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Financial Analysis: Sizing up Firm Performance

Chapter 4

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Slide Contents

Learning Objectives
Principles Used in this Chapter

Why Do We Analyze Financial Statements

Common Size Statements – Standardizing Financial Information

Using Financial Ratios

Selecting a Performance Benchmark

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Slide Contents (cont.)

The Limitations of Ratio Analysis

Key Terms

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Learning Objectives

Explain what we can learn by analyzing a firm’s financial statements.

Use common size financial statements as a tool of financial analysis.

Calculate and use a comprehensive set of financial ratios to evaluate a company’s performance.

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Learning Objectives (cont.)

Select an appropriate benchmark for use in performing a financial ratio analysis.

Describe the limitations of financial ratio analysis.

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Principles Used in this Chapter

Principle 1: Money has a Time Value.

Financial statements typically ignore time value of money. Thus financial managers and accountants may view financial statements very differently.

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Principles Used in this Chapter (cont.)

Principle 2: There Is a Risk-Return Tradeoff.

Financial statement analysis can yield important information about the strengths and weaknesses of a firm’s financial condition. The analysts can use such information to infer the risk-return tradeoff in a firm.

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Principles Used in this Chapter (cont.)

Principle 3: Cash Flows Are the Source of Value.

An important use of a firm’s financial statements involves analyzing past performance as a tool for predicting future cash flows.

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Principles Used in this Chapter (cont.)

Principle 4: Market Prices Reflect Information.

Financial statement analysis requires gathering information about a firm’s financial condition, which is important to the valuation of the firm.

4.1 Why Do We Analyze Financial Statements?

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Why Do We Analyze Financial Statements?

A firm’s financial statements can be analyzed internally (by employees, managers) and externally (by bankers, investors, customers, and other interested parties).

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Why Do We Analyze Financial Statements? (cont.)

An internal financial analysis might be done:
To evaluate the performance of employees and determine their pay raises and bonuses.
To compare the financial performance of the firm’s different divisions.
To prepare financial projections, such as those associated with the launch of a new product.
To evaluate the firm’s financial performance in light of its competitors and determine how the firm might improve its operations.

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Why Do We Analyze Financial Statements? (cont.)

A variety of firms and individuals that have an economic interest might also undertake an external financial analysis:
Banks and other lenders deciding whether to loan money to the firm.
Suppliers who are considering whether to grant credit to the firm.
Credit-rating agencies trying to determine the firm’s creditworthiness.

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Why Do We Analyze Financial Statements? (cont.)

Professional analysts who work for investment companies considering investing in the firm or advising others about investing.

Individual investors deciding whether to invest in the firm.

4.2 Common Size Statements – Standardizing Financial Information

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Common Size Statements – Standardizing Financial Information

A common size financial statement is a standardized version of a financial statement in which all entries are presented in percentages.

A common size financial statement helps to compare entries in a firm’s financial statements, even if the firms are not of equal size.

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Common Size Statements – Standardizing Financial Information (cont.)

How to prepare a common size financial statement?
For a common size income statement, divide each entry in the income statement by the company’s sales.
For a common size balance sheet, divide each entry in the balance sheet by the firm’s total assets.

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Common Size Income Statement
(H. J. Boswell, Inc.)

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Table 4-1 Observations

Table 4-1 is created by dividing each entry in the income statement found in Table 3-1 by firm sales for 2010.
Cost of goods sold make up 75% of the firm’s sales resulting in a gross profit of 25%.
Selling expenses account for about 3% of sales. Income taxes account for 4.1% of the firm’s sales.
After accounting for all expenses, the firm generates net income of 7.6% of firm’s sales.

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Common Size Balance Sheet
(H. J. Boswell, Inc.)

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Table 4-2 Observations

Table 4-2 is created by dividing each entry in the balance sheet found in Table 3-2 by total assets for the year.
Total current assets increased by 5.6% in 2010 while total current liabilities declined by 2%.
Long-term debt account for 39.2% of firm’s assets, showing a decline of 1.7%.
Retained earnings increased by 5.8% in 2010.

4.3 Using Financial Ratios

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Using Financial Ratios

Financial ratios provide a second method for standardizing the financial information on the income statement and balance sheet.

A ratio by itself may have no meaning. Hence, a given ratio is compared to: (a) ratios from previous years; or (b) ratios of other firms in the same industry.
If the differences in the ratios are significant, more in-depth analysis must be done.

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Using Financial Ratios (cont.)

