Chap 1 Strategy and the Strategic Management Process Flashcards
based on the strategic management process, the objective when making a strategic choice is to choose a strategy which meets what 4 criteria?
- supports the firms mission 2. consistent with the firm’s objectives 3. exploits opportunities in a firms environment with a firms strengths 4. neutralizes threats in a firm’s environment while avoiding a firm’s weaknesses
who do you calculate gross profit margin %?
(sales-COGS)/sales
how do you calculate the debt to equity ratio?
total debt/total equity
missions define what 2 things?
- what a firm aspires to be in the long run 2. what a firm wants to avoid in the meantime
a firm with normal economic performance will earn its what?
cost of capital
what is the first step of the strategic management process?
define the mission
how do you calculate he average collection period ratio?
A/R/average daily sales
a strategy is a theory about how to ___ competitive advantages
gain
how do you calculate ROE?
profit after taxes/total stockholders equity
when does a firm have competitive advantage?
when it is able to create more economic value than rival firms
competitive advantage when comparing two firms comes from what 2 main sources?
- the perceived benefits for its customers 2. economic cost advantage
what is the average collection period ratio?
a measure of the time it take a firm to receive payment after a sale has been made
objectives are specific, measurable targets a firm can use to evaluate the ____ to which it is realizing its mission
extent
a firm with average accounting performance has competitive ?
parity
the difference between the perceived benefits gained by a consumer that purchases a firms products and the full economic cost of these products
economic value
what is the strategic management process?
a sequential set of analyses and choices that can increase the likelihood that a firm will choose a good strategy.
how do you calculate the times interest earned ratio?
profit before interest and taxes/total interest charges
what are 5 common corporate level strategies?
- vertical integration 2. diversification 2. strategic alliances 4. mergers and acquisitions 5. global
theories of how to gain competitive advantage in an industry that emerge over time or that have been radically reshaped once they are initially implemented are what kind of strategies?
emergent
what is the A/R turnover ratio?
a measure of the average time it takes a firm to collect on credit sales
strategies are based on a set of assumptions and hypotheses about what?
the way competition in the industry is likely to evolve and how that evolution can be exploited to earn a profit
how do you calculate ROA?
profit after taxes/total assets
what does a firm do during an internal analysis (3)?
1.identifies its organizational strengths and weaknesses 2. identify which of its resources and capabilities are likely to be sources of competitive advantage or not. 3. they identify areas of its organization that require improvement and change
how do you calculate the A/R turnover ratio?
annual credit sales/A/R
what is the debt to assets ratio?
a measure of the extent to which debt has financed a firms business activities. the higher the greater the risk of bankruptcy
firms that generate less economic value than their rivals have a what?
competitive disadvantage
a firm with above average accounting performance enjoys a competitive ?
advantage
what is the gross profit margin?
a measure of sales available to cover operating expenses and still generate a profit. larger is usually better
what are the 2 approaches for measuring a firms competitive advantage?
accounting or economic performance is is examined
what 4 aspects of an industry make it more likely a firm operating in it will have a sustained competitive advantage?
- informationally complex 2. require customers to know a great deal in order to use an industry’s products 3. require a great deal of research and development 4. have significant economies of scale
missions are often written down in the form of what?
mission statements
persistent high performance is related to attributes of the ____ and the _____ while persistent low performance is caused by attributes of a ____ ____
industry corporation business unit
what is strategy?
the theory about how to gain competitive advantages
what is ROA?
a measure of return on total investment in a firm. larger is usually better
what are the 4 categories of accounting ratios used to measure a firms accounting performance?
- profitability 2. liquidity 3. leverage 4. activity
in visionary firms, the pressure for short term performance is balanced by what?
a widespread commitment to values and beliefs that focus more on a firm’s long term performance
the theory about how to gain competitive advantages is called a ?
strategy
high quality objectives have what 2 features?
- they are tightly connected to elements of a firms mission 2. they are relatively easy to measure and track over time
a firms mission is a broad statement of it’s _____ and _____
purpose values
what is the quick ratio?
a measure of the ability of a firm to meet its short term obligations without selling off its current inventory. a ratio of 1 is thought to be acceptable in many industries
a sequential set of analyses and choices that can increase the likelihood that a firm will choose a good strategy is what process?
the strategic management process
what is economic value?
the difference between the perceived benefits gained by a consumer that purchases a firms products and the full economic cost of these products
what are the 2 large categories of strategic choices available to firms?
