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Essentials of Strategic Management: The Quest for Competitive Advantage 4th Edition by John Gamble, Arthur Thompson, Margaret Peteraf
Edition 4ISBN: 978-0078112898Essentials of Strategic Management: The Quest for Competitive Advantage 4th Edition by John Gamble, Arthur Thompson, Margaret Peteraf
Edition 4ISBN: 978-0078112898 Exercise 2
After you have read the Participant's Guide or Player's Manual for the strategy simulation exercise that you will participate in this academic term, you and your co-managers should come up with brief one- or two-paragraph answers to the questions that follow before entering your first set of decisions. While your answers to the first of the four questions can be developed from your reading of the manual, the remaining questions will require a collaborative discussion among the members of your company's management team about how you intend to manage the company you have been assigned to run.
What is our company's current situation? A substantive answer to this question should cover the following issues:
• Does your company appear to be in sound financial condition?
• What problems does your company have that need to be addressed?
What is our company's current situation? A substantive answer to this question should cover the following issues:
• Does your company appear to be in sound financial condition?
• What problems does your company have that need to be addressed?
Explanation
Verified
Verified
A company's financial soundness can be determined by the sources of the funds and applications of those funds in an effective manner. There are different methods to procure information about the company and interpret the financial stability of the company and some of them are as follows:
• An increase in return on investment will give more profits and also stability in earnings.
• The return on equity is high in the industry when compared to the others in the market.
• The cash flow is efficient and there is an improvement in the inflow.
• The increase in sales is also an indicator of financial soundness of a company.
However, the operational costs such as increase in production over heads, recruitment costs and marketing costs can affect the financial position of a company. The financial soundness of a company can also be determined using ratio analysis. Even though the company appears to be financially sound, the following problems need to be addressed:
• The ideal current ratio should be 2:1. This implies that the currents assets are sufficient enough to meet the short term liabilities of the company. But the ratio here is lesser than 2:1. So, the current assets are not sufficient to meet the current liabilities.
• The average collection period of the company is much more. So, the debts are not collected on time. The company should focus on the credit collection policies.
• Long term debt to equity ratio is higher. The long term debts of the company are more. It creates fixed liabilities of paying interest for the company.
• An increase in return on investment will give more profits and also stability in earnings.
• The return on equity is high in the industry when compared to the others in the market.
• The cash flow is efficient and there is an improvement in the inflow.
• The increase in sales is also an indicator of financial soundness of a company.
However, the operational costs such as increase in production over heads, recruitment costs and marketing costs can affect the financial position of a company. The financial soundness of a company can also be determined using ratio analysis. Even though the company appears to be financially sound, the following problems need to be addressed:
• The ideal current ratio should be 2:1. This implies that the currents assets are sufficient enough to meet the short term liabilities of the company. But the ratio here is lesser than 2:1. So, the current assets are not sufficient to meet the current liabilities.
• The average collection period of the company is much more. So, the debts are not collected on time. The company should focus on the credit collection policies.
• Long term debt to equity ratio is higher. The long term debts of the company are more. It creates fixed liabilities of paying interest for the company.
Essentials of Strategic Management: The Quest for Competitive Advantage 4th Edition by John Gamble, Arthur Thompson, Margaret Peteraf
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