1. Copyright 2005 Prentice Hall
Bus 411
Day 7
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2. Copyright 2005 Prentice Hall
Agenda
Question?
Assignment 2 posted
Due Feb 13 (changed from the 9th)
EFE and CPM for McDonald's
Assignment 3 Posted
IFE and Ratio analysis
Due Feb 12:30 PM
Bus 411 assignment three.pdf
Finish Discussion on The Internal Assessment
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3. Chapter 4 The Internal Assessment
Strategic Management: Concepts & Cases
13th Edition
Fred David
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5. Investment decision (Capital budgeting) Financing decision
Finance/Accounting
Investment decision (Capital budgeting)
Financing decision
Dividend decision
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6. Copyright 2005 Prentice Hall
Financial ratios
Objective indicators
Two uses
Trending over time
Comparison to industry norms and Competitors
Websites with definitions and examples
Industry norms are available through UMFK electronic resources
Business and Company Resource Center
Business Source Premier
Valueline
Ratios.xlt
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7. Basic Financial Ratios
Firm’s ability to meet its short-term obligations
Ratios
Current ratio CA/CL
Quick (or acid test) ratio
(CA-Inv)/CL
Liquidity Ratios
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8. Basic Financial Ratios
Extent of debt financing
Ratios
Debt-to-total assets
Debt-to-equity
Long-term debt-to-equity
Times-interest-earned
Leverage Ratios
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9. Basic Financial Ratios
Effective use of firm’s resources
Ratios
Inventory turnover
Fixed assets turnover
Total assets turnover
Accounts receivable turnover
Average collection period
Activity Ratios
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10. Effectiveness shown by returns on sales and investment
Basic Financial Ratios
Effectiveness shown by returns on sales and investment
Ratios
Gross profit margin
Operating profit margin
Net profit margin
Return on total assets (ROA)
Profitability Ratios
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11. Basic Financial Ratios
Effectiveness shown by returns on sales & investment
Ratios
Return on stockholders’ equity (ROE)
Earnings per share
Price-earnings ratio
Profitability Ratios (cont’d)
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12. Firm’s ability to maintain economic position
Basic Financial Ratios
Firm’s ability to maintain economic position
Ratios
Sales
Net Income
Earnings per share
Dividends per share
Growth Ratios
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13. Growth Ratios Ratio Sales Net Income Earnings per share
Dividends per share
Annual percentage growth in
Total sales
Profits
EPS
Dividends per share
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Figure 4-3 page 109
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15. BE Chart.xlsx Copyright © 2011 Pearson Education, Inc.
Breakeven point = quantity of units that a firm must sell in order for total revenues to equal total costs
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18. Finance/Accounting Audit
Where is the firm financially strong/weak as indicated by financial ratio analysis?
Can the firm raise needed short-term capital?
Can the firm raise needed long-term capital through debt and/or equity?
Does the firm have sufficient working capital?
Are capital budgeting procedures effective?
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19. Finance/Accounting Audit
Are dividend payout policies reasonable?
Does the firm have good relations with its investors and stockholders?
Are the firm’s financial managers experienced and well trained?
Is the firm’s debt situation excellent?
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20. Production/Operations
Production/Operations Functions
Process
Capacity
Inventory
Workforce
Quality
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22. Production/Operations Audit
Are suppliers of materials, parts, etc. reliable and reasonable?
Are facilities, equipment, machinery, and offices in good condition?
Are inventory-control policies and procedures effective?
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23. Production/Operations Audit
Are quality-control policies & procedures effective?
Are facilities, resources, and markets strategically located?
Does the firm have technological competencies?
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24. Research & Development
Research & Development Functions
Development of new products before competitors
Improving product quality
Improving manufacturing processes to reduce costs
These functions can be done internally or externally
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25. Research & Development
Financing as many projects as possible
Use percent-of-sales method
Budgeting relative to competitors How many successful new products are needed
R&D Budgets
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26. Research & Development Audit
Are the R&D facilities adequate?
If R&D is outsourced, is it cost-effective?
Are the R&D personnel well qualified?
Are R&D resources allocated effectively?