- business level strategies 2. corporate level strategies
how do you calculate the current ratio?
current assets/current liabilities
what is the inventory turnover ratio?
a measure of the speed with which a firms inventory is turning over
objectives are ____ , measurable targets a firm can use to evaluate the extent to which it is realizing its mission
specific
what are the 3 organizational policies and practices that are particularly important in implementing a strategy?
- the firms formal organizational structure 2. firms formal and informal management control systems 3. firms employee compensation policies
what is a firm’s long term purpose called?
its mission
when is it difficult to compare the accounting perfomance of firms ?
when generally accepted accounting standards and principals are not applied in generating their accounting statements or they use different standards in doing so
a strategy is a ___ about how to gain competitive advantages
theory
what is ROE?
a measure of return on total equity investment in a firm. larger is usually better
low quality objectives have what 3 features?
- they are not connected to elements of a firms mission 2. they are not quantitiative 3. they are difficult to measure and track over time
ratios that focus on the level of activity in a firms business are called?
activity ratios
what is the cost of capital?
the rate of return that a firm promises to pay its suppliers of capital to induce them to invest in the firm
how do you calculate the quick ratio?
(current assets- inventory)/current liabilities
what are liquidity ratios?
ratios that focus on the ability of a firm to meet its short term financial obligations
what are leverage ratios?
ratios that focus on the level of a firms financial flexibility , including its abiltity to obtain more debt
a good strategy is one that generates what?
competitive advantages
what is the times interest earned ratio?
a measure of how much a firms profits can decline and still meet its interest obligations. should be well above 1
ratios that have some measure of profit in the numerator and some measure of firm size or assets in the denominator?
profitability ratios
what is the ultimate objective of the strategic management process?
to enable a firm to choose and implement a strategy that generates a competitive advantage
what 3 steps does a firm do in the strategic managment process before it makes its strategic choices?
- mission 2. objectives 3. internal and external analysis
how do you calculate cash flow per share?
(after tax profit +depreciation)/number of common shares stock outstanding
when does strategy implementation occur?
when a firm adopts organizational policies and practices that are consistent with its strategy
what are 3 important reasons to study strategy and strategic management process?
- you can evaluate the stragies of firms that may employ you since your career opportunities in a firm are largely determined by that firms competitive advantage 2. once you are working for a firm, understanding their strategies and your role in implementing them is important for your personal success 3. if you work for a smaller or entrepreneurial firm, you could be part of the stragegic managment team
what is an indication that a firm is not that serious about realizing part of its mission statement?
when there are no objectives or only low quality ones associated with that part of the mission
a ____ is a theory about how to gain competitive advantages
strategy
what are 3 examples of value propositions?
statements about 1. how a firm will attempt to create value for its customers 2,customer problems it is trying to solve through its business operations 3.which customers it will focus on
a firm that earns less than its cost of capital is in the process of what?
liquidating
what is price earnings ratio (p/e)?
a measure of anticipated firm performance- a high p/e ratio tends to indicate that the stock market anticiaptes strong future performance
how do you calculate the inventory turnover ratio?
sales/inventory
objectives are specific, measurable targets a firm can use to evaluate the extent to which it is ____ its mission
realizing
numbers taken from a firms FSs that are manipulated in ways that describe various aspects of a firms performance ?
accounting ratios
a firms cost of capital is the level of performance a firm must attain in order to do what?
satisfy the economic objectives of its debt and equity holders
what is the debt to equity ratio?
a measure of the use of debt vs equity to finance a firms business activities. generally recommended less than 1
objectives are specific, measurable targets a firm can use to evaluate the extent to which it is realizing its ____
mission
a mission statement is unlikely to have much impact on a firm’s actions unless it does what?
influences behavior throughout an organization
what are accounting ratios?
numbers taken from a firms FSs that are manipulated in ways that describe various aspects of a firms performance
in business model canvas approach where a firm identifies activities that have an impact on the ability of a firm to create and appropriate economic value and then specify exactly how a particular firm accomplishes these activities….the set of activiites are called a firms?
business model
what is one way to use a firms accounting statements to measure its competitive advantage?
the use of accounting ratios
who do you calculate the debt to assets ratio?
total debt/total assets
what are corporate level strategies?
actions firm take to gain competitive advantage by operating in multiple markets or industries simultaneously
what are 2 limitations of using economic measures of competitive advantage
- it can be difficult to calculate a firms cost of capital…if they are privately held or if they are a division of a larger company 2. it exaggerates the importance of debt and equity stakeholders to the disadvantage of other stakeholders in a firm
once a firms value propositions are identified , these help the firm identify what 6 areas?
