Interest Coverage Ratio

The interest coverage ratio is a measure of the number of times a company could make the interest payments on its debt with its earnings before interest and taxes, also known as EBIT. The lower the interest coverage ratio, the higher the company's debt burden and the greater the possibility of bankruptcy or default.

Operating Income and Operating Profit

Operating income, or operating profit as it is sometimes called, is the total pre-tax profit a business generated from its operations. It is what is available to the owners before a few other items need to be paid such as preferred stock dividends and income taxes.

Operating Income = Gross Profit – Operating Expenses

Gorss Profit Margin

The gross profit margin is a measurement of a company's manufacturing and distribution efficiency during the production process. The gross profit tells an investor the percentage of revenue / sales left after subtracting the cost of goods sold. A company that boasts a higher gross profit margin than its competitors and industry is more efficient. Investors tend to pay more for businesses that have higher efficiency ratings than their competitors, as these businesses should be able to make a decent profit as long as overhead costs are controlled (overhead refers to rent, utilities, etc.)

Gross Profit Margin : Gross Profit ÷ Total Revenue

Gross Profit

The gross profit is the total revenue subtracted by the cost of generating that revenue. In other words, gross profit is sales minus cost of goods sold. It tells you how much money a business would have made if it didn’t pay any other expenses such as salary, income taxes, office supplies, electricity, water, rent, etc.

Total Revenue - Cost of Goods Sold (COGS) = Gross Profit 

Cost of Revenue, Cost of Sales, Cost of Goods Sold (COGS)

Cost of goods sold (COGS for short) is the expense a company incurred in order to manufacture, create, or sell a product. It includes the purchase price of the raw material as well as the expenses of turning it into a product. Cost of goods sold (COGS) is also known as cost of revenue or cost of sales.

One of the reasons some investors are extremely successful is because they know the exact relationship between profits and cost of goods sold.

Factors of Productivity Improvement

Productivity improvement is the result of a combination of FOUR factors, namely

1. Accumulation of Human Capital
2. Innovation
3. Accumulation of Physical Capital
4. Business environment 

The interaction of above FOUR factors that are related to Productivity Improvement

(1) Accumulation of Human Capital
 Human resources are the key to productivity improvement. Formal education, training and non-formal approach, to optimize the human capital, are essential for Innovation factor.

(2) Innovation
For sustained competitiveness it is important that a nation is innovative. Policy makers at all levels and in all sectors of the economy will have to think out of the box to improve on process, products and market positioning with respect to Productivity Improvement.

(3) Accumulation of Physical Capital
The most obvious and universally accepted factor influencing Productivity is Capital. But it adds value by being combined with other factors.

(4) Business Environment
High rates of public investment in human capital will not pay off unless a nation's microeconomics circumstances create the demand for skills in companies. The company skills and supporting industries are present to make investment efficient and strong competitive pressures and adequate corporate governance provide the needed market discipline. For sound policies at the macroeconomics level to translate into an increasingly productive economy, then parallel microeconomics improvements must take place.

Benefits of Increase in Productiviy

If we are able to increase Productivity in our place of work, that will bring following benefits;
1) a higher standard of living
2) larger supplies of consumer goods and capital goods at lower costs and lower prices
3) higher earning
4) improvements in working and living condition
5) strengthening of the economic foundations on which the well-being of individuals is based.

Difference between Production & Productivity

Production; The art or process of producing things.

Productivity; Efficiency in production

Example
Mega Co.Ltd had 20 Staff and produced 2'000 items in 2008. In 2009, Mega hired 10 more Staff and produced 2'800 items.

Production in 2008 = 2'000 items per year
Production in 2009 = 2'800 items per year
There is an increase in Production of 800 items per year.
Percentage increase in Production = 800/2'000*100= 40%

Productivity in 2008 = 2'000/20 = 100 items per staff per year
Productivity in 2009 = 2'800/30 = 93 items per staff per year
There is a decrease in Productivity of 7 items per staff per year.
Percentage decrease in Productivity = 7/100*100 = 7%

When is an Idea an Opportunity?

