging behind in a world that grows every day…”
“Investors expect it, employees are energized by it, customers are generally attracted to it and executives are measured by it.”
DEFINITION
Confidential and proprietary material for authorized Verizon Wireless personnel only. Use, disclosure or distribution of this material is not permitted to any unauthorized persons or third parties except by written agreement.
Growth Verizon Wireless
15
(In Millions)
Confidential and proprietary material for authorized Verizon Wireless personnel only. Use, disclosure or distribution of this material is not permitted to any unauthorized persons or third parties except by written agreement.
Growth Benchmarks
15
(In Millions)
Merger:Sprint worth $30 B 2007 Lost 29 BNextel worth $45 B 2008 Lost 3 B Total: $75 B Total
Building out/investing in FiOS. On average, customers pay a monthly bill of $135, about twice the average bill for the Verizon customer.
Confidential and proprietary material for authorized Verizon Wireless personnel only. Use, disclosure or distribution of this material is not permitted to any unauthorized persons or third parties except by written agreement.
15
3. Importance of Growth Driver “Investors expect it, employees are energized
by it, customers are generally attracted to it and executives are measured by it.”
Growth Review notes on page 16
4. Benchmark the numbers
2008 2009 2010
Rev Growth 12.4% 25.9% 2.88%
Net Growth 22.8% 10.5% 13.57%
Cust. Growth 12.7% 9.4% 7.6%
1. Define Growth Driver The ability to increase:
year over year quarter over quarter, and/or month over month.
2. Measures of Growth• Revenue Growth:
Top-line Sales or Revenues increase.
• Net Income Growth: Bottom-line or Profit increase.
• Customer Growth:The increase/decrease in the customers.
Confidential and proprietary material for authorized Verizon Wireless personnel only. Use, disclosure or distribution of this material is not permitted to any unauthorized persons or third parties except by written agreement.
Confidential and proprietary material for authorized Verizon Wireless personnel only. Use, disclosure or distribution of this material is not permitted to any unauthorized persons or third parties except by written agreement.
Definition: PEOPLE
People
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Customers that has the ability to impact the success of our business:
External Customers Internal Customers Vendor/Re-sellers
• # of Customers:The total # of individual accounts at end of period.
• Churn: Rate at which current users/units terminate with VZW.
MEASURES
DEFINITION
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People:
17
What is more important than meeting customer expectations?
Exceeding?
“If I would have asked my customer what they wanted, they would have said a faster horse!”
~Henry Ford
Anticipating Customer Needs & Expectations!
Confidential and proprietary material for authorized Verizon Wireless personnel only. Use, disclosure or distribution of this material is not permitted to any unauthorized persons or third parties except by written agreement.
People: (Take Notes on Page 17)
External Customers:1. Have a formal process for listening to your customers2. Anticipating customer needs is critical!
Internal Customers:3. Meet monthly and ask:
#1) Are there any gaps in my performance, and #2) Have my priorities changed?”
Top 2 Reasons Why Companies Fail:
#1 reason: (Too little Cash)#2 reason: Cultural differences.
17
Confidential and proprietary material for authorized Verizon Wireless personnel only. Use, disclosure or distribution of this material is not permitted to any unauthorized persons or third parties except by written agreement.
People Verizon Wireless
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(In Millions)
Confidential and proprietary material for authorized Verizon Wireless personnel only. Use, disclosure or distribution of this material is not permitted to any unauthorized persons or third parties except by written agreement.
People Benchmarks
17
(In Millions)
Confidential and proprietary material for authorized Verizon Wireless personnel only. Use, disclosure or distribution of this material is not permitted to any unauthorized persons or third parties except by written agreement.
People Review
17
1. Define People Driver
The External Customer, Vendor/Re-seller, or Internal Customer that has the ability to impact the success of the business.
4. Benchmark the numbers
2008 2009 2010
# of Cust. 80.00 87.50 94.14
Churn 1.24% 1.44% 1.33%
2. Measures of People# of Customers:Total # of individual accounts at end of period
Churn:Rate at which current users/units terminate
3. Importance of People Driver• Without People, then what happens?• Anticipate and then exceed expectations.• Customer service is for everyone;
o Internal customerso External customerso Vendors customers
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1. What is the basic equation for each statement?