Question	Category of Ratios Used
1. How liquid is the firm? Will it be able to pay its bills as they become due?	Liquidity ratios
2. How has the firm financed the purchase of its assets?	Capital structure ratios
3. How efficient has the firm’s management been in utilizing it assets to generate sales?	Asset management efficiency ratios
4. Has the firm earned adequate returns on its investments?	Profitability ratios
5. Are the firm’s managers creating value for shareholders?	Market value ratios

Liquidity Ratios

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Liquidity Ratios

Liquidity ratios address a basic question: How liquid is the firm?
A firm is financially liquid if it is able to pay its bills on time. We can analyze a firm’s liquidity from two perspectives:
Overall or general firm liquidity
Liquidity of specific current asset accounts

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Liquidity Ratios (cont.)

Overall liquidity is analyzed by comparing the firm’s current assets to the firm’s current liabilities.

Liquidity of specific assets is analyzed by examining the timeliness in which the firm’s primary liquid assets – accounts receivable and inventories – are converted into cash.

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Liquidity Ratios: Current Ratio

The overall liquidity of a firm is analyzed by computing the current ratio and acid-test ratio.

Current Ratio: Current Ratio compares a firm’s current (liquid) assets to its current (short-term) liabilities.

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Liquidity Ratios: Current Ratio (cont.)

The text computes the current ratio for H.J. Boswell, Inc. for 2010.

What is the current ratio for 2009?

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Liquidity Ratios: Current Ratio (cont.)

Current Ratio = $477 ÷ 292.5 = 1.63 times

The firm had $1.63 in current assets for every $1 it owed in current liability. The current ratio improved in 2010 to 2.23 times as the current assets increased significantly in 2010.

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Liquidity Ratios: Quick Ratio

The overall liquidity of a firm is also analyzed by computing the Acid-Test (Quick) Ratio. This ratio excludes the inventory from current assets as inventory may not always be very liquid.

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Liquidity Ratios: Quick Ratio
(cont.)

The text computes the quick ratio for H.J. Boswell, Inc. for 2010.

What is the quick ratio for 2009?

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Liquidity Ratios: Quick Ratio
(cont.)

Quick Ratio = ($477-$299.50) ÷ ($292.50)

= 0.63 times

The firm is clearly less liquid using quick ratio as the firm has only $0.63 in current assets (less inventory) to cover $1 in current liabilities. The quick ratio improved in 2010 to 0.94 times largely due to an increase in current assets.

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Liquidity Ratios:
Individual Asset Categories

We can also measure the liquidity of the firm by examining the liquidity of individual current asset accounts, including accounts receivable and inventories.
We can assess the liquidity of the firm by measuring how long it takes the firm to convert its accounts receivables and inventories into cash.

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Liquidity Ratios: Accounts Receivable

Average Collection Period measures the number of days it takes the firm to collects its receivables.

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Liquidity Ratios: Accounts Receivable (cont.)

The text computes the average collection period for H.J. Boswell, Inc. for 2010.

What will be the average collection period for 2009 if we assume that the annual credit sales were $2,500 million in 2009?

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Liquidity Ratios: Accounts Receivable (cont.)

Daily Credit Sales
= $2,500 million ÷ 365 days = $6.85 million
Average Collection Period

= Accounts Receivable ÷ Daily Credit Sales

= $139.5m ÷ $6.85m = 20.37 days

The firm collects its accounts receivable in 20.37 days.

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Liquidity Ratios: Accounts Receivable Turnover Ratio

Accounts Receivable Turnover Ratio measures how many times accounts receivable are “rolled over” during a year.

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Liquidity Ratios: Accounts Receivable Turnover Ratio (cont.)

The text computes the accounts receivable turnover ratio for H.J. Boswell, Inc. for 2010.

What will be the accounts receivable turnover ratio for 2009 if we assume that the annual credit sales were $2,500 million in 2009?

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Liquidity Ratios: Accounts Receivable Turnover Ratio (cont.)

Accounts Receivable Turnover

= $2,500 million ÷ $139.50

= 17.92 times

The firm’s accounts receivable were turning over at 17.92 times per year.

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Liquidity Ratios:
Inventory Turnover Ratio

Inventory turnover ratio measures how many times the company turns over its inventory during the year. Shorter inventory cycles lead to greater liquidity since the items in inventory are converted to cash more quickly.

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Liquidity Ratios:
Inventory Turnover Ratio (cont.)

The text computes the inventory turnover ratio for H.J. Boswell, Inc. for 2010.

What will be the inventory turnover ratio for 2009 if we assume that the cost of goods sold were $1,980 million in 2009?

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Liquidity Ratios:
Inventory Turnover Ratio (cont.)

Inventory Turnover Ratio

= $1,980 ÷ $229.50

= 8.63 times

The firm turned over its inventory 8.63 times per year.

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Liquidity Ratios:
Days’ Sales in Inventory

We can express the inventory turnover ratio in terms of the number of days the inventory sits unsold on the firm’s shelves.
Days’ Sales in Inventory

= 365÷ inventory turnover ratio

= 365 ÷ 8.63 = 42.29 days

The firm, on average, holds it inventory for about 42 days.