An opportunity has the qualities of being
- Attractive (profit making potential)
- Durable ( sustainable over a period of time)
- Timely ( as determined by WOO - Window of Opportunity)and
- Creates or adds value for its buyer/ends user (as product/service)

Chain of Entrepreneurship

Creativity - Thinking New Things

Innovation - Doing New Things

Entrepreneur - Creating Value in Marketplace


New Business Ideas : Make it a habit to keep on the lookout for novel and interesting ideas that others have used successfully. Your idea needs to be original only in its adaptation to the problem you are working on. (Thomas Edison)

Entrepreneurial Process

1. Identify and evaluate the opportunity
2. Develop Business Plan
3. Determine and attract resources required
4. Lead and manage resulting enterprise

Entrepreneurial Traits

- Self confidence
- Passion
- Leadership
- Perseverance & Determination
- Need to achieve Goal-oriented
- Creative & innovative
- High internal locus of control
- Tolerance for risk
- Orientation to the future
- Willingness to learn from failure

Why be an Entrepreneur?

- Provide JOBS !!!
- Vibrant market economies
- Create innovative products
- Use skills/ability
- Control over own life
- Build for the family
- Like the challenge

Who is the Entrepreneur?

The word "entrepreneur" stems from French, means "between-taker" or "go between."

Manages, organizes and assumes risk of business or enterprise

Self-driven creative individual who takes calculated risks

Qualities : High Energy Levels
A cut of mind that sees opportunities where others see problems
"A keen sense of what product or service will be profitable" M M Lee

Open publication - Free publishing - More jafri

Components of a Service Production System (Survuction System)

Service Operation System

The technical core where inputs are processed and service elements are created. The technical core is typically in the back-stage and invisible to customer. The proportion of the overall service operation that is visible to the customers depends on the level of contact.

High contact services involve physical person of the customer. Therefore the visible component of the service operation element tends to be more substantial. Low-contact services usually have most of the service operation backstage and this could be remotely located.

Service Delivery System

Where the final assembly of service elements takes place and service is delivered to customers and this includes the visible part of the service operation system - building, equipment and personnel - possibly other customers.

Other Contact Points

This consist of all points of contact with customer. (e.g. advertising communications, sales calls, billing, market research surveys, etc.)

Why is service encounter a "moment of truth" ?

Service encounter is a "moment of truth". Because the perceived quality is realized at the moment of truth, where the service provider and the service customer confront one another in the area. At the moment they are very much on their own. It is the skill, the motivation, and the tools employed by the firm's representative and the expectations and behaviour of the client which together will create the service delivery process.

Components that Contribute to Customer Expectations

- Desired Service Level: "Wished for" level of service quality that customer believes can and should be delivered.

- Adequate Service Level: Minimum acceptable level of service without dissatisfied.

- Predicted Service Level: Service level that customer believes firm will actually deliver.

- Zone of Tolerance: Range within which customers are willing to accept variations in service delivery.

What a Company can Do to Lower the Perceived Risks Faced by Its Customers

- Free trial (for service with high experience attributes)
- Advertise (helps to visualize)
- Display credentials
- Use evidence management (e.g. furnishing, equipment)
- Offer guarantees
- Encourage visit to service facilities
- Give customers online access to information about order status

What can a company do to "delight" a customer?

1) unexpected high levels of performance
2) arousal (e.g. surprise, excitement)
3) positive affect ( e.g. pleasure, joy, or happiness)

What Customers Normally Do to Reduce the Perceived Risks

- Seeking information from respected personal sources such as family, friends or peers
- Using the internet to compare service offerings and search for independent reviews and ratings
- Relying on a firm that has a good reputation
- Looking for guarantees and warranties
- visiting service facilities or trying aspects of service before purchasing
- Asking knowledgeable employees about competing services

Explain why services tend to be harder to evaluate than goods.