2. What is the purpose of the statement?
3. What are the key numbers and how are they trending?
4. How can you impact each statement?
VZW is a privately held company, therefore the following information and documents are Proprietary & Confidential!
VZW Financial Statements
The Annually Reported Financial Statements• Statement of Income (P&L)• Balance Sheet• Statement of Cash Flows
21
Statement of Income Indicates:Profitability
(SG&A) or Overhead
SG&A:
• Salaries• Advertising • Sales commissions• Call center costs• Benefits/Severance• Rent• Bad debt charges• Merger integration
costs• Professional services: Attorney fees, Accounting
(Revenue = Sales)= Top Line
Interest
Taxes
= EBIT
Equation:Revenues – Expenses = Income
Cost Of Goods SoldCOGS
25
EBITDA
Total Rev: $63,919 Total op. costs: -$45,950 $17,969
Depreciation +$ 7,458
$25,427__________________________________________________________________________
EBITDA MARGIN
$25,427
÷ $63,919
39.78%
Net Profit Margin
Net Income: 16,676
Total Rev.: ÷ 63,919
=26.09%
11% = S&P 500 Ave(Income = Earnings = Profit) = Bottom Line
How do you impact this statement?
Gross Profit ($) 63,919 - 8,342 - 11,423
$44,154
Gross Margin (%) $44,154
÷ 63,919
= 69.08%
32% = S&P 500 Ave
REVIEW Teach 1 QuestionP&L
4.7%
-8.2%
2.88%
8.0%
-6.5%
2.4%
_1.5%_
0.81%
8.57%
-72.3%26.8%
14.6%33.9%
13.57%
25
Variance Analysis2010 vs. 2009
How to calculate growthor
Year over year change
This year ÷ Last year - 1 x 100 =
($63,919 ÷ $62,131) = 1.02877
(1.02877 – 1) x 100 = 2.88%
Becomes Cash < 1 year
Most Liquid
Least Liquid
Due First
Due Last
Due in < 1 year
Balance
Equation:Assets = Liabilities + Equity
Assets = Liabilities + Equity 138,044 = 38,622 + 99,422
Snapshot in time
Indicates:Financial Strength
?
Equity
27
Balance SheetREVIEW Teach 2
Questions
Equity Position: 72%
(99,422 / 138,044)
27
2.75%
-18.46%
14.77%
Variance Analysis2010 vs. 2009
Statement of Cash Flow Equation:Cash In – Cash Out = Net Change in
Cash
Purpose:Cash Management
Most important number! = Cash from core business - Cash to run the business
Started Year Ended Year
Net Change in Cash (+/-)
Spending on investments suggests management is investing in the future.
?
?
29
Cash coming in
Cash going out
+$25,547
-$6,671
-$14,152
+$ 607
$ 5,331
Earn it
Sell Assetsset
Borrow it
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$63,919 - $8,342 - $11,423 = $44,154
$63,919
$16,676 $63,919
$16,676 $138,044
$63,919 $62,131
$16,676 $14,684 13.57 %
$5,331
$25,547
$16,676
69.08
26.09
12.08 %
2.88 %
$63,919$17,969 + $7,458 =$25,427 39.78 %
1
2
3
4
5
6
9
10
$53.52
$20.51
11
7
8
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Chances of the idea being incorporated into their life is... When a Person Says …
*Based on a 1993 Brigham Young University Study
Changing Behavior
“That’s a good idea”… 10%
“I’ll do it!” and commits... 25%
Says when they’ll do it… 40%
Plans how to do it… 50%
Commits to another… 60%
Sets a future specific appointment with the person they committed to...
95%Good Management Technique!
Confidential and proprietary material for authorized Verizon Wireless personnel only. Use, disclosure or distribution of this material is not permitted to any unauthorized persons or third parties except by written agreement. 47
Where to Find Information:
Click On Investor Relations
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One final thought…
“People will work…
hard for a paycheck,
harder for a person, and
hardest for a reason.”
~T. S. Monson
(Multi-national Leader)
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Final Exam!
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