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Can a Firm Have Too Much Liquidity?

A high investment in liquid assets will enable the firm to repay its current liabilities in a timely manner.

However, an excessive investments in liquid assets can prove to be costly as liquid assets (such as cash) generate minimal return.

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Checkpoint 4.1

Evaluating Dell Computer Corporation’s (DELL) Liquidity

You work for a small company that manufactures a new memory storage device. Computer giant Dell has offered to put the new device in their laptops if your firm will extend them credit terms that allow them 90 days to pay. Since your company does not have many cash resources, your boss has asked that you look into Dell’s liquidity and analyze its ability to pay their bills on time using the following accounting information for Dell and two other computer firms (figures in thousands of dollars):

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Checkpoint 4.1

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Checkpoint 4.1

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Checkpoint 4.1

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Checkpoint 4.1: Check Yourself

Calculate HP’s inventory turnover ratio. Why do you think this ratio is so much lower than Dell’s inventory turnover ratio?

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Step 1: Picture the Problem

One of the indicators of liquidity of the firm is the inventory turnover ratio. This ratio will measure how many days items remain in inventory before being sold.
Inventory turnover ratio is important as it has implications for cash flows and profitability of a firm.

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Step 2: Decide on a Solution Strategy

We will use the inventory turnover ratio to determine HP’s inventory turnover ratio. This will give us clues about inventory practices at HP.
We will use the following equation to compute the Inventory Turnover (IT) ratio
IT ratio = Cost of Goods Sold ÷ Inventories

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Step 3: Solve

Inventory Turnover Ratio for HP
= Cost of Goods Sold ÷ Inventories
= $69,178,000 ÷ 7,750,000
= 8.93

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Step 4: Analyze

HP’s inventory turnover ratio indicates that the inventory at HP remains on shelf for (365 ÷ 8.93) days or 40.87 days. This is much higher than Dell that has an inventory turnover ratio of 79.79 or shelf life of only 4.57 days.

The significant difference must be investigated further as the two firms are in the same industry.

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Step 4: Analyze (cont.)

There are two reasons why HP has a lower turnover of inventories relative to Dell:
HP sells computers out of inventory of computers while Dell builds computers only when orders are received.
HP carries more parts inventory on hand than does Dell

Capital Structure Ratios

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Capital Structure Ratios

Capital structure refers to the way a firm finances its assets.
Capital structure ratios address the important question: How has the firm financed the purchase of its assets?
We will use two ratios, debt ratio and times interest earned ratio, to answer the question.

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Capital Structure Ratios (cont.)

Debt ratio measures the proportion of the firm’s assets that are financed by borrowing or debt financing.

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Capital Structure Ratios (cont.)

The text computes the debt ratio for H.J. Boswell, Inc. for 2010.

What will be the debt ratio for 2009?

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Capital Structure Ratios (cont.)

Debt Ratio
= $1,012.50 million ÷ $1,764 million
= 57.40%

The firm financed 57.39% of its assets with debt.

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Capital Structure Ratios (cont.)

Times Interest Earned Ratio measures the ability of the firm to service its debt or repay the interest on debt.

We use EBIT or operating income as interest expense is paid before a firm pays its taxes.

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Capital Structure Ratios (cont.)

The text computes the times interest earned ratio for H.J. Boswell, Inc. for 2010.

What will be the times interest earned ratio for 2009 if we assume interest expense of $65 million and EBIT of $350 million?

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Capital Structure Ratios (cont.)

Times Interest Earned

= $350 million ÷ $65 million = 5.38 times

Thus the firm can pay its total interest expense 5.38 times or interest consumed 1/5.38th or 18.58% of its EBIT. Thus, even if the EBIT shrinks by 81.42% (100-18.58), the firm will be able to pay its interest expense.

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Checkpoint 4.2

Comparing the Financing Decisions of Home Depot (HD) and Lowes Corporation (LOW)

You inherited a small sum of money from your grandparents and currently have it in a savings account at your local bank. After enrolling in your first finance class in business school you have decided that you would like to begin investing your money in the common stock of a few companies. The first investment you are considering is stock in either Home Depot or Lowes. Both firms operate chains of home improvement stores throughout the United States and other parts of the world.

In your finance class you learned that an important determinant of the risk of investing in a firm’s stock is driven by the firm’s capital structure, or how it has financed its assets. In particular, the more money the firm borrows, the greater is the risk that the firm may become insolvent and bankrupt. Consequently, the first thing you want to do before investing in either company’s stock is to compare how they financed their investments. Just how much debt financing have the two firms used?

