Short Answers

A. Define stakeholders and list three stakeholder groups

B. Provide an example of potential conflict between two stakeholder groups

C. List and briefly discuss the two ways top management might resolve stakeholder conflict

-create and win/win culture in the firm

-identify and prioritize stakeholder groups

A. Any individual or groups who can impact or are impacted by the actions of the firm. Stakeholder groups include stockholders, lenders, employees, managers, unions, host community, suppliers, and customers

B. Potential conflict: stockholders man want free cash flow to paid out in dividends, but unions want to use it for cost of living adjustments, or management wants to purchase new equipment

C. Create win/win culture: culture where all stakeholders recognize that if the firm succeed (long term above average return) they too succeed.

Prioritizing stakeholder groups- not all are equally important, so they may need to rank them and seek to meet the need so f the most important stakeholders first while minimally satisfying all

List porters five forces of competition and briefly discuss how each of the forces can negatively influence industry profits. Be specific.

Threat of new entrants- bring more supply not demand. Decreases prices, revenue and industry profitability

Power of suppliers- powerful suppliers can negatively impact industry profitability by increasing the cost of inputs they provide or decreasing the quality of the items

Power of buyers- powerful buyers can negatively impact by demanding lower prices from firms or dictating favorable terms

Threat of substitutes- products or services outside the industry that perform the same or similar function, decrease industry profitability by reducing the firms ability to pass on increased costs to buyers (buyers will instead purchase substitutes, to meet their needs)

Threat of rivalry- intense rivalry can negatively impact rivalry because actions taken by one firm often results in reactions from others. Leading to price wars and or an increase in advertising, both of which increase costs for the industry

A. List and define the four criteria for a capability to be a core competency and thus a source of sustainable competitive advantage

B. Provide a specific example of each capability (four examples total)

A. Valuable, rare, difficult to imitate, and non-substitutable capabilities

Valuable- assist in exploiting opportunities or neutralizing threats (increase revenue, decrease cost, or both)

Ex. Walmarts logistical expertise lowers costs along the value chain which helps drives sales

Rare- capabilities possessed by few, if any competitors

Ex. Pharmaceutical firms R&D capabilities. Few firms possess the capability to create, and bring to market lifesaving drugs

Difficult to imitate- competitors cannot supplicate the capability with exact precision

Ex. Harley Davidsons relationship with customers, while competitors can imitate their look and sound, they have not been able to,e or replicate their exceptional customer loyalty

Non substitutable capabilities- can another capability perform the same task (is there a strategic equivalent)

Ex. Netflix used technological capabilities to overcome blockbusters convenience, selection, and low prices

List/briefly discuss three limitations of using ratios in financial analysis (also keel these in mind for your ratio analyses in the company analysis)

i. Many large firms operate different divisions in different industries making it difficult to find meaningful set of industry average ratios

ii. Inflation may have badly distorted a company’s balance sheet. In this case, profits will also be affected.

Inventory- account to GAAP inv. Should be measured at the lowest of either cost or market value-inflation can impact the method chosen and co. Net income

iii. Seasonal factors can also distort ratio Analysis. understanding seasonal factors that affect a business can reduce the chance of misinterpretation a retailers inventory may be high in the summer in preparation for the back to school season. As a result, the company’s accounts payable will be high and its ROA low.

iv. Different accounting practices can distort comparisons even within the same company (leasing versus buying equipment, LIFO versus FIFO, etc)

v. it is difficult to generalize about whether a ratio is good or not. A high cash ratio in a historically classified growth company may be interpreted as a good sign, but could also be seen as a sign that the company is no longer a growth company and should command lower valuations

vi. A company may have some good and some bad ratios, making it difficult to tell if it’s a good or weak company

Define outsourcing and briefly discuss the three advantages (value enhancing) and disadvantages (value reducing). Be specific. Topic 3

Outsourcing: contracting (purchasing) of primary or secondary activities from an outside firm or entity

Value enhancing (advantages): focus on what they do best, may allow company to couple and de-couple/re-couple

Value reducing (disadvantages):potential to hurt the company’s reputation, partners become competitors, potential loss of proprietary information, and loss of control over the primary activity