Practical Financial Acumen: Intentional Development JB0 PDF

Practical Financial Acumen: Intentional Development JB0 We all have the opportunity to impact business performance. Reasons for Learning Focus  Informed Decision Making: Enables leaders to make strategic choices that align with the organiza...

Practical Financial Acumen: Intentional Development JB0 We all have the opportunity to impact business performance. Reasons for Learning Focus  Informed Decision Making: Enables leaders to make strategic choices that align with the organization’s financial goals, ensuring resources are allocated effectively for maximum impact.  Increased Accountability: Helps leaders take ownership of their decisions and outcomes, fostering a culture of responsibility and transparency that supports organizational success.  Strategic Alignment: Ensures leaders can connect their roles and team contributions to achieve long range organizational strategy, facilitating better alignment and collaboration. Slide 44 JB0 [@Roark, Jenisa (HNI Workplace Furnishings)] Same with the finance team for this one! Boyd, Jennifer (HNI Workplace F, 2024-11-06T20:01:37.870  Rotation #1: Rotation #3: Understanding Achieving Net Training P&L Revenue & Profitability Profit & Business Impact Agenda Introduction Rotation #2: Lunch Break Rotation #4: Managing Operating Investment Decision Expenses & & Analysis: Profitability Business Case 45 Finance Team Presenting Today Ownership of Workplace Furnishings P&L management. That ownership consists of producing long term (3-year), annual and quarterly revenue & profitability P&L projections, investment decision and analysis, and portfolio management (cash) from our dealers and direct customers. Eric Schroeder Jennifer Jin Ben Carton Andrew Gates VP, Finance Director, Finance Senior Manager, Finance Director, Finance - Operations Workplace Furnishings Workplace Furnishings Workplace Furnishings Workplace Furnishings 46 Finance Passport Revenue & Operating Expenses & Profitability Profitability Net Profit & Investment Decision Business Impact & Analysis 47 P&L Introduction 48 What we will cover in this section P&L Introduction Revenue Overview Expense Overview DCM & HNI P&L Statement Objective: Enhance your ability to interpret, analyze, and influence HNI’s performance by improving your understanding of P&L statements and key financial terminology. 49 What is a P&L Statement? What is a P&L Statement? Profit and Loss statement, also known as the income statement P&L Calculation Revenue – Expenses = Profit/(Loss) Why is the P&L Important? Performance Measurement: It helps assess how well the company is doing financially. Decision-Making: Investors and managers use it to make informed decisions about the business. Trend Analysis: It allows for the comparison of financial performance over different periods. 50 Revenue Overview Total Revenue = Number of Units Sold x Price per Unit 51  What are ways to impact revenue at HNI? Scan QR code to answer 52 Revenue Metrics at HNI Sales is the total income generated from sales of goods or services It is often referred to as the “top line” of List Sales a business, indicating how much money is coming in Sales is recognized when earned (point – Discounts of sale of goods or when service is performed), not when cash is received = Invoice Sales Factors impacting Sales: Market (brand perception, market trend, competition, seasonality) – Programs Economic conditions (inflation, – Other Revenue and Early Pay government funding, customer spending power) Pricing strategy (pricing, promotions, discount) = Net Sales Manufacturing capacity/capabilities 53 Expense Overview Cost Cost Units Units Variable Fixed vs Expense Expense (i.e., Discount, Material, (i.e., Showrooms, Management, Manufacturing Labor, Freight) Sales, HR, Marketing, Finance) 54 What are ways to impact expenses at HNI? Scan QR code to answer 55 DCM Overview Sales – Variable Cost = DCM (Direct Contribution Margin) – Fixed Cost = Profit/(Loss) 56 HNI P&L Statement – 5 Line P&L $ Millions WPF Net Sales $1,500 Gross Profit $600 % of Net Sales 40.0% F&D $165 % of Net Sales 11.0% SG&A $250 % of Net Sales 16.7% EBIT $185 % of Net Sales 12.3% Note: The numbers shown here are for illustrative purposes only and are not based on real data. 57 HNI P&L Statement – 5 Line P&L WPF Net Sales = List – Discount – Programs – Other $ Millions Net Sales $1,500 Revenue and Cash Discount Gross Profit $600 % of Net Sales 40.0% F&D $165 % of Net Sales 11.0% SG&A $250 % of Net Sales 16.7% EBIT $185 % of Net Sales 12.3% Note: The numbers shown here are for illustrative purposes only and are not based on real data. 58 HNI P&L Statement – 5 Line P&L $ Millions WPF Net Sales $1,500 Gross Profit = Net Sales - Cost of Goods Sold Gross Profit $600 % of Net Sales 40.0% Cost of Goods Sold Examples: F&D $165 Materials % of Net Sales 11.0% Manufacturing Labor and Overhead Warranty Expense SG&A $250 % of Net Sales 16.7% Inventory Gain/Loss EBIT $185 % of Net Sales 12.3% Note: The numbers shown here are for illustrative purposes only and are not based on real data. 59 HNI P&L Statement – 5 Line P&L $ Millions WPF Net Sales $1,500 F&D (Freight and Distribution) Fuel 3rd party logistics Gross Profit $600 Distribution centers (labor, equipment, warehouse) % of Net Sales 40.0% SG&A (Selling, General, and Administrative) F&D $165 Labor and Non Labor cost associated with: % of Net Sales 11.0% Executives Sales SG&A $250 