An Introduction into Business Administration and Organization of

An Introduction into Business Administration and Organization of

An Introduction into Business Administration and Organization of Publishing Companies Cairo, December 3rd- 5th 2008. By the End of the Day (Workshop) you should have an impression on: How You Will Lead your Publishing Company Organizationally and Economically into A successful Future!! 2 Table of Contents (1) I What you have learned so far and what is still to come II Economical Basics 1. What is Business Administration about 2. Components of Decision Making 3. The Relevance of Organization for Acting economically 4. Tasks to be coordinated 5. Business Organization as a Means of Optimizing Business Performance III Basics of Organizational Theory 1. Basics of Organizational Theory 2. What is structural organization 2.1 Organization as a structured entity 2.2 Structural Organization versus Process Organization 2.3 Line Organization 2.4 Divisional Organization 2.5 Matrix Organization 2.6 Organization of a Publisher 2.7 Excercises I & II 3 Table of Contents (2) 3. Organization Described as a Process 3.1 3.2 3.3 3.4 3.5 Questions to be asked while optimizing processes Visualization of a Business Process Possible way of Optimizing Processes Phases of Optimizing your Process How the Process of an Order reaching you Process Organization is visualized

4. Process Organization of a Publisher 4.1 Excercise III & IV: IV Integrated Publishing Information System (IPIS): Connecting Information and Organization 1. Often seeked information in daily work 2. Often met situations in publishing companies 3. Goals of an IPIS 4. Summary of Goals 5. Additional uses of IPIS 6. Possible structure of a System 7. Components of IPIS 8. A publishers production process 9. Strategic Programm-Planning 10. Steps of realiziation 4 Table of Contents (3) V Organizational Management Principles 1. 2. 3. 4. 5. Centralization vs. Decentralization Management by delegation Management by exception Management by objectives Excercise V VI. Financial Reporting for Corporate Governance Purposes 1. Examples 1.1 Balance Sheet, Profit and Loss Account 1.2 Precalculation sheet for an Authors Right to be Purchased 1.3 Comparing your Fiscal Year with the Previous Year and your Business Plan 2. What is accountancy 3. Purposes of Accountancy 3.1 External Recipients of Information 3.2 Internal Recipients of Information 4. Focus of Information 4.1 Usually externally focused information 4.2 Usually internally focused information 5. Balance Sheets 5.1 Purpose of a Balance sheet 5.2 How to understand a balance sheet

5 Table of Contents (4) 5.3 Comparisson of assets and liablitlities 5.4 Balance Sheet Positions 5.5 The Reliance of Balance Sheet Information 5.6 The Connection between a Balance sheet and a Profit and Loss account 5.7 Balance Sheet of a Big company 5.8 Excercise VI: Set up a balance sheet for a newly founded company 5.9 Depreciation 5.10 The Profit and Loss Account 5.11 The Profit and Loss account of a Publishing Group 6. Excercise VI: Find out about the influence of the Balance sheet to the P&L Account and vice versa VII Financials and the Balance Sheet 1. Financial Rules 1.1 Vertical Structural Rule 1.2 Golden Rule of Financing 1.3 Golden Balance Sheet Rule 2. Types of Financing 2.1 Internal and External Financing 2.2 Owners equity and Loans 2.3 Interdependencies between the 2 3. Planning your monthly liquidity 4. Exercise VII 6 Table of Contents (5) VIII Figures and Ratios of Profitability 1. Examples 2. The Purpose of figures of probitability 3. Productitvity 4. Economic efficiency 5. Profitability 6. Return on Investement 8. What may they really tell us 9. The Balanced Score Card: Multiple Goals 10. Exercise VIII IX Internal Accounting is Cost Accounting 1. 2. 3. 4.

5. 6. 7. 8. 9. The purpose of Cost-Accounting Three perspectives of Cost-Accounting Cost types Payments, Expenses, Costs The differences between direct (variable) and overhead (fix) costs Distinguishing direct costs and overhead costs Direct cost: the principle of causation Overhead costs Cost Centre Accounting 7 Table of Contents (6) 10. Contribution Margin Accounting 11. The Break-even Analysis 12. Contribution Margins: a permanent ex post calculation, example of a publisher 13. How to keep your stock under control (it ties up your capital) 14. Visualizing the different importance of your book segments: revenues, contribution absolutely and % 15. Exercises IX 16. Scenarios of Precalculation X Planning 1. What needs to be planned 2. Reasons for planning XI Excercises 8 I. What you have learned so far and what is still to come Marketing for Publishers Sales for Publishers

Programmplanning:A Strategic Approach Production of Books Organization of a Publishing Company The Business Administration Tool Set Projectmanagement 9 II. Economical Basics 1. 2. 3. 4. 5. What Business Administration is about Components of Good Decision Making The Relevance of Business Organization for Acting Economically Tasks to be coordinated Business Organization as a Means of Optimizing Business Performance 10 Money- and Capitalmarkets Equity (Eigenkapital) Capital contribution Dept capital (Femdkapital) Withdrawal (Entnahm.)profits Pay backs credits interest (Einlagen) Accountancy Finanancials Financial Purchase

market Money, cash Sales market stock unfinished products Management Employess Personal Sales of products Production Machines Other companies Inventory Material Current assets Combination of factors Stock of finished products Taxes Fees Etc. House holds, privats

Contributions subentions Government Flow of goods Flow of finances 11 1. What is Business Administration about? Resources are Scarce! You need to d e c i d e on best possible allocation of rare resources! (Economic principle: Reach maximum output with given resources or reach a given goal with minimum input.) Decision Making always is a choice among alternatives! Evaluation of alternatives depends on correct and good information! Business Administration is the art of providing adaquate information and taking good decisions! The ultimate goal is to act economically: to maximize profits or minimize losses (non profit organizations)! 12 2. The Components of Good Decision Making There is internal and external information necessary to take good decisions Sources of internal information are: up-to-date information -flows between departments. Historical financial data including fiscal resources

Decision Makers evaluation of future market development Sources of external information are: Knowledge on marketconditions, both: sales and purchase Fiscal matters (taxes, fees, ...) Financial Information (Owners Capital, Banks, Insurances, Investors) Market data as to development of Consumption, Competition, income available Relevant themes for publication of books Development of New Media 13 3. The Relevance of Business Organization for Acting Economically (1) To act economically you at least need to provide the following basic resources: MONEY provided by revenues, bank, owners, suppliercredits PERSONAL to fulfill all tasks and to carry the know how of transforming material into goods (books): lecturers, sales personal, logistics, bookkeeping, 14 3. The Relevance of Business Organization for Acting Economically (2) INVENTORY: machinery, computers, offices, STOCK finished products and raw material: Rights,

Books, These resources need to be transferred into an efficient internal and external process, This is the task of BUSINESS ORGANIZATION . 15 4. Tasks to be coordinated The following tasks need to be coordinated for the Business participants to interact economically: Managing including Planning, Organization, Controlling, Supervision Financing getting the money for operations (back) Investing getting the tools/ rights necessary to operate Purchasing getting the current assets to operate Warehousing getting material (digital data) and products (books) stored Producing getting the rights into a sellable book,e-books, licences Selling finding and stimulating your customers and sell to them advertising and marketing Transporting getting your books to the customer 16 5. Business Administration as a Means of Optimizing Business Performance In order to make the economical priciple reality it is necessary to use the information listed above. Business Administration is to collect, organize and communicate this information to all decision makers, respectively, in order to achieve your strategic goals at the best possible. The quality of your achievements, however, highly depends on how strategic goals are postulated and communicated into your publishing company. 17 III. Basics of Organizational Theory 1. Basics of Organizational Theory 2. What is structural organization 2.1 2.2

2.3 2.4 2.5 2.6 2.7 Organization as a structured entity Structural Organization versus Process organization Line Organization Divisional Organization Matrix Organization Organization of a Publisher Excercises I & II 3. Organization Described as a Process 3.1 3.2 3.3 3.4 3.5 Questions to be asked while optimizing processes Visualization of a Business Process Possible way of Optimizing Processes Phases of Optimizing your Process How the Process of an Order reaching you Process Organization is visualized 4. Process Organization of a Publisher 4.1 Excercise III & IV 18 2. What is structural Organization There is no enterprise possible without organization. Organization ist the total of all rules, the management fixes in order to run a publishing company. These rules have to be followed while realizing plans. These rules determine what happens in a company in formal processes, giving concrete instruction to the members of the company. Al-Qahira, Dec. 2 Dec. 5 2008 2.1 Organization as a structured Entity

Giving a structure to a company is to fix responsibilities. A hierarchie is determined by Setting up hierarchies/ departments/ Positions fixing rules of cooperation and competencies Explaining who reports to who thus organizing information and product flows. 20 2.2 Structural Organization vs. Process organization The structural organization contains all rules which are relevant for the production process. They are independent of time, they reflect to the structure of the company. Structural organization fixes all positions within a company, i.e. determining tasks of each employee in respective departments. Structural Organization is visualized via Task plans for employees, job discriptions, functional diagrammes Al-Qahira, Dec. 2 Dec. 5 2008 2.2 Structural Organization vs. Process Organization Process Organization fixes, what has to be done and in what order. It is to optimize the workflow It is visualized via processdiagrammes working rules. Prior view is laid upon the business process of optimally, (as to the economic principal) putting out the products A business process is dependently showing the interaction of tasks to be fulfilled in order to reach the companys output. The business process therefore is determined by the need to reach the anticipated customers requirements, i.e. to publish books, which well can be sold. Al-Qahira, Dec. 2 Dec. 5 2008 2.3 Prototype: Line-Organization Chief Executive Officer