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Checkpoint 4.2

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Checkpoint 4.2

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Checkpoint 4.2

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Checkpoint 4.2: Check Yourself

What would be Home Depot’s times interest earned ratio if interest payments remained the same, but net operating income dropped by 80% to only $1.9346 billion? Similarly if Lowes’ net operating income dropped by 80%, what would its times interest earned ratio be?

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Step 1: Picture the Problem

Times interest earned ratio is an important ratio for firms that use debt financing. It measures the firm’s ability to service its debt.

The ratio requires comparing net operating income or EBIT with Interest expense. Both items are found on the income statement.

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Step 1: Picture the Problem (cont.)

Picture an Income Statement
Sales
Less: Cost of Good Sold
Equals: Gross Profit
Less: Operating Expenses
Equals: Net Operating Income (EBIT)
Less: Interest Expense
Equals: Earnings before Taxes
Less: Taxes
Equals Net Income

EBIT

Interest

Expense

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Step 2: Decide on a Solution Strategy

Here we are considering the impact of a drop in EBIT on the times interest earned ratio of Home Depot and Lowes. We will use the following ratio to measure the times interest earned (TIE) ratio.

TIE = EBIT ÷ Interest Expense

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Step 3: Solve

Times Interest Earned (TIE)
= EBIT ÷ Interest Expense

TIE (Home Depot)
= $1.9346 billion ÷ $0.392 billion = 4.94 times
TIE (Lowes)
= $1.03 billion ÷$0.154 billion = 6.69 times

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Step 4: Analyze

We observe that a drop in net operating income leads to a significant drop in times interest earned ratio for both the firms.

The times interest earned ratio drops from 24.68 to 4.94 for Home Depot and from 33.45 to 6.69 for Lowes.

Should creditors be worried by this drop?

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Step 4: Analyze (cont.)

The ratio is still reasonably safe.

For example, for Home Depot, it indicates that the firm can pay its interest expense 4.94 times out of its EBIT. Thus, even if the EBIT shrank further by 79.75% (1-1/4.94 = 1-.2025 or 79.75%), it can still pay its interest expense.

Asset Management Efficiency Ratios

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Asset Management Efficiency Ratios

Asset management efficiency ratios measure a firm’s effectiveness in utilizing its assets to generate sales.
They are commonly referred to as turnover ratios as they reflect the number of times a particular asset account balance turns over during a year.

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Asset Management Efficiency Ratios (cont.)

Total Asset Turnover Ratio represents the amount of sales generated per dollar invested in firm’s assets.

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Asset Management Efficiency Ratios (cont.)

The text computes the total asset turnover ratio for H.J. Boswell, Inc. for 2010.

What will be the total asset turnover ratio for 2009 if we assume the total sales in 2009 were $2,500 million?

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Asset Management Efficiency Ratios (cont.)

Total Asset Turnover
= $2,500 million ÷ $1,764 million = 1.42 times

Thus the firm generated $1.42 in sales per dollar of assets in 2009.

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Asset Management Efficiency Ratios (cont.)

Fixed asset turnover ratio measures firm’s efficiency in utilizing its fixed assets (such as property, plant and equipment).

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Asset Management Efficiency Ratios (cont.)

The text computes the fixed asset turnover ratio for H.J. Boswell, Inc. for 2010.

What will be the fixed asset turnover ratio for 2009 if we assume sales of $2,500 million for 2009?

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Asset Management Efficiency Ratios (cont.)

Fixed Asset Turnover
= $2,500 million ÷ $1,287 million = 1.94 times

The firm generated $1.94 in sales per dollar invested in plant and equipment.

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Asset Management Efficiency Ratios (cont.)

We could similarly compute the turnover ratio for other assets.

We had earlier computed the receivables turnover and inventory turnover, which measured firm effectiveness in managing its investments in accounts receivables and inventories.

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Asset Management Efficiency Ratios (cont.)

For Boswell, 2010

Total Asset Turnover

= Sales ÷ Total Assets

= $2,700m ÷ $1,971m = 1.37

Fixed Asset Turnover

= Sales ÷ Net Plant and Equipment

= $2,700m ÷$1,327.5m = 2.03

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Asset Management Efficiency Ratios (cont.)

For Boswell, 2010

Receivables Turnover

= Credit Sales ÷ Accounts Receivable

= $2,700m ÷ $162m = 16.67 times

Inventory Turnover

= Cost of Goods Sold ÷ Inventories

= $2,025m ÷$378m = 3.36 times

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Asset Management Efficiency Ratios (cont.)

The following grid summarizes the efficiency of Boswell’s management in utilizing its assets to generate sales in 2010.

Turnover Ratio	Boswell	Peer Group	Assessment
Total Assets	1.37	1.15	Good
Fixed Assets	2.03	1.75	Good
Receivables	16.67	14.60	Good
Inventory	5.36	7.0	Poor

Profitability Ratios

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Profitability Ratios

Profitability ratios address a very fundamental question: Has the firm earned adequate returns on its investments?
We answer this question by analyzing the firm’s profit margin, which predict the ability of the firm to control its expenses, and the firm’s rate of return on investments.

