ASSET TURNOVER RATIO

Asset turnover ratio is the ratio of the value of a company’s sales or revenues generated relative to the value of its assets. The Asset Turnover ratio can often be used as an indicator of the efficiency with which a company is deploying its assets in generating revenue.

Asset Turnover = Sales or Revenues / Total Assets

Generally speaking, the higher the asset turnover ratio, the better the company is performing, since higher ratios imply that the company is generating more revenue per dollar of assets. Yet, this ratio can vary widely from one industry to the next. As such, considering the asset turnover ratios of an energy company and a telecommunications company will not make for an accurate comparison. Comparisons are only meaningful when they are made for different companies within the same sector.

BREAKING DOWN ‘Asset Turnover Ratio’

Asset turnover is typically calculated over an annual basis using either the fiscal or calendar year. The total assets number used in the denominator can be calculated by taking the average of assets held by a company at the beginning of the year and at the year’s end.

For example, suppose company X has an asset base of $400 million at the beginning of a given year and $500 million at the end of the same year, and suppose that company X generated $900 million in revenues over the course of that year. The asset turnover ratio for company X is therefore:

$900 million / [($500 million + $400 million) / 2] =
$900 million / [$900 million / 2] =
$900 million / $450 million =              2.00

The asset turnover ratio tends to be higher for companies in certain sectors than in others. Retail, for example, is the sector that most often yields the highest asset turnover ratios, scoring a 2.05 in 2014. Both it and consumer staples have relatively small asset bases but have high sales volume.

Conversely, firms in sectors like utilities and telecommunications, which have large asset bases, will have lower asset turnover. The financial sector, for example, often trails in its asset turnover ratio, scoring a 0.08 in 2014.

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Nvidia STOCK IS VULNERABLE TO A DOWNSIDE BREAKDOWN !

 

After an incredible run to start the year, shares of Nvidia Corp. (NVDA​) have started to cool off and are in the midst of breaking down below multiple trend support lines. It is more than reasonable for the stock to take a breather given its earlier rally, and given the recent relative weakness in the technology sector, an impending breakdown seems likely.

The first sign of a breakdown came on Friday when Nvidia shares broke through a support line from the May gap up that they touched and held two times. Next was this Monday’s closing level, which broke a support trend line from mid-May that the stock previously touched and held three times. Finally, the main momentum indicators are bearish, with the MACD negative and the Average Directional Index pointing to an impending bearish reversal with the -DI level about to cross above the +DI level.

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Target Levels

The first level to watch is $147.50, which represents a 38.2% retracement of the rally from the gap up in May to the peak in June. If shares can hold this level, it would be a sign that the pullback that’s been happening since June has been contained and there is still buying interest in the stock.

The ultimate test will be how Nvidia reacts in the $141 to $142 level. This area is important for many reasons. First, this was the low of the big June 8 sell-off. It is imperative that Nvidia holds this low or else it would have taken out the lower part of the big outside bar reversal on June 8. Doing so would make the stock vulnerable to more downside. Second, this level represents a 50% retracement of the rally from May to June 8. Most stocks that are strong and in bull runs are able to hold this retracement level.

As far as shorting the stock, if 155 is retaken, then Nvidia would have reclaimed both support levels from May and this bearish chart would have been nullified. However, for a downside trade, shorting the stock and using 155 as a stop is a good risk/reward trade. $147.50 would represent the first level to take profits on a short, with 141 being the ultimate target. With quarter-end approaching, watching NVDA can also serve as a sentiment indicator as to see where investors want to position themselves into year-end, and whether they are comfortable holding higher valuation growth names.

 

WHAT IS GDP ?

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The gross domestic product (GDP) is one of the primary indicators used to gauge the health of a country’s economy . It represents the total dollar value of all goods and services produced over a specific time period ; you can think of it as the size of the economy . Usually , GDP is expressed as a comparison to the previous quarter or a year .

for example : if the year-to-year GDP is up 3% , this is thought to mean that the economy has grown by 3% over the last year .

Measuring GDP is complicated which is why we leave it to the economists , but at its most basic , the calculation can be done in one of two ways : either by adding up what everyone earned in a year (INCOME APPROACH) OR by adding up what everyone spent (EXPENDITURE APPROACH) . Logically , both measures should arrive at roughly the same total . 

The income approach which is sometimes referred to as GDP(I) , is calculated by adding up total compensation to employees , gross profits for incorporated and non incorporated firms , and taxes less any subsidies .

The expenditure method is the more common approach and is calculated by adding total consumption , investment , government spending and net exports .

I WANT TO’S

Looking for answers to your business needs? Have a look at what fellow entrepreneurs wanted for their business. I want to’s describe what an entrepreneur tries to achieve with his or her business model innovation. Each I want to is addressed by following two to three steps. In each step you apply a tool to help you solve part of the I want to. This way you will be able to select the right tool, or combination of tools, for your challenge. Going through the steps you get a solution for your I want to. This result can be used as a part of your business model innovation path.

