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Chapter 4. Profit > Create Your Own Value Chain

Create Your Own Value Chain

Creating your own profit chart and profit financial value chain for your (or your target) organization may be hard at first. Don’t expect to be able to fill out everything on the first try. The most important part of exercise 4-1 is to start defining what you do know. Then, examine the rest of what you need and take the opportunity to do your research, networking, and financial exploration. Completing this exercise moves you forward in completing Step 3 of the financial value process: identify financial imperatives.

Let’s Review

  • This chapter provides details for the profit component of Step 3: identify financial imperatives in the financial value process.

  • An income statement is where the organization tracks how well it is doing in meeting the financial imperative of profit. Income statements can go by several different names, but they all display the same basic information about a company’s profit picture.

  • Revenue (or the top line) of the income statement is an important piece of information for the WLP professional to know because so much of the rest of the income statement is judged in terms of how much revenue is left at certain points in the calculations on the statement.

  • For WLP professionals who support sales or marketing functions, understanding the goals of the sales mix is critical to understanding the appropriate goals for WLP interventions.

  • The four key profit lines on an income statement are the contribution profit margin, the operating margin, earnings before income tax, and net profit. Executives will spend their time proportionately to the impact each of these profit lines has on the health of the organization.

  • Financial value chains can be drawn for every line on the income statement. Examples in this chapter include financial value chains for revenue, cost of goods sold, other sales-driven expenses, and fixed operating expenses.

  • Knowing how to calculate profit ratios such as the contribution profit margin ratio or the net profit ratio is important because executives may sometimes refer to the ratios of the numbers instead of directly to the profit lines on the income statement. You may want to draw financial value chains that point to ratios instead of to profit lines.



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