Ch 4 -1

Chapter 4 (Part-II) The Internal Assessment

Strategic Management: Concepts & Cases

Dr. Ayham Jaaron

Ch 4 -2

Finance/Accounting

Determining financial strengths & weaknesses key to strategy formation

Ch 4 -3

Finance/Accounting

Finance/Accounting Functions

1. Investment decision (Capital budgeting)

2. Financing decision

3. Dividend decision (interest paid on shares)

Ch 4 -4

Firm’s ability to meet its short-term obligations

Ratios

Current ratioQuick (or acid test) ratio

Basic Financial Ratios

Liquidity Ratios

Ch 4 -5

Extent of debt financing

Ratios

Debt-to-total assetsDebt-to-equity

Long-term debt-to-equityTimes-interest earned

Basic Financial Ratios

Leverage Ratios

Ch 4 -6

Effective use of firm’s resources

Ratios

Inventory-turnoverFixed assets turnoverTotal assets turnover

Accounts receivable turnoverAverage collection period

Basic Financial Ratios

Activity Ratios

Ch 4 -7

Effectiveness shown by returns on sales &

investment

Ratios

Gross profit marginOperating profit margin

Net profit marginReturn on total assets (ROA)

Basic Financial Ratios

Profitability Ratios

Ch 4 -8

Effectiveness shown by returns on sales &

investment

Ratios

Return on stockholders equity (ROE)

Earnings per sharePrice-earnings ratio

Basic Financial Ratios

Profitability Ratios(cont’d)

Ch 4 -9

Firm’s ability to maintain economic position

Ratios

SalesNet income

Earnings per shareDividends per share

Basic Financial Ratios

Growth Ratios

Ch 4 -10

Finance/Accounting Audit

•Where is the firm strong/weak as indicated by financial ratio analysis?•Can the firm raise short-term capital as needed?•Can the firm raise long-term capital as needed through debt and/or equity?

•Where is the firm strong/weak as indicated by financial ratio analysis?•Can the firm raise short-term capital as needed?•Can the firm raise long-term capital as needed through debt and/or equity?

Ch 4 -11

Finance/Accounting Audit

•Does the firm have sufficient working capital?•Are capital budgeting procedures effective?•Are dividend payout policies reasonable?•Are the firm’s financial managers experienced & well trained?

•Does the firm have sufficient working capital?•Are capital budgeting procedures effective?•Are dividend payout policies reasonable?•Are the firm’s financial managers experienced & well trained?

Ch 4 -12

Finance/Accounting Audit

Effective Financial Analysis Requires:1. Analysis of how the ratios have

changed over time2. How the ratios compare to industry

norms3. How the ratios compare with key

competitors

Effective Financial Analysis Requires:1. Analysis of how the ratios have

changed over time2. How the ratios compare to industry

norms3. How the ratios compare with key

competitors

Ch 4 -13

Production/Operations

Production/Operations Functions

Process

Capacity

Inventory

Workforce

Quality

Ch 4 -14

Facility designTechnology selection

Facility layoutProcess flow analysis

Facility locationLine balancingProcess control

Production/Operations

Process

Ch 4 -15

ForecastingFacilities planning

Aggregate planningScheduling

Capacity planningQueuing analysis

Production/Operations

Capacity

Ch 4 -16

Raw materialsWork in processFinished goods

Materials handling

Production/Operations

Inventory

Ch 4 -17

Job designWork measurement

Job enrichmentWork standards

Motivation techniques

Production/Operations

Workforce

Ch 4 -18

Quality controlSamplingTesting

Quality assuranceCost Control

Production/Operations

Quality

Ch 4 -19

Production/Operations Audit

•Are suppliers of materials, parts, etc. reliable and reasonable?•Are facilities, equipment & machinery in good condition?•Are inventory-control policies and procedures effective?

•Are suppliers of materials, parts, etc. reliable and reasonable?•Are facilities, equipment & machinery in good condition?•Are inventory-control policies and procedures effective?

Ch 4 -20

Production/Operations Audit

•Are quality-control policies & procedures effective?•Are facilities, resources, and markets strategically located?•Does the firm have technological competencies?

•Are quality-control policies & procedures effective?•Are facilities, resources, and markets strategically located?•Does the firm have technological competencies?

Ch 4 -21

Research & Development

Research & Development Functions

Development of new products before competitors

Improving product quality

Improving manufacturing processes to reduce costs

Ch 4 -22

Financing as many projects as possible

Use percent-of-sales method

Budgeting relative to competitors

How many successful new products are

needed

Research & Development

R&D Budgets

Ch 4 -23

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?

•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?

Ch 4 -24

Research & Development Audit

•Are MIS and computer systems adequate?•Is communication between R&D & other organizational units effective?•Are present products technologically competitive?

•Are MIS and computer systems adequate?•Is communication between R&D & other organizational units effective?•Are present products technologically competitive?

Ch 4 -25

Management Information Systems

Purpose

Improve performance of an enterprise by improving the quality of managerial decisions.

Ch 4 -26

Management Information Systems

Information Systems CIO/CTO Security User-friendly E-commerce

Ch 4 -27

Management Information Systems Audit

•Do managers use the information system to make decisions?•Is there a CIO or Director of Information Systems position in the firm?•Is data updated regularly?

•Do managers use the information system to make decisions?•Is there a CIO or Director of Information Systems position in the firm?•Is data updated regularly?

Ch 4 -28

Management Information Systems Audit

•Do managers from all functional areas contribute input to the information system?•Are there effective passwords for entry into the firm’s information system?•Are strategists of the firm familiar with the information systems of rival firms?

•Do managers from all functional areas contribute input to the information system?•Are there effective passwords for entry into the firm’s information system?•Are strategists of the firm familiar with the information systems of rival firms?

Ch 4 -29

Management Information Systems Audit

•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?

•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?

Ch 4 -30

Ch 4 -31