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Profitability Ratios (cont.)

Two fundamental determinants of firm’s profitability and returns on investments are the following:
Cost Control
Is the firm controlling costs and earning reasonable profit margin?
Efficiency of asset utilization
Is the firm efficiently utilizing the assets to generate sales?

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Profitability Ratios (cont.)

Gross profit margin shows how well the firm’s management controls its expenses to generate profits.

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Profitability Ratios (cont.)

The text computes the gross profit margin ratio for H.J. Boswell, Inc. for 2010.

What will be the gross profit margin ratio for 2009 if we assume sales of $2,500 million and gross profit of $650 million for 2009?

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Profitability Ratios (cont.)

Gross Profit Margin
= $650 million ÷ $2,500 million = 26%

The firm spent $0.74 for cost of goods sold for each dollar of sales. Thus, $0.26 out of each dollar of sales goes to gross profits.

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Profitability Ratios (cont.)

Operating Profit Margin measures how much profit is generated from each dollar of sales after accounting for both costs of goods sold and operating expenses. It thus also indicates how well the firm is managing its income statement.

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Profitability Ratios (cont.)

The text computes the operating profit margin ratio for H.J. Boswell, Inc. for 2010.

What will be the operating profit margin ratio for 2009 if we assume sales of $2,500 million and net operating income of $350 million for 2009?

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Profitability Ratios (cont.)

Operating Profit Margin

= $350 million ÷ $2,500 million = 14%

Thus the firm generates $0.14 in operating profit for each dollar of sales.

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Profitability Ratios (cont.)

Net Profit Margin measures how much income is generated from each dollar of sales after adjusting for all expenses (including income taxes).

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Profitability Ratios (cont.)

The text computes the net profit margin ratio for H.J. Boswell, Inc. for 2010.

What will be the net profit margin ratio for 2009 if we assume sales of $2,500 million and net income of $217.75 million for 2009?

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Profitability Ratios (cont.)

Net Profit Margin
= $217.75 million ÷ $2,500 million = 8.71%

The firm generated $0.087 for each dollar of sales after all expenses (including income taxes) were accounted for.

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Profitability Ratios (cont.)

Operating Return on Assets ratio is the summary measure of operating profitability, which takes into account both the management’s success in controlling expenses, contributing to profit margins, and its efficient use of assets to generate sales.

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Profitability Ratios (cont.)

The text computes the operating return on assets ratio for H.J. Boswell, Inc. for 2010.

What will be the operating return on assets ratio for 2009 if we assume EBIT or net operating income of $350 million for 2009?

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Profitability Ratios (cont.)

Operating Return on Assets
= $350 million ÷$1,764 million = 19.84%

The firm generated $0.1984 of operating profits for every $1 of its invested assets.

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Profitability Ratios (cont.)

Decomposing the OROA ratio: We can use the following equation to decompose the OROA ratio that allows us to analyze the firm’s ability to control costs and utilize its investments in assets efficiently.

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Profitability Ratios (cont.)

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Figure 4-1 Observations

Firm’s OROA (operating return on assets) is better than its peers. Thus the firm earned more net operating income per dollar invested in assets.
Firm’s OPM (operating profit margin) is lower than its peers. Thus the firm retained a lower percentage of its sales in net operating income.
Firm’s TATO (total asset turnover ratio) is higher than its peers. Thus the firm generated more sales from its assets.

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Figure 4-1 Recommendations

The firm has two opportunities to improve its profitability:

Reduce costs - The firm must investigate the cost of goods sold and operating expenses to see if there are opportunities to reduce costs.

Reduce inventories – The firm must investigate if it can reduce the size of its inventories.

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Checkpoint 4.3

Evaluating the Operating Return on Assets Ratio for Home Depot (HD) and Lowes (LOW)

In Checkpoint 4.2 we evaluated how much debt financing Home Depot and Lowes used. We continue our analysis by evaluating the operating return on assets (OROA) earned by the two firms. Calculate the net operating income each firm earned during 2007 relative to the total assets of each firm using the information found below:

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Checkpoint 4.3

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Checkpoint 4.3

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Checkpoint 4.3

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Checkpoint 4.3: Check Yourself

If Home Depot were able to raise its total asset turnover ratio to 2.5 while maintaining its current operating profit margin, what would happen to its operating return on assets?

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Step 1: Picture the Problem

The operating return on assets ratio for a firm is determined by two factors: cost control and efficiency of asset utilization. It is expressed by equation 4-13a. Here the focus is on asset utilization i.e. improvement in total asset turnover ratio.

