Strategic Management, Accounting & Finance Review

These flashcards cover strategic management concepts (SBUs, portfolio matrices, Porter’s tools, alliances), core accounting principles and financial-statement effects, and essential finance topics (valuation, CAPM, capital structure) drawn from the lecture notes.

What is a Strategic Business Unit (SBU)?

A semi-independent part of an organization with its own mission, objectives, competitors, and responsibility for strategy and performance.

Name the three main business-portfolio matrices and their key dimensions.

BCG Matrix (market growth vs market share), McKinsey Matrix (industry attractiveness vs business strength), Parenting Matrix (value added by corporate parent).

Why is the McKinsey Matrix considered more nuanced than the BCG Matrix?

It evaluates SBUs on multiple factors of industry attractiveness and competitive strength, not just growth and share.

In Porter’s generic strategies, what does being "stuck in the middle" mean?

Failing to achieve either cost leadership or differentiation, leaving the firm without a sustainable competitive advantage.

List Porter’s Five Forces.

1) Threat of new entrants 2) Bargaining power of buyers 3) Bargaining power of suppliers 4) Threat of substitutes 5) Rivalry among existing competitors.

Define the global vs local dilemma.

The strategic tension between standardizing operations worldwide and adapting them to individual local markets.

What four strategy types appear on the Integration–Responsiveness Grid?

Global, Transnational, International, Multidomestic.

Give four common motives for forming strategic alliances.

Access new markets/technologies, share risks and costs, speed to market, enhance innovation or capabilities.

Differentiate a wholly owned subsidiary from an acquisition.

Wholly owned subsidiary is built from scratch; an acquisition involves purchasing an existing local firm.

What is due diligence in mergers and acquisitions?

A comprehensive review of risks, assets, liabilities, and opportunities before finalizing an investment or purchase.

How can alliances resemble cartels?

Firms may collaborate to fix prices, divide markets, or reduce competition, activities often illegal under competition law.

Explain “ease of entry” and its link to alliances or cartels.

It measures how easily new firms can enter a market; high barriers may drive incumbents to form alliances or cartels to protect their position or help newcomers overcome barriers.

What are Economies of Scale?

Cost advantages achieved as production volume increases, spreading fixed costs over more units to lower per-unit costs.

Name three fundamental accounting principles.

Prudence, Accruals, Going Concern (others include Consistency, Matching, Realization, Entity, Monetary Unit, Full Disclosure).

What does IFRS stand for and why is it important?

International Financial Reporting Standards—globally accepted rules that harmonize financial reporting across countries.

List the primary sections of each of the three core financial statements.

Balance Sheet: Assets, Liabilities, Equity. Income Statement: Revenues, Expenses, Net Income. Cash-Flow Statement: Operating, Investing, Financing flows.

Financial‐statement impact of purchasing shares or bonds.

Balance Sheet: financial assets increase; Income Statement: dividends/interest recognized as income; Cash Flow: investing outflow.

Define impairment and its accounting effects.

A permanent decline in an asset’s value; BS: asset written down, PL: impairment expense, CF: non-cash adjustment in operating activities.

What happens when 12 months of rent are prepaid?

Balance Sheet: prepaid asset rises; Income Statement: rent expensed monthly; Cash Flow: operating outflow at payment date.

How is a lawsuit provision recorded?

Balance Sheet: liability recognized; Income Statement: expense recorded when probable and reliably measurable.

Distinguish long-term from short-term investments.

Long-term (>1 year) such as buildings or patents; short-term (<1 year) easily convertible to cash like marketable securities.

Who are typical external users of financial statements?

Governments, banks, customers, investors, and other stakeholders.

Differentiate financial and managerial accounting.

Financial accounting provides external reports; managerial accounting supplies internal information for decision-making.

Classify assets and liabilities as current vs non-current.

Current: expected to be realized/settled within 1 year (cash, receivables, payables). Non-current: >1 year (equipment, long-term debt).

What does offsetting mean in financial statements?

Netting related assets against liabilities (e.g., bad-debt allowance offsets accounts receivable) to present a net figure.

Dividend declaration and payment effects on statements.

Balance Sheet: retained earnings and cash decrease; Income Statement: no effect; Cash-Flow Statement: financing outflow when paid.

Components of production cost used for inventory valuation.

Direct materials, direct labor, and manufacturing overhead.

Should manufacturing overhead be included in production cost?

Yes—factory rent, utilities, depreciation, etc., are indirect costs essential to full production cost.

Key cash-flow, balance-sheet, retained earnings, and income-statement effects when goods are produced.

CF: operating outflows for materials/labor; BS: inventory increases; RE: unaffected until sale; IS: COGS recognized upon sale reducing profit.

Give two long-term appreciation/valuation methods.

Straight-line depreciation for assets and Discounted Cash-Flow (DCF) for investment valuation (others include compound interest growth, DCF for projects).

Name three present-value techniques to assess a project’s worth.

Net Present Value (NPV), Internal Rate of Return (IRR), Discounted Cash-Flow (DCF).

Provide CAPM’s expected-return formula.

E(Ra) = Rf + βa [E(Rm) − R_f]. (expected Return = risk-free rate + beta times market risk premium.)

What does beta (β) measure?

An asset’s systematic risk or sensitivity relative to market movements (β>1 more volatile, β<1 less volatile than market).

Define the tax shield.

The reduction in taxable income from deductible interest payments on debt, lowering tax liability.

When is paying interest beneficial?

When the returns generated by the debt-financed investment exceed the after-tax cost of interest.

Do truly risk-free investments exist?

In theory yes (e.g., short-term government bills), but in practice almost all investments carry some risk.

List four factors investors examine before investing.

Expected return, risk level, growth potential, dividend policy (also financial stability, management quality).

Contrast equity and debt financing.

Equity: no mandatory repayment but dilutes ownership. Debt: fixed repayments and tax-deductible interest, but increases leverage.

What is meant by a company’s Debt/Equity capital structure?

The proportion of funding obtained from debt relative to equity, indicating financial leverage and risk.

Identify five common sources of startup capital.

Personal savings, friends and family, bank loans, government grants, venture capital.

How does Discounted Cash-Flow (DCF) differ from Net Present Value (NPV)?

DCF is the process of discounting future cash flows; NPV is the single figure produced—sum of discounted inflows minus initial outlay.

Criteria for choosing between competing investment projects.

Select the option with the highest positive NPV, considering risk, capital constraints, and strategic fit if projects are mutually exclusive.