Services are high in Experience Attributes that cannot be evaluated before purchase - must experience to know it. (e.g. vacations, sporting events, medical procedures)

How does a person serach for a solution to his aroused need?

Evoked set: set of possible services or brands that he may consider in the decision process. Evoked set can be derived from past experiences or external sources such as advertising, retail displays. When there is an evoked set, the different alternatives need to be evaluated before a final choice is made.

How does a person become aware of his or her need for something?

- Unconscious minds (e.g. personal identity and aspirations)
- Physical conditions (e.g. chronic back pain)
- External sources (e.g. marketing activities)

THREE-Stage Model of Service Consumption

1) Pre-purchase Stage
- Awareness of Need
- Information Search
- Evaluation of alternatives
- Purchase decision

2) Service Encounter Stage
- Service encounters range from high to low contact
- Understanding the Servuction System
- Theatre as metaphor for service delivery (Role & Script theories)

3) Post-purchase Stage
- Evaluation of service performance
- Future intentions

FOUR Service Focus Strategies

1) Fully Focused: provide a limited range of services to a narrow and specific market segment.

2) Market Focused: concentrates on a narrow market segment, but has a wide range of services.

3) Service Focused: concentrates narrow range of services to fairly broad market.

4) Unfocused: broad markets with wide range of services. Many service providers fall into this category.

Differents between an Important Attribute & a Determinant Attribute

An Important Attribute
- very important for manufacturers and service providers
- not always important for buyers to make final decision

A Determinant Attribute
- may or may not always be on the top of the list of service characteristics
- important for making buying decision

How does a company determine which market segment to target?

Among the market segments, the company selected one to target and defined it on the basis of several variables.

Some market segments provide better sales and profit opportunities than others. But the company must also look at whether they can match or exceed competing offerings directed at the same segment.

Market Segmentation

A market segment is composed as a group of buyers who share common
1) Characteristics
2) Needs
3) Purchasing Behaviour
4) Consumption Pattern

Buyers within the same segments should be as similar as possible.
But between the segments, they should be as dissimilar as possible.

SIX Questions that can Help a Company Refine Its Service Positioning

1) What does our firm currently stand for in the minds of current and potential customers?

2) What customers do we serve now, and which ones would we like to target in future?

3) What is value position for each of our current service products, and what market segment is each one targeted at?

4) How does each of our service products differ from competitors?

5) How will do customers in chosen target segments perceive our service products as meeting their needs?

6) What changes must we make to our offerings to strengthen our competitive position?

FOUR Principles of Effecitve Positioning

1) Company must establish position for firm or product in the minds of target customers

2) Position should provide one simple, consistent message

3) Position must set firm/product apart from competitors

4) Company cannot be all things to all people - must focus its efforts

FOUR Related Aspects of Service Concpet that must be Addressed

1) How the different service components are delivered to customers
2) The nature of the customer's role in those processes
3) How long delivery lasts
4) The recommended level and style of service to be offered

Why Services can be marketed as products?

Services can be marketed as products. A product is a defined and consistent "bundle of output". One bundle of output can be differentiated from another bundle of output. Service product consists of two components, the core product and supplementary service. The core product is based on the core set of benefits and solutions delivered to customers. Supplementary service is a variety of service related activities which surround the core product.

Differences between Goods & Services

Services involve a form of rental, offering benefits without transfer of ownership while goods offer benefits transferring ownership.

Goods are tangible.
Services have either tangible or intangible actions.

All the goods can be inventoried while most service products cannot be.

Goods are easy to visualize and understand while services are difficult to do.

Goods are distributed by physical channels, while services may take place through non-physical channels.