Marketing % of Net Sales 16.7% Product Development HR EBIT $185 IT % of Net Sales 12.3% Note: The numbers shown here are for illustrative purposes only and are not based on real data. Finance 60 HNI P&L Statement – 5 Line P&L $ Millions WPF Net Sales $1,500 Gross Profit $600 % of Net Sales 40.0% F&D $165 % of Net Sales 11.0% SG&A $250 % of Net Sales 16.7% EBIT $185 EBIT (Earnings before Interest and Tax) = Gross % of Net Sales 12.3% Profit – F&D – SG&A Note: The numbers shown here are for illustrative purposes only and are not based on real data. 61 HNI P&L Statement – 5 Line P&L $ Millions WPF Net Sales $1,500 (Cost of Goods Sold) Gross Profit $600 % of Net Sales 40.0% F&D $165 % of Net Sales 11.0% SG&A $250 % of Net Sales 16.7% EBIT $185 % of Net Sales 12.3% Note: The numbers shown here are for illustrative purposes only and are not based on real data. 62 Summary The P&L statement is a powerful tool that provides insights into a company's financial health. We all play a part to impact business performance. 63  Breakout Assignments Finance Divide your table in half Breakout Identify which half is Group A and which is Group B Sessions 1 & 2 Write your group number in your workbook Group A – Begin in Clark Group B – Begin in Clemens Take your workbook and a writing utensil! Understanding Revenue & Profitability 65 Revenue Metrics at HNI Sales is the total income generated from sales of goods or services List Sales It is often referred to as the “top line” of a business, indicating how much money is coming in – Discounts Sales is recognized when earned (point of sale of goods or when service is performed), not when cash is received = Invoice Sales Factors impacting sales: Market (consumer preference and competition) – Programs Economic conditions (Covid, natural – Other Revenue and Early Pay disasters) Pricing strategy (pricing, promotions, discount) = Net Sales Manufacturing capacity/capabilities 66 Revenue Metrics at HNI Drivers of Discounts List Sales Size of opportunity Competitive landscape Dealer dynamic – Discounts Product offering = Invoice Sales – Programs – Other Revenue and Early Pay = Net Sales 67 Revenue Metrics at HNI Programs List Sales Tiered payout or rebate to Dealer Principle DSR incentives (i.e., SPIFF, cash) Dealer Investment Funds (DIF; ASI) – Discounts Funding for showroom/literature/design (HON) = Invoice Sales Other Revenue and Early Pay Freight – Programs Service – Other Revenue and Early Pay Parts Discount for early payment = Net Sales 68  Seating Corporation Scenario 000s Current 000s New 000s New Price Units 1,200 Units 600 Units 1,200 Sales $6,600 Sales $3,300 Sales $4,800 Sales/unit $5.50 Sales/unit $5.50 Sales/unit $4.00 Variable Cost $3,000 Variable Cost $1,500 Variable Cost $3,000 Variable cost/unit $2.50 Variable cost/unit $2.50 Variable cost/unit $2.50 DCM $3,600 DCM $1,800 DCM $1,800 DCM/unit $3.00 DCM/unit $3.00 DCM/unit $1.50 % of Net Sale 54.5% % of Net Sale 54.5% % of Net Sale 37.5% Fixed Cost $2,500 Competition Fixed Cost $2,500 Price Drop Fixed Cost $2,500 % of Net Sale 37.9% % of Net Sale 75.8% % of Net Sale 52.1% Profit/(Loss) $1,100 Profit/(Loss) -$700 Profit/(Loss) -$700 % of Net Sale 16.7% % of Net Sale -21.2% % of Net Sale -14.6% 69  Seating Corporation Scenario 000s Current 000s New 000s New Price Units 1,200 Units Units Sales $6,600 Sales Sales Sales/unit $5.50 Sales/unit $5.50 Sales/unit $4.00 Variable Cost $3,000 Variable Cost Variable Cost Variable cost/unit $2.50 Variable cost/unit $2.50 Variable cost/unit $2.50 DCM $3,600 DCM DCM DCM/unit $3.00 DCM/unit $3.00 DCM/unit $1.50 % of Net Sale 54.5% % of Net Sale % of Net Sale Fixed Cost $2,500 Competition Fixed Cost $2,500 Price Drop Fixed Cost $2,500 % of Net Sale 37.9% % of Net Sale 75.8% % of Net Sale 52.1% Profit/(Loss) $1,100 Profit/(Loss) Profit/(Loss) % of Net Sale 16.7% % of Net Sale % of Net Sale 70  As the owner of Seating Corp, what would you consider doing next? Active Perspective HNI | 71 71 Revenue impacts various components of the P&L and helps the business make informed business decisions 72 Managing Operating Expenses & Profitability 73 Recall: HNI P&L Statement – 5 Line P&L - Where in the P&L do we see the positive / negative impact of Operations Productivity? $ Millions WPF Net Sales $1,500 1. Cost of Goods Sold: Labor, Overhead, Materials, Warranty, Inventory Gain/Loss Gross Profit $600 % of Net Sales 40.0% F&D $165 2. Freight & Distribution: Labor to load trailers, shipment of product to end users % of Net Sales 11.0% (drivers, fuel), warehouse costs (actual cost of distribution center space, forklifts, racking, etc.) SG&A $250 % of Net Sales 16.7% EBIT $185 % of Net Sales 12.3% Note: The numbers shown here are for illustrative purposes only and are not based on real data. 74 Cost of Goods Sold (COGS) Primary COGS Labor + Overhead + Materials + Freight & Distribution Secondary COGS 75 Warranty Inventory Operations Productivity Reduced Input Costs Increased Throughput 76  Manufacturing Forecasting Process Labor shortage. Disruptors Natural disaster Impacts to lead Transportation accident. Demand comes in Impacts of damaged affected raw material times, cost and significantly lower than goods and customer supplier. Impacts to production planning. forecast. Impact to satisfaction. lead times and costs. costs. NEW SALES DEMAND LABOR & WAREHOUSE SUPPLY CHAIN PRODUCT Ideal Flow & INVENTORY SCHEDULING & SHIPPING INVESTMENT -Materials -Sales team input -Supplier Capacity -Right Skills on Hand -Storage Capacity Considerations -Labor -Market Data -Lead Times -Managing overtime -Inventory Turnover -Equipment -Trends -Raw Material -Temp Staff Needs -Shipping Schedules -Marketing Initiatives -Historical Sales Availability -Seasonality Critical foundation Balance between Maintain flexibility if Strategic partnerships enabling procurement, Baseline for acquiring materials demand surges or to ensure efficient production planning, establishing operations and minimizing labor availability logistics coordination. and initial forecasting. business plan. excess inventory. changes.  