1-2) Introduction & Strategic Analysis

Question 1

how to calculate EVA?

Answer 1

economic value added
= OP after tax less cost of financing

Question 2

what does it mean if the EVA is negative?

Answer 2

value has been destroyed this year

Question 3

what are the roles of a financial manager?

Answer 3

• pursuing wealth-creating investment opportunities
• finding funds to finance investments

Question 4

what is diversification?

Answer 4

when a company expands its investment portfolio to spread the risk of the company

Question 5

what are capital markets used for?

Answer 5

obtaining long-term financing instruments

Question 6

what are money markets used for?

Answer 6

obtaining short-term financing

Question 7

how do we calculate the required rate of return?

Answer 7

risk-free rate + risk premium

Question 8

when does arbitrage occur?

Answer 8

when we buy and sell the same good in different markets to take advantage of the price difference

Question 9

what does portfolio theory state?

Answer 9

that risk can be reduced by combining assets into portfolios of shares in different economic sectors

Question 10

what is a PESTEL analysis used for?

Answer 10

used to consider various factors that will have a material impact on a company’s operations and level of profitability

Question 11

what does a business use to strategy for?

Answer 11

• to achieve its objectives
• to look at which actions need to be taken to achieve objectives

Question 12

what is the business’s vision?

Answer 12

where they want to go / what they want to become

Question 13

what is the business’s mission?

Answer 13

what is it’s purpose

Question 14

which product strategies can a company use to improve their competitive advantage?

Answer 14

• cost leadership
• differentiation
• focus / segmentation

Question 15

what does cost leadership mean?

Answer 15

having a lower cost position than competitors

Question 16

what does cost leadership require?

Answer 16

usually requires economies of scale and efficient operations; low margin, high volumes

Question 17

what does differentiation mean?

Answer 17

• fulfilling niche needs
• creating a powerful brand/image/product that allows company to sell goods at a premium

Question 18

what does differentiation require?

Answer 18

high margins, lower volume

Question 19

what does segmentation do?

Answer 19

finding a segment of the market which is untapped by larger firms. usually scale leaders in their own market and have strong influence.

Question 20

what do we use Porter’s 5 forces for?

Answer 20

helps to analyze the level of competition within an industry

Question 21

what are the 5 components of Porter?

Answer 21

• threat of new entrants
• threat of substitutes
• rivalry among competitors
• bargaining power of suppliers
• bargaining power of customers

Question 22

what is profit pool analysis?

Answer 22

analyzing an industry for a period

Question 23

what measures do we use in a GE-McKinsey matrix?

Answer 23

• industry attractiveness
• competitive strength of the business unit

Question 24

how do we measure industry attractiveness?

Answer 24

• industry growth
• market size
• competition
• global expansion

Question 25

how do we measure business unit performance relative to the industry?

Answer 25

- brand - market share - growth rate - distribution channels

Question 26

what are the company's resources?

Answer 26

assets controlled by the firm

Question 27

what are the company's capabilities?

Answer 27

firm's ability to exploit its assets (what it does well)

Question 28

what are the company's core competencies?

Answer 28

what distinguishes the firm from its competitors (what is strategically valuable)

Question 29

what should we focus on when developing strategy?

Answer 29

a company's core competencies

Question 30

what can help a company identify its core competencies?

Answer 30

the VRIO framework

Question 31

what does VRIO stand for?

Answer 31

- value = what competitive adv does it give - rarity = do others possess it - imitability - organization = is the company organized to exploit the competency

Question 32

what does the customer value proposition do?

Answer 32

tells prospects why they should do business with you and not competitors; makes the benefits we offer clear from the outset

Question 33

what are the 4 C's?

Answer 33

- costs - customers - competitors - capabilities

Question 34

what is the purpose of the 4 C's?

Answer 34

to analyze the company specifically and its environment it operates in, to provide insight and guide decisions

Question 35

what is customer segmentation used for?

Answer 35

understanding who their customer is and why they are their customer

Question 36

what can a company base their customer decision on?

Answer 36

- demographic (age, gender, income) - geographic - lifestyle (interests, activities, opinions) - behavioral - benefit - life stage

Question 37

which methods are useful for perspective and execution?

Answer 37

- Ansoff matrix - BCG matrix - product life cycle

Question 38

what does the Ansoff matrix assist with?

Answer 38

it is a market planning model; helps a business determine its product and market growth strategy

Question 39

what is the market penetration strategy?

Answer 39

increasing sales of an existing product in an existing market

Question 40

what is the product development strategy?

Answer 40

introducing new product, existing market

Question 41

what is the market development strategy?

Answer 41

entering a new market with existing products

Question 42

what is the diversification strategy?

Answer 42

new product, new market

Question 43

what is a synergy?

Answer 43

the ability of two companies to create more value together than they could on their own

Question 44

what is the BCG matrix used for?

Answer 44

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

Question 45

what are the four components of the BCG matrix?

Answer 45

- question marks - stars - dogs - cash cows

Question 46

what is the question mark?

Answer 46

- low market share, high market growth - do not know what to do with the opportunity, must decide whether to increase their investment

Question 47

what is the star?

Answer 47

- high market share, high market growth - doing well, lots of opportunities

Question 48

what is the dog?

Answer 48

- low market share, low market growth - weak in market, hard to make profit

Question 49

what is the cash cow?

Answer 49

- high market share, low market growth - doing well in growth but limited opportunities

Question 50

what are the 5 stages of the product cycle?

Answer 50

1) introduction / start-up 2) growth 3) shakeout 4) maturity 5) decline

Question 51

what is the product cycle used for?

Answer 51

determining strategy for products such as inc advertising, reduce prices, expand into new markets

Question 52

how can product cycle overlap with BCG?

Answer 52

1) introduction = ? 2) growth = star 3) maturity = cash cow 4) decline = dog