Chief Publishing Officer Chief Sales Officer Chief Publishing Non Fiction Publisher Biografies Lector Chief Bookstores Classical Key Account Manager Sales Representative Chief Financial Officer Chief of Bookkeeping Chief of Debtors Bookkeeping Bookkeeper 23 2.3 The Line-System Executive Executiveofficers officers Chief Chiefpublishing publishing officer officer Lecturing Lecturing fiction fiction 11 22 33 Lecturers Chief ChiefFinancial Financial Officer Officer Lecturing Chief Chief Lecturing Chief Chief Non Nonfiction

fiction Accountancy Accountancy Controlling Controlling 44 33 44 11 22 bookkeepers Chief ChiefSales Salesand and Marketing Officer Marketing Officer Chief ChiefSales Sales Chief Chief Marketing Marketing 11 22 33 44 Sales Advertising Al-Qahira, Dec. 2 Dec. 5 2008 2. 3 Line and Staff Organization Management Management Organization Organization Development Development Publ. Publ.Director Director Chief

ChiefFiction Fiction Secretaray Secretaray, Press , Press Financial FinancialDirector Director Chief ChiefNon Non Fiction Fiction Accountancy Accountancy Sales Sales etc. Al-Qahira, Dec. 2 Dec. 5 2008 Law Lawand andBusiness Business Administration Administration Market Marketexporation exporation 2.4 Prototype Divisional Organization Head of Company Division I: Fiction Division II: Non Fiction Division III:

Non Books Purchase Production Sales Controlling 26 2.5 Matrix-Organisation Management Management Staff Staff Publishing Lines (objectorientiation) Management Management Fiction Fiction Management Management Non NonFiction Fiction Purchase PurchaseRigths Rigths Editorial Editorial Productions Productions Personal Personal Sales Sales Marketing Marketing Financial Financial Al-Qahira, Dec. 2 Dec. 5 2008 Management

Management Audio Audio 2.6 Typical Structure of a Book Publisher Company Owners Supervisory Board Board of Directors Financial Department Sales and Marketing Publishing Personal and Social Affaires Salaries employees committee Controlling Salescontrolling Productcontrolling Bookkeeping Debtors Creditors Inventory Rights Production and purchase Softcover Hardcover Content Management Audio Books Central Services Mail car pool Reception/ Telefone Housekeeping Security Inormation Technology User Support Programming Rechenzentrum Internet/ CMS Marketing Planning Advertising Sales Folders Telefon Marketing Market Analysis

Appearance dates Structure Fiction Thriller Crime Love Erotics Historical Chick Lit Humor Sales Sales Bookstores Sales Department Stores, Stations, Airports Sales "Grosso, Barsortiment" Sales Key Accounts Sales Electronic Media Sales to Wholesalers Press and Event Mangement Customer Relation Management Distribution Nonfiction Current Affairs How to Life Aid Politics Biografie History Foreign Rights Audio Books Rewriting Production Speakers Sound Studio usually sourced out sometimes sourced out 28 2.7 Exercise I: Structuring entities

Fix four groups. Each group put down an organizational model (the structure), the group-members are working in, using either one of the organizational model presented before. Put your draft down on a flipchart. Explain how your company, as to your impression, is organized. Time: 30 minutes 29 2.7 Exercise II: Pros and Contras of Organizational forms Please discuss in 4 groups the Pros and the Cons of the before presented organizational forms. Present your results. Time 15 minutes 30 3. Organization described as defined Process of How to You may also describe organization in means of a workflow, a process, putting down which tasks need to be fulfilled in their temporay and local order. Designing processes you need to optimize speed and distances thus making the economical principle subject to the work flow. 31 3.1 Questions to be asked while optimizing processes How

do we proceed today? May we Are are Is Do we May we save responsibilities systems workflow Keep Data save Time? Clear? Clear? Efficient? Twice? Money? 32 3.2 Visualization of a Business process Presales Sales ----- ---------

----- ----- --------- Product Development ----- ----- ----- ----- After Sales ----- --------- ----- ----- ----- --------- Customer Execute ----- --------- ----- ----- ----- Customer -----

----- Process view ----- ----- ----- ----- ----- --------- ----- ----- Service / Support ----- ----- ----- ----- ----- ----- Functional View 33 3.3 Possible ways of optimizing processes Clearify Clearifyyour your Business processes Business processes Parallelize Parallelize of dependent

of dependentprocesses processes Make Makeprocesses processeseasier easier Integrated Integratedprocesses processes DepartmentDepartment-and and company-wise company-wise Methods for Optimizing processes Short Short Indepent Indepent workflows workflows Optimize Optimize Segmentation Segmentation Integrate Integratetasks tasksinto into One if possible One if possible Clear Cleardefinition definition Of responsibilities Of responsibilities optimize optimize (de-)centralization

(de-)centralization 34 3.4 Phases of Optimizing your Process Fix Strategy and Business Goals 01 develop your Non fiction strategy 05 Plan results And forecast for next years Realize your Goals and Strategy 02 Purchase rights of Book segments to be covered 04 Invest into new segments 07 organize sales Organize printig Market Market 03 Buy licenses customers 08 Organize stock and logistics customers 09 Build up organization Control Strategy and Goal achievements 06 Establish a current Reporting on goal achievements feed back 35 3.5 How the Process of an Order reaching you Process Organization is visualized Product (1,n) Belongs to

ist assigned (o,n) (o,n) Offer to customer Dataview (1,n) order customer Productionplan Functional view order ist Come in Fiscal check. Fiscal o.K. Technical check Company IT Resources Financials Sales Organizational View Al-Qahira, Dec. 2 Dec. 5 2008 Technically feasible

3.6 Processual Organization of a Publisher Purchase activities Production Acitivites Sales Activities Check Manuscript Calculate Advance Negotiate Rights Accept Ready Manuscirpt Edit Manusscript pay advance 2 Fix Retail Price Set up marketing strategy Offer to the Retailer Sign Contract Negotiate Production Distribute to the Retailer pay advance 1 Layout/ Typo Printing Finish Fix date of

appearance pay advance 3 Collect Money from retailers 37 4 Exercise III: Please design the workflow of your Company in total while exploiting a publishing right 1. 2. 3. 4. What steps in terms of general (not detailed) activities does it take you, to publish a book, including the final decision, to take it out of your programme. Consider the life cycle of the right, (not only the book), and different distribution channels. Join to groups of 4. Please list at least 20 steps. Please put down, who is responsible for the steps, respectively and maybe also, who she/he/they is (are) interacting with. Take 30 minutes to put it down and be prepared to present (10 min.) 38 3.5 Exercise IV: Please design the detail workflow for a task you choose, for example 1. 2. 3.

Purchasing paper, a right, Printing-services Delivering a book to a Retailer Preparing your presence to a fair Collecting money from your customers Please list at least 10 steps for the activity you chose. Remember to put down, who you interact with Take 15 minutes to put it down and be prepared to present (5 min.) 39 IV Integrated Publishing Information System (IPIS): Connecting Information and Organization 1. Often seeked information in daily work 2. Often met situations in publishing companies 3. Goals of an IPIS 4. Summary of Goals 5. Additional uses of IPIS 6. Possible structure of a System 7. Components of IPIS 8. A publishers production process 9. Strategic Programme-Planning 10. Steps of realiziation 40 VI. The integrated Publishing Information System iPIS Concept to Economize information flows and raising efficiency in Publishing Companies Concept for a systematical analysis of profit contributions of titles, rights, customers and employees by using such information in the every-days publishing-work. 1. Often seeked information in daily work (1)

What profit contribution comes from a certain title, author, genre or lable within a certain period? Did our expectations in revenues, sales or profit fulfill in a certain period of planning/ of our precalculation? How much may you offer as a guarantee for a certain authors right? How did certain segment of publishing develop over the time in respect of revenues and profits? How is the today state of our next seasons programmes, are there gaps to be filled in your next book programme? 42 1. Often seeked information in daily work (2) What profit contributions stem from certain regions, customers, Chains, Sales people, Lectureres How risky are certain authors, single titles, programme segments in respect of stock and guarantees paid? How may I systematically incorporate market know-how or know-how from market exploration into determining future programme? Is there a systematic influence of certain factors like cover design, colour, prizing to be recognized concerning sales? How is work in progress for certain titles? 43 2. Often met situations in Publishing companies

Difficult or impossible aggregation of data, belonging together, low flexibility, differred keeping of data. Heterogene IT-systems. Software-programming is too expensive. Information flow between departments isnt satisfying. Redundances in raising and keeping data, not up-to-date, many mistakes possible. Decision making via tummy and seldomly based onreliable statistical data. No transparency on Profit-Contributions of certain market-, programme- or sales-segments, of marketing -acitivities. Planning of seasonal programmes often not systematically enough. Not enough inclusion of market factors, which determine succes of publishing-work. 44 3. Goals of an IPIS While getting a Publishing Information System into existence, upto-date Information , which is important for decision-making and production purposes should be available at any time. Double work will be reduced, quality of decisions will become better, Programme-planning will gain more transparency earlier and processes will be speeded up. Before set into action, processes and responsibilities need to be fixed. It therefore ist necessary to analyze processes and interfaces in process-organization. Helpfull may be an instrument, showing operations and consequencies of changes. This means, too, that optimizing processes and integration of strategic programme-planning becomes to be a permanent task. In order to always be able to decide, you need a direct grip on contents of production and editing, which ideally also should be

usable in Internet (CMS: Content Management System): bookcovers, flap copy (Klappentext), information on the author should also be usable for sales folders. Audio- and Video-data should as well be available as the manuscript (totally or in parts): E-books. 45 4. Summary of Goals The Goal of implenting a Integrated Publishing Information System is to integrated processes and data realize transparency on work in progress integrate information flow between the departments Gain transparency on profit contributions of products, customers and employees, Assist and speed up the decission making process. include employees into profit sharing Assist all business processes and thus reach Higher Economical Success System users are all the employess who need to take decisions in their daily work! 46 5. Additional Possibiltes of Using an iPIS (1) Data-keeping is free of redundancies and up-to date. Optronically archived contracts as well as editorial data (Cover, flap copies (Klappentexte), Bookreviews, informationen on the author). Negotiation: always be able to look at data of historical precalculation.