FIVE Broad Types of Service that Offer benefits without the Need for any Physical Ownership

1) Rented goods service
2) Defined space and place rentals
3) Labour and expertise rentals
4) Access to shared physical environment
5) Systems and networks: access and usage

SEVEN Ps Marketing Mix for Services

1) Product Elements
Service products are at the heart of service marketing strategy. Marketing mix begins with creating service concept that offers value.

2) Place and Time
Service distribution can take place through physical and non-physical channels.
Convenience of place & time becomes important determinants of effective service delivery

3) Price & other user outlays
From the firms' perspective, pricing generates income and creates profits
Form the customers' perspective, pricing is the key part of costs to obtain wanted benefits

4) Promotion and Education
Plays 3 vital roles - Provide information and advice
- Persuades the target customers of merit of service product
- Encourage customer to take action at specific time

5) Process
How firm does thing may be as important as what it does

6) Physical Environment
Design services cape and provide tangible evidence of service performance
Create and maintain physical apperances

7) People
Interactions between customers and contact personnel strongly influence customer perceptions of service quality
Other customer can also affect one's satisfaction with a service

SIX Marketing Implications of Renting vs Owning

1) Markets exist for renting durable goods rather than selling them.

2) Renting portions of larger physical entity (e.g. office space, apartment) can form basis for service.

3) Customer more closely engaged with service suppliers.

4) Time plays central role in most services.

5) Customer choice criteria may differ between rentals and outright purchases.

6) Services offer opportunities for resource sharing.

FIVE Powerful Forces Transforming the Service Landscape

1) Government Policies
- Changes in regulation
- New rules to protect customers,employees and environment
- New agreement on trade in service

2) Social Changes
- Rising customer expectation
- Easier access to more information
- Immigration

3) Business Trend
- Push to increase shareholder value
- Emphasis on productivity and cost savings
- Focus on quality and customer satisfaction

4) Advances in IT
- Growth of Internet
- Faster, more powerful software
- Wireless networking

5) Globalization
- Increased international travel
- International merges and alliances
- Foreign competitors invade domestic market

SEVEN Development Categories for New Service

1) Style Changes - the simplest type of innovation, not involve in either process or performance.

2) Service Improvement - the most common type of innovation. They involve small changes in the performance of current products including improvement to either core product or existing supplementary services.

3) Supplementary Service Innovation - adding new facilitating or enhancing service elements to an existing core service, or of an existing supplementary service.

4) Process Line Extension - new way of delivering existing products to offer more convenience and different experience for existing customers or to attract new customers.

5) Product Line Extension - additions to current product lines to serve a broader variety of need to existing customers or to attract new customer with different needs.

6) Major Process Innovation - new process to deliver existing core products in new ways with additional benefits

7) Major Service Innovation - new core products for markets that have not been previously defined.

THREE Service Elements

Core Service Element: the core set of benefits and solution delivered to customers

Facilitating Service Element is either needed for service delivering or help in the use of the core products.

Enhancing Service Element adds extra value for the customer.

THREE factors that Contribute to the Success of a New Service Product

1) Market Synergy:
the new product fit well with the existing image of the firm was better than competitors at meeting customers' known needs and received strong support during and after launch from the firm and its branches. In addition, the firm had a good understanding of its customers' purchase decision behaviour.

2) Organizational factors:
Strong interfunctional cooperation and coordination. Development personnel were fully aware of why they were involved and of the importance of new products.

3) Market Research Factors - detailed and properly designed market research studies were conducted early in the development process. A clear idea of the type of information to be obtained. A good definition of the product concept was developed before undertaking field surveys.

FOUR alternatives to branding a service product

Branded house is used to describe a company which applies its brand name to multiple offerings in often unrelated fields.

Sub-brand is one where the master brand is the main reference point, but the product itself has a distinctive name too.

Endorsed brands where the product brand is the main focus, but the corporate name is still featured.

House of Brands - a lot of brands which are actively promoted under their own brand name, belong to a single brand which we may not hear.