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Introduction

Why?

The main purpose of cost controlling is:

  • to increase profit
  • to increase wealth of investors

For public companies, the main purpose of cost controlling is to increase share/stock value.

How?

  • Incrase revenue (sales)
  • Decrease costs (expenses) => COST CONTROLLING

Product Lifecycle

Product Lifecycle Image Product Lifecycle Image

BCG Matrix

Bost Consulting Group Matrix Image Bost Consulting Group Matrix Image

Components

Relative Market Share

Relative Market share is the ratio of a company's market share to the market share of its largest competitor.

RMS = Companys Market ShareLargest Competitors Market Share\frac{Company's\ Market\ Share}{Largest\ Competitor's\ Market\ Share}

If we have the following companies:

  • Company A: 30% market share
  • Company B: 20% market share
  • Company C: 5% market share

Then, the RMS are the following:

  • RMS of Company A: Company ACompany B=3020=1.5\frac{\text{Company A}}{\text{Company B}} = \frac{30}{20} = 1.5
  • RMS of Company B: Company BCompany A=2030=0.66\frac{\text{Company B}}{\text{Company A}} = \frac{20}{30} = 0.66
  • RMS of Company C: Company CCompany B=520=0.25\frac{\text{Company C}}{\text{Company B}} = \frac{5}{20} = 0.25

Question Mark

  • High growth
  • Low market share
  • High investement: requires investments to sustain growth
  • High Cost: high cost due to the high growth

Stars

  • high market share
  • high market growth
  • high profit
  • high investment

Cash Cows

  • high market share
  • low market growth
  • high profit
  • low investment = no need for investements

Dogs

  • low market share
  • low market growth
  • low profit
  • low investment

Critical Path

Critical Path = BEST Path = QUESTION MARK => STAR => CASH COW

Critical Path Image Critical Path Image

Worst Path

Worst Path = WORST Path = QUESTION MARK => DOG

Cash Flow

Cash Flow is the net amount of cash and cash-equivalents being transferred into and out of a business.

Cash Flow = Discounted Cash Inflow - Cash Outflow

Cash Flow Image Cash Flow Image

Timeline

Timeline Image Timeline Image

Net Present Value (NPV)

Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows over a period of time.

NPV = 0nCfn(1+r)n\sum_{0}^{n} \frac{Cf_n}{(1+r)^n} where:

  • CfnCf_n: Cash Flow at time nn
  • rr: Discount Rate
  • nn: Number of periods

BCG Matrix

Cashflow BCG Image Cashflow BCG Image

Question Mark

Net Present Value is negative because product needed high investement for research and development and needs more investement to sustain growth.

Stars

Net Present Value is positive because product is profitable and needs more investement to sustain growth.

Cash Cows

Net Present Value is positive because product is profitable and doesn't need more investement to sustain growth.

Metrics

Index of Consumption

The Index of Consumption is the ratio at which a product is consumed in a specific geographic area.

Index of Consumption = Consumption in Area AConsumption in Area B\frac{Consumption\ in\ Area\ A}{Consumption\ in\ Area\ B}

Numerical Distribution

The Numerical Distribution is the ratio of the number of outlets that sell a product in a specific geographic area to the total number of outlets in that area.

Numerical Distribution = Number of Outlets Selling Product in Area ATotal Number of Outlets in Area A\frac{Number\ of\ Outlets\ Selling\ Product\ in\ Area\ A}{Total\ Number\ of\ Outlets\ in\ Area\ A}

Value Distribution

The Value Distribution is the ratio of the value of sales of a product in a specific geographic area to the total value of sales in that area.

Value Distribution = Value of Sales of Product in Area ATotal Value of Sales in Area A\frac{Value\ of\ Sales\ of\ Product\ in\ Area\ A}{Total\ Value\ of\ Sales\ in\ Area\ A}

Example

AreaConsumptionNumerical DistributionValue Distribution
A10050%10%
B20020%40%
  • More consumption in Area B (200) than Area A (100)
  • More outlets selling product in Area A (50%) than Area B (20%)
  • More value of sales in Area B (40%) than Area A (10%)
  • Area B is the best area to invest in because it has more consumption, less outlets (less selling costs) and more value of sales.

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