Productivity Overview Strong operational improvement continues in 2024 driven by the factors displayed below Mexico / Investments Mexico maturing, cost reduction driven by taking cost offline in Muscatine Materials Cost savings initiatives & plant-related savings driving year-over-year savings Labor Efficiency Strong efficiency gains driven by operational productivity improvements Significant improvement in WPF cost structure in 2024 vs 2023 driven by focus on driving synergies in our supply chain, consolidation of seating manufacturing in Mexico & labor efficiency improvements across the network 78 Operations Productivity Impact to WF Financials How do I, a non-operations member, impact operations productivity? 79 Lunch 12:00 – 1:00 pm  Breakout Assignments Finance Remember your Group from before lunch or check Breakout your workbook Sessions 3 & 4 Group A – Begin in Clark Group B – Begin in Clemens Take your workbook and a writing utensil! Achieving Net Profit & Business Impact 82  Group Activity Create a P&L statement (5-line P&L format) for an office furniture business with the information provided below. In 2023 Ergo Design Company sold 8,000 Workstations and 12,000 Task Chairs. Furnitropolis factory incurred $25M of expense producing the workstations and Ergoville factory incurred $10M producing Task Chairs. The average selling price of a Workstation is $4,000 and the average selling price of a Task Chair is $1,000. Ergo Design Company spent $2M in marketing expenses and $3M in other SG&A expense to run the company. Ergo Design Company also spent $5M on Freight and Warehouse in 2023. 83 Group Activity In 2023 Ergo Design Company sold 8,000 Workstations and 12,000 Task Chairs. Furnitropolis factory incurred $25M of expense producing the workstations and Ergoville factory incurred $10M producing Task Chairs. The average selling price of a Workstation is $4,000 and the average selling price of a Task Chair is $1,000. Ergo Design Company spent $2M in marketing expenses and $3M in other SG&A expense to run the company. Ergo Design Company also spent $5M on Freight and Warehouse in 2023. Workstations Task Chairs Total $ % of Net Sales $ % of Net Sales $ % of Net Sales Unit x Price/Unit = Net Sales - COGS = Gross Profit F&D N/A N/A N/A N/A Marketing N/A N/A N/A N/A + Other SG&A N/A N/A N/A N/A = Total SG&A N/A N/A N/A N/A EBIT N/A N/A N/A N/A 84 Group Activity Answer In 2023 Ergo Design Company sold 8,000 Workstations and 12,000 Task Chairs. Furnitropolis factory incurred $25M of expense producing the workstations and Ergoville factory incurred $10M producing Task Chairs. The average selling price of a Workstation is $4,000 and the average selling price of a Task Chair is $1,000. Ergo Design Company spent $2M in marketing expenses and $3M in other SG&A expense to run the company. Ergo Design Company also spent $5M on Freight and Warehouse in 2023. Workstations Task Chairs Total $ % of Net Sales $ % of Net Sales $ % of Net Sales Unit 8,000 12,000 20,000 x Price/Unit $4,000 $1,000 $2,200 = Net Sales $32,000,000 100% $12,000,000 100% $44,000,000 100% - COGS $25,000,000 78% $10,000,000 83% $35,000,000 80% = Gross Profit $7,000,000 22% $2,000,000 17% $9,000,000 20% F&D N/A N/A N/A N/A $5,000,000 11% Marketing N/A N/A N/A N/A $2,000,000 5% + Other SG&A N/A N/A N/A N/A $3,000,000 7% = Total SG&A N/A N/A N/A N/A $5,000,000 11% EBIT N/A N/A N/A N/A (1,000,000) -2% 85 Summary The P&L statement is a powerful tool that provides insights into a company's financial health. We all play a part to impact business performance. 86 Investment Decision & Analysis 87 Investment Analysis Investment Ideas Planned LRP – Hoshin activity New Product New product process Equipment Budget Facilities Unplanned Equipment repair Competitive opportunity Regulation change Proposed Investments 88 | HNI Workplace Furnishings 88 Investment Analysis Process Business Case Contributors BUDGET AUDIENCE JUSTIFICATION INVESTMENT RETURN ALTERNATIVES RISKS Budget in Lens of the Tell the Best cost More than Multiple Risk of advance receiver story mentality financials quotes assumptions when possible Delegation Avoid just Quotes or Progressive Scope Risk of not of authority repeating informed ramp changes investing Budgeted prior year estimates ≠ projects approved 89 Investment Analysis Process Business Case Contributors Why do you want to invest in this project? Purpose What is the justification to choose How much will this cost? this project vs. another? Is it capital spend or expense? Are there costs to consider outside of Cost dollars? What impact could estimated variables have on the project? Risk What is the risk if we don’t proceed What is the financial benefit to the with the project? organization by making this investment? Are there benefits to consider outside of Return dollars? Leaders will evaluate your business Decision case and provide feedback on Projects are regularly reviewed to proceeding with the project. assess organizational impact of the project as well as lessons learned. Evaluation This may result in a scope change throughout the project. 