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Step 2: Decide on a Solution Strategy

We will analyze the impact on operating return on assets of improvement on the total asset turnover ratio by using the following equation:

Operating Return on Assets (OROA)
= Total Asset Turnover × Operating Profit Margin

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Step 3: Solve

Operating Return on Assets (OROA)
= Total Asset Turnover × Operating Profit Margin

Before = 1.74 × 10.65% = 18.53%

Now = 2.5 × 10.65% = 26.63%

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Step 4: Analyze

An improvement in total asset turnover ratio has a favorable impact on Home Depot’s operating return on assets (OROA).

If Home Depot wants to increase its OROA more, it should focus on cost control that will help improve the net operating profit.

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Is the Firm Providing a Reasonable Return on the Owner’s Investment?

A firm’s net income consists of earnings that is available for distribution to the firm’s shareholders. Return on Equity ratio measures the accounting return on the common stockholders’ investment.

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Is the Firm Providing a Reasonable Return on the Owner’s Investment (cont.)

The text computes the return on equity ratio for H.J. Boswell, Inc. for 2010.

What will be the return on equity ratio for 2009 if we assume net income of $217.75 million for 2009?

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Is the Firm Providing a Reasonable Return on the Owner’s Investment (cont.)

Return on Equity
= $217.75 million ÷ $751.50 million = 28.98%

Thus the shareholders earned 28.97% on their investments.
Note common equity includes both common stock plus the firm’s retained earnings.

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Using the DuPont Method for Decomposing the ROE ratio

DuPont method analyzes the firm’s ROE by decomposing it into three parts: profitability, efficiency and an equity multiplier.

ROE = Profitability × Efficiency × Equity Multiplier

Equity multiplier captures the effect of the firm’s use of debt financing on its return on equity. The equity multiplier increases in value as the firm uses more debt.

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Using the DuPont Method for Decomposing the ROE ratio (cont.)

ROE = Profitability × Efficiency × Equity Multiplier

ROE = Net Profit Margin × Total Asset Turnover Ratio × 1/(1-debt ratio)

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Using the DuPont Method for Decomposing the ROE ratio (cont.)

The following table shows why Boswell’s return on equity was higher than its peers.

Return on Equity	Net Profit Margin	Total Asset Turnover	Equity Multiplier
H. J. Boswell, Inc.	22.5%	7.6%	1.37	2.16
Peer Group	18.0%	10.2%	1.15	1.54

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Using the DuPont Method for Decomposing the ROE ratio (cont.)

The table suggests that Boswell had a higher ROE as it was able to generate more sales from its assets (1.37 versus 1.15 for peers) and used more leverage (2.16 versus 1.54).
Note use of financial leverage may not always generate value for shareholders. Impact of financial leverage is discussed in detail in chapter 15.

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Using the DuPont Method for Decomposing the ROE ratio (cont.)

Market Value Ratios

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Market Value Ratios

Market value ratios address the question, how are the firm’s shares valued in the stock market?

Two market value ratios are:
Price-Earnings Ratio
Market-to-Book Ratio

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Market Value Ratios (cont.)

Price-Earnings (PE) Ratio indicates how much investors are currently willing to pay for $1 of reported earnings.

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Market Value Ratios (cont.)

The text computes the PE ratio for H.J. Boswell, Inc. for 2010.

What will be the PE ratio for 2009 if we assume the firm’s stock was selling for $22 per share at a time when the firm reported a net income of $217.75 million, and the total number of common shares outstanding are 90 million?

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Market Value Ratios (cont.)

Earnings per share
= $217.75 million ÷ 90 million = $2.42
PE ratio = $22 ÷ $2.42 = 9.09
The investors were willing to pay $9.09 for every dollar of earnings per share that the firm generated.

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Market Value Ratios (cont.)

Market-to-Book Ratio measures the relationship between the market value and the accumulated investment in the firm’s equity.

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Market Value Ratios (cont.)

The text computes the market-to-book ratio for H.J. Boswell, Inc. for 2010.

What will be the market-to-book ratio for 2009 given that the current market price of the stock is $22 and the firm has 90 million shares outstanding?

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Market Value Ratios (cont.)

Book Value per Share
= 751.50 million ÷ 90 million = $8.35 per share

Market-to-Book Ratio

= Market price per share ÷ Book value per share

= $22 ÷ $8.35 = 2.63 times

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Checkpoint 4.4

Comparing the Valuation of Dell (DELL) to Apple (APPL) Using Market Value Ratios

The following information on Dell and Apple was gathered on April 9, 2010:

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Checkpoint 4.4

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Checkpoint 4.4

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Checkpoint 4.4: Check Yourself

What price per share for Dell would it take to increase the firm’s price-to-earnings ratio to the level of Apple?