Remember the example of Dutch start-up Zo Dichtbij in the previous post ? They defined a path with six I want to’s to support their business model innovation focusing on I want to start a new business.

Below you find a list of I want to’s that are often found in practice

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By making clear what you want to achieve, you will be able to select the right tool. For each of these I want to’s, a path with steps and tools is available on the http://businessmakeover.eu platform.

BUSINESS MODEL PATHS AND TOOLING

Do you want to improve your profitability?

Or grow your business?

profit

 

This post is about what you want to achieve with your business model innovation and it explains the paths that you can follow to achieve what you want.

In previous post we talked about what business models are, and what makes a good business model. We also touched on smart metrics and measurable outcomes for your business model.

Now we will focus on what you want to achieve with your business model innovation.

Let’s introduce two new useful concepts.

The first concept is I want to.

An I want to describes what an entrepreneur like you typically wants to achieve with Business model innovation.

Four examples that are often found in practice are: I want to start a new business, I want to grow my business, I want to make my business profitable and I want to test my business.

The second concept is about how to achieve such I want to’s.

We call this a business model innovation path, or business model path in short.

It is a sequence of steps that an entrepreneur can take in order to achieve what he or she wants.

The steps are I want to’s themselves like I want to know my customers or I want to develop a viable proposition or I want to test the attractiveness of my offering.

Let’s look at an example.

Dutch start-up company ‘Zo Dichtbij’ in the Netherlands wanted to start a business with a matchmaking platform in elderly care.

What path did they follow?

First it wanted to explore the market for matchmaking platforms in care, before it would develop the BM, and test the attractiveness of the offering .

Next, it wanted to find the right partners and arrangements and wanted to determine which revenue models are viable .

Finally, the start-up wanted to know if its business model is future proof and to make revisions if necessary.

Together these I want to’s form a business model innovation path for ‘I want to Start a new business’.

So what other ‘I want to’s’ are there?

We starting with mentioning four main I want to’s as typical entrepreneur objectives.

However, we found many more from extensive case studies.

To mention a few:

About your customers: know my customers, and reach my customers.

About testing your ideas: test if my business is financially sound and test if my business is future proof.

About improving your business: improve efficiency of my business, and improve my offering.

About exploring: explore new ways of making money, explore (new) markets

Or just stay in business.

As we showed in the case of ‘Zo dichtbij’, these I want to’s can be grouped to form business model innovation paths.

Until now we discussed I want to’s and business paths to achieve your business model innovation objectives.

So how can tooling help you with this?

And which tools should you use?

For each I want to, we guide you to the right combination of tools that will help you to achieve your objective.

We will come back to tools in the assignment.

So how does such a path look like?

For example, If you want to develop a viable business model you could start with a tool to define your value proposition, to map your customer needs and define your product.

Next you could use a tool to define your whole business model.

Finally you could use a tool to compute whether you are making a profit in the end.

Together, these three steps form a path like shown in the picture.

So what paths are used in practice?

One main I want to is make my business more profitable.

Of course many different paths can be followed.

One approach is that you look at how your current business can be made more efficient.

Imagine that you own a retail store and offer many different products from different suppliers that actually have the same functionality and quality.

By reducing the number of products you can reduce storage space, you can decrease the number of suppliers, and intensify the relation with the suppliers you want to work with.

By making your business more efficient the cash flow can be increased and used for innovation.

Of course there are other ways to improve profitability, for example reach new customers, of course with a smart objective, or explore new ways of making money.

So, to summarize: these were the typical I want to’s, business model paths, and tools of entrepreneurs that can help to reach your business model innovation objectives.

 

BUSINESS MODEL METRICS

It is difficult to improve your business model, if you don’t know what you want to achieve.

Do you want happy customers, more profit or leaner operations?

In this post I will explain how clear and precisely defined outcomes help you to focus on your business model innovation.

After this post, you can specify expected outcomes.

These outcomes need to be measurable.

Therefore we talk today about Business Model metrics.

I will give examples of metrics related to different Business Model components.

And in order to achieve clear objectives, I will teach you how to define `metrics’ in a smart way.

Over the years we have learned that forcing people to have clearly defined metrics helps them to focus on their business model innovation.

So what are examples of metrics?

Of course you know the financial indicators.

Like profit, turnover, cash flow, variable and fixed costs and so on.

But there is more!

So lets start again with the core Business Model questions:

What, Who, How, and What is in it?

So the What question concerns the value proposition, the Who question is related to customers. The How question covers technology, and organization aspects. And the What is in it question is related to financial issues.

Now suggested metrics, as you can find at the additional literature page,

are aligned with these Business Model components.

Value propositions are often qualitative in nature, so no metrics here!

Instead you need short descriptions of about seven words that make clear what value is offered.

Think about a slogan in advertisements.

An example of value propositions is for instance McD  .

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They propose to offer Pure, Healthy and Funky Burgers.

