A Simplistic Model Examining Offshoring

Feb 24

A Simplistic Model Examining Offshoring

Many companies choose to offshore their manufacturing and other labor such as call centers.  The reason behind this is simple, foreign labor is cheaper, and this will increase the company’s profit margin. To explore this, let’s take a look at Apple Inc., and make a few assumptions to see the potential impact of offshoring.  Apple was not chosen for any...

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The Leverage of DSO, DPO, DOI, and the CCC

Feb 17

The Leverage of DSO, DPO, DOI, and the CCC

When optimizing a company’s cash conversion cycle (CCC), it is important to understand both the value and the cost in doing so. First the value:  when a company collects it’s receivables earlier (Days Sales Outstanding, DSO), delays its payments (Days Payables Outstanding, DPO ), and/or reduces its inventory (Days of Inventory, DOI), it is maximizing its...

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The Top Line Versus the Bottom Line

Feb 08

The Top Line Versus the Bottom Line

In business, the sales force is considered the revenue center, while all other functional areas within the company are viewed as expense (i.e., cost centers).  This practice is obviously the result of the income statement where sales (revenue) leads at the top, less all other cost centers to obtain the bottom line (profit, or loss).  Because sales pay for the...

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Blog format is changing, and Wiki has been launched.

Jan 26

Blog format is changing, and Wiki has been launched.

I have begun the development of a new wiki site called FinWiki (click link here or access on top menu of this blog), which is short for Finance Wiki.  Once I have mastered the wiki structure, expect to see this wiki become a living textbook of finance theory and analysis.  This wiki will be open to anyone who wishes to contribute, but you will be asked to...

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Cross Rates w/ Compounding Growth

Nov 04

In managerial accounting, we learn that sales is a function of price and volume, and that the growth of both sales and volume are not additive, but rather multiplicative (i.e., geometric).  The product of their growth rates is known as a cross rate, and can be derived by the following formula: Sales = Price × Volume, and Sales Growth =[ ( 1 + Price Growth Rate) × (1...

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