Always be able to look at authors/ genres success in the past Higher quality in decision making helps save guarantees. 47 5. Additional possibilities of Using an iPIS (2) Up-to-date transparancy on work in progress of different product forms (HC, AudioBool, PB, Licences) in departments: Editorial, Production, Coverdesign, Marketing und Sales. Always available: news on economical development of a Right and early possibility to intervene, if not satisfactory Periodical Plan/ Actual/ Previous Year comparisson on any level of aggregation: Right, Title, Author, Customer, Aid in strategic programme planning (see below) Systematically using advances to an author so far not paid in. First Priority: Adaquacy to the User and Easy to Handle 48 6. The possible structure of the System Accountancy royalty accountancy Contracts archives (opt.) Material/ Stock royalties, Publishing Informational System (incl. Worklows) Sales/ Revenues/ fees / stock

Distribution Employee- Profit- Sharing MS-Office-Tools 49 7. Components of the total system Philosphy/ strategy of Company: How will our company look in 5 years Media hardcover downloads pocket book Digitale Trger audio book Archiv Means of Organization software systems organizational software editorial system Qualitymanagement ("six sigma") technique Contents Hardware Software Inhalte Employees and Organization Strategy and Fixing Goals to be achieved 50 8. A Publishers production process Marketanalysys Customerattraction Productideas Lecturing Rights Produktion

Coverdesign Sales Marketing customer 51 9. Inclusion into the strategic Programme Planning Phase 1 Phase 2 Phase 3 Phase 4 Phase 5 item How will market develop? Organizational structure structure of programme for t +3 to 5 Planning of programme next to seasons Production and Marketing goals expected marketdevelopment to strategically plan your publ-shing-programme Basis of Information,

Procedures Historical data, Media control, GFK, "tummy" aids statistics/ controllingdata market-orientated Planning of new responsibilities in strategic titles (novelties) to sales as well as programmplan appear in next ning lectuters season departmebt produce advertising publications (Vorschauen) fixing Fixing of each title list of titles to Fixing main tasks to structure of to appear next appear and current lecturers as well as programme for to sales persons season status t +3 to 5 Rights Rights pre- and post organigramme available calculation TIME 52 10. Steps of Realisation

Give up ancient production lists Pre-calculation Profit-Contribution calculation Content Management System Also: Set up an employee profit participation model based on a system of goals (Strategy) of the whole publishing company referring to data provided by iPIS! Each period of realization needs to be accompanied by intensive traingings into the system! 53 V Organizational Management Principles 1. 2. 3. 4. 5. Centralization vs. Decentralization Management by delegation Management by execption Management by objectives Excercise V 54 1. Centralization vs. Decentralization Where are the decisions taken? Centralisation, in its extreme, means, that all decisions are taken by only one person/ departement in a company. All others are just to fulfill the orders given. This principle only seems possible in very small companies. With its growth, a need for decentralisation becomes necessary! Al-Qahira, Dec. 2 Dec. 5 2008

2. Management by Delegation (MbD) MdB delegates competencies and responsibilities to people below in the hierarchie. Task are to be fulfilled on a lower hierarchical level Delegation needs decentralisation. Advantages are Higher elasticity Lower working-burdens to the leading managements, respectively Higher feeling of responsibility and more fun at work Al-Qahira, Dec. 2 Dec. 5 2008 3. Management by Exception (MbE) Only under exceptional circumstances the management is involved into the process. Only if there are exceptionally important decisions to be taken or in case of high deviations (Abweichungen) from goals given, the management acts into the area of responsibility of his employee. Comptencies and responsibilities for normal tasks are delegated to a lower level in hierarchie. Al-Qahira, Dec. 2 Dec. 5 2008 3. Management by Exception (MbE) Management by exception needs: Clear definitions of and compentencies to tasks delegated Real delegation of responsibilities for tasks transferred. Definition on what is routine and what is exceptional. Definition of tolerance area for deviations from goals clearly specified. Al-Qahira, Dec. 2 Dec. 5 2008 4. Management by Objectives (MbO) Managment and employees agree upon objectives to be reached. Employees are responsible for reaching the

objectives. Employees are free in choice of instruments for reaching goals. They are not judged for measures or decisions taken but only for realization of objectives given Compensation (Salary and Boni) are determined by degree of goal achievement. This Participation in Decision Making Process motivates and helps develop responsibilities and Al-Qahira, Dec. 2 Dec. 5 2008 motivation. Exercises V: Explain according to what Management prinicple your Organization works think about possibilities of improvement by changing principles Think about what needs to be done in order to change way of cooperation within your company and put it down in a paper (which is just for your own use). Give concrete examples on each one of the management principles 60 VI. Financial Reporting for Corporate Governance Purposes 1. Examples 1.1 Balance Sheet, Profit and Loss Account 1.2 Precalculation sheet for an Authors Right to be Purchased 1.3 Comparing your Fiscal Year with the Previous Year and your Business Plan 2. What is accountancy 3 Purposes of Accountancy 3.1 External Recipients of Information 3.2 Internal Recipients of Information 4. Focus of Information

4.1 Usually externally focused information 4.2 Usually internally focused information 5. Balance Sheets 5.1 Purpose of a Balance sheet 5.2 How to understand a balance sheet 61 VI. Financial Reporting for Corporate Governance Purposes 5.3 Comparisson of asstes and liablitlities 5.4 Balance Sheet Positions 5.5 The Reliance of Balance Sheet Information 5.6 The Connection between a Balance sheet and a Profit and Loss account 5.7 Balance Sheet of a Big company 5.8 Excercise VI: Set up a balance sheet for a newly foundet company 5.9 The Profit and Loss Account 5.10 Depreciation 5.11 The Profit and Loss account of a Publishing Group 6. Excercise VI: Find out about the influence of the Balance sheet to the P&L Account and vice versa 62 1.1 Example: Balance Sheet of Bertelsmann 12/07 (1) 63 1.1 Example: Balance Sheet of Bertelsmann 12/07 (2) 64 1.1 Profit and Loss account of Bertelsmann 12/07 65 1.2 Example for a Pre Calculation of a Book CAIRO 0 publisher

Title number 11111 Date Jusuf retail price Sales into retail 300 P 0 Edit.1 total printed 0 cm Format 40026 No Pages in % 12.000 Edit.2 in % 10.000 29,95 337.631 100,0 328.331 Net Rev. (ex discount, tax Return 171.847 50,9 material cost per copy material in total

4,00 Edit.4 in % 8000 24,95 9.394 gross Revenues (Bruttoerls) in % 15.000 34,95 11.273 Edit.3 39,95 14.091 7.515 351.582 100,0 300.242 100,0 167.214 50,9 179.024 50,9 152.978 51,0 5,00

3,50 100,0 6,00 48.000 27,9 50.000 29,9 52.500 29,3 48.000 31,4 5.000 2,9 5.000 3,0 5.000 2,8 5.000 3,3 Absatz Festabnahme 0 0,0 0 0,0

0 0,0 0 0,0 Umsatz Festabnahme 0 0,0 0 0,0 0 0,0 0 0,0 Contributions (Zuschsse) 0 0,0 0 0,0 0 0,0 0 0,0 31.705 17,9 30.367

17,6 33.589 18,3 28.155 17,8 176.847 100,0 172.214 97,4 184.024 104,1 157.978 89,3 Revenues from Licences fees total (incl. Sales fees to author) Total revenues net direct costs in total 79.705 45,1 80.367 46,7 86.089 46,8 76.155 48,2 97.142 54,9 91.847

53,3 97.934 53,2 81.823 51,8 cost of sales (Prov. Auslieferung) 27.661 15,6 26.914 15,6 28.816 15,7 24.622 15,6 overhead inkl. advertising/ interest 51.120 28,9 49.764 28,9 53.224 28,9 44.033 27,9 Result after overhead

18.361 10,7 15.169 9,1 15.895 8,9 13.168 8,6 Break even No. Of copies 10.718 89,3 9.093 90,9 13.668 91,1 7.311 91,4 Results before overhead 66 2. What is accountancy? Accountancy : all methods of numerically collecting and presenting goods- and money flows mainly accruing from a companys acitvities (i.e. production and selling). We usually differ among the following, however dependent, parts:

bookkeeping, balancing, profit and loss- accounting, liquidity-observation; the main focus is on periods Controlling: profits and losses on a mainly product/rights and customer basis within periods to be specified Planning the future development. 67 3. Purposes of Accountancy While interdependent, the parts of accountancy have different purposes: Balancing: showing a periods success to meet taxing-purposes; to assure creditors (law) Controlling: mainly decision making- and supervising- purposes Planning: forecasting the future and compare developments with past and plan. Therefore the recipients of the information not necessarily arent identical: they are internal and/or external. 68 3.1. External Recipients of Information Who are the Recepients of External Information?

Financial Intermediary (Banks) Government (Tax) Suppliers (Stockholders) Owners of Capital Companies stock companies Public (large Companies or Government owned companies) 69 3.2 Internal Recipients of Information Who are the Recipients of internal Information? Capital owners Supervisory Board Management All decisions takers Lecturers, Sales Personal, Producers, 70 4.1 Usually externally focused information Providing External Information: The Profit and Loss-Account The Balance Sheet The Cash flow Business Report Balance Sheet, Profit and LossAccount and Liquidity-Report interact in a specific deterministic manner (to be explained later)!

