BTFB Module 1

Business Transformation:
Phase 2
Finance Module
Business Transformation Workshop
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Knowledge Training LLC
This courseware may contain trademarks, copyrights and other

intellectual property rights of third parties, including Cisco Systems,
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© 2012 Global Knowledge Training LLC. All rights reserved 12/3/2013 Page 2
Business Transformation:
An Architectural Approach
Opener
 Chat: Please answer

this question using
Chat to all participants.
 Are you in your office

or telecommuting
today?
Where Is Your Office?
Participation Requirements
 Mandatory attendance of every session

 Participate fully as judged by the instructor
 Complete all intersession assignments
 Complete the exercises.
Phase 2 Objectives
After completing this phase of the program, you will be

able to:
 Understand fundamental financial terminology and

concepts
 Read and interpret financial documents
 Understand the basis for evaluating investment
decisions
 Understand how to use financial concepts in the
creation of a business case.
Architecture Practitioner - Core
Components
Architecture Consulting Lifecycle
Framework/Method
Tools/Techniques
Aligning Architecture Consulting Lifecycle
with Curriculum Structure and Skills
Advanced Consulting Skills
Communication Facilitation Conflict Resolution
Gather Build Present Implement

Engage
& Analyse & Validate & Gain & Evolve
Phase 1:
Business Transformation: Finance Module
Phase 3:
Business
Business Transformation : Foundation Architecture Skills
Transformation:
Architectural
Approach
Phase 2:
Phase 4:
Opportunity Business Transformation : Vendor Architecture Solutions
Development
Opportunity Phase 5:
Development
Workshop Business Transformation : Advanced Tools and Techniques
for Business Architects
Aligning Architecture Consulting Lifecycle
with Curriculum Structure and Skills
Advanced Consulting Skills
Communication Facilitation Conflict Resolution
Gather Build Present Implement

Engage
& Analyse & Validate & Gain & Evolve
Phase 1:
Business Transformation: Finance Module
Phase 3:
Business
Business Transformation : Foundation Architecture Skills
Transformation:
Architectural
Approach
Phase 2:
Phase 4:
Opportunity Business Transformation : Vendor Architecture Solutions
Development
Opportunity Phase 5:
Development
Workshop Business Transformation : Advanced Tools and Techniques
for Business Architects
Agenda
Module 1
Introduction
Funding models for business operations
The Income Statement
Module 2
Budget and Forecast

Investment Appraisal
How to use Financial terms in your role
Agenda
Module 3
How to use financial terms in a business case

Create a business case
Unit 1
How to fund a company
Unit 1 Objectives
 Describe how a company funds it’s operations

 Read and interpret financial documents
Company Structures
Business Structure
Limited Company
Listed Company – High Level
The Lifecycle of a Company
Listing
Trade
Sale
Investing in Architecture
Raising Capital
Debt – Loans
FinCo
Wants $3M for 5 Years
Promise to Pay
$3M
plus Interest
Bank
Debt – Syndicated Loans
FinCo
Wants $3M for 5 Years
Promise to Pay
$3M
plus Interest
Bank
Bank Bank Bank
Debt – Bond Issue
Promise to
FinCo
Pay Wants $30M for 10
$30M years
plus interest
PRIMARY Bank
MARKET
Investor Investor Investor Investor
SECONDARY
MARKET
Promise
to Pay Promise
Promise
$10M+ to Pay
to Pay
$10M+ $10M+
Equity – Share Issue
FinCo
Promise to
Share Wants $30M for
ever
Ownership
Investment Bank
PRIMARY Investor
MARKET Investor Investor Investor
SECONDARY
MARKET
FinCo Share FinCo Share FinCo Share

Holding Holding Holding
Listed Company – High Level
Shareholder
Governance
Executive Directors Non Executive Directors
External
Internal Auditors
Auditors
Shareholders
Raising Capital – An overview
FinCo
Directors Sell
Side
Corporate Financial
Governance Investment Regulator
Sovereign
Bank Wealth
Funds
Buy
Owners (Valuation) Side
and Pension
Funds
Lenders
Fund
Managers
Hedge Insurance
Funds Funds
Mutual
Funds
Banks
Shareholder Value
Total Shareholder Return
Dividend 2
Original Share Increase 10

