Segmentation

Targeting
Brand positioning SWAT

FINANCIAL ANALYSIS

 What are the capital requirements to bring the

extension to market? How will the capital needs be met? Is there sufficient return on investment to warrant the risk? To what extent, if any, will the extension detract or enhance or financial needs of the organization?

Equity vs. Debt capital?

Equity Financing: takes the form of money

obtained from investors in exchange for an ownership share in the business. Such funds may come from friends and family members of the business owner, wealthy "angel" investors, or venture capital firms. The main advantage to equity financing is that the business is not obligated to repay the money. Instead, the investors hope to reclaim their investment out of future profits.

 Debt financing: takes the form of loans that must

be repaid over time, usually with interest. Businesses can borrow money over the short term (less than one year) or long term (more than one year). The main sources of debt financing are banks and government agencies, such as the Small Business Administration (SBA)

Debt to Equity Ratio

Total liabilities / shareholders equity A measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets.

ADVANTAGES OF DEBT COMPARED TO EQUITY

Because the lender does not have a claim to

equity in the business, debt does not dilute the owner's ownership interest in the company A lender is entitled only to repayment of the agreed-upon principal of the loan plus interest, and has no direct claim on future profits of the business.

 Interest on the debt can be deducted on the

company's tax return, lowering the actual cost of the loan to the company The company is not required to send periodic mailings to large numbers of investors, hold periodic meetings of shareholders, and seek the vote of shareholders before taking certain actions

DISADVANTAGES OF DEBT COMPARED TO EQUITY

Unlike equity, debt must at some point be repaid

Interest is a fixed cost which raises the

company's break-even point. High interest costs during difficult financial periods can increase the risk of insolvency. Companies that are too highly leveraged (that have large amounts of debt as compared to equity) often find it difficult to grow because of the high cost of servicing the deb

 Cash flow is required for both principal and

interest payments and must be budgeted for. Debt instruments often contain restrictions on the company's activities, preventing management from pursuing alternative financing options and non-core business opportunities

 The larger a company's debt-equity ratio, the

more risky the company is considered by lenders and investors. The company is usually required to pledge assets of the company to the lender as collateral, and owners of the company are in some cases required to personally guarantee repayment of the loan

RETURN ON INVESTMENT

ROI evaluates an investments potential by

comparing the magnitude and timing of expected gains to the investment costs.

example
You invested $500,000 Your Revenue $700,000
$700,000 - $500,000 = 40% $500,000

BREAK EVEN ANALYSIS

Break-Even Point: Number of units that must be

sold in order to produce a profit of zero (but will recover all associated costs). It is the point at which your product stops costing you money to produce and sell, and starts to generate a profit for your company.

Q = FC / (UP - VC)
Where: Q = Break-even Point, i.e., Units of production (Q), FC = Fixed Costs, VC = Variable Costs per Unit UP = Unit Price

example
A bookshop has fixed costs of $5,000 per week. It

buys books from the publishers at an average cost of $5 each and sells them for an average price of $10 each. How many books does it need to sell to break even? A bicycle shop has fixed costs of $20,000 per month. It buys in bicycles at an average cost of $100 and sells them for an average price of $150. How many bicycles will it need to sell to exactly break-even?