71 4.2 Usually internally focused information Planning of Balance/ Profit and Loss/ Liquidity for a i.g. 3-years period of time. Planning on a product or customer basis Pre-Calculation of Rights offered Pre-Calculation of an Edition to be (re-) printed Pre-Calculation of a Price offered Comparing Pre-Calcs with Reality Optimizing Decision Making Process: Feedback Interdependencies between internal and external figures. 72 5.1 Purpose of a Balance sheet The purpose of a Balance Sheet is to report the financial position of a company at a certain point in time. It is divided into two columns. The first lists, what the company owns (assets) on the left. The second shows what the company owes (liabilities and net worth) on the right. At the bottom of each list is the total of that column. As the name implies, the bottom line of the balance sheet must always "balance." In other words, the total assets are equal to the total liabilities plus the net worth. 73 5.2 How to understand a balance sheet Sources and Uses A way to look at the balance sheet is in terms of the "sources"

and the "uses" of cash. Liabilities and net worth are sources of cash. They represent debt owed to creditors who have supplied cash or its equivalent. Assets are a use of cash. The company uses cash to purchase assets in order to make a profit. A Balance Sheet represent Owns and Owes, i.e. the Use of Cash and Source of Cash. Assets which are the most like cash Obligations which must be paid to keep creditors happy Assets which will turn into cash within one year Obligations which will be due and payable within one year Assets which may never mature into cash Obligations which are the least nervous and never due Total Assets Liabilities & Net Worth 74 5.3 Comparisson of assets and liabilities Balance sheet Assets How is money used: OWNS ground (asset) will turn into cash only when sold buildings (asset) Liabilites Where does money come from: OWES owners equity machines (asset) liabilites due in more than a year stock (current asset): will turn

into cash soon Liablilities due in at least one year cash (current asset): most like cash Al-Qahira, 2 Dec. Die Gewin- und Verlustrechnung (Aufwand und Ertrag) ist eineDec. Rechnung in der5Stromgren bercksichtigt werden 2008 5.4 Explanation of Balance Sheet positons (1) Current Assets: those assets which mature into cash in one year or less (CA). Accounts Receivable: dollars due from customers as a result of selling inventory or services on terms which allow for delivery prior to the payment of cash. The transaction exists as a receivable on the balance sheet until cash is collected from the customer (A/R). Inventory: the goods and materials a company sells to make a profit. Inventory exists in three forms: raw materials, work in progress, and finished goods. In the process of selling inventory, either cash is received or an account receivable is created (INV). Prepaid Expenses: when cash is used to purchase a good or service, the benefits of which will be realized or received within the current year (12 months). Fixed Assets: physical assets which have life in excess of one year. This includes land, buildings, machinery, equipment, furniture/fixtures, and leasehold improvements (FA). Net Fixed Assets: Also known as the book value, the net fixed asset is calculated as the purchase price of the asset (gross fixed asset) less the accumulated depreciation

(the sum of the annual amounts charged for the "wearing out" of the asset) (NFA). Notes Receivable: a loan made by the company which is evidenced by a promissory note (N/R). Intangibles: assets which have no physical properties or "set" values. Examples of intangibles include authors rights, research and development, and goodwill (INT). 76 5.4 Balance Sheet positons (1) Current Liabilities: what the company "owes" which must be paid within one year (CL). Note Payable Bank: obligations evidenced by a promissory note from the bank which have maturity dates of less than one year (N/P). Accounts Payable: amounts due to suppliers who have provided inventory to the company (A/P). Accruals: obligations owed but not yet billed (ACCR). Current Portion of Long-Term Debt: the portion of a long-term loan (principal only) which is due within the next 12 months (CDTD). Long Term Debt: the portion of a term loan which does not have to be paid within the next year. Subordinated Officer Debt: Cash the officers have invested in the company which is subordinated to any bank financing the company has received. Net Worth: The owner's investment or "equity" in the company which may be either "purchased" or "earned." Purchased equity consists of preferred stock, common stock, and capital surplus. Simply put, the net worth is the difference between the assets and liabilities of a company (NW). Retained Earnings: another term for earned equity; represents the profits of a company which have been reinvested within the business. 77 5.5 Reliance of Balance Sheet information

The particular elements of a balance sheet may vary significantly from day to day. Over time, these "snapshots" of a company, taken on a year-end or monthly basis, can reveal important information about the ability of the company to satisfy its creditors, manage inventory, and collect its receivables. There are many possibilities to influence values in a balance sheet, for instance: depreciations or valuation adjustments 78 5.6 The Connection between Balance Sheet and its Connection to the P&L Account Assets: shows structure of assets Debts: shows structure of debts and owners capital assets - debts = owners capital (OC) OC in t2008 - OC in t2007 = Profit t 008 = Profit from Profit + Loss Acc. 79 Types of acc. + Asset Account - asset accounts Changes in assets - debt-accounts

+ + Profit and Loss Erfolgskonten Acc - - Cost Aufwandsaccounts Konten Income Ertragsaccounts Konten reduction increase WertIn value mehrungen + Changes von in debts or BALANCE BILANZ: owners capital Active>Passiva = profit Activa

Revenues> = Surplus Ertrag Aufwand Cost = Jahresberschu Revenues< = Loss Ertrag AufwandCost = Jahresfehlbetrag 80 Closing up of a P&L-Account with variable Owners Equity Expense account Income account Profit & loss acc. Owners equity account Final balance sheet 81 7 Balance sheet structure of a Big Capital Company ( Assets: A. Anlagevermgen: I. Immaterielle Vermgensgegenstnde: 1. Konzessionen, gewerbliche Schutzrechte und hnliche Rechte und Werte sowie Lizenzen an solchen Rechten und Werten; 2. Geschfts- und Firmenwert; 3. geleistete Anzahlungen; II. Sachanlagen: 1. Grundstcke, grundstcksgleiche Rechte und Bauten auf fremden Grundstcken; 2. technische Anlagen und Maschinen; 3. andere Anlagen, Betriebs- und Geschftsausstattung; 4. geleistete Anzahlungen und Anlagen im Bau III. Finanzanlagen: 1. 2. 3.

4. Anteile an verbundenen Unternehmen; Ausleihungen an verbundene Unternehmen; Beteiligungen; Ausleihungen an Unternehmen, mit denen ein Beteiligungsverhltnis besteht; 5. Wertpapiere des Anlagevermgens; 6. sonstige Ausleihungen. B. Umlaufvermgen I. Vorrte: 1. 2. 3. 4. Roh-, Hilfs- und Betriebsstoffe; unfertige Erzeugnisse, unfertige Leistungen; fertige Erzeugnisse; geleistete Anzahlungen; II. Forderungen und sonstige Vermgensgegenstnde: 1. Forderungen aus Lieferungen und Leistungen; 2. Forderungen gegen verbundene Unternehmen, 3. Forderungen gegen Unternehmen, mit denen ein Beteiligungsverhltnis besteht, 4. sonstige Vermgensgegenstnde; III. Wertpapiere: 1. Anteile an verbundenen Unternehmen; 2. eigene Anteile; 3. sonstige Wertpapiere; IV. Schecks, Kassenbestand, Guthaben bei Kreditinstituten. C. Rechnungsabgrenzungsposten 82 7 Balance sheet structure of a Big Capital Company Passiva: A. Eigenkapital C. Verbindlichkeiten: I. Gezeichnetes Kapital; 1. 2.

3. 4. 5. II. Kapitalrcklage; III. Gewinnrcklagen: 1. 2. 3. 4. gesetzliche Rcklage; Rcklage fr eigene Anteile; satzungsmige Rcklagen; andere Gewinnrcklagen. IV. Gewinnvortrag/ Verlustvortrag; Anleihen, davon konvertibel; Verbindlichkeiten gegenber Kreditinstituten; erhaltene Anzahlungen auf Bestellungen; Verbindlichkeiten aus Lieferungen und Leistungen; Verbindlichkeiten aus der Annahme gezogener Wechsel und aus der Ausstellung eigener Wechsel; 6. Verbindlichkeiten gegenber verbundenen Unternehmen; 7. Verbindlichkeiten gegenber Unternehmen mit denen ein Beteiligungsverhltnis besteht; 8. sonstige Verbindlichkeiten, davon aus Steuern, davon im Rahmen der sozialen Sicherheit. V. Jahresberschu/ Jahresfehlbetrag. B. Rckstellungen: D. Rechnungsabgrenzungsposten 1. Rckstellungen fr Pensionen und hnliche Verpflichtungen; 2. Steuerrckstellungen; 3. sonstige Rckstellungen. 83 5.8 Excercise VI: Set up a Balance sheet for a newly founded company You have got 23.000 Pounds and may loan another 10.000 from your bank. You put into your company several Personal Computers worth 4.000 Pounds You purchase an authors right for 5.000 Start Balance

Owns Al-Qahira, Dec. 2 Dec. 5 2008 Owe s 5.9 Profit and Loss Account (P&L) The P&L- account sums up and compares expenses and incomes of a period. It explains how profits or losses have developed, while the balance sheet only shows its height (Hhe). Reason for Balancing: Documentation of changes of Stock (Bestandsgren) within a certain period of time For tax reason one would not need a P&L-Account. 85 The Balance Sheet is a snap shot in time of a company s overall 5.9 The Profit and Loss Account (P&L) worth. is a report of the publishers profit on the sale of their books or the provision of their sales of licences over a trading period, normally one year . PROFIT & LOSS ACCOUNT 2001/2000 Note 01. 02. 03. 04. 05. 06. 07. 08. 09. Income Turnover Cost of Sales

Materials Wages Total [4+5] GROSS PROFIT [2-6] Distribution Marketing 10. 11. 12. 13. Delivery Costs Total [9+10] Expenses Rent/Lease (000) 1 3050 1400 650 2050 1000 75 80 155 Insurance Professional Fees Utilities Debt Write Off Salary Motor Interest Charges Depreciation 14. Total [All of 13] 15. NET PROFIT BEFORE TAX 13 10 30 35 30 120 80 50 50

