Logistics and Shareholder Value Quiz

Logistics and Shareholder Value

• Shareholder value is a critical measure of corporate performance, determined by the net present value of future cash flows.
• Economic Value Added (EVA) is the difference between operating income after taxes and the true cost of capital employed.
• A company can generate a negative EVA if the cost of capital employed is greater than the profit after tax, leading to an erosion of shareholder value.
• Market Value Added (MVA) is a measure of wealth calculated as the net present value of expected future EVAs.
• Logistics performance can impact net operating income and capital efficiency, affecting shareholder value.
• The five drivers of enhanced shareholder value are revenue growth, operating cost reduction, fixed capital efficiency, working capital efficiency, and tax minimization.
• Logistics service can positively impact sales volume and customer retention, enhancing revenue growth.
• Logistics and supply chain management offer potential for significant operating cost reduction due to their impact on a large proportion of business costs.
• Logistics tends to be fixed asset 'intensive', involving considerable investment and potentially depressing return on investment.
• Supply chain strategy and logistics management are linked to working capital requirements, affecting inventory, order fill, invoice accuracy, and cash flow.
• Time compression in the pipeline and reduced order-to-cash cycle times can dramatically reduce working capital requirements.
• Eliminating non-value-adding time in the supply chain can lead to a significant reduction in working capital and inventory turns.

Tax Minimization and Cash Flow in Global Economy

• Location decisions in a global economy impact after-tax free cash flow due to different tax regimes, including corporate taxes, property tax, and excise duty on fuel.
• Supply chain decisions of large global companies significantly affect the total tax bill and shareholder value, as production facilities and distribution centers are dispersed across different countries.
• The value of a business is determined by the net present value of free cash flow occurring from its operations over its lifetime, according to Warren Buffet's view.
• Strategies to enhance shareholder value involve accelerating cash flows, reducing risk, and increasing the long-term value of the business, such as by growing the customer base.
• Integrating logistics management requires appropriate cost information, which has been a challenge for many companies, impacting the total distribution activity and cost accounting systems.
• Total cost analysis involves various cost elements in the complete order processing cycle, with fixed and variable cost components leading to different total costs for specific orders.
• Logistics decisions are usually taken against an existing system, and total cost analysis identifies the change in costs brought about by these decisions.
• The cost of holding inventory includes the cost of capital, comprising the cost of debt and the cost of equity, reflected in the weighted cost of capital.
• Principles of logistics costing include mirroring the materials flow, enabling separate cost and revenue analyses by customer type and market segment, and defining the desired outputs of the logistics system based on missions.
• Missions in the context of logistics and supply chain management are sets of customer service goals achieved by the system within specific product/market contexts, cutting across traditional company lines.
• Defined mission goals involve inputs from various functional areas and activity centers within the firm, contributing to the successful achievement of these goals.
• The complexity of generating appropriate cost information for logistics decisions arises from the background of an existing system, leading to the need to view costs in incremental terms and identify relevant accounting information for decision making.