Choosing Your Next Employer How To Spot The Lemons!

Choosing Your Next Employer:
How To Spot The Lemons!
How To Evaluate Companies
BEFORE You Jump!

How To Answer Two Questions

? A Job

You

? Job
#1
You Job
#2
© 2012 by Blue Elephant Consulting / www.BlueElephantConsulting.com

How To Buy & Sell Stocks

Sell Here!

Buy Here!


What You Are Looking For In Your Next
Job

L ong
T erm •
•
Create monopoly-like economics
Allows them to charge more
• Allows them to sell more
C ompetitive • They make more money than competitors

A dvantage


Business Models That You
Want To Work For

Sell A Unique Product Sell A Unique Service Low-cost Buyer & Seller


3 Types Of Financial Statements

Income Statement Balance Sheet Cash Flow Statement

How much money did What does the Tracks the cash that
the company make company own, what flows in and out of the
during a set period of does it owe, and what company
time? is its net worth on the
day that it’s created


Where Can You Go To Get Financial
Information On Companies?


Income Statements Generated
5 Times Per Year

Called the
8Qs Q1: Jan, Feb March

Q2: April, May, June
2011
Q3: July, August, Sept

Q4 Oct, Nov, Dec

Called the
10k


3 Parts To An Income Statement

Revenue Of The Business Firm’s Expenses Profit or Loss


There Are 2 Types Of Companies In
The World You want to work
here…!

Companies that
are struggling to Companies with
get by in the a LTCA
world


We Need Some Examples…


Who Are These Companies?
An electronic product solutions company providing
comprehensive electronics design, manufacturing and
product management services.

Manufactures a wide range of sodas, sports drinks, and
water products. Now also owns much of the bottling and
distribution network that is used to get its products into
stores.

HP provides consumers a wide range of products and
services including digital photography, digital entertainment,
computing, and home printing.


Just Because A Company Makes
Money…

Key Point: Just because a company makes
lots of revenue, does not mean that the
company is making a profit!!!


Let’s Talk About Profit!

Definition: COGS – Cost Of Good Sold
(how much did it cost to make what you are going to sell?)

Def: Gross Profit = Revenue - COGS

Def: Gross Profit Margin = Gross profit
Total Revenue


Gross Profit Margin Indicates A
LTCA

Good LTCE Bad LTCE

61% 14%

51% 20%


The Gross Profit Margin Rule
100%

Gross LTCA
Profit
40%
Margin Competition

20%
Fierce
0% Competition


Remember:
Anybody Can Fake It For A Year…

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Looking for “consistent” financial numbers…


JABIL CIRCUIT Inc.

Gross Profit Margin = Gross Profit Margin = Gross Profit Margin =
1,004,144/13,409,411 = 718,815 / 11,684,538 = 867,801 / 12,779,703 =
7.5% 6.2% 6.8%


Coca-Cola

22,246 / 35,119 = 11,088 / 30,990 = 11,374 / 31,944 =
63% 35.8% 35.6%


HP

29,944 / 126,033 = 27,028 / 114,552 = 28,665 / 118,364 =
23.8% 23.6% 24.2%


10 Years Of Gross Profit Margins


SG&A

Definition: SG&A – Selling, General and Administrative Expenses
(how much did it cost to sell what you made?)

Rule of Thumb:
Companies that don’t have a LTCA will show wild
swings in their (SG&A / Gross Profit) ratio.


SG&A As % Of Gross Profit


R&D: A Good Thing & A Bad Thing
Rule of Thumb:
Companies that have to spend a lot on R&D are in a
competitive industry and won’t keep a LTCA.


Do I Have Your Interest?
• Interest expense is the interest that a company pays
out on the debt that the company is carrying.

• Most companies pay out more interest than they
earn.

• Interest is a “financial cost”, not an “operating cost”.

• Companies with an LTCA have to pay out little
interest expense.
7%
8% 49%

Rules Of Interest
1. The interest expense ratio is very dependent
on the industry that the company is in.

2. The ratio can be an early warning of
problems.

3. In any given industry, the company with the
lowest ratio (interest payments / operating
income) is most likely to have an LTCA.


Interest Expense


Forget Gross, Let’s Talk Net
Earnings
Definition: Net Earnings are what a company keeps after all of the
expenses and taxes have been subtracted from their revenue.

Rule of Thumb:
We are looking for a historical upward trend.


What Is A Good Net Earnings
Ratio?
100%

Net
Earnings /
Total
LTCA
Revenues
20%
???
10%
0%
Competition

Net Earnings


The Balance Sheet

What does the company
own, what does it owe,
and what is its net worth
on the day that it’s
created.

3 Parts To A Balance Sheet

Assets Liabilities Shareholder Equity

Shareholder Equity = Net Worth Of The Business

Shareholder Equity = Assets - Liabilities


Current
Cover Your Assets! Assets

Cash

“Working
Assets”
Accounts
Inventory
Receivable

Listed on balance sheet in terms
of their liquidity

How Much Cash Does the
Company Have?
1. May have lots of cash for two reasons: has a
LTCE (good) or just sold a business (bad).

2. Cash will get a company through temporary
problems.

3. You need to look at the past 7 years of cash:
has it been built up over time?


What You Need To Look For
(Cash)

Rule of Thumb:
1. Cash piling up.
2. Little debt.
3. No sales of new shares or assets.
4. A history of consistent earnings.

= LTCA!!!

Asset Utilization

Company’s Efficiency:

Return On Asset Ratio = Net Earnings
Total Assets


How Well Are Assets Being Used?


Let’s Talk About Debt
Question: How is a company financing its operations:
taking on debt or using equity?

Answer: The Debt / Equity ratio
answers this question.

Caution: Companies with a LTCA may be using their
equity to buy back stock…
38.0%
0.68% 4.35%

Debt To Equity Ratio


Now You Know How To Answer
Two Questions

? A Job

You

? Job
#1
You Job
#2

The End!

- Dr. Jim Anderson
Blue Elephant Consulting
Phone: 813-418-6970, Fax: 866-260-8726
Facebook: http://goo.gl/mXKB
Web: http://www.BlueElephantConsulting.com/
"Unforgettable communication skills that will set your ideas free…"


Like what you heard?
Contact Dr. Anderson
to speak to your
team about how to evaluate
companies better!
Business Communications Skills Coaching & Training:
* Public Speaking * IT Management * Negotiating
* Product Management * IT Leadership

Web: www.BlueElephantConsulting.com
Facebook: http://goo.gl/mXKB
Twitter: drjimanderson

Unforgettable Communication Skills That Will
Set Your Ideas Free™

Choosing Your Next Employer How To Spot The Lemons!

Recommended

Recommended

More Related Content

Viewers also liked

Viewers also liked (9)

Similar to Choosing Your Next Employer How To Spot The Lemons!

Similar to Choosing Your Next Employer How To Spot The Lemons! (20)

Recently uploaded

Recently uploaded (20)

Choosing Your Next Employer How To Spot The Lemons!

Editor's Notes