Price
100
Original Share
Price
100
Total Shareholder Return
Dividend 2
Original Share Increase 10

Price
100
Original Share
Price
100
TSR = 12%
TSR Linked to Profits
FinCO
Dividends
Profit (Net Income)

Appreciation
Share Price
Dividends Retained for Investment
Investing in Architecture
WACC and ROCE

FinCo – Return on Capital Employed ROCE
Return on
Capital is
Assets $100m
7%
Equity
$99m
Debt
$1m Profit $7m
FinCo – Return on Capital Employed ROCE
Return on
Capital is
Assets $60m
10%
Equity
$30m
Debt
$30m
Profit $6m
Blended Cost of Equity and Debt - WACC
 Funding form equity

requires the business
Assets $100m
to pay returns and is
typically more
99% expensive than debt
 Debts or loans and
Equity @ 7.5% are typically cheaper
then equity
1%
Debt @ 5%
Blended Cost of Equity and Debt - WACC
1/100 x 5%
+ 99/100 x 7.5%
= 7.48%
Assets $100m
Equity 7.5% Blended Cost

7.5%
Debt 5%
Does ROCE beat WACC?
Other FinCo
ROCE ROCE
10% 7%
WACC WACC
7.5% 7.5%
Improving Returns
Use Assets
Increase Profit
More Effectively
Return on Capital Employed
CapEx Working Capital

Grow Revenue Grow Margins
Efficiency Efficiency
Increase Sales
Inventory Reduce Costs
Volume
Increase Sales
Payable
Prices
Receivables
Value linked to Share Price
Return greater
Growth Value
than WACC
Meet Expectation
Share Price
Increase
The Income Statement
FinCo Income Statement
INCOME STATEMENT NOTES
$ Statement of Operations
REVENUE 20,000,000
- COST OF SALES 1,000,000
= GROSS PROFIT 19,000,000
- MARKETING COSTS 2,500,000
- DEPRECIATION 1,000,000 Cost of using long term assets
- OTHER OPERATING COSTS 6,490,000
= OPERATING PROFIT 9,010,000 Profit after OpEx
- INTEREST 10,000
= PROFIT BEFORE TAX 9,000,000 Cost of borrowing money
- TAX 2,000,000
= NET PROFIT 7,000,000 Left for Shareholders
Note – Current Assets = $100,000,000
Exercise 1-1: Appropriate use of an Architectural Approach
Exercise
Tasks Outcomes
Read FinCo’s Income Statement. Identification of opportunities to
Identify two areas of interest you could be discuss the financial structure of
discuss with the FinCo CFO. FinCo with the CFO.
Discuss with the group Discuss ideas with group.
** Note the CFO informed you WACC is 7.5%
Group Activity: 15 minutes Debrief: 10 minutes
Module Recap
Q and A
Module 1 Outcomes
 Describe how companies fund their operations

 Understand income statements and how to use them to evaluate
your customer

BTFB Module 1

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Business Transformation:

Copyright ©2011 and Distribution Rights Held by Global

This courseware may contain trademarks, copyrights and other

 Chat: Please answer

 Are you in your office

 Mandatory attendance of every session

After completing this phase of the program, you will be

 Understand fundamental financial terminology and

Communication Facilitation Conflict Resolution

Gather Build Present Implement

Communication Facilitation Conflict Resolution

Gather Build Present Implement

Budget and Forecast

How to use financial terms in a business case

 Describe how a company funds it’s operations

FinCo Share FinCo Share FinCo Share

Executive Directors Non Executive Directors

Original Share Increase 10

Original Share Increase 10

Profit (Net Income)

Dividends Retained for Investment

WACC and ROCE

 Funding form equity

Equity 7.5% Blended Cost

CapEx Working Capital

** Note the CFO informed you WACC is 7.5%

Group Activity: 15 minutes Debrief: 10 minutes

 Describe how companies fund their operations

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