Ocado to deliver on stock market?

You’ll have probably seen Ocado vans out and about on your travels as they make their Waitrose deliveries. Like most people you probably also thought that Ocado was part of the John Lewis / Waitrose empire.

Whilst Ocado delivers Waitrose-branded products (as well as other brands) the online service is an independent business. Ocado recently confirmed that it will float on the London Stock Exchange with the aim of raising £200m. Shares will be offered to institutional investors, employees and customers who have spent £300 or more so far this year.

Ocado, which was set up in 2002, has never made a profit but they did recently announce a 30% rise in sales, compared with the previous year, in the 24 weeks to 16 May 2010.
Why might shares in a loss making business be an attractive investment? How will the money raised impact the balance sheet? These are some of the issues explored on our finance training and business simulation programmes.

Selling beer at minus £6 a case

Controversy surrounds the World Cup promotions by some supermarkets, including Tesco and ASDA, to reduce the price of some of their range of beers to less than the amount of duty payable. The Licensed Victuallers Association are quick to point out that pubs and clubs cannot compete when the supermarkets could be losing £6 a case from this offer. The supermarkets can cross-subsidise the cost reductions with many other lines but the options for the licensed trade are much more limited.

This is a bold strategic move, but one which requires a real understanding of the competitive landscape, buying behaviours, and business costs. For a better understanding of the business issues here, have a look at business strategy, business simulations, and business costs. Then decide where you will drink your beer this summer.

The Cost of a Volcano

It is being reported that the affected Airlines have lost about £1.1 billion as a result of the travel chaos and plane free skies as a consequence of the unpronounceable Icelandic volcano. The head of the International Air Transport Association calculates that at the height of the disruption, airlines were losing £260 million a day. Mr Bisignani said that the final bill to the industry included costs of providing accommodation to stranded customers, feeding them and laying on other modes of transport, such as buses to either get people home, or nearer to home.

“We’ve seen a week without revenue but that has not stopped the costs,” he said.
So, how exactly do the costs impact a business? Just how long can a business survive without any income flowing in? These are just some of the questions we explore on our Understanding Business Costs course; follow the link to read more.

Key Performance Indicators (KPIs)

How would you feel about driving a car that had no dashboard?

You could run out of fuel without warning, get caught speeding or even suffer an overheated engine without warning.

A business uses KPIs in the same way motorists rely upon the speedo, fuel gauge and temperature gauge on our vehicles. They help us to monitor performance at a glance and if there is anything we don’t like the look of we can take remedial action.

The KPIs a business uses vary from business to business and from industry to industry; they will change depending upon strategic priorities.

Keeping an eye on Gross and Net (Operating) margins are common KPIs as are those that measure how quickly accounts receivable (debtors) are paying or, how quick we are paying our own creditors (accounts payable). Stock, or inventory, turnover tells us how long our stock sits on the shelves and return on capital ratios measure how hard the capital in the business is working.

In fact KPIs can be used to keep track on many many areas of the business. But, avoid the temptation to keep adding measures - keep track of the indicators that will tell you at a glance how the business is performing. Remember its KEY, not MANY performance indicators - contrast the car dashboard with the array of dials and gauges faced by an airline pilot; sure the pilot needs all that info but fortunately we don't need quite so many data feeds to drive our cars. Check out our Understanding KPIs course to help identify the key measures to help keep your business on track.

Bank shares for sale: at what price?

It has recently been reported that the US government is preparing to sell its 27% stake in Citigroup during 2010. The US Treasury says 7.7 billion shares in the bailed-out bank are to be sold. At Citigroup's opening share price of $4.39 on 29th March 2010, the Treasury's stake is valued just over $33bn, making it $8bn profit, as the shares were acquired for $25bn as part of the $700bn Troubled Asset Relief Program.

A sale of these proportions would mark another stage in the re-building of confidence in the financial markets in general and Wall Street's recovery from recession in particular.

But who will buy these shares? At what price? And what is the effect on the bank's balance sheet? Like any market there is a need for buyers and sellers, both taking a view that the price represents good value.