418 427 86 5.9 Explanation of the Positions 01. INCOME: (02) This is the total value of INVOICED books or licences sold, LESS vat, and trade discounts over a one year period. The words 'Turnover' and 'Sales' would mean the same. 03. COST OF SALES: (04, 05, 06) This is the direct cost of goods or licences SOLD. All other goods left at the end of the accounting period are entered as 'Stock' in the Balance Sheet. So all finished and unfinished books value are to be found in the Balance Sheet.. 07. GROSS PROFIT This figure is the total amount of profit on all sales after deducting the direct cost of making the goods or supplying the service. Expenses, tax and interest are yet to be deducted. 08. DISTRIBUTION (09, 10, 11) This area covers postal and vehicle distribution, wages for sales and marketing staff, agent commissions, sales outlets and anything that is clearly involved with sales promotion. 87 5.9 Explanation of the Positions 12. EXPENSES (13, 14) All costs outside of 03. and 08. are listed here. Again, as with all costs in the P&L, figures exclude vat. Most of the expenses are self explanatory, however, depreciation is not so straight forward. Depreciation is the reduction in value of a fixed asset. When you buy a new machine the purchase value is added to the FIXED ASSET colum n in the Balance Sheet. At the end of each year the value of the machine reduces the FIXED ASSET amount in the Balance Sheet. For an equal five year period a compensati ng entry is needed in the P&L (this is 'double entry' bookkeeping). It is very similar to a write off entry. 15. NET PROFIT BEFORE TAX This figure is the profit resulting from all sales in the period. Corporation Tax 20% (or whatever the current rate if different) has to be deducted from this amount for a true figure. 88 5.10 Depreciation: why pay outs not directly are costs Purchasing publishing-rights, machines or inventory reduces

your cash or raises your loans in the moment of purchase. But it does not in the same instant raise your cost: Using machines or rights of several fiscal years consume their value while being used. Reducing the value of Machines etc. in your balance is called depreciation. The value may also be decreased because of a loss in marketability, i.e. when you see, that the money you paid for a machine or a right may not come in directly or indirectly via sales again. Then you do a special write of (depr.). 89 5.10 Profit and loss account of a publishing group total company in TDM in % publ. 1 in % publ. 2 in % publ. 3 in % publ. 4 in % publ. 5 in % publ.6 Overhead Revenues retailers 19.336 100,0 2.460 100,0 1.318 100,0 1.591 100,0

734 100,0 12.324 100,0 705 100,0 204 100,0 Material and Authors 12.225 1.946 63,2 10,1 26,7 5,9 -10,6 31,4 68,6 31,4 14,3 6,4 1,3 1,7 23,7 7,7 3,3 1,0 2,0 5,7 1,7 0,0 1,7 1.351 54,9 850 320 13,0 171 789 32,1 297 190 7,7 25 0 0,0 0

599 24,4 272 1.861 75,6 1.046 599 24,4 272 188 7,6 172 68 2,8 51 244 9,9 41 1,7 40 541 22,0 263 2,4 58 9 0,0 0,0 0,0 0,0 58 2,4 9 0,0 58 2,4 9 64,5 13,0 22,5 1,9 0,0 20,6 79,4 20,6 13,1 3,9 0,0 3,0 20,0 0,7 0,0 0,0 0,0 0,0 0,7 0,0 0,7

870 175 54,7 11,0 34,3 11,2 0,0 23,1 76,9 23,1 15,1 1,2 0,0 0,8 17,0 6,1 0,0 0,0 0,0 0,0 6,1 0,0 6,1 460 66 62,7 9,0 28,3 4,6 0,0 23,7 76,3 23,7 0,0 2,6 0,0 1,6 4,2 19,5 0,0 0,0 0,0 0,0 19,5 0,0

19,5 8.380 1.033 68,0 8,4 23,6 2,6 0,0 21,0 79,0 21,0 2,1 0,6 0,0 0,1 2,8 18,2 0,0 0,0 0,0 0,0 18,2 0,0 18,2 288 40,9 113 16,0 304 43,1 117 16,6 -55 -7,8 242 34,3 463 65,7 242 34,3 102 14,5 101 14,3 2 0,3 6 0,9 211 29,9 4,4 31 2 0,3 5 0,7 1 0,1 0,0 35 5,0 0,0

35 5,0 26 68 12,7 33,3 53,9 139,2 -980,4 895,1 -795,1 895,1 885,8 442,6 4,4 96,1 1.428,9 -533,8 309,3 91,7 187,3 539,2 -1.103,4 2,9 -1.106,4 Distribution and Sales personal contribution margins Retail 5.164 Depreciation on Stocks 1.147 -2.055 Contribution after Depr. Sum Costs Wertschpfung 6.072 13.264 6.072 Adv. Press PR Fairs

Room Rents 2.769 1.233 255 321 Cost of Overhead Results operatively 4.578 1.494 Cost of Interest 633 192 383 1.100 Personal Sachkosten Depreciation on Inventory Revenues of interes extraordinary Earnings extraordinary Costs Result before Tax Tax Annual net profit 336 6 330 546 178 0 368 1.223 368 240 19 12

271 97 97 97 208 34 0 174 560 174 0 19 12 31 143 143 143 2.911 319 0 2.592 9.732 2.592 260 72 14 346 2.246 2.246 2.246 110 284 -2.000 1.826 -1.622 1.826 1.807

903 9 196 2.915 -1.089 631 187 382 1.100 -2.251 6 -2.257 90 Profit and Loss account per month x in year y in % Plan Month x 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 19 20 21 22 23 24 Revenues retail Material Authors f ees Cost of Distribution Sales personal

Contribution retailing Revenues special sales Material Authors f ees Cost of Distribution Sales personal Contribution special sales Remaindering sales Material, Distribution Salesf ees Contribution Remaindering Contribution Lice ns e s ale s Adv. PR Press Fairs Depreciation Debtors Depreciation Stocks Depreciation Gurantees to Others Contribution after Depreciation 206 -176 21 23 26 312 246 85 20 0 15 126 3 1 2 30 151 0 25 0 293 100,0 in % 60,6 1.250

523 112 100 49 466 190 33 7 0 16 134 0 0 0 18 196 0 0 0 422 -85,5 10,0 11,3 12,5 151,6 100,0 34,6 8,1 0,0 6,1 51,2 100,0 40,0 60,0 100,0 31,2 0,0 5,2 0,0 100,0 This Year Ist in %

29,0 1.104 503 219 185 14 183 238 85 19 0 14 120 6 0 6 -20 204 0 25 0 61 41,8 9,0 8,0 3,9 37,3 100,0 17,2 3,7 0,0 8,4 70,7 100,0 6,8 93,2 100,0 13,4 0,0 0,0 0,0 100,0

45,5 19,8 16,7 1,3 16,6 100,0 35,8 8,0 0,0 5,9 50,4 100,0 0,2 99,8 100,0 15,3 0,0 1,9 0,0 4,6 Diff. Diff. P/I % I/I% -12 -4 96 85 -71 -61 26 162 171 #### -13 -11 #### -314 #### -210 4 #### #### #### -86

436 -386 963 691 -45 -41 -3 0 -5 ### -7 -5 117 -99 261 -167 35 ### 0 ### -79 Total plan in % 234 100,0 70 29,7 8 3,2 9 3,8 -6,0 -14 162 69,4 0 100,0 0 -35,0 0 0,0 0,0 0 -90 ######

90 ###### 0 100,0 0 5,9 0 94,1 0 ###### 0,0 0 0,0 0 0,0 0 0,0 0 252 107,7 26 Total Revenues 484 100,0 1.458 100,0 1.329 100,0 -9 174 234 100,0 27 Total Direct Costs 191 39,4 1.036

71,0 1.268 95,4 22 564 -18 -7,7 28 29 30 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 60,6 422 511 213 -7 717 21 10 -306 50 27 0

0 -382 -2 -380 0 27 115 0 80 29,0 61 263 143 -58 348 3 9 -282 41 27 56 -1 -293 0 -293 0 27 33 0 140 4,6 -86 -79 252 0 76 0 76 0 0 176 0 0

0 0 176 0 176 0 0 0 0 0 107,7 Deprecition to goodw ill (+) Deprecition to inventory (+) Provisions (Rckstellungen) Depreciatuibs (Wertberichtigungen) 293 128 49 0 177 53 14 79 43 26 28 1 36 0 36 0 26 18 0 107 Cash flow 187 176 75,5 Economical Value Added Personal Costs

other Cost Umlagen Total indirect costs interest costs interest revenues operative result interest to the ow ner Goodw ill-depreciation special Results special costs Result before Tax Tax Annual net profit dav. 26,4 10,0 0,0 36,4 10,9 3,0 16,2 8,9 5,4 5,7 0,2 7,4 0,0 7,4 38,7 -159 35,0 14,6 -0,5 49,2 1,4 0,7 -21,0 3,4 1,8 0,0

0,0 -26,2 -0,1 -26,1 -10,9 -93 19,8 -48 106 10,8 -33 195 -4,4 0 0,0 26,2 -51 97 0,2 -84 -94 0,7 -8 -36 -21,2 -8 -458 3,1 -17 -5 2,0 2 3 4,2 #### 103 -0,1 #### -234 -22,1 -23 -915 0,0 -105 ### -22,1 -23 -915 -7,0 75 31 -41 -150 0,0 32,3

0,0 32,3 0,0 0,0 75,5 0,0 0,1 0,0 0,0 75,3 0,0 75,3 91 6. Excercise: Examining interdependencies between Balancing and P&L Balance sheet Intangible Assets (i.e. rights) Tangible Assets Financial Assets Total Assets Raw material (paper) Semi finished products (films) Finished Products (Books) Debtors from Sales Cash Current Assets Assets 19,0 7,0 3,0 29,0 2,6 4,7 29,0 33,2 1,5 71,0 100,0 Owners equity annual profit Total owners equity Credits from Suppliers Bank credits up to one year Bank credits more than 1 year

Liabilities total Liabilities 24,9 7,5 32,4 22,0 13,6 32,0 67,6 100,0 Delta due to changes in interest change Profit and Loss Account Revenues 440,0 Material -162,8 Personal -106,6 Depreciation -1,6 Marketing Sales -152,7 Result 16,3 Financial Revenues 0,2 Interest -3,2 Financial Result -3,0 Tax Surplus -5,8 7,5 EBITDA EBIT 12,1 10,6

change tax 0,0 Average time of use 4,5 interest 5% 5% interest 7 % 7% tax 45% 0,0 92 6. Groupwork: What happens to Balance sheet and P&L, if you 1. 2. 3. 4. 5. 6. 7. 8. loan 1 from your bank for 2 years put it in cash buy material on stock via bank: 2 sell products for 25 at a margin of 50 % on credit Receive an invoice 5 for books you put on stock, paying later Pay salaries at 5 pay an advance to an author at 10 pay 15 royalties to your authors, 50% of which may be calculated against guarantees pay profit shares to your owners 2