90 Investment Analysis Process Business Case Outcomes Purpose Cost Risk Return Deprioritize a Not at this time different project Need more clarity Decision Scope change before deciding Evaluation 91 Business Case Examples Fulton Market IMA Rebuild Solar Panels at 505 Avion Task Chair Investment Investment Investment Investment $26M $4M $1M $4M 12 Year Lease Return Return Return Return $89M 15-Year $1.1M 5-Year Economic ($0.4M) 5-Year $2.2M 3-Year Economic Economic Profit Profit Economic Profit Profit Capacity gain worth 1.5% energy reduction $17M in revenue 17-year payback Reason For Decision Reason For Decision Reason For Decision Reason For Decision Brand value Operational impact Payback length Approved for new Financial return Financial return Alternative investment product opportunity options Canceled due to lack of market acceptance 92 Closing P&L Impact of Investments Revenue Cost SG&A EBIT The best business case is what helps use make the best business decision. Finance Definitions Profit & Loss Statement (P&L): A summary of revenues and expense Direct Contribution Margin (DCM): Primary measure for HNI to over a period of time, typically a month, quarter, or year. Also known as understand how profitable each unit of product is once direct costs are Income Statement. accounted for. This aids in pricing and profitability analysis. Revenue – Expenses = Profit/(Loss) Sales – Variable Cost = DCM Revenue: Total amount of money generated from selling good or Earnings Before Interest & Taxes (EBIT): Profit the company makes services before any costs or expenses are deducted. from regular business operations after deducting operating expenses # of Unit Sold x Price Per Unit = Total Revenue from gross profit. Often used to measure an estimate of cash flow. Gross Profit – Operating Expenses = EBIT Cost of Goods Sold (COGS): Direct costs attributable to the production of goods sold. This includes materials, labor, and manufacturing Freight & Distribution (F&D): Costs we incur to store and transport our overhead. product. List Sales: Total sales amount based on the listed price of goods, before Sales, General & Admin (SG&A): Covers non-manufacturing costs any discounts, allowances, or adjustments. “Full price” such as: marketing, merchandising, sales efforts, and general management. Invoice Sales: Total sales amount as listed on the invoice sent to Gross Profit: Difference between revenue and COGS. It shows the customers, reflects any agreed-upon discounts, promotional pricing, or profit a company makes after deducting the costs of producing the goods other negotiated terms. or services sold. Revenue – COGS = Gross Profit Net Sales: Actual revenue earned from sales after subtracting any discounts and allowances. Practical Financial Acumen: Intentional Development JB0 We all have the opportunity to impact business performance. Reasons for Learning Focus  Informed Decision Making: Enables leaders to make strategic choices that align with the organization’s financial goals, ensuring resources are allocated effectively for maximum impact.  Increased Accountability: Helps leaders take ownership of their decisions and outcomes, fostering a culture of responsibility and transparency that supports organizational success.  Strategic Alignment: Ensures leaders can connect their roles and team contributions to achieve long range organizational strategy, facilitating better alignment and collaboration. Slide 44 JB0 [@Roark, Jenisa (HNI Workplace Furnishings)] Same with the finance team for this one! Boyd, Jennifer (HNI Workplace F, 2024-11-06T20:01:37.870  Rotation #1: Rotation #3: Understanding Achieving Net Training P&L Revenue & Profitability Profit & Business Impact Agenda Introduction Rotation #2: Lunch Break Rotation #4: Managing Operating Investment Decision Expenses & & Analysis: Profitability Business Case 45 Finance Team Presenting Today Ownership of Workplace Furnishings P&L management. That ownership consists of producing long term (3-year), annual and quarterly revenue & profitability P&L projections, investment decision and analysis, and portfolio management (cash) from our dealers and direct customers. Eric Schroeder Jennifer Jin Ben Carton Andrew Gates VP, Finance Director, Finance Senior Manager, Finance Director, Finance - Operations Workplace Furnishings Workplace Furnishings Workplace Furnishings Workplace Furnishings 46 Finance Passport Revenue & Operating Expenses & Profitability Profitability Net Profit & Investment Decision Business Impact & Analysis 47 P&L Introduction 48 What we will cover in this section P&L Introduction Revenue Overview Expense Overview DCM & HNI P&L Statement Objective: Enhance your ability to interpret, analyze, and influence HNI’s performance by improving your understanding of P&L statements and key financial terminology. 49 What is a P&L Statement? What is a P&L Statement? Profit and Loss statement, also known as the income statement P&L Calculation Revenue – Expenses = Profit/(Loss) Why is the P&L Important? Performance Measurement: It helps assess how well the company is doing financially. Decision-Making: Investors and managers use it to make informed decisions about the business. Trend Analysis: It allows for the comparison of financial performance over different periods. 