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
BCG Matrix


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 =
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:
- RMS of Company B:
- RMS of Company C:
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


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


Timeline
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 = where:
- : Cash Flow at time
- : Discount Rate
- : Number of periods
BCG Matrix


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 =
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 =
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 =
Example
Area | Consumption | Numerical Distribution | Value Distribution |
---|---|---|---|
A | 100 | 50% | 10% |
B | 200 | 20% | 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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