The Second Quarter Quarterly Business Review Assignment
Complete questions after reviewing information.
Review Budget PDF’s to fill out information
Must show that Hisco is on track to Meet/Exceed its Annual Net Income Commitment through an evaluation of both quantitative and qualitative techniques for business analysis and decision making.
Must create specific business tactics to achieve organizational survival and growth.
Remember, you will be receiving feedback on your QBR each quarter. You should review the feedback prior to submitting next quarter’s decisions, as there may be some critical learning that can help your performance in the next quarter.
Answer questions from information provided
1. Key Learnings from Quarter
2.Pre-tax NI Walk: Plan to Actual
3. Cash Flow Work for this Quarter
4. 3 Toughest Decisions Made and Why
5. Competitor Analysis
6. Use of Role Play for Information and Negotiation
7. Is your Original Strategy Working as you Planned?
8.Are we on track to meet Annual Net Income Commitment? Provide explanation
Running Head: BUSINESS 2
Week 2 Assignment
Week 2 Assignment
5 Key Learnings from Quarter
One of the principal elements I learned from this quarter is how to prepare and plan a quarterly budget. Companies must be ready to adapt rapidly to developments to succeed and flourish. Carefully handling cash is essential. Strategic planning is a long-term strategy that determines the organization’s purpose, the long-term priorities, and a strategic plan. The annual strategic plan must be produced to evaluate the organization’s capabilities, limitations, possibilities, and strategies to develop firm goals for the next year (Smith, 2017). Each manager often creates an individual set of priorities and a strategy aligned with the organization’s strategic plan. When the process is underway, budgets are submitted, and budgets checked and accepted at different levels of management —who does what, when. I was able to minimize expenses by adjusting some numbers in the marketing and advertisement sector but somewhat passed the credit cap.
I also learned about expenses, another significant factor. The underlying explanation for risk and ambiguity is due to an inadequate source of information. We don’t know the potential outcomes or the exact probability of alternatives since we don’t know enough about the “system,” which contributes to the outcome of the decision. I was so worried that Mr. Slaone set ($300 000 – $400 000) the annual net income goal for Hisco that when I made my change, I could not see other places, for example, my credit line, impacted. I could finish the year with just over $300,000 with a net gain. My problem is that the debt is already rising and that the net income doesn’t offset this debt. (Harmon, 2019)
Thirdly, I appreciate what the Dashboard is all about. Oft dashboards reflect critical data that must be checked, presented, and evaluated as visual representations. Dashboards give a summary of crucial variances. The Dashboard is also seen on a web page linked to a database that allows a continuous updating of the report. A dashboard for production can, for example, display productivity-related figures, such as the number of parts produced or the number of periodic inspections missed every hour.
Fourthly another element which I learned was about accounts receivables. Some businesses will raise more cash “since they don’t see their financial statements, they don’t know about it. The report on cash flow accounts in a manner that reconciles starting and ending cash flows on cash transactions and cash transfers arising from operations, acquisition, and funding activities over a period. Minimal volumes of cash flow information are available from the balance sheet, revenue statements, and the retained income statement. The comparable balance sheets, for example, reflect the rise in land, plant, and machinery over the year. But they don’t reveal the money for the additions. (Thuis & Stuive, 2019, P. 8)
Finally, I got to comprehend projects. Both organizations are subject to restrictions. Business executives may launch an unlimited number of initiatives to create multiple outcomes. A few top products on a lengthy list of restricted market tools include time, finance, human resources, materials, and expertise—the limits of executive power options in all operating fields, including project selection. The aim should be to choose tasks to the most significant advantage for the organization and make the most effective services. Exactly the definition for each company would be different (Thuis & Stuive, 2019). We are in a better place to pick the right projects with various assessment methods and techniques at our disposal.
