Financial Accounting
I. Current Situation
A. Brief introduction (no more than one page) about what the company does.
B. Current Performance
How did the corporation perform during each of the past 3 years?
1. Have sales been growing? By how much?
a. Is it clear what is driving changes in sales?
2. Is the company earning above average returns in terms of accounting performance?
a. What was their ROA, ROE, net profit margin?
b. How does this compare to peers or the industry?
C. Strategic Posture
What are the corporation’s current mission, objectives, strategies, and policies?
1. Are they clearly stated, or are they merely implied from performance?
2. Mission: What business(es) is the corporation in? Why?
a. Are the company’s actions consistent with their stated mission?
3. Objectives: What are the corporate, business, and functional objectives? Are they consistent with each other, and with the internal and external environments, do they support the mission?
4. Strategies: What strategy or mix of strategies is the corporation following?
• Start at the corporate level: Growth, stability or retrenchment?
• Explain the supporting strategies. For instance, if the directional strategy is growth, how are they growing (new products, new markets, acquisitions, are they growing within industry or are they diversifying, etc.) ?
• Are the strategies consistent with each other, with the mission and objectives, and with the internal and external environments?
5. Policies: What are the corporation’s policies? Are they consistent with each other, with the mission, objectives, and strategies, and with the internal and external environments?
• Tie each policy to a strategy and/or objective
6. Do the current mission, objectives, strategies, and policies reflect the corporation’s international operations, whether global or multidomestic?
II. Corporate Governance
A. Board of Directors (Note: the purpose of this section is to understand if the board and management are an internal strength or weakness. Bios off the company website are of minimal value)
1. Who is on the board? Are they internal (employees) or external members?
2. Do they own significant shares of stock?
3. Is the stock privately held or publicly traded? Are there different classes of stock with different voting rights?
4. What do the board members contribute to the corporation in terms of knowledge, skills, background, and connections? If the corporation has international operations, do board members have international experience?
5. How long have the board members served on the board?
6. What is their level of involvement in strategic management? Do they merely rubber-stamp top management’s proposals or do they actively participate and suggest future directions?
B. Top Management: (The purpose of this section is to identify S&W in Management) for further insight into evaluating management follow this link: http://www.morningstar.co.uk/uk/news/123626/10-steps-for-evaluating-company-management.aspx
1. What person or group constitutes top management?
2. What are top management’s chief characteristics in terms of knowledge, skills, background, and style? If the corporation has international operations, does top management have international experience? Are executives from acquired companies considered part of the top management team?
3. Has top management been responsible for the corporation’s performance over the past few years? How many managers have been in their current position for less than three years? Were they promoted internally or externally hired?
4. Has top management established a systematic approach to strategic management?
5. What is top management’s level of involvement in the strategic management process?
6. How well does top management interact with lower-level managers and with the board of directors?
7. Do top executives own significant amounts of stock in the corporation?
8. Is top management sufficiently skilled to cope with likely future challenges?
For both the Board and the Management team, identify whether it is a strength or weakness and why.
III. External Environment: Opportunities and Threats (SWOT)
A. Societal Environment
1. What general environmental forces are currently affecting both the corporation and the industries in which it competes? Which present current or future threats? Opportunities? (Important note: as you discuss various external forces, be sure to clearly label each as either a threat or opportunity! You should use the designation (S) for strength and (W) for weakness.)
a. Economic
b. Technological
c. Political–legal
d. Sociocultural
2. Are these forces different in other regions of the world?
• This section is very important, dig into each area. You should have multiple trends in each area. Be sure to provide data to support your points. For instance, if you cite the healthy eating trend of the millennial generation as a sociocultural factor, cite a source and a statistic to support it.
• The following is an example, assume you were auditing McDonalds:
According to an article published in FoodDive magazine, a study, which reviewed over 12.5 million social media posts, found that “Research findings show millennials prefer healthy and natural foods. They like to cook and prepare meals. And they support alternative food distribution vehicles like meal delivery and meal services.” (T)
• https://www.fooddive.com/news/grocery–study-millennials-are-most-interested-in-fresh-and-healthy-foods/505999/
B.Industry Environment
1.What forces drive industry competition? Are these forces the same globally ordo they vary from country to country? Rate each force as high, medium, or low.(Important note: as you discuss various external forces, be sure to clearlylabel each as either a threat (T) or opportunity (O))
a.Threat of new entrants
b.Bargaining power of buyers
c.Threat of substitute products or services
d.Bargaining power of suppliers
e.Rivalry among competing firms
2.What key factors in the immediate environment (that is, customers,competitors, suppliers, creditors, labor unions, governments, trade associations,interest groups, local communities, and shareholders) are currently affecting thecorporation? Which are current or future Threats? Opportunities?