50 Revenue Overview Total Revenue = Number of Units Sold x Price per Unit 51  What are ways to impact revenue at HNI? Scan QR code to answer 52 Revenue Metrics at HNI Sales is the total income generated from sales of goods or services It is often referred to as the “top line” of List Sales a business, indicating how much money is coming in Sales is recognized when earned (point – Discounts of sale of goods or when service is performed), not when cash is received = Invoice Sales Factors impacting Sales: Market (brand perception, market trend, competition, seasonality) – Programs Economic conditions (inflation, – Other Revenue and Early Pay government funding, customer spending power) Pricing strategy (pricing, promotions, discount) = Net Sales Manufacturing capacity/capabilities 53 Expense Overview Cost Cost Units Units Variable Fixed vs Expense Expense (i.e., Discount, Material, (i.e., Showrooms, Management, Manufacturing Labor, Freight) Sales, HR, Marketing, Finance) 54 What are ways to impact expenses at HNI? Scan QR code to answer 55 DCM Overview Sales – Variable Cost = DCM (Direct Contribution Margin) – Fixed Cost = Profit/(Loss) 56 HNI P&L Statement – 5 Line P&L $ Millions WPF Net Sales $1,500 Gross Profit $600 % of Net Sales 40.0% F&D $165 % of Net Sales 11.0% SG&A $250 % of Net Sales 16.7% EBIT $185 % of Net Sales 12.3% Note: The numbers shown here are for illustrative purposes only and are not based on real data. 57 HNI P&L Statement – 5 Line P&L WPF Net Sales = List – Discount – Programs – Other $ Millions Net Sales $1,500 Revenue and Cash Discount Gross Profit $600 % of Net Sales 40.0% F&D $165 % of Net Sales 11.0% SG&A $250 % of Net Sales 16.7% EBIT $185 % of Net Sales 12.3% Note: The numbers shown here are for illustrative purposes only and are not based on real data. 58 HNI P&L Statement – 5 Line P&L $ Millions WPF Net Sales $1,500 Gross Profit = Net Sales - Cost of Goods Sold Gross Profit $600 % of Net Sales 40.0% Cost of Goods Sold Examples: F&D $165 Materials % of Net Sales 11.0% Manufacturing Labor and Overhead Warranty Expense SG&A $250 % of Net Sales 16.7% Inventory Gain/Loss EBIT $185 % of Net Sales 12.3% Note: The numbers shown here are for illustrative purposes only and are not based on real data. 59 HNI P&L Statement – 5 Line P&L $ Millions WPF Net Sales $1,500 F&D (Freight and Distribution) Fuel 3rd party logistics Gross Profit $600 Distribution centers (labor, equipment, warehouse) % of Net Sales 40.0% SG&A (Selling, General, and Administrative) F&D $165 Labor and Non Labor cost associated with: % of Net Sales 11.0% Executives Sales SG&A $250 Marketing % of Net Sales 16.7% Product Development HR EBIT $185 IT % of Net Sales 12.3% Note: The numbers shown here are for illustrative purposes only and are not based on real data. Finance 60 HNI P&L Statement – 5 Line P&L $ Millions WPF Net Sales $1,500 Gross Profit $600 % of Net Sales 40.0% F&D $165 % of Net Sales 11.0% SG&A $250 % of Net Sales 16.7% EBIT $185 EBIT (Earnings before Interest and Tax) = Gross % of Net Sales 12.3% Profit – F&D – SG&A Note: The numbers shown here are for illustrative purposes only and are not based on real data. 61 HNI P&L Statement – 5 Line P&L $ Millions WPF Net Sales $1,500 (Cost of Goods Sold) Gross Profit $600 % of Net Sales 40.0% F&D $165 % of Net Sales 11.0% SG&A $250 % of Net Sales 16.7% EBIT $185 % of Net Sales 12.3% Note: The numbers shown here are for illustrative purposes only and are not based on real data. 62 Summary The P&L statement is a powerful tool that provides insights into a company's financial health. We all play a part to impact business performance. 63  Breakout Assignments Finance Divide your table in half Breakout Identify which half is Group A and which is Group B Sessions 1 & 2 Write your group number in your workbook Group A – Begin in Clark Group B – Begin in Clemens Take your workbook and a writing utensil! Understanding Revenue & Profitability 65 Revenue Metrics at HNI Sales is the total income generated from sales of goods or services List Sales It is often referred to as the “top line” of a business, indicating how much money is coming in – Discounts Sales is recognized when earned (point of sale of goods or when service is performed), not when cash is received = Invoice Sales Factors impacting sales: Market (consumer preference and competition) – Programs Economic conditions (Covid, natural – Other Revenue and Early Pay disasters) Pricing strategy (pricing, promotions, discount) = Net Sales Manufacturing capacity/capabilities 66 Revenue Metrics at HNI Drivers of Discounts List Sales Size of opportunity Competitive landscape Dealer dynamic – Discounts Product offering = Invoice Sales – Programs – Other Revenue and Early Pay = Net Sales 67 Revenue Metrics at HNI Programs List Sales Tiered payout or rebate to Dealer Principle DSR incentives (i.e., SPIFF, cash) Dealer Investment Funds (DIF; ASI) – Discounts Funding for showroom/literature/design (HON) = Invoice Sales Other Revenue and Early Pay Freight – Programs Service – Other Revenue and Early Pay Parts Discount for early payment = Net Sales 68  Seating Corporation Scenario 000s Current 000s New 000s New Price Units 1,200 Units 600 Units 1,200 Sales $6,600 Sales $3,300 Sales $4,800 Sales/unit $5.50 Sales/unit $5.50 Sales/unit $4.00 Variable Cost $3,000 Variable Cost $1,500 Variable Cost $3,000 Variable