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Smart Infrastructure Finance
Published in Karen Wendt, Green and Social Economy Finance, 2021
Peter Adriaens, Antti Tahvanainen, Matthew Dixon
The rationale for a closed-end fund is that the investors do not control how the investment is allocated, the fund management company does. A fund raises its initial equity through the sale of common stock. The amount of equity that belongs to a share of common stock is its net asset value (NAV). As the fund operates, NAV increases with investment gains and decreases with losses. A distinguishing feature of a closed-end fund is the common use of leverage, whereby the fund manager borrows against the invested capital to increase the total amount of investable capital in the fund. The leverage is “cheaper” to acquire than raising more equity from LPs and, hence, an efficient means to increase the size of the fund. The amount of leverage a fund uses is expressed as a percent of total fund assets (e.g., a 25% leverage ratio means that for each $100 of total assets under management, $75 is equity and $25 is debt). The objective is to earn a higher return with this additional invested capital.
Using financial concepts to understand failing construction contractors
Published in Rick Best, Jim Meikle, Describing Construction, 2023
Longer payment terms with suppliers can very effectively improve the amount of profit made by higher tier contractors, not on turnover, but rather on the capital employed (debt plus equity). The ability to generate profit on invested capital is the key concern of investors (shareholders and debt providers). This is not so from the perspective of suppliers of trade credit, whose profitability is in vertical competition with the purchasers of their output, the higher tier firm, to whom they extend trade credit. One of the trade-offs for larger firms becoming so reliant on trade credit is the risk of paying higher prices, because lower tiers are having to fund the additional finance costs of extending trade credit and so may increase prices to compensate for this. While firms who use high levels of trade credit do tend to have lower margins, there is evidence of ‘free lunches’ to be had (BIS 2013). The lower tier 1 profit margin resulting from suppliers increased prices (compensation for waiting longer for payment), has a smaller effect on overall profitability than the benefits of generating higher turnover on capital. A large part of this higher profitability stems from a form of economic rent on the monopoly status of tier 1 contractors on large projects. This limits the extent to which lower tier suppliers can fully ‘price in’ and charge higher tier contractors the costs incurred for extending trade credit by accepting longer payment terms. Smaller firms in lower tiers of supply chains anecdotally are less diverse in their client base, leading to reliance on a few, or even a single, source of demand from higher tiers.
Business Strategy-Driven Lean Enterprise
Published in Paul C. Husby, Jerome Hamilton, Make Your Business a Lean Business, 2017
Paul C. Husby, Jerome Hamilton
Market leading businesses win by focusing on customer value-driven metrics and goals defined from Hoshin Kanri annual operational business plans. Business leaders need to stay close to their customers so they understand the “customer’s voice,” their needs, expectations, and priorities, which must be satisfied to have sustained business success. Use of customer economic value add (EVA) models (Figure 3.9) leads to understanding strategic metric impact on a customer’s EVA. A company’s few vital metrics or key performance indicators (KPIs) must have a “line of sight” to customer value and expectations. This assures a company’s metrics are well enough aligned with those of their customers and are valid predictors of customer satisfaction and value added. EVA measures enterprise financial health. It is based on a financial principle of measuring how much net profit exceeds the total cost of invested capital. Figure 3.9 illustrates a customer EVA model. EVA (far right side of the chart) results from subtracting total cost of capital from net profit. Net profit is derived by subtracting cost of goods sold, sales, general and administrative cost, and taxes from sales revenue. Total cost of invested capital is a result of multiplying the cost of capital percent by total company assets. To the left of net profit and total cost of capital are components that go into their calculation. On the left-hand side of Figure 3.9 are factors that drive EVA sales revenue, cost, and asset components. Suppliers must focus on how to improve the “value add drivers” in Figure 3.9, representing their key customers’ highest priorities. EVA, whether used as an analytical tool or as a discussion framework, will contribute to a deeper understanding of how to drive increasing customer value.
Drivers of productivity change in water companies: an empirical approach for England and Wales
Published in International Journal of Water Resources Development, 2020
María Molinos-Senante, Alexandros Maziotis
The selection of inputs and outputs to estimate TFP growth and its drivers was based on previous studies from England and Wales and other countries (e.g. Berg & Marques, 2011; Romano, Salvati, & Guerrini, 2016; See, 2015). The outputs used in this study reflect only water services: water delivered, in millions of litres per year; and water-connected properties, in thousands (Molinos-Senante et al., 2017a; Saal & Parker, 2006). Three inputs were used: capital, labour, and other costs. Following the approach of Saal and Parker (2001) and Maziotis, Saal, Thanassoulis, and Molinos-Senante (2015), capital is based on the inflation-adjusted modern-equivalent estimates of the replacement cost of net tangible fixed assets. Total capital costs were calculated as the sum of the opportunity cost of invested capital and capital depreciation relative to the modern-equivalent asset values. The opportunity cost of capital was defined as the product of the weighted average cost of capital before tax and the companies’ average regulatory capital value (see Stone & Webster Consultants, 2004, and Maziotis et al., 2015, for details). Labour is represented by the number of full-time employees, from the companies’ annual performance reports. Labour price is the ratio of labour costs to the number of employees. Other inputs are defined as the difference between operating costs and labour costs and were deflated using the Office of National Statistics producer price index for inputs for water collection, treatment and supply (Molinos-Senante & Maziotis, 2018a; Saal & Parker, 2006).
Constructing safety: investigating senior executive long-term incentive plans and safety objectives in the construction sector
Published in Construction Management and Economics, 2018
Vanessa McDermott, Rita Peihua Zhang, Andrew Hopkins, Jan Hayes
Absolute performance indicators: compare an organizations current performance against its own organizational performance in the previous years, reflected as % of growth. Three absolute performance indicators were used, namely:Annualized Earnings per Share (EPS), defined as “Measures of earnings attributed to each equivalent ordinary share over a twelve month period. Calculated by dividing the company’s earnings by the number of shares on issue in accordance with AASB 1027 Earnings per share” (ASX 2016).Annualized Return of Equity (ROE) calculates “… net income returned as a percentage of shareholders equity … measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested” (Investopedia 2017).Return on Invested Capital (ROIC) is a profitability ratio that “measures the return that an investment generates for those who have provided capital, i.e. bondholders and stockholders. ROIC tells us how good a company is at turning capital into profits” (Investinganswers 2016).All three indicators measure absolute profitability (i.e. not relative to a comparator group). Figure 2 shows the EPS growth as an example to illustrate how the vesting conditions of LTIPs are linked to those absolute indicators.
Smart semiconductor manufacturing for pricing, demand planning, capacity portfolio and cost for sustainable supply chain management
Published in International Journal of Logistics Research and Applications, 2022
Chien-Fu Chien, Hsuan-An Kuo, Yun-Siang Lin
For overall judgement and measurements, profitability is the main KPI to judge whether to accept the capital expenditure proposal. It includes three parts, payback, return on invested capital and standard gross margin. The payback period is the KPI to estimate how long it takes. Return on the invested capital is used to sense how well a company is using the assets to generate profits. Return on invested capital can be applied to judge if the investment of facility or equipment is valuable or not. Standard gross margin is the KPI to reflect structure profitability based on the planned target utilisation rate and the related planned cost.