IV.Internal Environment: Strengths and Weaknesses (SWOT):
Important note: as you discuss various internal forces, be sure to clearly label each as either a strength or weakness. You should use the designation (S) for strength and (W) for weakness. This is an area where some of the sample papers needed to improve.
A.Corporate Structure
1.How is the corporation structured at present? (Simple, functional, divisional,matrix, other)
a.Is the decision-making authority centralized around one group ordecentralized to many units?
b.Is the corporation organized on the basis of functions, projects,products, geography, or some combination of these?
2.Is the structure clearly understood by everyone in the corporation?
3.Is the present structure consistent with current corporate objectives, strategies,policies, and programs, as well as with the firm’s international operations?
4.In what ways does this structure compare with those of similar corporations?
B.Corporate Culture
1.Is there a well-defined or emerging culture composed of shared beliefs,expectations, and values?
2.Is the culture consistent with the current objectives, strategies, policies, andprograms?
3.What is the culture’s position on environmental sustainability?
4.What is the culture’s position on other important issues facing the corporation(that is, on productivity, quality of performance, adaptability to changingconditions, and internationalization)?
5.Is the culture compatible with the employees’ diversity of backgrounds?
6.Does the company take into consideration the values of the culture of eachnation in which the firm operates?
C.Corporate Resources
1.Marketing
a.What are the corporation’s current marketing objectives, strategies,policies, and programs?
i.Are they clearly stated or merely implied from performanceand/or budgets?
ii.Are they consistent with the corporation’s mission, objectives,strategies, and policies and with internal and externalenvironments?
b.How well is the corporation performing in terms of analysis of marketposition and marketing mix (that is, product, price, place, and promotion)in both domestic and international markets? How dependent is thecorporation on a few customers? How big is its market? Where is itgaining or losing market share? What percentage of sales comes fromdeveloped versus developing regions? Where are current products in theproduct life cycle?
i.What trends emerge from this analysis?
ii.What impact have these trends had on past performance andhow might these trends affect future performance?
iii.Does this analysis support the corporation’s past and pendingstrategic decisions?
iv.Does marketing provide the company with a competitiveadvantage?
c.How well does the corporation’s marketing performance compare withthat of similar corporations?
d.Are marketing managers using accepted marketing concepts andtechniques to evaluate and improve product performance? (Considerproduct life cycle, market segmentation, market research, and productportfolios.)
e.Does marketing adjust to the conditions in each country in which itoperates?
f.What is the role of the marketing manager in the strategic managementprocess?
2.Financea.What are the corporation’s current financial objectives, strategies, and policies and programs?i.Are they clearly stated or merely implied from performance and/or budgets?ii.Are they consistent with the corporation’s mission, objectives, strategies, and policies and with internal and external environments?b.How well is the corporation performing in terms of financial analysis?For this section, you will consider ratio analysis (use the ratio analysis to identify financial strengths and weaknesses), common size statements (Use the common size statements to identify areas of change), and capitalization structure. You will prepare common sized statements (Income statement and Balance Sheet) for the current year and the two prior years. Further, you need to do complete ratio analysis for the company and find industry information for comparison. How balanced, in terms of cash flow, is the company’s portfolio of products and businesses? What are investor expectations in terms of share price?
i.What trends emerge from this analysis?
ii.Are there any significant differences when statements arecalculated in constant versus reported dollars?
iii.What impact have these trends had on past performance andhow might these trends affect future performance?
iv.Does this analysis support the corporation’s past and pendingstrategic decisions?
v.Does finance provide the company with a competitive advantageor disadvantage?
c.How well does the corporation’s financial performance compare withthat of similar corporations in the same industry?
d.Are financial managers using accepted financial concepts andtechniques to evaluate and improve current corporate and divisionalperformance? (Consider financial leverage, capital budgeting, ratioanalysis, and managing foreign currencies.)
e.Does finance adjust to the conditions in each country in which thecompany operates?
f.Does finance cope with global financial issues?
g.What is the role of the financial manager in the strategic managementprocess?
3.Research and Development (R&D)
a.What are the corporation’s current R&D objectives, strategies, policies,and programs?
i.Are they clearly stated or merely implied from performance orbudgets?
ii.Are they consistent with the corporation’s mission, objectives,strategies and policies and with internal and externalenvironments?
iii.What is the role of technology in corporate performance?
iv.Is the mix of basic, applied, and engineering researchappropriate given the corporate mission and strategies?
v.Does R&D provide the company with a competitive advantage?
b.What return is the corporation receiving from its investment in R&D?
c.Is the corporation competent in technology transfer? Does it useconcurrent engineering and cross-functional work teams in product andprocess design?
d.What role does technological discontinuity play in the company’sproducts?
e.How well does the corporation’s investment in R&D compare with theinvestments of similar corporations? How much R&D is beingoutsourced? Is the corporation using value-chain alliances appropriatelyfor innovation and competitive advantage?
f.Does R&D adjust to the conditions in each country in which thecompany operates?
g.What is the role of the R&D manager in the strategic managementprocess?