cost/unit $2.50 Variable cost/unit $2.50 Variable cost/unit $2.50 DCM $3,600 DCM $1,800 DCM $1,800 DCM/unit $3.00 DCM/unit $3.00 DCM/unit $1.50 % of Net Sale 54.5% % of Net Sale 54.5% % of Net Sale 37.5% Fixed Cost $2,500 Competition Fixed Cost $2,500 Price Drop Fixed Cost $2,500 % of Net Sale 37.9% % of Net Sale 75.8% % of Net Sale 52.1% Profit/(Loss) $1,100 Profit/(Loss) -$700 Profit/(Loss) -$700 % of Net Sale 16.7% % of Net Sale -21.2% % of Net Sale -14.6% 69  Seating Corporation Scenario 000s Current 000s New 000s New Price Units 1,200 Units Units Sales $6,600 Sales Sales Sales/unit $5.50 Sales/unit $5.50 Sales/unit $4.00 Variable Cost $3,000 Variable Cost Variable Cost Variable cost/unit $2.50 Variable cost/unit $2.50 Variable cost/unit $2.50 DCM $3,600 DCM DCM DCM/unit $3.00 DCM/unit $3.00 DCM/unit $1.50 % of Net Sale 54.5% % of Net Sale % of Net Sale Fixed Cost $2,500 Competition Fixed Cost $2,500 Price Drop Fixed Cost $2,500 % of Net Sale 37.9% % of Net Sale 75.8% % of Net Sale 52.1% Profit/(Loss) $1,100 Profit/(Loss) Profit/(Loss) % of Net Sale 16.7% % of Net Sale % of Net Sale 70  As the owner of Seating Corp, what would you consider doing next? Active Perspective HNI | 71 71 Revenue impacts various components of the P&L and helps the business make informed business decisions 72 Managing Operating Expenses & Profitability 73 Recall: HNI P&L Statement – 5 Line P&L - Where in the P&L do we see the positive / negative impact of Operations Productivity? $ Millions WPF Net Sales $1,500 1. Cost of Goods Sold: Labor, Overhead, Materials, Warranty, Inventory Gain/Loss Gross Profit $600 % of Net Sales 40.0% F&D $165 2. Freight & Distribution: Labor to load trailers, shipment of product to end users % of Net Sales 11.0% (drivers, fuel), warehouse costs (actual cost of distribution center space, forklifts, racking, etc.) SG&A $250 % of Net Sales 16.7% EBIT $185 % of Net Sales 12.3% Note: The numbers shown here are for illustrative purposes only and are not based on real data. 74 Cost of Goods Sold (COGS) Primary COGS Labor + Overhead + Materials + Freight & Distribution Secondary COGS 75 Warranty Inventory Operations Productivity Reduced Input Costs Increased Throughput 76  Manufacturing Forecasting Process Labor shortage. Disruptors Natural disaster Impacts to lead Transportation accident. Demand comes in Impacts of damaged affected raw material times, cost and significantly lower than goods and customer supplier. Impacts to production planning. forecast. Impact to satisfaction. lead times and costs. costs. NEW SALES DEMAND LABOR & WAREHOUSE SUPPLY CHAIN PRODUCT Ideal Flow & INVENTORY SCHEDULING & SHIPPING INVESTMENT -Materials -Sales team input -Supplier Capacity -Right Skills on Hand -Storage Capacity Considerations -Labor -Market Data -Lead Times -Managing overtime -Inventory Turnover -Equipment -Trends -Raw Material -Temp Staff Needs -Shipping Schedules -Marketing Initiatives -Historical Sales Availability -Seasonality Critical foundation Balance between Maintain flexibility if Strategic partnerships enabling procurement, Baseline for acquiring materials demand surges or to ensure efficient production planning, establishing operations and minimizing labor availability logistics coordination. and initial forecasting. business plan. excess inventory. changes.  Productivity Overview Strong operational improvement continues in 2024 driven by the factors displayed below Mexico / Investments Mexico maturing, cost reduction driven by taking cost offline in Muscatine Materials Cost savings initiatives & plant-related savings driving year-over-year savings Labor Efficiency Strong efficiency gains driven by operational productivity improvements Significant improvement in WPF cost structure in 2024 vs 2023 driven by focus on driving synergies in our supply chain, consolidation of seating manufacturing in Mexico & labor efficiency improvements across the network 78 Operations Productivity Impact to WF Financials How do I, a non-operations member, impact operations productivity? 79 Lunch 12:00 – 1:00 pm  Breakout Assignments Finance Remember your Group from before lunch or check Breakout your workbook Sessions 3 & 4 Group A – Begin in Clark Group B – Begin in Clemens Take your workbook and a writing utensil! Achieving Net Profit & Business Impact 82  Group Activity Create a P&L statement (5-line P&L format) for an office furniture business with the information provided below. In 2023 Ergo Design Company sold 8,000 Workstations and 12,000 Task Chairs. Furnitropolis factory incurred $25M of expense producing the workstations and Ergoville factory incurred $10M producing Task Chairs. The average selling price of a Workstation is $4,000 and the average selling price of a Task Chair is $1,000. Ergo Design Company spent $2M in marketing expenses and $3M in other SG&A expense to run the company. Ergo Design Company also spent $5M on Freight and Warehouse in 2023. 