Harmon, P. (2019). Managing and measuring a specific business process. Business Process Change, 267-282. https://doi.org/10.1016/b978-0-12-815847-0.00011-x
Smith, R. D. (2017). Evaluating the strategic plan. Strategic Planning for Public Relations, 365-394. https://doi.org/10.4324/9781315270876-14
Thuis, P., & Stuive, R. (2019). Business administration methods and techniques. Business Administration, 385-427. https://doi.org/10.4324/9781003022213-13
Pre-tax NI Walk: Plan to Actual
Observing the chart, (216.1K) dollars was the plan, and (87.2K) dollars was the real. Something I didn’t consider was Hisco’s base expense. Base cost is the cost of the investment to which all proceeds (price) on disposition (sale) are contrasted to assess whether an investment income (yield) or forfeiture has been attained. Base cost refers to the amount of the optional expenses of the expenditures. A discretionary expense includes a capital or cost investment that can be minimized or just avoided in the short term with no immediate impact on a company’s short-term performance. Management can reduce spending costs when cash flow problems occur or if it needs to show improved immediate incomes expressed in financial statements. Study and advancement, selling and advertisement expenses, Lean Sigma six, and house tenancy and services are some of Hisco’s discretionary costs. The costs of the property lease and utilities and additional investments were overstated, which can lead to Hisco surpassing its credit line. (Grit, 2019)
Grit, R. (2019). Arranging your finances. Making a business plan, 76-90. https://doi.org/10.4324/9781003022107-7
Cash Flow Work for this Quarter
Net income was positively influenced by the decision I made regarding the sales. The decision I made was to increase the company’s sales. The effect of this is that the company will get a lot of profits. Sales volumes impact cash flow in two different ways, including the growth effect and its effects on management’s decision to manage it. Sales increase has an impact proportional to the other revenue-generating operations within the company that occur on the financial statement. The cash flow statement is among the investors’ financial statements who rely on it to assess the financial strength of a firm (BONDARENKO, & VERESOTSKYI, 2019). A substantial cash flow places a corporation in a decent situation to grow the company, capitalize on new ventures, and handle investor dividend payouts. The cash flow statement expresses the money receipts and dividends earned from running, spending, and funding operations during the year.
BONDARENKO, O., & VERESOTSKYI, B. (2019). Organization and methods of accounting, the audit of cash funds, and analysis of cash flow at aviation enterprises. Economics. Finances. Law, (12/3), 6-10. https://doi.org/10.37634/efp.2019.12(3).1
3 Toughest Decisions Made and Why
The decision to commence establishing Project 1 was one of the most significant vital choices I had to make this specific quarter. Funding and timing are the reasons why this decision was complicated. Presently, Hisco has a very tight schedule. I wanted to build Project 1 because it can decrease the total development cycles for this project. That means it will take a shorter period for every reader to finish. I would also reduce labor by minimizing time. It would require fewer workers to generate a similar quantity of readers; it would save the company’s work expenses and minimize the labor force. The earlier the project’s initiation, the sooner the business will profit from its progress. When it comes to launching Project 3, timing becomes crucial, expanding the future demand for readers. The intention was to refine the venture before the reader, developing a large market far past the capability of Hisco. (Bridge & Dodds, 2018)
One more tough choice was to minimize the expenses of marketing and advertisement. With an increasingly tight budget, constant business advancement, and future market growth (because of the third project’s development and execution), I decided it was better to lessen some expenses and launch Hisco’s expansion at the earliest time thinkable. It was because the market world is always evolving. The budget reduction for the divisions would have a detrimental effect on potential revenue. Still, cuts have to be made to raise money for R&D, new workers (when the third project begins), and extra checkup lines. The purchase value for each reader may have increased, but I worried that if the reader’s skills were not improved, Hisco’s market share would not develop in the future. I was not comfortable with losing quarter one because I decided to reduce the expense of potential earnings. Instead, to stick under the budget limits, I decreased the advertisement and marketing costs as far as possible (Rajagopal, 2019). Lastly, the other decision that was hard to make depended on only the sales to fund the project. This decision is hard to make as in times of crisis or other constraints, the sales decrease, meaning that there will be no money to fund the project. It can lead to project failure.
Bridge, J., & Dodds, J. C. (2018). The firm and managerial decisions. Managerial Decision Making, 1-23. https://doi.org/10.4324/9781351200479-1
Rajagopal. (, 2019). Marketing research. Contemporary Marketing Strategy, 245-272. https://doi.org/10.1007/978-3-030-11911-9_9
The strength of Redex was production, according to the Welcome E-mail. I agree that the business is starting to concentrate on engineering. Although their power is in engineering, this will affect Hisco. Customers perceive the Redex reader as providing additional expertise. It has resulted in the rise of the corporation’s market share, decreasing the market share of Hisco. As per the Welcome e-mail, the strong point of Matek was marketing. It seems that, at the time of advancing its Lean Sigma Six, the corporation (Matek) did not focus on marketing. It proposes that Matek is seeking to emphasize decreasing manufacturing costs. To a considerable degree, the strengths and vulnerabilities of competitors both identify and restrict their competitive alternatives. When evaluating competitors’ capacities, four vital measurements should be considered: innovative ability, operational power, marketing potential, and financial strength. (Alsem, 2019)
Alsem, K. J. (2019). Competitor analysis. Applied Strategic Marketing, 171-195. https://doi.org/10.4324/9780429823374-9
Use of Role Play for Information and Negotiation
In my opinion, I did not exploit my role-play calls to my satisfaction. Stall Brick was my first call. He presented me with details concerning his engineering competency strategies and the quantities planned by Lean Sigma Six. This information was not of much assistance in the first quarter since I had insufficient money to utilize. I expect to use Mr. Brick’s advice to drive probable capitalizing in the given fields because they play a significant part in the superiority and processing of goods. Because of connection difficulties, I didn’t get through the calls. The reason for reaching out to Charlie Chipmaker (my second call) was to know more about sales since he is much experienced in sales. Lastly, my last call was to Ms. buy it. The essence of my calls in this quarter is that they will impact my choices in the next quarter.