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Step 1: Picture the Problem

Price-to-earnings (PE) ratio depends on earnings per share and price per share, pictured as follows:

Price per share standardized by

EPS =

Net income ÷ number

Of shares outstanding

PE Ratio =

Price per share ÷

Earnings per share

4-*

Step 2: Decide on a Solution Strategy

We need to determine the price per share that will make PE ratio of Dell equal to the PE ratio of Apple. PE ratio of Dell has to increase from 11.04 to 18.20.

PE ratio = Price per share ÷ Earnings per share
==> 18.20 = ? ÷ 1.14

4-*

Step 3: Solve

PE ratio = Price per share ÷ Earnings per share

18.20 = Price per share ÷ $1.14

Price per share = 18.20 × 1.14 = $20.75

4-*

Step 4: Analyze

PE ratio allows us to compare two stocks with different prices by standardizing the stock prices by earnings.

Apple has a much higher PE ratio. To reach the same PE valuation, the stock price of Dell will have to increase from $12.54 to $20.75.

4-*

Summing up the Financial Analysis of H. J. Boswell, Inc.

Liquidity: With the exception of inventory turnover ratio, liquidity ratios were adequate to good. The next step will be to see how inventory management can be improved.
Financial Leverage: The firm uses more debt than its peers, which exposes the firm to a higher degree of financial risk or potential default on its debt in the future.

4-*

Summing up the Financial Analysis of H. J. Boswell, Inc. (cont.)

Profitability: H.J. Boswell had favorable net operating income despite lower profit margins, largely due to its higher asset turnover ratio. The return on equity was also higher than the peer group due to use of more debt.
Market Value Ratios: These ratios suggest that the market is pleased with the firm as indicated by higher stock valuations.

4.4 Selecting a Performance Benchmark

4-*

Selecting a Performance Benchmark

There are two types of benchmarks that are commonly used:
Trend Analysis – involves comparing a firm’s financial statements over time.
Peer Group Comparisons – involves comparing the subject firm’s financial statements with those of similar, or “peer” firms. The benchmark for peer groups typically consists of firms from the same industry or industry average financial ratios.

4-*

Trend Analysis

4-*

Financial Analysis of the Gap, Inc., June 2009

4.5 The Limitations of Ratio Analysis

4-*

The Limitations of Ratio Analysis

Picking an industry benchmark can sometimes be difficult.

Published peer-group or industry averages are not always representative of the firm being analyzed.

An industry average is not necessarily a desirable target or norm.

4-*

The Limitations of Ratio Analysis (cont.)

Accounting practices differ widely among firms.

Many firms experience seasonal changes in their operations.

Financial ratios offer only clues. We need to analyze the numbers in order to fully understand the ratios.

The results of financial analysis are dependent on the quality of the financial statements.

4-*

Key Terms

Accounts receivable turnover ratio
Acid-test (quick) ratio
Average collection period
Book value per share
Capital structure
Current ratio
Days’ sales in inventory

4-*

Key Terms (cont.)

Debt ratio
DuPont method
Equity Multiplier
Earnings per share (EPS)
Financial leverage
Fixed asset turnover ratio
Inventory turnover ratio

4-*

Key terms (cont.)

Liquidity ratios
Market-to-book ratio
Market value ratios
Notes payable
Operating return on assets
Price-earnings ratio

4-*

Key terms (cont.)

Return on assets (ROA)
Return on equity (ROE)
Times interest earned
Total asset turnover ratio
Trend analysis

This should be placed under measurement,

Stop at conclusion. Add another column…

Link the location to the AVC

There is no need to show a perfect company

Canvas-can placed under VRIN

Not very good

This checklist is NOT required as part of the assignment submission.

You MUST select one of these companies for your assignment.

KEY: A = Business Strategy

B = International Strategy C = Innovation Strategy D = Collaboration, Mergers & Acquisition Strategy E =Sustainability Strategy

SM9636 Company Checklist by Assignment Section We strongly suggest that you do some preliminary research on each company. Make sure that there are enough data and information sources available in each category (column) for the company that you finally select. You must work with public domain information only and under no circumstances contact any of these companies directly regarding this assignment. Best financial performer is not necessarily your best choice. Ensure that you are selecting the company that lets you demonstrate your analytical skills in Strategy.

Two

Three

Four

Five

Six

Seven

10%

30%

15%

20%

Can I find enough high- quality financial data spanning 4 to 5 years to date? Are other measures available that offer a broader view?

Are there enough authoritative sources writing about apparent reasons for recent / future success (or failure)?

Can I find out enough about the business model of this company to create an Adapted Value Chain?

Is this company likely to have some interesting candidate Capabilities, Competences or Resources that I can VRIN test as reasons for CA or SCA?

Is there authoritative material available about the recent leaders of this company? Can you apply the taught theories of Leadership?