Our finance courses explore the balance sheet impact of share sales, the ‘risk vs reward’ question asked by investors and why confidence plays a part in share price performance.

Pumping up the costs

The price of oil has hit an 18-month high leading to speculation that UK petrol prices will pass the record levels seen in the summer of 2008. Rising oil prices are likely to hit the wallets of British drivers already suffering from a weaker pound pushing up wholesale petrol costs. Although the Chancellor has phased in the introduction of the “green” duty rise, 1p a litre was added on April 1, with a further 1p rise to come in October.

So if your supplier puts up the cost of your raw materials how easy is it for you to pass this on by way of a price rise to your customers? What would be the impact on your sales and profits if you put up your prices – or even reduced them? How well do you understand margins and their relationship with overall profitability?

These are some of the themes we explore on our finance courses and business simulations. Pay us an on-line visit or call for an informal chat about how we can help your workers make better financially informed decisions.

In administration: what does this mean?

Rail maintenance company Jarvis has called in administrators as the cash dried up and lenders refused to offer the company further credit. With Jarvis’ creditors no longer prepared to offer it the money it needed to continue as a going concern the company said it had no option but to enter administration, and trading in its shares on the London Stock Exchange have been suspended.

Following negotiations with the company's secured lenders, it has today become clear that sufficient support will not be extended to the company to enable it to continue trading as a going concern. As a consequence, the directors now have no option but to take steps... to place the company, and certain of its subsidiaries, into administration."

But how can the support of lenders and creditors be so important to a business that withdrawal of that support leads to insolvency? Cash is, as ever, King – our finance training programmes put this into context and explore these implications.

Share buy-backs: good or bad indicators?

Pepsi have just announced it intends to buy back $15 billion of its own shares over the next 3 years. But why, and what does this say about the wider economic situation?

Share buy-backs generally happen when a company has too much cash and cannot put it to more productive use, and so it returns money to the shareholders, who can gain the same return on a lower level of investment (boosting return on equity and often the share price). This move (and Pepsi is only one of many) is seen by many as a good indicator - that companies no longer feel the need to hoard cash to protect against the downturn.

Others however see this as something more pessimistic, and with long lasting effects. Perhaps companies undertaking buy-backs really cannot see any productive growth opportunities in the short term, and so are returning capital to their shareholders.

These are some of the themes we explore in courses like Financial Analysis and Business Strategy.

Motor manufacturers "strengthen their balance sheets"

At a time of widespread concern in the sector, both BMW and VW have recently announced lower profits, even though there is growth in their domestic market.

Many motor manufacturers are reported to be strengthening their balance sheets during the recession. But what exactly does that mean? There are many things that most companies can do to manage their balance sheets - in essence improving liquidity and reducing the risks associated with external debt finance. Stock management, supply chain management, effective credit controls, balancing fixed and variable costs; all these are ways of improving cash flow, which in turn creates options such as paying down debt, or making wise investments for the future.

Virtually every business can make liquidity and profitability improvements, both in recession and growth years, to build a sustainable business for the future and take advantage of opportunities as they arise. These are some of the themes we explore in programmes such as our business simulation "Apples & Oranges" - which comes in variants for manufacturing, service and retail sectors. Click here for more information.

So what exactly is window dressing

Repo 105 has been making the news recently. Repo 105 is a technique used by the failed Lehman Brothers, under advice from Ernst & Young, to temporarily move some items off its balance sheet which it didn't really want there on key dates - the day in each quarter when its accounts are struck and made available to the world at large.

But repo 105 is just one way of window dressing that has been used to make a company's accounts look better at critical times - often on the one day a year that the accounts are produced. The very next day, we're back to where we were, but few external parties will ever know this - perhaps at least not until it is too late.

Understating what goes into a set of accounts, and the scope for judgement in how certain items - especially assets - are valued, is critical in making sense of financial statements. So in programmes such as Financial Awareness and Financial Analysis, we look beneath the apparent numbers and try to work out just exactly what is going on. Click the links for more details.