After changing other areas of the budget, I will raise the engineering budget and Lean Sigma Six with all accessible surplus resources. I will try to utilize my role-play calls appropriately upon re-reading organization e-mails and checking all obtainable material. I felt as if my calls for this quarter had been wasted.
Is your Original Strategy Working as you Planned?
The choices that I made in Q1 have, to some extent, helped my first plan. My first approach was to employ the engineering strength of Hisco so that the organization would continue to deliver a premium commodity at a fair price. I think I might have endangered that part of my plan if I reduced promotion expenses and slashed advertising costs. But the project completed should yield revenue generated by Hisco. The way I treated budgeting was some of the restriction. Instead of minimizing them, I believe I would have worked to complete project three as well, position more funds in the promotion and advertisement, and pay attention to the development lease. In this area, I may be overwhelmed. I am looking forward to the next quarter to fix these problems.
Are we on track to meet Annual Net Income Commitment? Provide explanation
Hisco is currently on target to reach its annual net revenue goal, while Quarter 1 was not as profitable as I anticipated. My initial strategy placed Hisco at the end of the year at a total sale of just over $300,000. The underestimation of the first quarter’s expenses was of great concern to me. I had to go over the accounting report to see where I was mistaken. My key issues are underestimating development leasing and energy expenses and the sluggish rise in revenue attributable to my decrease in publicity and advertisement financing. Also, reflecting on Hisco’s vulnerabilities while retaining and using its strengths more efficiently is necessary. It needs to force our workers to sustain and continue to increase its net profits in terms of efficiency and effectiveness
How to Analyze the ‘Pre-Tax Income: Year Plan vs. Actual (or Actual + SRO)’ Chart
This chart tells you what your expected Net Income will be (if you have not completed all four quarters)
or is (if you have completed all four quarters), and what the differences are between the plan and the actual.
Key words to use when analyzing this chart are whether an item is favorable or unfavorable to plan.
In this example, the Planned Net Income – your expected Net Income when you set your original plan
– on a pre-tax basis – was $765k. With a 50% tax rate, your planned after-tax Net Income was about $382k,
which is within the owner’s range of $300k to $400k. Remember that this chart will always show you the pre-tax amount,
so you need to multiply by 50% to get
the post-tax amount.
Because the title of the chart says ‘Actual’ instead of ‘Actual + SRO’, we know that all four quarters have passed, and
these are the final results of the year. Here, our actual Pre-Tax Net Income is $778k. With the 50% tax rate, our actual
after-tax net income is about $389k. We can see this actual number on the Income Statement.
The net difference between the pre-tax net income plan and actual is $12.5k. After tax, that’s $6.25k, which
means the estimate was very close to plan. However, when we break down the categories of variances, we see
some big differences. Green means there was a ‘favorable’ variance to plan (which added to net income),
and red means there was an ‘unfavorable’ variance (which took away from net income).
The first category is ‘Growth’ and the second category is ‘Market Share’. They are related. ‘Growth’ asks, if
you hit your planned market share, what did the total market demand do? In this case, the total market demand grew
more than the plan anticipated, so there was ‘upside’ of over $1mm in pre-tax net income added over the planned NI.
In your explanation in the QBR, you must identify *why* there is a favorable variance based on your analysis.
For example, you might say ‘Growth shows a favorable variance due to the launching of Project 3, which was not
accounted for in the Plan. Total Market Demand grew X% over plan in Q3 due to the launch of the Project.’
