Chapter 6 - Internal Analysis

Question 1

Financial performance

Answer 1

Sales and market share
Profitability - margins, costs, profits
ROA = profit/sales * sales/assets (profit margin * asset turnover)

Measuring performance - shareholder value analysis

Question 2

Shareholder value analysis

Answer 2

Cost of capital-weighted average of cost of equity and cost of debt
Cost of capital = coe * equity cap + cod * debt cap

Each business aims at ROA to exceed cost of capital so shareholder can improve stock investment

Question 3

Shareholder Value Risks

Answer 3

ROA estimatebrequires knowing the cash flow of any investment and the assets employed-could encourage short term results
Reducing investments by outsourcing could result in loss of business
Reducing investment could affect offering (outsource call center reduces customer interaction)

Question 4

Performance measurement beyond profitability

Answer 4

Long term profits
  - current performance
      Product/service quality
      Brand/firm associations
      Relative cost
      Brand loyalty/customer satisfaction
      Innovation
      Manager/employee capability/performance
      Values and heritage

Question 5

Relative Cost vs Relative Performance - strategic implications

Answer 5

More Expensive
Change Value analysis
Design Raise prices
Manufacturing/systems Promote
Cost reduction

Inferior Superior

Value analysis Value analysis
De-emphasize Emphasize/promote
Upgrade Leave alone
Less Expensive

Question 6

Strengths and weaknesses

Answer 6

Strategies leverage strengths and neutralize weaknesses

Point of advantage vs points of parity vs liability

Question 7

Threats and opportunities

Answer 7

Key output of external analysis

Evaluate as to: immediacy, impact