4.Operations and Logistics
a.What are the corporation’s current manufacturing/service objectives,strategies, policies, and programs?
i.Are they clearly stated or merely implied from performance orbudgets?
ii.Are they consistent with the corporation’s mission, objectives,strategies, and policies and with internal and externalenvironments?
b.What are the type and extent of operations capabilities of thecorporation? How much is done domestically versus internationally? Is theamount of outsourcing appropriate to be competitive? Is purchasing beinghandled appropriately? Which products have the highest and lowest profitmargins?
i.If the corporation is product oriented, consider plant facilities,type of manufacturing system (continuous mass production,intermittent job shop, or flexible manufacturing), age and type ofequipment, degree and role of automation and/or robots, plant
capacities and utilization, productivity ratings, and availability and type of transportation.
ii.If the corporation is service oriented, consider service facilities(hospital, theater, or school buildings), type of operations systems(continuous service over time to same clientele or intermittentservice over time to varied clientele), age and type of supportingequipment, degree and role of automation and use of masscommunication devices (diagnostic machinery, video machines),facility capacities and utilization rates, efficiency ratings ofprofessional and service personnel, and availability and type oftransportation to bring service staff and clientele together.
c.Are manufacturing or service facilities vulnerable to natural disasters,local or national strikes, reduction or limitation of resources fromsuppliers, substantial cost increases of materials, or nationalization bygovernments?
d.Is there an appropriate mix of people and machines (in manufacturingfirms) or of support staff to professionals (in service firms)?
e.How well does the corporation perform relative to the competition? Is itbalancing inventory costs (warehousing) with logistical costs (just-in-time)? Consider costs per unit of labor, material, and overhead; downtime;inventory control management and scheduling of service staff; productionratings; facility utilization percentages; and number of clients successfullytreated by category (if service firm) or percentage of orders shipped ontime (if product firm).
i.What trends emerge from this analysis?
ii.What impact have these trends had on past performance andhow might these trends affect future performance?
iii.Does this analysis support the corporation’s past and pendingstrategic decisions?
iv.Does operations provide the company with a competitiveadvantage?
f.Are operations managers using appropriate concepts and techniques toevaluate and improve current performance? Consider cost systems, qualitycontrol and reliability systems, inventory control management, personnel
scheduling, TQM, learning curves, safety programs, and engineering programs that can improve efficiency of manufacturing or of service.
g.Do operations adjust to the conditions in each country in which it hasfacilities?
h.What is the role of the operations manager in the strategic managementprocess?
5.Human Resources Management (HRM)
a.What are the corporation’s current HRM objectives, strategies, policies,and programs?
i.Are they clearly stated or merely implied from performanceand/or budgets?
ii.Are they consistent with the corporation’s mission, objectives,strategies, and policies and with internal and externalenvironments?
b.How well is the corporation’s HRM performing in terms of improvingthe fit between the individual employee and the job? Consider turnover,grievances, strikes, layoffs, employee training, and quality of work life.
i.What trends emerge from this analysis?
ii.What impact have these trends had on past performance andhow might these trends affect future performance?
iii.Does this analysis support the corporation’s past and pendingstrategic decisions?
iv.Does HRM provide the company with a competitive advantage?
c.How does this corporation’s HRM performance compare with that ofsimilar corporations?
d.Are HRM managers using appropriate concepts and techniques toevaluate and improve corporate performance? Consider the job analysisprogram, performance appraisal system, up-to-date job descriptions,training and development programs, attitude surveys, job design programs,quality of relationships with unions, and use of autonomous work teams.
e.How well is the company managing the diversity of its workforce?What is the company’s record on human rights? Does the companymonitor the human rights record of key suppliers and distributors?
f.Does HRM adjust to the conditions in each country in which thecompany operates? Does the company have a code of conduct for HRMfor itself and key suppliers in developing nations? Are employeesreceiving international assignments to prepare them for managerialpositions?
g.What is the role of outsourcing in HRM planning?
h.What is the role of the HRM manager in the strategic managementprocess?
6.Information Technology (IT)
a.What are the corporation’s current IT objectives, strategies, policies,and programs?
i.Are they clearly stated or merely implied from performanceand/or budgets?
ii.Are they consistent with the corporation’s mission, objectives,strategies, and policies and with internal and externalenvironments?
b.How well is the corporation’s IT performing in terms of providing auseful database, automating routine clerical operations, assisting managersin making routine decisions, and providing information necessary forstrategic decisions?
i.What trends emerge from this analysis?
ii.What impact have these trends had on past performance andhow might these trends affect future performance?
iii.Does this analysis support the corporation’s past and pendingstrategic decisions?
iv.Does IT provide the company with a competitive advantage?
c.How does this corporation’s IT performance and stage of developmentcompare with that of similar corporations? Is it appropriately using theInternet, intranet, and extranets?
d.Are IT managers using appropriate concepts and techniques to evaluateand improve corporate performance? Do they know how to build andmanage a complex database, establish Web sites with firewalls and virusprotection, conduct system analyses, and implement interactive decision-support systems?
e.Does the company have a global IT and Internet presence? Does it havedifficulty with getting data across national boundaries?
f.What is the role of the IT manager in the strategic management process?