‘Market Share’ asks, if Total Market Demand (‘Growth’) was what you expected, how well did you estimate your
Market Share? In this case, we overestimated our market share, so there was $928k less net income than expected
because of that. In your explanation in the QBR, you must identify *why* there is an unfavorable variance
based on your analysis. For example, ‘Market Share is showing an unfavorable variance due to a decrease in Marketing Expense
of $X (Y%), which was necessary due to cash constraints.’
When you net ‘Growth’ and ‘Market Share’, you see that the under-estimation of
Total Market Demand and the over-estimation of the market share result in an addition to pre-tax net income of about
$172k. The net will not always be positive. You must identify *why* there is an unfavorable variance in your explanation
based on your analysis. For example, ‘The net of the volume increase was favorable to Plan by $172k (Z% over Plan),
primarily driven by A, B, and C reasons.’
‘Price’ simply means that there was an increase in unit price over Plan some time during the year.
A price increase adds to Net Income over plan; in this case, there was an additional $616.6k
of pre-tax net income added to the plan estimate due to a price increase. Remember, increasing price
may have a negative effect on the number of units a company sells, so market share may be
negatively impacted due to a price increase. Your explanation should be similar to, ‘Price was increased over Plan by $X
(Y%), resulting in a favorable variance to Plan of $616.6k.’
‘VC(I)’ stands for ‘Variable Costs (Inflation)’. It refers to your estimate of the price you are paying for your raw materials and
labor. Usually, we want the variable costs to be less than, or on target with, the plan. In this example, the price of
the raw materials and labor was exactly as planned. If there had been a negotiation with the raw material supplier,
we would see a green bar in this category, meaning that we had a favorable variance to plan by reducing our variable costs.
Assuming there was a favorable variance, your explanation should be similar to, ‘VC(I) generated a favorable variance to plan
due to negotiations with Mr. A, resulting in a decrease in cost of ABC of X%.’
‘VC(P)’ stands for ‘Variable Costs (Productivity)’. It refers to your estimate of how productive your employees were.
For Hisco, productivity is seen as ‘Processing Time’. Above, there is a red bar, which means that productivity was
unfavorable to Plan, which means we over-estimated the processing time in our Plan. It took longer to make our
readers than planned, which cost us $71k in pre-tax net income. In your explanation, you must identify *why* there is an
unfavorable variance based on your analysis. For example, ‘VC(P) was unfavorable to Plan by $Y (X%) due to the impact of XYZ.’
‘Base Cost’ is the sum of discretionary expenses. Because there are many costs that can contribute to this category,
we would need to do some investigation to find out what specifically caused this large unfavorable variance. In some cases,
there is good reason for this difference, such as funding a project that was not originally planned for. Underestimating
Building Lease and Utilities is a common reason for a large negative variance here. Overall, it means we spent more
in Base Costs than the Year Plan called for. Your explanation should include specific details about which costs impacted the
results, and why. For example, ‘Base Cost shows an unfavorable variance to plan, primarily driven by investment in Project 1
of $X, which was not in the Plan, and additional spending of $Y in Engineering Quality, to improve reader quality.’
‘Interest’ is simply how much interest on our debt we planned on vs how much interest we actually paid.
Here, we have a favorable $2.8k, which means we spent less on interest than planned, which means we took on less
debt than the original planned estimated. This favorable variance added $2.8k – pre-tax – to our net income plan.
Your explanation should include details about the variance. For example, ‘Interest was favorable to plan by $2.8k (X%),
due to less debt being used than Plan.’
In the QBR, you are asked ‘Using the ‘Pre-tax NI Walk: Plan vs. Actual’ chart, explain the key drivers of the
variances that account for the difference in Plan to Actual.’ It is critical that you include data, numbers, and other
measures to give your reader an idea of scope, and to support your explanations. Use of the correct terminology
(favorable or unfavorable to plan) demonstrates comprehension of the impact of the drivers shown in the chart.
The difference between the ‘Actual’ and ‘Actual + SRO’ chart is that while the ‘Actual’ chart shows what has already
happened, the ‘Actual + SRO’ chart (above) shows you what has happened so far, plus what will happen if you
hit all future quarters EXACTLY as planned. Keep in mind that it is virtually impossible to come in exactly on target for all
future quarters. This chart will help you determine what to consider as you make your decisions for future quarters.
For example, if we are looking at the chart after Q2 decisions have been submitted, the ‘Actual + SRO’ includes Q1 Actuals,
Q2 Actuals, Q3 SRO, and Q4 SRO. You will be able to add the Net Income from the Income Statement for all four
quarters of the year and see that it ties to your after-tax Net Income. Here, on the Income Statement, we would see $310.5k.