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27. Research & Development Audit
Are MIS and computer systems adequate?
Is communication between R&D and other organizational units effective?
Are present products technologically competitive?
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28. Management Information Systems
Purpose
Improve performance of an enterprise by improving the quality of managerial decisions
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29. Management Information Systems Audit
Do all managers use the information system to make decisions?
Is there a CIO or Director of Information Systems position in the firm?
Are data updated regularly?
Do managers from all functional areas contribute input to the information system?
Are there effective passwords for entry into the firm’s information system?
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30. Management Information Systems Audit
Are strategists of the firm familiar with the information systems of rival firms?
Is the information system user-friendly?
Do all users understand the competitive advantages that information can provide?
Are computer training workshops provided for users?
Is the firm’s system being improved?
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31. Value Chain Analysis
The process whereby a firm determines the costs associated with:
Purchasing raw materials
Manufacturing products
Marketing products
And compares them to the value chain of rival firms
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32. Value Chain Analysis Core competencies Distinctive competencies
Benchmarking
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33. Transforming Value Chain Activities into Sustained Competitive Advantage
Value Chain Activities Are Identified and Assessed
Core Competencies Arise in Some Activities
Some Core Competencies Evolve into Distinctive Competencies
Some Distinctive Competencies Yield Sustained Competitive Advantages
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34. VCA http://www.mindtools.com/pages/article/newTMC_10.htm
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35. Copyright 2005 Prentice Hall
The IFE Matrix
A summary step in conducting an internal strategic-management audit is to construct an IFE Matrix. This strategy-formulation tool summarizes and evaluates the major strengths and weaknesses in the functional areas of a business, and it also provides a basis for identifying and evaluating relationships among these areas.
Intuitive judgments are required in developing an IFE Matrix, so the appearance of a scientific approach should not be interpreted to mean this is an all-powerful technique.
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36. Copyright 2005 Prentice Hall
5 Steps to an IFE
List key internal factors as identified in the internal-audit process. Use a total from ten to twenty internal factors including both strengths and weaknesses.
Assign a weight ranging from 0 (not important) to 1.0 (very important). The weight indicates the relative importance of the factor to being successful in the firm’s industry. The sum of all the weights must equal 1.0.
Assign a 1-4 rating to each factor to indicate whether that factor represents a major weakness (1), minor weakness (2), minor strength (3), or major strength (4).
Multiply each factor’s weight by its rating to determine a weighted score for each variable.
Sum the weighted scores for each variable to determine the total weighted score for the organization.
Total weighted scores of below 2.5 indicate an internally weak organization.
IFE matrix.xlt
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37. IFE– Gateway Computers (2003)
Key Internal Factors
Weight
Rating
Wtd Score
Strengths
1. Several new senior executive with world-class skills and leadership experience
0.05 4
0.40
2. Continuous decline in operating costs and cost of goods sold 3
0.15
3. Well-known brand name
4. Consumer Reports (Sept 2002) recommended Gateway 500X as #1
0.10
5. As a direct seller, Gateway holds high brand recognition
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38. IFE– Gateway Computers (2003)
Key Internal Factors
Weight
Rating
Wtd Score
Strengths (cont’d)
6. Gateway is diversifying into non-PC products
0.10 3
0.30
7. Good relationship with its suppliers.
0.05 4
0.20
8. Economies of scale, the 6th largest PC maker I the world
9. Gateway retails stores excellent
0.15
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39. IFE– Gateway Computers (2003)
Key Internal Factors
Weight
Rating
Wtd Score
Weaknesses
1. High operating expense (22% of revenue vs. 10% for Dell)
0.05 2
0.10
2. Almost no budget for R&D vs. Dell’s 18% of revenue 1
3. Low return on assets ratio
0.025
4. No niche market
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40. IFE– Gateway Computers (2003)
Key Internal Factors
Weight
Rating
Wtd Score
Weaknesses (cont’d)
5. Shortage of cash due to successive losses
0.10 2
0.20
6. Limited number Gateway stores
0.05
7. Weak performance in overseas market
TOTAL
1.00
2.80
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42. Copyright 2005 Prentice Hall

43. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.
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