St. mgt. chapter 4
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The document discusses conducting an internal audit to identify a company's key strengths and weaknesses. It describes evaluating different functional areas including management, marketing, finance, production, research and development, and management information systems. Financial ratios are also analyzed to assess the company's financial position. The internal audit process involves gathering information from different departments and identifying 10-15 most important strengths and weaknesses to focus on.
St. mgt. chapter 4
- 1. 1 Ch 4 -1 Chapter 4The Internal Assessment Ch 4 -2 Ch 4 -3 Internal Audit Identify strengths and weaknesses in Management Marketing Finance and accounting Production and operations Research and development Management information systems Ch 4 -4 Internal strengths/weaknesses External opportunities/threats Clear statement of mission Nature of an Internal Audit Basis for Objectives & Strategies Ch 4 -5 Key Internal Forces Distinctive Competencies: Firm’s strengths that cannot be easily matched or imitated by competitors Ch 4 -6 Key Internal Forces Distinctive Competencies: Building competitive advantage involves taking advantage of distinctive competencies
- 2. 2 Ch 4 -7 Internal Audit Process Information gathered from: Management Marketing Finance/accounting Production/operations Research & development Management information systems Parallels process of external audit Ch 4 -8 Internal Audit Managers and employees from all areas provide information A team of managers then selects 10 to 15 key organizational strengths and weaknesses to focus on Ch 4 -9 Internal Audit Exemplifies complexity of relationships among functional areas of the business Financial Ratio Analysis Ch 4 -10 Integrating Strategy & Culture Pattern of behavior developed by an organization as it learns to cope with its problem of external adaptation and internal integration . . . is considered valid and taught to new members as the correct way to perceive, think, and feel Organizational Culture Ch 4 -11 Integrating Strategy & Culture Organizational Culture Resistant to change May represent: Strength Weakness Ch 4 -12 Cultural Products Values Legends Beliefs Heroes Rites Symbols Rituals Myths Integrating Strategy & Culture
- 3. 3 Ch 4 -13 Integrating Strategy & Culture Organizational Culture Can Inhibit Strategic Management Miss external changes due to strongly held beliefs Natural tendency to “hold the course” even during times of strategic change Ch 4 -14 Marketing Marketing Functions 1.Customer analysis 2.Selling products/services 3.Product & service planning 4.Pricing 5.Distribution 6.Marketing research 7.Opportunity analysis Ch 4 -15 Customer Analysis Customer surveys Consumer information Market positioning strategies Customer profiles Market segmentation strategies Marketing Ch 4 -16 Finance/Accounting 1.Investment decision (Capital budgeting) 2.Financing decision 3.Dividend decision Ch 4 -17 Firm’s ability to meet its short-term obligations Ratios Current ratio Quick (or acid test) ratio Basic Financial Ratios Liquidity Ratios Ch 4 -18 Extent of debt financing Ratios Debt-to-total assets Debt-to-equity Long-term debt-to-equity Times-interest-earned Basic Financial Ratios Leverage Ratios
- 4. 4 Ch 4 -19 Effective use of firm’s resources Ratios Inventory turnover Fixed assets turnover Total assets turnover Accounts receivable turnover Average collection period Basic Financial Ratios Activity Ratios Ch 4 -20 Effectiveness shown by returns on sales and investment Ratios Gross profit margin Operating profit margin Net profit margin Return on total assets (ROA) Basic Financial Ratios Profitability Ratios Ch 4 -21 Effectiveness shown by returns on sales & investment Ratios Return on stockholders’ equity (ROE) Earnings per share Price-earnings ratio Basic Financial Ratios Profitability Ratios(cont’d) Ch 4 -22 Firm’s ability to maintain economic position Ratios Sales Net Income Earnings per share Dividends per share Basic Financial Ratios Growth Ratios Ch 4 -23 Finance/Accounting Audit 1.Where is the firm financially strong/weak as indicated by financial ratio analysis? 2.Can the firm raise needed short-term capital? 3.Can the firm raise needed long-term capital through debt and/or equity? 4.Does the firm have sufficient working capital? 5.Are capital budgeting procedures effective? Ch 4 -24 Finance/Accounting Audit 6.Are dividend payout policies reasonable? 7.Does the firm have good relations with its investors and stockholders? 8.Are the firm’s financial managers experienced and well trained? 9.Is the firm’s debt situation excellent?
- 5. 5 Ch 4 -25 Production/Operations Production/Operations Functions Process Capacity Inventory Workforce Quality Ch 4 -26 Production/Operations Audit •Are suppliers of materials, parts, etc. reliable and reasonable? •Are facilities, equipment, machinery, and offices in good condition? •Are inventory-control policies and procedures effective? Ch 4 -27 Production/Operations Audit •Are quality-control policies & procedures effective? •Are facilities, resources, and markets strategically located? •Does the firm have technological competencies? Ch 4 -28 Research & Development Research & Development Functions Development of new products beforecompetitors Improving product quality Improving manufacturing processes to reduce costs These functions can be done internally or externally Ch 4 -29 Research & Development Audit •Are the R&D facilities adequate? •If R&D is outsourced, is it cost-effective? •Are the R&D personnel well qualified? •Are R&D resources allocated effectively? Ch 4 -30 Research & Development Audit •Are MIS and computer systems adequate? •Is communication between R&D and other organizational units effective? •Are present products technologically competitive?
- 6. 6 Ch 4 -31 Management Information Systems Purpose Improve performance of an enterprise by improving the quality of managerial decisions Ch 4 -32 Management Information Systems Audit Do all managers use the information system to make decisions? Is there a CIO or Director of Information Systems position in the firm? Are data updated regularly? Do managers from all functional areas contribute input to the information system? Are there effective passwords for entry into the firm’s information system? Ch 4 -33 Management Information Systems Audit Are strategists of the firm familiar with the information systems of rival firms? Is the information system user-friendly? Do all users understand the competitive advantages that information can provide? Are computer training workshops provided for users? Is the firm’s system being improved? Ch 4 -34 Internal Factor Evaluation (IFE) Matrix 1.List key internal factors 2.Assign a weight ranging from 0.0 to 1.0 3.Assign a 1 to 4 rating to each factor 4.Multiply the weight times the rating 5.Sum the weighted scores