How To Read the Cash Flow
Follow the Cash…
Cash Flow Walk Chart
• The Cash Flow Walk chart is read differently than the Pre-Tax Net Income
Chart. We are looking at sources and uses of cash on the Cash Flow Walk.
• The Cash Flow Walk shows cash inflows and outflows for the quarter – the
first bar is ‘Beginning of Quarter Cash/Debt’, and the last bar is ‘End of
Quarter Cash / Debt. We are ‘walking’ through the items in the quarter.
• A green bar at either end indicates that you have cash in the bank (look at
‘Cash’ on the Balance Sheet to compare). A red bar at either end indicates
that you are using your Line of Credit (look at ‘Debt’ on the Balance Sheet
• Your goal is to explain *why* an item ‘contributed to’ or ‘used’ cash.
• The Pre-Tax Net Income Chart shows favorable or unfavorable variances to
Plan. Cash Flow walk shows sources and uses of cash: you are reconciling
the sources and uses of cash in the quarter.
Beginning of Quarter Cash / Debt reflects the cash you have in the bank, *or* the amount of debt
you are using via Line of Credit. This number is your starting point for the most recent quarter. In this example, there is
no cash; the company is being funded using debt. In reality, a company can have both cash on the Balance Sheet, and use debt.
Net Income ‘contributes to’ cash flow here because the bar is green. A red bar means you had a net loss in the quarter.
*What are the key drivers behind the Net Income in the quarter?* (This last question relates to the Pre-Tax Net Income walk.)
Since Depreciation is a ‘non-cash expense’ – meaning that you do not ‘pay’ anyone depreciation; it is purely a bookkeeping
entry – we add back depreciation because it is included in the calculation of Net Income. Depreciation contributes
to cash flow. The amount in depreciation is the change in Net PP&E in the quarter (assuming we did not purchase
Change = $12.5k
An increase in Receivables on the Balance Sheet can happen for a few reasons: we had more sales (either from more units
sold or because of a price increase), or we changed our terms to the customer. If Receivables on the Balance Sheet increased,
that means our customer has the cash and we do not, so it is considered a ‘use’ of cash. A decrease of Receivables on the
Balance Sheet would show as a green bar on the Cash Flow walk: it means we have the cash and is a ‘source’ of cash.
The dollar amount on the Cash Flow walk is the difference between the quarters on the Balance Sheet. *You will need to
explain why Receivables was a source or a use of cash.*
Like Receivables, an increase in Inventory (in total) on the Balance Sheet means that the cash is tied up in Inventory,
and we do not have the cash. An increase in Inventory on the Balance Sheet is shown in red, since it is considered
a ‘use’ of cash. A decrease in cash on the Balance Sheet is considered a ‘source’ of cash. *You will need to explain why
inventory was a source or a use of cash.*
Accounts Payable is the opposite of Accounts Receivable. Accounts Payable can increase because we purchased more
Raw Materials, the price changed, or we changed our terms with our supplier. An increase in AP on the Balance Sheet is
a green ‘source’ of cash, as we currently have the cash that we owe our supplier. A decrease in AP means we paid the
supplier, and we no longer have the cash, so it is represented as a ‘use’ of cash, and a red bar. *You will need to explain
why AP was a source or a use of cash.*
The Plant & Equipment bar shows whether the company bought (use of cash – red bar) or sold (source of cash – green bar)
heavy machinery, buildings, or other capital assets. Do not confuse ‘P&E’ with ‘Net P&E’ on the Balance Sheet: Net P&E
includes the depreciation on the P&E.
Common Stock shows the sale (source of cash – green bar) or repurchase (use of cash – red bar) of the stock in the company.
If a bar shows $0, it means that the item neither used nor contributed to cash in that quarter.
Once we start with the beginning balance, and add all the sources and subtract all the uses of cash in the quarter,
we end up with the cash balance at the end of the quarter. You will see the ending balance in Cash (if the bar is green)
or Debt (if the bar is red) on the Balance Sheet. In this example, there was more cash outflow than inflow in the quarter,
so the debt balance at the end of the quarter is higher than the beginning balance. If the inflow was more than the outflow,
the result would show either less debt being used, or cash on the Balance Sheet.
When you are explaining the Cash Flow walk, using data and numbers will help support your explanations. The Cash Flow
Walk section of the QBR (as well as the Pre-Tax Net Income Walk section of the QBR) should contain many numbers in
your explanations. Use $ and % to paint the picture to your audience of what happened in the quarter.