83 Group Activity In 2023 Ergo Design Company sold 8,000 Workstations and 12,000 Task Chairs. Furnitropolis factory incurred $25M of expense producing the workstations and Ergoville factory incurred $10M producing Task Chairs. The average selling price of a Workstation is $4,000 and the average selling price of a Task Chair is $1,000. Ergo Design Company spent $2M in marketing expenses and $3M in other SG&A expense to run the company. Ergo Design Company also spent $5M on Freight and Warehouse in 2023. Workstations Task Chairs Total $ % of Net Sales $ % of Net Sales $ % of Net Sales Unit x Price/Unit = Net Sales - COGS = Gross Profit F&D N/A N/A N/A N/A Marketing N/A N/A N/A N/A + Other SG&A N/A N/A N/A N/A = Total SG&A N/A N/A N/A N/A EBIT N/A N/A N/A N/A 84 Group Activity Answer In 2023 Ergo Design Company sold 8,000 Workstations and 12,000 Task Chairs. Furnitropolis factory incurred $25M of expense producing the workstations and Ergoville factory incurred $10M producing Task Chairs. The average selling price of a Workstation is $4,000 and the average selling price of a Task Chair is $1,000. Ergo Design Company spent $2M in marketing expenses and $3M in other SG&A expense to run the company. Ergo Design Company also spent $5M on Freight and Warehouse in 2023. Workstations Task Chairs Total $ % of Net Sales $ % of Net Sales $ % of Net Sales Unit 8,000 12,000 20,000 x Price/Unit $4,000 $1,000 $2,200 = Net Sales $32,000,000 100% $12,000,000 100% $44,000,000 100% - COGS $25,000,000 78% $10,000,000 83% $35,000,000 80% = Gross Profit $7,000,000 22% $2,000,000 17% $9,000,000 20% F&D N/A N/A N/A N/A $5,000,000 11% Marketing N/A N/A N/A N/A $2,000,000 5% + Other SG&A N/A N/A N/A N/A $3,000,000 7% = Total SG&A N/A N/A N/A N/A $5,000,000 11% EBIT N/A N/A N/A N/A (1,000,000) -2% 85 Summary The P&L statement is a powerful tool that provides insights into a company's financial health. We all play a part to impact business performance. 86 Investment Decision & Analysis 87 Investment Analysis Investment Ideas Planned LRP – Hoshin activity New Product New product process Equipment Budget Facilities Unplanned Equipment repair Competitive opportunity Regulation change Proposed Investments 88 | HNI Workplace Furnishings 88 Investment Analysis Process Business Case Contributors BUDGET AUDIENCE JUSTIFICATION INVESTMENT RETURN ALTERNATIVES RISKS Budget in Lens of the Tell the Best cost More than Multiple Risk of advance receiver story mentality financials quotes assumptions when possible Delegation Avoid just Quotes or Progressive Scope Risk of not of authority repeating informed ramp changes investing Budgeted prior year estimates ≠ projects approved 89 Investment Analysis Process Business Case Contributors Why do you want to invest in this project? Purpose What is the justification to choose How much will this cost? this project vs. another? Is it capital spend or expense? Are there costs to consider outside of Cost dollars? What impact could estimated variables have on the project? Risk What is the risk if we don’t proceed What is the financial benefit to the with the project? organization by making this investment? Are there benefits to consider outside of Return dollars? Leaders will evaluate your business Decision case and provide feedback on Projects are regularly reviewed to proceeding with the project. assess organizational impact of the project as well as lessons learned. Evaluation This may result in a scope change throughout the project. 90 Investment Analysis Process Business Case Outcomes Purpose Cost Risk Return Deprioritize a Not at this time different project Need more clarity Decision Scope change before deciding Evaluation 91 Business Case Examples Fulton Market IMA Rebuild Solar Panels at 505 Avion Task Chair Investment Investment Investment Investment $26M $4M $1M $4M 12 Year Lease Return Return Return Return $89M 15-Year $1.1M 5-Year Economic ($0.4M) 5-Year $2.2M 3-Year Economic Economic Profit Profit Economic Profit Profit Capacity gain worth 1.5% energy reduction $17M in revenue 17-year payback Reason For Decision Reason For Decision Reason For Decision Reason For Decision Brand value Operational impact Payback length Approved for new Financial return Financial return Alternative investment product opportunity options Canceled due to lack of market acceptance 92 Closing P&L Impact of Investments Revenue Cost SG&A EBIT The best business case is what helps use make the best business decision. Finance Definitions Profit & Loss Statement (P&L): A summary of revenues and expense Direct Contribution Margin (DCM): Primary measure for HNI to over a period of time, typically a month, quarter, or year. Also known as understand how profitable each unit of product is once direct costs are Income Statement. accounted for. This aids in pricing and profitability analysis. Revenue – Expenses = Profit/(Loss) Sales – Variable Cost = DCM Revenue: Total amount of money generated from selling good or Earnings Before Interest & Taxes (EBIT): Profit the company makes services before any costs or expenses are deducted. from regular business operations after deducting operating expenses # of Unit Sold x Price Per Unit = Total Revenue from gross profit. Often used to measure an estimate of cash flow. Gross Profit – Operating Expenses = EBIT Cost of Goods Sold (COGS): Direct costs attributable to the production of goods sold. This includes materials, labor, and manufacturing Freight & Distribution (F&D): Costs we incur to store and transport our overhead. product. List Sales: Total sales amount based on the listed price of goods, before Sales, General & Admin (SG&A): Covers non-manufacturing costs any discounts, allowances, or adjustments. “Full price” such as: marketing, merchandising, sales efforts, and general management. Invoice Sales: Total sales amount as listed on the invoice sent to Gross Profit: Difference between revenue and COGS. It shows the customers, reflects any agreed-upon discounts, promotional pricing, or profit a company makes after deducting the costs of producing the goods other negotiated terms. or services sold. Revenue – COGS = Gross Profit Net Sales: Actual revenue earned from sales after subtracting any discounts and allowances. Practical Financial Acumen: Intentional Development JB0 We all have the opportunity to impact business performance. Reasons for Learning Focus  Informed Decision Making: Enables leaders to make strategic choices that align with the organization’s financial goals, ensuring resources are allocated effectively for maximum impact.  