While Holland Container International offers foldable containers to save costs and space.

So, value proposition is the exception to the rule:

no quantitative metrics here but qualitative statements only.

The first group of metrics is related to your target group.

What percentage of the potential group of customers do you want to reach?

Or what percentage of customers would you want to reach in a certain region?

Others are for instance ARPU : average revenue per customer per month.

Technical metrics can be for example 24/7 availability of IT systems.

Uptime, the time that a system is available, is another indicator.

System reliability for instance is indicated by the mean time between failures,

while throughput says something about capacity used.

Metrics can also be related to key activities within the organization.

For example the number of people needed with some specific skills,

as for instance expressed in the proportion of marketing employees,

or the number of Big Data experts.

Other examples are a reduction of the number of people temporary hired ,

or a reduction of the number of suppliers.

A classic example is Dell that used to have 200 suppliers but succeeded to bring this number back to 50.

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So now that we know what the objectives of your business model innovation can be,

the next issue is how to make these objectives as measurable as possible.

A common problem is that the objectives of Business Model innovation are vague and broad.

Maybe they’re clear to you, now, but not to your colleague next week.

Therefore, we make use of the SMART reasoning.

What’s SMART?

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SMART stands for Specific, Measurable, Achievable, Realistic and Timely.

To put it simply, SMART helps you to come up with metrics that are precise and testable.

Specific: when describing your objectives, you have to be very focussed and clear, for example:

as a result of the Business Model Innovation we expect to increase our number of local customers.

Measurable: for instance we want customer satisfaction to increase with 10%.

However sometimes you cannot measure concepts directly.

For example, imagine that we state that we want user experience to be fantastic.

That is hard to quantify.

Or is it?

Perhaps you can say you want 10% less complaints per month.

Or 10% happier faces in your shop.

Or we can state that due to the user experience, we want to see an increase of recurring customers with 20%.

Achievable: Nothing is more demotivating than goals you cannot achieve.

Achievable means that your goals are possible to accomplish in a certain period in time.

For instance, if you want to increase sales.

A 10% increase within six months in a new market would be considered achievable.

However in a well-established, mature market this will be almost impossible.

Realistic: Don’t promise something you can’t logically do.

For instance, becoming a market leader, without increasing your amount of sales is impossible.

Imagine that you have a great idea, but you don’t have a working proof of concept yet.

Then you cannot expect that your market penetration will be 100% in the next two years.

The last criterion is time-bound.

Make clear when or over which period you want to achieve your goals:

next quarter, in a year, or two-years?

A timeline indicates the urgency, and it shows if you are on track.

Make your expectations with regard to your Business Model Innovation as explicit and precise as possible.

Making use of SMART metrics will help you.

Enjoy

HOW TO BUILD YOUR BUSINESS MODEL ?

 

We will discuss four main components of any business model.

We do this with four simple questions: Who, What, How and What’s in it?

The first main question is Who?

That means, who are your customers that you create value for?

Maybe there are several groups of customers or segments you want to target.

Imagine you own a pizza delivery company.

Do you deliver pizzas to just everybody?

Or perhaps you offer cheap pizzas to hungry students?

Or healthy pizzas to health freaks?

And related to that, how will you reach those customers?

What are your channels?

Like the Internet for ordering the pizza or a mall where people come for take-out?

The second question is What?

What do we offer our customers?

What is the value proposition?

The value proposition is a bit complicated.

So let’s look at that a bit closer.

What are you offering: a product, service or combination?

If you run a pizza delivery company, then the pizza and the delivery are the offering.

But it’s not just about what you offer.

It’s about what value you create for customers.

What problem of your customer are you solving?

Being hungry?

The value that the pizza delivery company creates is convenience (not having to cook)

and hopefully a tasty meal.

When we combine the offering and the value, we have the value proposition: A tasty and

convenient meal through pizza delivery.

The third question is How?

How do you create, produce and distribute your offering?

You’ll probably need resources like space, machines and technologies.

Think about the pizza delivery company: they need an oven, pizza dough and scooters .

You’ll need human resources – or in case of the pizza company: delivery guys, pizza

bakers, phone operators.

Maybe also a website so people can order pizzas online?

Maybe you control all these resources yourself, or maybe you have to rely on partners.

For example, the pizza company could outsource the website ordering to a company like Food Panda .

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So, the ‘How’ is all about how  you organize production and delivery of value.

The fourth and final question is What’s in it?

In what way will you generate money for your firm?

This is about revenue streams and pricing models.

Like what price to charge for the pizza and whether delivery is free or a separate charge.

But it’s also about costs and resulting profits.

The pizza company has to pay for its resources.

Or pay a part of the revenues to its partners or suppliers .

The bottom line of course, is if enough revenues are made to cover all the costs.

So to summarize: these are the four key questions that define any business model .

And when your answer is different from what you are doing now, you are doing business model innovation.

Apply these four questions to a case: how can the company improve its business model?

Have fun! Be practical to understand with more clarity