93 VII Financials and the Balancesheet 1. Financial Rules 1.1 Vertical Structural Rule 1.2 Golden Rule of Financing 1.3 Golden Balance Sheet Rule 2. Types of Financing 2.1 Internal and External Financing 2.2 Owners equity and Loans 2.3 Interdependencies between the 2 3. Planning your monthly liquidity 4. Exercise VII 94 1. Financial Rules .. Financial rules Horizontal Horizontal Capital Capital Structural Structuralrule rule Vertical Verticalcapital capital strucural strucuralrule rule Golden Golden Financial Financial Rule Rule Golden Golden BalancingBalancingrule rule 95 1.1 Vertical structural rule

Looks upon the Liability side of the balance sheet Sets up relation between loaned money and equity capit ideally ratio of: loaned/ own money = 1:1 Reduces risk in the eyes of capital loaners 96 1.2 Golden Rule of Financing Connects assets and liabilities in a balance sheet-view Seeks congruency between period of time assets are in use and the time, equitiy-capital (EK) and long-term-loaned money is available. It is to assure liquidity and shows the ability of an publisher to always pay his debts in time 97 1.3 Golden Balance sheet rule tightest view: assets (tangibel,intangibel, financial) = owners capital more generous view: assets = owners cap. + longterm loaned money most generous view: assets + longterm current ass. = OC + longterm liabil 98 2. Types of Financing Types Types of of Financing Financing Depending Dependingon on Source Sourceof

ofFinances Finances Internal Internal Financing Financing External External Financing Financing Depending Dependingon on Relation Relation to to to to the theenterprise enterprise Owners Owners Equity Equity NonNonOwners Owners equity equity 99 2.1 Internal- and External Financing Internal Financings sources mainly are Revenues. The money comes from external from the customers who pay back in money terms what the enterprise invested in the past into its products. External Financing is Financing with the Money coming from outside the company. Capital does not come from the enterprises production process while selling products, but comes from credits by banks or from shareholders. 100 2.1 Internal- and External Financing Financing

External Financing Internal Financing credits Money Financing Financing loans from the out of out of share- retained provisions holders earnings (Rckst. /Rcklage) 101 2.2 Owners equity and Loans Financing via own resources is putting in capital by the shareholders, i.e. equity capital or loans by the owner. If capital does not come from the owners but from outside creditors. Examples are: current accounts, suppliers credit, loans (Darlehen) 102 2. 3 Interdependencies between the 2

According to sources of money Types of financing Financing according to legal State (rechtl. Status) State of who gives the capital Internal Financing External financing Out of the enterprises Not directly connected to the production process enterprise process Self-financing out of profits Owners give money into the company either as credits or as share-money Outside Money Financing out of Provisions Financing: (Rckstellungen) Creditor Financing Financing from loans, credits Own Equity Financing 103 3. Planning your monthly liquidity Liquidity Planning month

Income from sales other income total income expenditure material external services salary energy Reparatur und Instandhaltung advertising and marketing interest (depend on loans needed) taxes and fees other expenditure total expentidure income- surplus / -deficit Financials and Investments credits: repayment (-) / raising (+) Financial investm: increase (-) / decrease (+) Owners withdrawal (-) / contribution (+) Investitments (-) / Desinvestments (+) Saldo Change in Liquidity Liquid money by end of month Liquidity 1 (without short term bank credit) short term credit Limit Liquidity (including short term reserves) Start -10 100 90 1 2 3 4 5 6 7 8

9 10 11 12 900 0 900 1.100 100 1.200 1.000 0 1.000 1.100 0 1.100 1.200 100 1.300 1.300 0 1.300 1.100 200 1.300 1.100 100 1.200 1.100 0 1.100 1.100 0 1.100 1.100

200 1.300 1.100 0 1.100 200 100 300 5 0 200 0 0 0 805 400 100 300 5 0 100 0 0 0 905 400 100 300 5 100 200 10 0 0 1.115 400 100 300 5 0 200 0 0 0

1.005 400 100 300 5 0 300 0 0 0 1.105 500 100 500 5 0 200 12 0 0 1.317 400 100 300 5 0 200 0 0 0 1.005 400 100 300 5 0 200 0 0 0 1.005 400 100 300

5 100 200 10 0 0 1.115 400 100 300 5 0 200 0 0 0 1.005 400 100 300 5 80 200 0 0 0 1.085 500 100 400 5 0 200 10 0 0 1.215 95 295 -115 95

195 -17 295 195 -15 95 215 -115 -100 -100 -50 -50 0 0 -100 -150 -100 -100 -100 -100 -100 -100 -100 -100 -100 -100 -100 -100 -200

-100 -100 20 20 -100 -100 -50 -55 195 -215 -5 95 -117 95 95 5 -5 115 -165 -65 100 35 130 100 230 -85 100 15 -90

100 10 5 100 105 -112 100 -12 -17 100 83 78 100 178 83 100 183 78 100 178 193 100 293 28 100 128 104 4. Exercises VII Please set up a liquidity plan for the next 3 months as follows Start credit at bank Credit line Monthly income: 100 Monthly expenditure: You invest on machines in month 2 50 Depreciation months 1 and 2,

Depreciation month 3 Owners withdrawal in months 3 What kind of financing is deprecition/ is owners withdrawal? -20 50 -80 - 5 7 -20 105 VIII Figures and Ratios of Profitability 1. Examples 2. The Purpose of figures of probitability 3. Productitvity 4. Economic efficiency 5. Profitability 6. Liquidity 7. Return on Investement 8. What may they really tell us 9. The Balanced Score Card: Multiple Goals 10. Exercise VIII 106 1. Examples for Figures of Profitabilty 1. 2. 3. Creditors are concerned with the abiltiy of a company to pay its current obligations. So they seek information about the relationship of current assets to current liabilities Stock holders are concerned with dividend Management is concerned with the activity of merchandising inventory So figures of interest are: Productivity

Rentability Profitability of shareholders capital Total capital employed Revenuerentability Liquidity Return on Investment Balanced Score Card 107 2. The Purpose of Figures of Profitability They are useful to judge economical behavior They give extremely condensed information There are absolute and relative figures: Absolut figures are: profit, operating result (Betriebsergebnis), Cash flow. Relative Figures are: productivity, economical efficiency, rentability, liquidity. Al-Qahira, Dec. 2 Dec. 5 2008 3. Productivity Productivity is the ratio between input and output and usually refers to quantities Output Productivity = Input 109 4. Economic Efficiency (Wirtschaftlichkeit) Ratio between the values in input and output Kapitalumschlagshufigkeit

[%] = Umsatzerlse . (durchschn.) Gesamtkapital ohne Finanzanlagen Turnover in capital = Revenues/ average total capital (except Fin. assets) Economic efficiency = Revenue/Expenses Revenue/ Costs Cost realized/ Cost planned 110 5. Profitability The Profitability, also called rate of return, is the most often used figure. It usually is a percentage of profit in relation to capital applied. Profitability = profit/ capital applied Umsatzrentabilitt [%] = Betriebsergebnis (vor Steuern) Umsatzerlse revenue profitability: profit/ revenues share holders capital profitablity: profit/ equity (shareholders capital) total capitals profitability: (profit + interest) / total capital. EBIT: Earnings before interest and taxes EBITDA: Earnings before interest taxes, depreciation and amortizat 111 6. Liquidity Liquidity is the ability of an enterprise to always serve liabilities and debts in time Liquidity always dominates profitability There are different degrees of liquidity Liquidity of 1st degree

= Liquidity 0f 2nd degree = Liquidity of 3rd degree (Current Ratio) = cash + cash at bank + stocks in current assets short term loaned money above + + short term accounts receivable + stock short term loaned money current assets . Short term loaned money Short term loaned money = kurzfristiges Fremdkapital 112 7. Return on Investment a) ROI = (profit/Revenues x revenues/total capital) *100 (= Kapitalumschlag: turnover of capital) b) ROI = Profit x 100 / total capital Profit = 50, revenues = 1000, capital = 400 a) (50/1000x1000/400)*100 = 12,5% b) 50*100/400=12,5% 113 8. What may those figures really tell us Figures of Profitability are means of planning and controlling the processes of an enterprise They may not be looked upon absolutely. So it is useful to compare those figures over a several periods in time or with those of other enterprises. You often need a healthy mix between the figures: Highest liquidity (all your money in cash) may cause lowest profitability. On the other hand highly profitable capital investments carry a danger of Illiquidity if the enterprise you gave money to becomes insolvent. To control this mix is the

task of the enterprises Al-Qahira, Dec. 2 Dec. 5 2008 9. The Balanced Score Card: Multi Goal Figure System Balanced Scorecard Authors Revenues foreign Authors 100 Return on Sales Financials 80 No. Of Titles put out 60 40 quality of authors capital profitabilty (ROI) ratio of steady customers 20 Customers 0 motivation how customers pay Employees qualification Satisfaction Vorschlagswesen Customer satisfaction Processes how orders are performed quality management

Ziel Ist 115 10. Excercise Balance sheet Intangible Assets (i.e. rights) tangible Assets Financial Assets Total Assets Raw material (paper) Semi finished products (films) finsished Products (Books) Debtors from Sales Cash Current Assets Assets 19,0 7,0 3,0 29,0 2,6 4,7 29,0 33,2 1,5 71,0 100,0 Owners Capital Credits from Suppliers Bank credits up to one year Bank credits more than 1 year Capital Liabilities 32,4 22,0 13,6 32,0 67,6 100,0 Sales cost of sales

Gross profit expenses depreciation interest operating profit Taxes profit 2005 100 65 35 23 3 2 7 2 5 2006 100 68 32 23 3 3 3 1 2 2007 100 70 30 22 3 3 2 1 1 In 4 groups find out (15 minutes): 1. Ebit/ da 2. Total capitals profitability 3. Share holders profitability 4.

