1-2) Introduction & Strategic Analysis Flashcards
how to calculate EVA?
economic value added
= OP after tax less cost of financing
what does it mean if the EVA is negative?
value has been destroyed this year
what are the roles of a financial manager?
- pursuing wealth-creating investment opportunities
- finding funds to finance investments
what is diversification?
when a company expands its investment portfolio to spread the risk of the company
what are capital markets used for?
obtaining long-term financing instruments
what are money markets used for?
obtaining short-term financing
how do we calculate the required rate of return?
risk-free rate + risk premium
when does arbitrage occur?
when we buy and sell the same good in different markets to take advantage of the price difference
what does portfolio theory state?
that risk can be reduced by combining assets into portfolios of shares in different economic sectors
what is a PESTEL analysis used for?
used to consider various factors that will have a material impact on a company’s operations and level of profitability
what does a business use to strategy for?
- to achieve its objectives
- to look at which actions need to be taken to achieve objectives
what is the business’s vision?
where they want to go / what they want to become
what is the business’s mission?
what is it’s purpose
which product strategies can a company use to improve their competitive advantage?
- cost leadership
- differentiation
- focus / segmentation
what does cost leadership mean?
having a lower cost position than competitors
what does cost leadership require?
usually requires economies of scale and efficient operations; low margin, high volumes
what does differentiation mean?
- fulfilling niche needs
- creating a powerful brand/image/product that allows company to sell goods at a premium
what does differentiation require?
high margins, lower volume
what does segmentation do?
finding a segment of the market which is untapped by larger firms. usually scale leaders in their own market and have strong influence.
what do we use Porter’s 5 forces for?
helps to analyze the level of competition within an industry
what are the 5 components of Porter?
- threat of new entrants
- threat of substitutes
- rivalry among competitors
- bargaining power of suppliers
- bargaining power of customers
what is profit pool analysis?
analyzing an industry for a period
what measures do we use in a GE-McKinsey matrix?
- industry attractiveness
- competitive strength of the business unit
how do we measure industry attractiveness?
- industry growth
- market size
- competition
- global expansion
how do we measure business unit performance relative to the industry?
- brand
- market share
- growth rate
- distribution channels
what are the company’s resources?
assets controlled by the firm
what are the company’s capabilities?
firm’s ability to exploit its assets (what it does well)
what are the company’s core competencies?
what distinguishes the firm from its competitors (what is strategically valuable)
what should we focus on when developing strategy?
a company’s core competencies
what can help a company identify its core competencies?
the VRIO framework
what does VRIO stand for?
- value = what competitive adv does it give
- rarity = do others possess it
- imitability
- organization = is the company organized to exploit the competency
what does the customer value proposition do?
tells prospects why they should do business with you and not competitors; makes the benefits we offer clear from the outset
what are the 4 C’s?
- costs
- customers
- competitors
- capabilities
what is the purpose of the 4 C’s?
to analyze the company specifically and its environment it operates in, to provide insight and guide decisions
what is customer segmentation used for?
understanding who their customer is and why they are their customer
what can a company base their customer decision on?
- demographic (age, gender, income)
- geographic
- lifestyle (interests, activities, opinions)
- behavioral
- benefit
- life stage
which methods are useful for perspective and execution?
- Ansoff matrix
- BCG matrix
- product life cycle
what does the Ansoff matrix assist with?
it is a market planning model; helps a business determine its product and market growth strategy
what is the market penetration strategy?
increasing sales of an existing product in an existing market
what is the product development strategy?
introducing new product, existing market
what is the market development strategy?
entering a new market with existing products
what is the diversification strategy?
new product, new market
what is a synergy?
the ability of two companies to create more value together than they could on their own
what is the BCG matrix used for?
helps with long-term strategic planning and considering growth opportunities by helping a company decide which products to invest in by reviewing its current portfolio
what are the four components of the BCG matrix?
- question marks
- stars
- dogs
- cash cows
what is the question mark?
- low market share, high market growth
- do not know what to do with the opportunity, must decide whether to increase their investment
what is the star?
- high market share, high market growth
- doing well, lots of opportunities
what is the dog?
- low market share, low market growth
- weak in market, hard to make profit
what is the cash cow?
- high market share, low market growth
- doing well in growth but limited opportunities
what are the 5 stages of the product cycle?
1) introduction / start-up
2) growth
3) shakeout
4) maturity
5) decline
what is the product cycle used for?
determining strategy for products such as inc advertising, reduce prices, expand into new markets
how can product cycle overlap with BCG?
1) introduction = ?
2) growth = star
3) maturity = cash cow
4) decline = dog
