In a dynamic, fast-changing market environment, it’s a tough tradeoff where to take your business next. There are so many ways that your company’s resources and products can be used to build and shore up your competitive edge, but this dictates a new understanding of what it means for a business to be successful, and how to analyze and plan your business long-term.
Investment decisions are a powerful tool to gain competitive edge.
Investment decisions must be made all the time, not from time to time and not solely for the purposes of long-term planning 3, 5 or 10 years ahead, if one wants to be able to capitalize on new opportunities and promptly react to changes. A company needs to proactively update its investment plans with an eye not only on the investment project at hand, but all its investment operations.
The ultimate goal of all investment decisions and all operations is to add value to the company, defined in terms of growth in its projected discounted cash flows from different lines of business. With that in mind, it is important to see not merely how any individual investment projects add to the value of the business, but also what day-to-day operations do to increase its value.
Prime Expert is an analitic system providing an arsenal of tools for investment planning and decision-making, aimed at adding value to the business.
Prime Expert models financial operations using a process-focused description method, and analyses how and where value is created within the company.
The program will model the projected operation of en existing or emerging business and describe its business environment.
Prime Expert will model investment decisions for business startup, acquisition and business development: new market entry, new sales outlets, new product launch, new technology implementation, and so on. It will also support informed decision-making for reengineering end-to-end business processes within the company.
The main functions of the program are:
- modeling of the business and its external economic environment;
- financial projections;
- comprehensive model analysis, including multiple alternative scenarios, financial analysis, investment analysis and analysis of value chains.
Fig. 1. Prime Expert: Modeling and Analysis of Planned Investment Decisions.
Main Menu
Prime Expert will factor the external economic environment into its business model.
The program supports:
Multi-currency cash flow accounting
Prime Expert supports data input and viewing of calculation results in different currencies, and will display exchange rate curves.
Fig. 2. Selecting currencies and modeling exchange rate trends
Price trends
Prime Expert shows change dynamics by resource cost period (inventories, fixed assets, finished products, wages, production costs and general logistics expenses).
Taxation
Prime Expert lists major taxes levied under Russian law and shows which level of government they go to. The model may be augmented to include more tax types. It will also determine the taxable base of any tax according to a formula, and show how taxes are levied and filed. For example, the model will demonstrate how excess VAT is refunded after a stated time period.
Fig. 3. Tax description
Integration of suppliers and contractors
In Prime Expert, the model of a company will incorporate contractual relations with suppliers, fiscal bodies, investors, creditors, invested businesses and consumers. The model will break contractual relations down by category or individual contractor to evaluate suppliers and assess earnings by customer.
Fig. 4. Company’s contractual relations
By integrating consumers into the model, Prime Expert will help identify target segments for analysis (in product/consumer combinations) with an eye on the specificity of doing business with individual consumer groups. When this is done, Prime Expert will help allocate the overheads and calculate value chains for each segment or each individual customer.
The Prime Expert model will reflect the company’s accounting policy: its inventory valuation methodology for individual items and inventory groups, depreciation of fixed assets and amortization of intangibles, share capital formation using ordinary and preferred stocks and dividends paid on them, as well as bank account activity and spare cash management.
With a minimum account balance preset by user, Prime Expert will assess daily balances and, when necessary, automatically simulate purchase or sale of highly liquid financial instruments as needed to keep to the preset account balance values.
Prime Expert will also simulate overdraft borrowing, calculating amounts needed to cover the cash gap with to-the-day precision.
Prime Expert uses a process-focused approach to model planned business, when all business is broken down by primary and support activities («processes»). The primary activities include purchasing, production (operations), sales and after-sale services; support activities include overall operating support for the company, human resources management and finance.
The resources used in process modeling include inventories, raw materials and half-finished products, third party services, staff, office and production equipment, and intangible assets.
Prime Expert will model the company’s supplies of raw materials, half-finished products and resalable goods by simulating the supply processes: purchasing, transportation and storage performed on different terms by different suppliers, at different prices, according to different payment methods, delivery deadlines, and so on.
Prime Expert supports highly detailed modeling options for production and processing. The Prime Expert model will view production processes:
By scale: mass, serial or fully customized production;
By nature of production process: assembly (synthetic production), processing (analytical production), or direct production when one product type is manufactured from one type of raw material;
By how customized production is to meet the customer’s needs: made-to-stock or made-to-order.
Fig. 8. Production process modeling
When describing production that involves several stages or remakes, Prime Expert will model individual production processes (process stages) and coordinate their inputs and outputs by title and resource volume. The Prime Expert production model will reflect the production schedule, rated processing outputs and losses, production cycle duration, use of resources per cycle, as well as resource and labor consumption per output unit, and use of external services.