Return on investment 5. Vertical capital structure (see below) 116 IX Internal Accounting is Cost Accounting 1. The purpose of Cost-Accounting 2. Three perspectives of Cost-Accounting 3. Cost types 4. Payments, Expenses, Costs 5. The differences between direct (variable) and overhead (fix) costs 6. Distinguishing direct costs and overhead costs 7. Direct cost: the principle of causation 8. Overhead costs 9. Cost Centre Accounting 10. Contribution Margin Accounting 117 1. The purpose of Cost Accountint Internal accounting is often called cost accounting. It is set up mainly for internal controlling purposes, i.e. to provide information for decission making. It is only set up to control (to steer) the company towards better performance. There are 3 Parts of cost accounting and results accounts (K&L): 1. Analysis of cost by Type (how are costs structured): 2. Cost Centre Accouting: Where do costs occures 3. Cost allocation Accounting: what are the cost, each indiviual product needs to carry. (Kostentrger): Al-Qahira, Dec. 2 Dec. 5 2008 Kostenartenrechnung Kostenstellenrechnung):

2. The Three Perspectives of Cost Accounting Cost type-accounting Cost centre-accounting Fixes costs Variable cost Direct costs Overhead costs Values come form bookkeeping Types of costs are allocated to the departments in which they occured. Unit cost-accounting Cost from cost centres are allocated to the products or other units, which earn the money to bear them. Cost centre costing is to show, where costs came into existence Values stem from cost-type accounting Values stem from cost-centre accounting Al-Qahira, Dec. 2 Dec. 5 2008 3. Cost Types Personell expenses Cost of material Capital costs External services Fiscal fees etc. 120

4. Payments/ Expenses/ Costs Auszahlungen <> Ausgaben <>Aufwand <>Kosten Einzahlungen = Einnahmen = Ertrag = Leistung Payment<>expenses<>costs Pay ins <> revenues <>earnings Normally the above categories are not identical, because they may refer to different periods of time: You buy a computer and pay 100 payment. You use it for 5 years. While your bank account will be reduced by 100, your profit will only be reduced by 20 but this for each of the next 5 years (costs). The same may be true for your sales: You sell books for 100 and realize revenues in your P&L account. Terms of trade are: payment within 30 days. So revenues are now, but cash in is only within 30 days. Al-Qahira, Dec. 2 Dec. 5 2008 5. Differences between direct (variable) and overhead (fix) costs Usually variable costs depend on the number of units put out. Overhead costs are (in a short period of time) independent of output, i.e. number of units produced. Cost C CC +C f = Cv Total costs C variable portion Of total Costs C v Overhead costs f Overhead portion of Total Costs C f Output- Number of units Al-Qahira, Dec. 2 Dec. 5 2008 6. Distinguishing Direct Costs and Overhead Costs While fixed an variable costs differ concerning their respective

reagility to changes in output, the difference between Direct Costs an Overhead Cost refer to the decision why costs accrue and the posibility to allocate costs to an object depending on causality: Direct Costs: are unit costs which would not have occured, if the object would not have been produced or a department would not exist. Direct cost are or will be caused by the decision to, for example, purchase an Authors right, print a book, set up an office in Alexandria. Without that decision the cost would not have occured or will not be occuring. All other cost are overhead costs (concerning the unit looked upon). So with the change of perspective (looking upon different Dec. 2 Dec. 5 items) different costs may be Al-Qahira, allocated. 2008 7. Direct Costs: The principle of Causation Direct cost are costs which directly are or will be caused by a unit looked upon respectively. Principle of causation Examples of direct costs and overhead costs: Personell costs: are no direct costs to the product, but they are direct costs to the decision to set up a new department. Authors guarantee fee: is no direct cost postion to the pocket book, if there is also a hardcover to be published. Is direct costs of the decision process to purchase it 124 8. Overhead costs Overhead costs may not be allocated directly to a product, department, sales person, customer, because they occure not only for this unit. Examples: insurances (if not for a specific event), electricity, salary of CEO (as long as not for the decision to set up a new plant and employ a new CEO; in this case his salary would be direct costs of the decision, to set up this plant). 125 9. Cost Centre Accounting Cost centres are departments of a Company. They are units with different functions, and usually located in different rooms, in which costs occur or may be allocated to.

Cost Centre Accounting is to give transparency to how and where costs occur and a means to transfer costresponsibility to the chief of specific departments or cost centres. Cost Centre Accounting is an overhead accounting Al-Qahira, Dec. 2 Dec. 5 2008 9. Cost Centre Accounting (CCA) CC CEO CC Purchase CC Production CC Administration CC Sales CC Sales personell CRM CC Marketing CC Distribution CC Offer-handling Al-Qahira, Dec. 2 Dec. 5 2008 CC Billing/Invoices 10. Contribution Margin Accounting CMA In a CMA only a part of the costs are considered while calculating a price, i.e. the direct part of total costs. Costs independent of the product or is sales efforts (fixed costs or overhead) stay out of

consideration. The (positive) difference between price and direct cost is called contribution margin. This margin contributes to cover the indirect costs and to reach a profit. CM needs to reach a certain percentage of sales to also cover indirect costs and also take care of a profit, too. cm = p -- cd while cm = contribution margin per unit p = netprice to be acchieved cd = direct costs (costs per unit) Al-Qahira, Dec. 2 Dec. 5 2008 10. The contribution margin: an example in % Revenues per Unit - cost dependent on revenues commision to sales personell licences to the author freight/ logistics printing costs per unit Marketing expense (give aways) total direct costs contribution Margin 199,00 100,0 19,90 30,00 21,90 40,00 9,00 120,80 78,20 10,0 15,1 11,0 20,1 4,5 60,7 39,3 With this contribution overhead and profits need to be finananced

129 11. The Break-Even-Analysys Revenue p=price, C=Total costs Break-Even-Punkt fixe costs Cf Area of profit Area of loss Total costs variable Cost Cv Output X Profit = cm X - Cf oder Profit = (p-Cv) X - Cf 0 = cm X* - Cf or 0 = (p-Cv) X* - Cf Cf X* = (p -Cv) = Break even quantity Al-Qahira, Dec. 2 Dec. 5 2008 12. Example of a Permanent ex post calculation by means of contribution margin: calculation Contribution Margin Calculation Titles 1 2 3 Sales No. Price per Cpy 4

5 6 variable Costs Fixed costs Break-EvenCM per Cpy per Cpy per title quantity 7 8 9 10 Revenues variable Costs CM 1 CM 2 Grisham 120 9,95 0,60 9,35 100,00 11 1194,00 72,00 1.122,00 1.022,00

Parmuk 80 14,90 4,10 10,80 120,00 11 1192,00 328,00 864,00 744,00 Brown 220 3,20 1,90 1,30 150,00 115 704,00 418,00 286,00 136,00 Follett 150 4,90

0,80 4,10 60,00 15 735,00 120,00 615,00 555,00 Patterson 250 7,90 1,20 6,70 230,00 34 1975,00 300,00 1.675,00 1.445,00 King 80 2,95 2,90 0,05

110,00 2200 236,00 232,00 4,00 -106,00 Perry 110 8,90 2,10 6,80 100,00 15 979,00 231,00 748,00 648,00 Meade 160 4,50 1,90 2,60 150,00 58 720,00

304,00 416,00 266,00 131 12. Example of a Permanent ex post calculation by means of contribution margin: Graphics 2500,00 2000,00 1500,00 1000,00 500,00 0,00 Grisham Parmuk Brown Follett Patterson King Perry Meade -500,00 Revenues CM 1 CM 2 132 12. Example of a Permanent ex post

calculation by means of contribution margin: real case T itle Nr Categorie T itle 100613 Architektur T itle 1 Familie und Freizeit T itle 120 Familie und Freizeit T itle 154 Film und Fernsehen T itle 179 Film und Fernsehen T itle 198 Geschenk T itle 199 Geschenk T itle 213 Gesundheit T itle 214 Gesundheit T itle 296 Glas T itle 297 Glas T itle 308 Holz T itle 309 Holz T itle 336 Holz T itle 337 K u Gestalt T itle 338 K u Gestalt T itle 372 K u Gestalt T itle 392 Katalog T itle 393 Katalog T itle 467 Krper u.Geist T itle 470 Kreative Freizeit T itle 471 Kreative Freizeit T itle 550 Kreatives Gest T it alt leen 591 Kunst

T itle 592 Malen und Zeichnen T itle 740 Meditation T itle 741 Meditation T itle 762 Natur T itle 882 P apier T itle 894 P apier T itle 895 R atgeber Familie T itle 896 Spiritualitt T itle 1046 T extiles GestT alt iten le 1047 T extiles GestT alt iten le 1048 T ibetischer Buddh. T itle 1150 Weisheit T itle 1151 Zeitgeschichte T itle 1171 Zeitgeschichte T itle 1173 Zen T itle 1191 Zen T itle 1193 Total Price 19,90 19,90 14,90 58,00 39,90 24,00 25,00 29,90 3,85 25,00

10,28 19,90 78,00 19,90 29,90 38,00 38,00 19,90 2,20 49,90 2,50 12,90 5,97 68,00 24,90 24,00 44,00 490,00 29,90 19,90 24,90 25,00 7,95 19,90 49,90 28,00 78,00 48,00 29,90 78,00 Cost of Sales ReveMat./ No. nues in R eturns p Cpy Cpies 2007 in 3,93 1.583 8.784 -1.009 3,07 2.469 13.328 -876 2,21

3.182 12.110 -53 7,72 102 1.575 -182 6,00 3.007 26.667 -264 5,52 84 910 -399 5,00 3.650 22.167 -328 3,85 2.500 20.822 -1.610 2,00 12.643 24.887 0 26,68 15 127 -30 5,71 2.000 10.512 0 5,41 827 4.271 -60 11,03 1.599 24.499 -312 3,66 187 681 0 8,45 0