- key activities they need to engage in 2. key resources it needs to control to engage in its key activities 3. key partners it needs to have to gain access to key resources 4. critical customer relationships it needs to have 5. channels a firm needs to use to reach those critical customers 6. which customer segments a firm will address with its products
why is it rarely possible to know for sure that a firm is choosing the right strategy?
because its difficult to predict how competition in an industry will evolve
what is a firm’s mission?
its long-term purpose
what does a firm do during an external analysis (2)?
- identifies the critical threats and opportunities in its competitive environment 2. examines how competition in this environment is likely to evolve and what implications that evolution has for the threats and opportunities it faces
what is EPS?
a measure of profit available to owners of common stock. larger usually better
objectives are specific, measurable ____ a firm can use to evaluate the extent to which it is realizing its mission
targets
who do you calculate EPS?
(profits (after taxes)- preferred stock dividends)/number of shares of common stock outstanding
what is the current ratio?
a measure of the ability of a firm to cover its current liabilities with assets that can be converted into cash in the short term. recommended in the range of 2 to 3
hjow do you calculate price earning ratio (p/e)?
current market price per share/after tax earnings per share
what are activity ratios?
ratios that focus on the level of activity in a firms business
strategy implementation occurs when a firm adopts organizational ____ and _____ that are consistent with its strategy
policies practices
how are profitability ratios set up?
with some measure of profit in the numerator and some measure of firm size or assets in the denominator
what is a visionary firm?
a firm whose mission is central to all that they do
objectives are specific, ____ targets a firm can use to evaluate the extent to which it is realizing its mission
measurable
objectives are specific, measurable targets a firm can use to ____ the extent to which it is realizing its mission
evaluate
what is accounting performance?
a measure of a firms competitive advantage calculated by using info from a firms published I/S and B/S
for a strategy to be a source of competitive advantage, the values and priorities in it’s mission has to be consistent with what?
the economic realities facing a firm
a firm whose mission is central to all that they do is known as what kind of firm?
a visionary firm
what is cash flow per share?
a measure of funds available to fund activities above current level of costs. larger better
what are the 2 most common business level strategies?
- cost leadership 2. product differentiation
the size of a firms competitive advantage is determined by what?
the difference between the economic value a firm is able to create and the economic value its rivals are able to create
actions firms take to gain competitive advantages in a single market or industry are part of what kind of strategies?
business level strategies
what are objectives?
specific, measurable targets a firm can use to evaluate the extent to which it is realizing its mission
a firm that earns above its cost of capital will likely be able to attract what?
additional capital
what standard is generally used when using accounting ratios to determine how a firm is performing?
the average of accounting ratios of other firms in the same industry
what is the significant limitation of of accounting measure of competitive advantage?
the ratios typically dont include the cost of capital
what are emergent strategies?
theories of how to gain competitive advantage in an industry that emerge over time or that have been radically reshaped once they are initially implemented
____ are specific, measurable targets a firm can use to evaluate the extent to which it is realizing its mission
objectives
specific, measurable targets a firm can use to evaluate the extent to which it is realizing its mission are called ?
objectives
what is a major advantage for strategic analysis of measuring a firms performance relative to its cost of capital
a firm that earns at least its cost of capital is satisfying 2 of its most important stakeholders…debt and equity holders
a strategy is a theory about how to gain competitive ____
advantages
a strategy is a theory about how to gain ____ advantages
competitive
actions firm take to gain competitive advantage by operating in multiple markets or industries simultaneously are what kind of strategies?
corporate level strategies
T/F Missions can improve, hurt, or have no effect on a firm’s performance
T
what are the economic measure of competitive advantage?
they compare a firms level of return to its cost of capital instead of to the average level of return in the industry
what are the 5 steps in the strategic management process?
- define the mission 2. figure out the objectives 3. perform external and internal analysis 4. strategic choice 5. strategy implementation
ratios that focus on the level of a firms financial flexibility , including its abiltity to obtain more debt?
leverage ratios
what is the great advantage of accounting measure of competitive advantage?
they are relatively easy to compute
firms that create the same economic value as their rivals experience what?
competitive parity
ratios that focus on the ability of a firm to meet its short term financial obligations?
liquidity ratios
what are business level strategies?
actions firms take to gain competitive advantages in a single market or industry
