Chapter 2 Strategy Analysis Flashcards
When it comes to ______ ANALYSIS, a firm’s profit potential is determined by its own strategic choices:
1) Industry choice
2) Competitive positioning (within each industry)
3) Corporate strategy (across industries)
STRATEGY
Strategy analysis involves what 3 types of analysis?
- industry analysis
- competitive strategy analysis
- corporate strategy analysis
What are Porter’s 5 Forces?
(The average profitability of an industry is influenced by the “five forces”)
1) Rivalry among existing firms ↓
2) Threat of new entrants ↓
3) Threats of substitute products ↓
4) Bargaining power of buyers ↓
Bargaining power of suppliers ↓
What determines RIVALRY among existing firms?
- Industry growth rate ↓
- The number of competitors ↑
- Degree of differentiation and switching costs↓
- Economies of scale ↑
What determines the bargaining power of buyers?
- Buyers’ switching costs ↓
- Differentiation ↓
- Number of buyers ↓
Volume per buyer ↑
What determines threat of new entrants?
- Economies of scale ↓
- First mover advantage ↓
- Limited access to channels of distribution ↓
- Legal barriers ↓
What determines threat of substitute products?
- Substitute products’ price ↓
- Buyers’ willingness to switch ↑
What are 2 basic competitive strategies?
oCost leadership
oProduct/service differentiation
•What determines the bargaining power of suppliers?
- Suppliers’ switching costs ↓
- Degree of differentiation in supplies ↑
- Number of suppliers ↓
To achieve competitive advantage, the firm has to have the capabilities needed to implement and sustain the chosen strategy
- Acquire core competencies (economic assets)
- Structure value chain appropriately
Core competencies are the economic assets that the firm possesses, whereas the value chain is
the set of activities that the firm performs to convert inputs into outputs.
PRACTICE QUIZ
- Which of the following accounting equations is correct?
- Profit = Revenues + Expense
- Ending Retained Earnings = Beginning Retained Earnings + Net Income for the period – Dividends for the period THIS IS THE STATEMENT OF RETAINED EARNINGS
- (Shareholders’) Equity = Liabilities + Assets
- Shareholders’ Equity = Contributed Capital – Retained Earnings
- Net Income = Sales + Cost of Goods Sold
Ending Retained Earnings = Beginning Retained Earnings + Net Income for the period – Dividends for the period THIS IS THE STATEMENT OF RETAINED EARNINGS
PRACTICE QUIZ
- Which of the following is NOT a type of asset?
- Prepaid expenses
- Inventory
- Short-term investment
- Accounts receivable
- Accounts payable
accounts payable
Practice Quiz
Which of the following is reported as cash inflow (i.e., positive cash flow) in the statement of cash flows?
- Increase in accounts receivable
- Payments for property and equipment
- Increase in inventories
- Dividends paid
- Increase in accounts payable
- Increase in accounts payable
If a supplier reduces its accounts receivable, that would cause its cash flow to _____.
think of it as reducing the amount of money we are waiting to be paid on, increases cash flow
increase
An _____ in accounts payable is an increase in cash flow.
(think of it as holding on to money that should be used to pay suppliers, but instead you hold on to it; therefore, you increase your cash flow)
increase