16 -75 7,11 595 6.191 -61 2,68 252 2.519 -62 5,83 261 1.308 0 0 11.628 9.417 0 7,35 3.225 41.094 -2.128 1,16 -52 2 -139 2,17 766 2.479 -18 5,07 10.143 30.961 0 16,55 30 536 0 4,30 3.356 21.075 -93 3,80 63 483 -94 5,33 3.816 41.437

-746 0,00 8 917 0 7,90 984 8.772 -943 5,55 2.596 13.073 -72 1,83 276 1.911 -289 5,00 1.609 9.987 -77 6,29 5.404 4.795 -453 5,61 341 2.172 -364 6,00 376 4.615 -17 3,50 88 715 -104 7,71 47 2.703 -1.982 5,23 -73 692 -1.645 3,02 1.497 10.530 -372

14,60 423 8.490 -181 9.045.268 Revenues Cost of Vernd. procontrion after Dismaterial WB visons to bution GuaranStock returns count in total Bestand authors (DB) tee rest in % cpies 7.775 51,7 6.221 -3.252 1.420 4.314 0 28,37 4.116 12.452 53,0 7.687 2.917 909 18.674 0 76,68 2.247 12.057 53,2 7.032 -3.102 1.752 11.696 0 49,60 7.050 1.393 49,3 795 237 0 2.166

0 79,51 2.061 26.404 46,1 18.042 0 8.551 25.048 0 48,50 1.872 511 53,0 508 -292 88 112 0 11,21 354 21.839 50,1 18.250 0 5.817 18.646 984 43,65 2.390 19.212 53,8 9.625 -565 4.849 22.536 0 59,98 3.285 24.887 107,0 25.286 0 0 23.390 0 48,05 0 97 54,0 454 -74 0 -338 0 #####

94 10.512 107,0 11.420 0 0 9.140 0 44,46 0 4.212 53,6 4.474 843 916 3.690 0 44,80 741 24.187 40,6 17.637 0 0 29.669 5.000 62,72 1.394 681 38,3 684 -5.675 156 -5.183 0 ##### 3.153 -58 837 0 0 -950 0 836,18 2.318 6.130 56,7 4.230 0 0 7.758 0 64,71 52 2.457

53,7 675 0 528 3.603 0 74,96 3.066 1.308 52,7 2.454 1.238 0 1.342 0 52,45 429 9.417 393,7 0 0 0 94.119 0 100,00 0 38.966 50,7 23.704 0 11.470 41.037 0 53,85 492 -136 219,5 0 0 0 -267 0 100,00 0 2.461 52,1 1.662 -6.084 299 -3.233 1.201 -67,17 6.337 30.961 107,0

51.425 0 0 9.129 0 15,08 0 536 55,0 993 611 0 667 0 63,61 637 20.982 52,5 14.431 -1.978 2.969 21.660 31 52,78 4.599 389 53,8 239 0 141 380 0 49,97 54 40.691 50,7 20.339 -2.088 14.919 42.239 0 53,07 3.939 917 49,0 0 -366 0 1.428 0 79,59 0 7.829 55,7 7.774

-21.293 1.067 -14.822 3.800 -96,79 6.455 13.000 52,7 14.408 -1.901 0 9.117 0 35,86 3.457 1.622 49,4 505 1.323 0 3.991 0 125,76 2.645 9.911 51,6 8.045 -4.477 2.565 4.297 0 22,17 4.477 4.342 21,1 34.293 24.153 13 -1.661 0 -19,56 0 1.807 55,7 1.919 774 375 2.016 0 57,02 1.673 4.598 51,3 2.256 0

0 6.737 0 74,91 73 611 51,9 333 67 225 703 0 58,87 241 721 41,2 625 34 144 676 9.830 47,91 1.727 -952 56,9 -335 -47 -273 -1.302 40.456 69,92 3.989 10.159 47,5 4.521 -1.392 2.283 11.672 0 58,75 2.117 8.309 52,7 6.176 0 1.522 8.554 0 52,63 97 -502.183 8.543.084 9.462.760

-178.237 1.174.429 6.636.979 674.685 133 14. How to keep your stock under control No 3000 3001 500073 3002 500075 500074 3003 500076 500075 3004 500077 500076 3005 500078 500077 3006 500079 500078 3007 500080 500079 publ. Comp. xxy xxy xxy xxy xxy xxy xxy xxy xxy xxy xxy xxy xxy xxy

xxy xxy xxy xxy xxy xxy xxy Dat of app. 19951010 19950503 19950510 19950904 19951010 19950803 19960328 19960328 19960328 19960328 19980225 19971020 19960228 19960228 19980205 19960328 19960910 19970318 19960910 19970820 19960709 Titel Title Title Title Title Title Title Title Title Title Title Title Title Title Title Title Title Title

Title Title Title Title Price 34,00 28,00 68,00 48,00 29,00 38,00 34,00 39,90 49,90 29,90 36,00 29,90 28,00 28,00 28,00 39,90 39,90 48,00 29,90 24,00 39,90 Mat. Before depr. 11,38 3,50 36,41 10,39 4,74 8,30 5,24 7,61 9,56 6,61 4,25 2,95 4,13 3,69 2,39 7,09 7,94 8,02

5,85 5,52 4,90 Mat. Cost Sales 2005 after dep. 3,60 115 1,21 174 11,87 57 0,94 330 2,29 227 4,04 255 2,72 61 4,76 302 7,17 482 4,03 531 4,25 971 2,21 1.883 3,10 452 2,77 635 2,39 3.383 5,32 336 3,29 179 5,48 11 2,10 154 4,14 495

0,95 -11 R E Net Sales Return Reaches M Sales On Stock 2006 s 2006 until I 2006 L 56 18 38 1.345 Jun 29 39 16 22 541 Mrz 23 4 1 -2 520 ewig 126 4 120 1.347 Mai 15 73 1 67 160 Mrz 11 84 2 78 917 Sep 15 62 3 59 2.077 Mai 29 138

13 124 1.030 Sep 13 230 3 221 40 Jan 09 200 21 177 3.365 Dez 19 154 22 131 1.103 Sep 13 929 20 905 830 Okt 09 146 13 132 610 Jun 13 263 50 207 213 Nov 09 1.638 22 1.584 4.063 Mai 11 200 1 198 569 Sep 11 117 7 110 1.704 Nov 17 52 12 39 2.414 Dez 44 99 8 90

1.681 Sep 19 295 4 255 1.650 Aug 12 29 5 22 4.248 Mai 21 134 14.1 Visualizing the relative importance of programme segments: revenues Contributions absolutely and by % R evenue per P rogr amme segment 610 148 Segment 17 1.380 1.228 Segment 15 631 662 Segment 13 468 464 Segment 11 1.224 644 Segment 9 879 808 Segment 7 277 73

Segment 5 844 1.394 Segment 3 298 209 Segment 1 0 200 400 600 800 1.000 1.200 1.400 135 14.2 Visualizing importance of Segments because of their contributions in C ontribution per S egment in T- 235 50 Segment 17 477 617 Segment 15 223 252 Segment 13 205

171 Segment 11 710 350 Segment 9 437 429 Segment 7 99 44 Segment 5 260 190 Segment 3 92 83 Segment 1 0 100 200 300 400 500 600 700 800 136 14.3 Visualizing importance of Segments because of their contributions in %

C ont ribution per S egment in % of Revenues 38,5 Segment 17 33,7 34,6 Segment 15 50,2 35,3 Segment 13 38,1 43,9 Segment 11 36,9 58,0 54,4 Segment 9 49,7 53,1 Segment 7 35,6 60,2 Segment 5 30,9 13,6 Segment 3 31,0 39,6 Segment 1 0,0 10,0 20,0

30,0 40,0 50,0 60,0 70,0 137 15. Excercises Contribution Margin for Decision Making purposes: Discount 50 % Distribution costs 8 % Advertising Marketing 10 % Please Calculate if to purchase an Authors right according to the following handout 138 16. Scenarios to Precalculation Author- s productio Authors Price per No. of returns in Printing Scenario guarantee n fee provision book cps. % cost Comment 1 10.000,00 3.000,00 10% 15,00 20.000 10% 5,00 2 10.000,00 3.000,00 10% 20,00 15.000 10% 6,00 3 10.000,00 3.000,00 10% 25,00 12.000 10% 7,00 4 10.000,00 3.000,00 10% 30,00 9.000 10% 8,00 The Contract with the Author has already been signed 139 X. Planning 1. What needs to planned?

Each year about a quarter before the end of the current year, planning process for the next fiscal year and the 2 trend years to follow starts Elements of planning are for example (as to be seen from the p&laccount): all books: frontlist and backlist: hardcover, softcover, audio books, e-books in terms of prices and quantitities as well as licences to be sold Budgets for authors rigths to be purchased Budgets for investments in computers, cars, furniture etc. Overhead costs like salaries, additional personal (or also reductions) rents for rooms, energy, journies, fairs to be attended, Cash flow in order to identify cash to be set free or money needed from banks or owners and interest to be paid to banks or owners. The best way to plan is: bottom up (and not top down), i.e. to collect product sales and costs and see what comes out and to adjust for deficits by deciding on reducing costs or raising sales 140 2. Reasons for planning Reasons for planning are: Anticipate future developments to act pro- actively Deligate (cost centre-) responsibilities to heads of departments Arrange for new activities like setting up a new book programme line Realize what budgets are available for different goals Banks and owners need a perspective on what is up with their money (Ratings as to Basel 2 in Europe are forcing banks to look at plans) Decide on changes in the companies structure. To set up good plans you need a strategy derived from

your vision: What is my enterprise to look like in 5 or 10 years? What strategic goals must be reached to achieve this vision? How are goals to be realized within individual fiscal years plans? 141 Exercise: Summary or I to X I II III IV What you have learned so far and what is still to come Economical Basics Basics of Organizational Theory Integrated Publishing Information System (IPIS): Connecting Information and Organization V Organizational Management Principles VI Financial Reporting for Corporate Governance Purposes VII Financials and the Balance Sheet VIII Figures and Ratios of Profitability IX Internal Accounting is Cost Accounting X. Planning 142

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