V.Analysis of Strategic Factors (SWOT)
1.SWOT
List all of the strengths, weaknesses, opportunities and threats identified above (you do not need explanations here, they are above and for the most important ones, you will have notes in your EFAS and IFAS tables)
1.Summary of Internal Factors (List in the IFAS Table)
Which of these factors are core competencies? Which, if any, are distinctive competencies? Which of these factors are the most important to the corporation and to the industries in which it competes at the present time? Which might be important in the future? Which functions or activities are candidates for outsourcing?
2.Summary of External Factors (List in the EFAS Table)
Which of these forces and factors are the most important to the corporation and to the industries in which it competes at the present time? Which will be important in the future?
3.Situational Analysis (List in SFAS Matrix)
Of the external (EFAS) and internal (IFAS) factors listed above, which are the strategic (most important) factors that strongly affect the corporation’s present and future performance?
B.Review of Mission and Objectives
1.Are the current mission and objectives appropriate in light of the key strategicfactors and problems?
2.Should the mission and objectives be changed? If so, how?
3.If they are changed, what will be the effects on the firm?
VI.Strategic Alternatives and Recommended Strategy
A.Strategic Alternatives (Prepare a TOWS Matrix)
1.Can the current or revised objectives be met through more carefulimplementation of those strategies presently in use (for example, fine-tuning thestrategies)?
2.What are the major feasible alternative strategies available to the corporation?What are the pros and cons of each? Can corporate scenarios be developed andagreed on? (Alternatives must fit the societal environment, industry, andcorporation for the next three to five years.)
a.Consider stability, growth, and retrenchment as corporate strategies.
b.Consider cost leadership and differentiation as business strategies.
c.Consider any functional strategic alternatives that might be needed forreinforcement of an important corporate or business strategic alternative.
B.Recommended Strategy
1.Specify which of the strategic alternatives you are recommending for thecorporate, business, and functional levels of the corporation. Do you recommenddifferent business or functional strategies for different units of the corporation?
2.Justify your recommendation in terms of its ability to resolve both long-termand short-term problems and effectively deal with the strategic factors. Be sure toexplicitly explain how your recommendation is connected to SWOT, in otherwords, explain how it takes advantage of specific opportunities or countersspecific threats and how it uses strengths or overcomes weaknesses.
3.What policies should be developed or revised to guide effectiveimplementation?
4.What is the impact of your recommended strategy on the company’s core anddistinctive competencies?
VII.Implementation
A.What Kinds of Programs (for Example, Restructuring the Corporation or InstitutingTQM) Should Be Developed to Implement the Recommended Strategy?
1.Who should develop these programs?
2.Who should be in charge of these programs?
B.Are the Programs Financially Feasible? Can Pro Forma Budgets Be Developed andAgreed On? Are Priorities and Timetables Appropriate to Individual Programs?
C.Will New Standard Operating Procedures Need to Be Developed?
VIII.Evaluation and Control
A.Is the Current Information System Capable of Providing Sufficient Feedback onImplementation Activities and Performance? Can It Measure Strategic Factors?
1.Can performance results be pinpointed by area, unit, project, or function?
2.Is the information timely?
3.Is the corporation using benchmarking to evaluate its functions and activities?
B.Are Adequate Control Measures in Place to Ensure Conformance with theRecommended Strategic Plan?
1.Are appropriate standards and measures being used?
2.Are reward systems capable of recognizing and rewarding good performance?
3.What changes/updates might be needed to implement the recommendedstrategy.
Grading criteria
1.Completeness: how well did the student complete the entire project? Was anythingmissing? Were all of the required components included?
2.Quality and depth of analysis: did student dig deeply and find appropriate internal andexternal factors? Did they reasonably narrow those to appropriate strategic factors?
3.Strategic alternatives: did the student develop a list of appropriate and realistic strategicalternatives. Did they evaluate those alternatives using in internal and external factorsthey identified?
4.Justification of strategic recommendation: did the student present a compelling case thatthe recommendation was the best alternative? Did they use their strategic factors tojustify? Did they clearly tie their recommendation to SWOT?
5.Quality of writing: was the grammar correct and appropriate for business writing?
6.Presentation: Did the student use charts and graphs to make information more accessible?Did they avoid formatting errors, such as split charts and orphan headers?