Production modeling is a good way to weigh the benefits of manufacturing an interim or finished product in-house versus outsourcing it for the company’s use and/or for subsequent resale.
The sales process as modeled by Prime Expert describes the company's relations with consumers. The model will reflect not only sales transactions (which imply the passage of title), but also packaging, shipping and storage of the products to be sold.
Fig. 9. Sales modeling
Prime Expert offers numerous sales scenarios for modeling. For example, when you input payments over a stated time period, you can model subscription earnings for a periodical. Prime Expert is equipped to model sales of services, not only products.
Investment modeling in Prime Expert covers such activities as preparation for business startup, production launch, construction and remodeling of fixed assets and creation of intangible assets. Prime Expert will generate a capex plan, and its model will provide cost estimates by project phase and describe how assets are created and disposed of. Prime Expert will show how assets are created in a very graphic, realistic way.
Payments for purchased assets may be presented as cash amounts, equity shares, or as both; alternatively, the transaction can be modeled as an asset donation.
Fig. 10. Capex plan as a Gantt chart
The capex plan generated by Prime Expert will describe the acquisition of fixed and intangible assets necessary for the company’s overall business (e.g. purchases of computer hardware and office equipment, cars, furniture, licenses, etc.) that do not require any special operations to be launched, upgraded or conserved, and are not expected to change hands.
In all the above cases, modeling for the purchases of more complex and costly assets with a long life cycle, or for such assets to be manufactured independently by the company, will rely on the “Capital Investment” utility.
Fig. 11. Capital investment modeling
Prime Expert modeling will reflect how fixed assets, including construction in progress, are recognized for accounting purposes. It will also model finance lease transactions.
In addition to finance leasing, Prime Expert will model corporate financing along the lines of new issues of both ordinary and preference shares, as well as borrowing, including credit facilities and bond issues.
Fig. 12. Corporate financing
Prime Expert also provides solutions for spare cash management, such as investment in other issuers’ stocks, bills of exchange or bonds, as well as bank deposits.
How do you single out and post indirect costs, which usually account for a sizable share of business costs? This is not always done very accurately in conventional accounting, which sometimes gives you the wrong idea of which products/services are truly profitable, and in relation to what groups of customers. Prime Expert uses the Activity Based Costing method to allocate indirect costs, which is also called Process Oriented Cost Accounting or Functional Cost Accounting in different translations.
Fig. 13. Transaction costs
According to this method, the first step is to determine the costs of individual transactions associated with the manufacturing and sales of products. Then an appropriate costing base is designed for each transaction, whereby indirect costs are eventually passed on to the company’s products.
A Prime Expert model will automatically generate financial statements compliant with the International Financial Reporting Standards, namely: Balance Sheets, Profit and Loss Statements and Cash Flow Statements. Each statement may be broken down by contractor, resource or end-to-end process.
Fig. 15. Cash flows broken down by resource and contractor
More analytical data can be gleaned from detailed spreadsheets for costs (purchase costs and selling prices), turnover (purchases, spending and losses), resource balances by period, general costs, depreciation, payroll costs before allocation, and so on.
In Prime Expert, financial and investment analysis draws on built-in financial projections for liquidity, business activity, financial stability and profitability. Additionally, Prime Expert supports the analysis of financial and operational cycle duration, factor-based analysis of returns on owner’s equity (the DuPont model), and forecasts bankruptcy risk (the Altman Z-score).
Fig. 16. Factor analysis models
Investment analysis draws on individual project evaluation, and what the company “does” with the project and its whole investment project portfolio.
Fig. 17. Investment indicators
All calculation algorithms for financial and investment performance indicators are available for viewing, copying or modification by the analyst. Prime Expert also allows the user to devise their own analytical indicators.
Prime Expert allows for the input of several discount rates, and for making them variable over time.
The value chain is a strategic analysis concept used as part of the cost-based method. Prime Expert will analyze value chains, pinpointing the sequence of the processes creating maximum added value for the company’s products/services in relation to specific consumer audiences and market segments.
Fig. 19. The value chain by consumer
The modeling and analysis of various value chains helps identify the possible opportunities to optimize end-to-end business processes, inspiring successful investment decisions to modify them, as well as gauge client profitability and single out the most attractive consumer groups/market segments.
Prime Expert will model a range of business scenarios and compare them based on financial statements, financial indicators, efficiency indexes, supplementary management accounting data and its built-in analytical criteria for each scenario.
Prime Expert will allow for all model calculations and additional source data to be exported to MS Excel. Drawing on its calculation results, Prime Expert will generate any reports with the option to set their structure, select data to be included, complement them with charts, diagrams or textual descriptions, and then export to MS Word.