Increased Accountability: Helps leaders take ownership of their decisions and outcomes, fostering a culture of responsibility and transparency that supports organizational success.  Strategic Alignment: Ensures leaders can connect their roles and team contributions to achieve long range organizational strategy, facilitating better alignment and collaboration. Slide 44 JB0 [@Roark, Jenisa (HNI Workplace Furnishings)] Same with the finance team for this one! Boyd, Jennifer (HNI Workplace F, 2024-11-06T20:01:37.870  Rotation #1: Rotation #3: Understanding Achieving Net Training P&L Revenue & Profitability Profit & Business Impact Agenda Introduction Rotation #2: Lunch Break Rotation #4: Managing Operating Investment Decision Expenses & & Analysis: Profitability Business Case 45 Finance Team Presenting Today Ownership of Workplace Furnishings P&L management. That ownership consists of producing long term (3-year), annual and quarterly revenue & profitability P&L projections, investment decision and analysis, and portfolio management (cash) from our dealers and direct customers. Eric Schroeder Jennifer Jin Ben Carton Andrew Gates VP, Finance Director, Finance Senior Manager, Finance Director, Finance - Operations Workplace Furnishings Workplace Furnishings Workplace Furnishings Workplace Furnishings 46 Finance Passport Revenue & Operating Expenses & Profitability Profitability Net Profit & Investment Decision Business Impact & Analysis 47 P&L Introduction 48 What we will cover in this section P&L Introduction Revenue Overview Expense Overview DCM & HNI P&L Statement Objective: Enhance your ability to interpret, analyze, and influence HNI’s performance by improving your understanding of P&L statements and key financial terminology. 49 What is a P&L Statement? What is a P&L Statement? Profit and Loss statement, also known as the income statement P&L Calculation Revenue – Expenses = Profit/(Loss) Why is the P&L Important? Performance Measurement: It helps assess how well the company is doing financially. Decision-Making: Investors and managers use it to make informed decisions about the business. Trend Analysis: It allows for the comparison of financial performance over different periods. 50 Revenue Overview Total Revenue = Number of Units Sold x Price per Unit 51  What are ways to impact revenue at HNI? Scan QR code to answer 52 Revenue Metrics at HNI Sales is the total income generated from sales of goods or services It is often referred to as the “top line” of List Sales a business, indicating how much money is coming in Sales is recognized when earned (point – Discounts of sale of goods or when service is performed), not when cash is received = Invoice Sales Factors impacting Sales: Market (brand perception, market trend, competition, seasonality) – Programs Economic conditions (inflation, – Other Revenue and Early Pay government funding, customer spending power) Pricing strategy (pricing, promotions, discount) = Net Sales Manufacturing capacity/capabilities 53 Expense Overview Cost Cost Units Units Variable Fixed vs Expense Expense (i.e., Discount, Material, (i.e., Showrooms, Management, Manufacturing Labor, Freight) Sales, HR, Marketing, Finance) 54 What are ways to impact expenses at HNI? Scan QR code to answer 55 DCM Overview Sales – Variable Cost = DCM (Direct Contribution Margin) – Fixed Cost = Profit/(Loss) 56 HNI P&L Statement – 5 Line P&L $ Millions WPF Net Sales $1,500 Gross Profit $600 % of Net Sales 40.0% F&D $165 % of Net Sales 11.0% SG&A $250 % of Net Sales 16.7% EBIT $185 % of Net Sales 12.3% Note: The numbers shown here are for illustrative purposes only and are not based on real data. 57 HNI P&L Statement – 5 Line P&L WPF Net Sales = List – Discount – Programs – Other $ Millions Net Sales $1,500 Revenue and Cash Discount Gross Profit $600 % of Net Sales 40.0% F&D $165 % of Net Sales 11.0% SG&A $250 % of Net Sales 16.7% EBIT $185 % of Net Sales 12.3% Note: The numbers shown here are for illustrative purposes only and are not based on real data. 58 HNI P&L Statement – 5 Line P&L $ Millions WPF Net Sales $1,500 Gross Profit = Net Sales - Cost of Goods Sold Gross Profit $600 % of Net Sales 40.0% Cost of Goods Sold Examples: F&D $165 Materials % of Net Sales 11.0% Manufacturing Labor and Overhead Warranty Expense SG&A $250 % of Net Sales 16.7% Inventory Gain/Loss EBIT $185 % of Net Sales 12.3% Note: The numbers shown here are for illustrative purposes only and are not based on real data. 59 HNI P&L Statement – 5 Line P&L $ Millions WPF Net Sales $1,500 F&D (Freight and Distribution) Fuel 3rd party logistics Gross Profit $600 Distribution centers (labor, equipment, warehouse) % of Net Sales 40.0% SG&A (Selling, General, and Administrative) F&D $165 Labor and Non Labor cost associated with: % of Net Sales 11.0% Executives Sales SG&A $250 Marketing % of Net Sales 16.7% Product Development HR EBIT $185