Is there enough data available to discuss only one of the five focus strategy topics? See the A-E Key below ….

Which company is best for me to turn a set of suggestions into a compelling Strategic Recommendation (based upon my analysis in the other columns)?

HINT: Check out FAME Database in NORA but look for link to “INC.” parent company in OSIRIS.

HINT: Please investigate all columns before deciding …

HINT: Don’t analyse the UK subsidiary …

SM9636 Assessment Brief

SM9636 Assignment Brief

Programme: Various – this is a Core Level 6 Module.

Module Code: SM9636

Module Title: Strategic Management for Sustainable Leadership

Distributed on: TBD

Submission Time and Date: To be submitted by TBD

Word Limit: 3000 words (+/- 10%) i.e. within the range 2700 - 3300 words

Weighting This coursework accounts for 100% of the total mark for this module

Submission of Assessment

Electronic Management of Assessment (EMA): Please note your assignment is submitted electronically. It will be submitted online (via Blackboard/TurnItIn) by the given deadline. You will find a Submission Folder on the module’s eLP site.

It is the student’s responsibility to ensure that the assignment arrives before the submission deadline stated above. See the University policy on late submission of work.

Instructions on Assessment:

The Assignment Task: You MUST choose one company from the official list of companies provided on your eLP for this semester. Explain how successful you think that company is, and discuss the strategic reasons behind that success.

Your explanation will include analysis of the contribution made by the leadership of the company, and will go on to suggest strategies and/or actions for ensuring future success in a sustainable manner.

You should read the Guidance on pages 2-4 and the Marking Rubric on pages 7-8 of this brief to understand how you should approach the assignment and how marks will be allocated.

Further guidance, including examples of marker feedback (shown in Lecture 8) and Revision Audio-Visual Presentations will appear on the eLP.

Format for Submission:

• The assignment should be written in Arial, 11pt, left-justified, 1½ spacing.

• DO NOT put Your Name (or any Tutor’s Name) anywhere on your assignment.

 Every page should be numbered (in header or footer) and show your student ID.

• DESIRABLE – Please leave approximately 5cm of ‘white space’ at the end of each section. This is the space for your marker to write feedback comments about the preceding section. Please note that we may not use all of the 5cm – it depends what type of feedback we think is needed for each answer. If you do not leave space; we will be forced to leave a marker icon, and list the feedback comments at the end of the document.

 All academic and other sources must be cited and included ONCE in a single reference list at the end of the document. Do not cite Northumbria Lectures, Seminars or Workshops.

• The VRIN Summary Table (Barney, 1991) is usually shown in journals and textbooks with ticks and crosses. We require you to use the letter “Y” for “Yes” and the letter “N” for “No” (please do not use a font that includes ticks or crosses as they are not visible in the marking software and just appear as location boxes).

SM9636 Assessment Brief

SM9636 Assignment Brief

Assessment Guidance

Full Assessment Guidance will be given in Lecture L08 (please make sure that you attend).

The Module eLP will also provide a download link to “SM9636 Frequently Asked Questions (FAQs)”. This is an evolving Word Document containing answers to the most common student questions regarding a Core Level 6 Assessment in Business Strategy. Please consult this in the first instance. Only if the question is not answered there, should you email the Module Tutor with your question. If your question is new it will be answered and added to the document to benefit other students.

We will provide you with an official list of companies for your semester on this module (it will be released in the fourth week of the semester). You must select one of the companies on the official list for your assignment. No other companies will be allowed. Using any company that is not on the official list will result in zero marks.

You will create a written strategic analysis (structure outlined below) that informs the reader about how the company can create (or retain) sustained competitive advantage into the future. The majority of your analysis will be based on the theory and techniques taught as part of this module. Your structured report will contain expert opinions from authoritative sources (all referenced and cited in the APA style) that you will use in your strategic analysis.

Your strategic recommendation will refer back (by page number) to your analysis and the collected expert opinions. Your Strategic Recommendation will contain various suggestions and some consideration will be given to ways in which future success can be achieved in a sustainable business environment.

Assignment Structure

Your assignment will contain the following sections (in the order shown). Mark range allocations are shown in the marking scheme on pages 7-8 of this brief. To save words, you only have to use the numbered section and title words shown in capitals (below); you do not have to use the prompting questions (shown in italics).

1. INTRODUCTION What is contained in the document? Why should someone read it? This should be a brief (maximum 100 words) introduction to the company and highlighting your key recommendations. Please note that the introduction is not given any marks. We restrict it to 100 words so that you do not waste valuable words from your assignment word-limit on a protracted introduction.

It is best practice to write the introduction last.

2. MEASURES OF SUCCESS What measures should be used to assess the relative success of your chosen company?

Financial and non-financial metrics should be suggested (with a preference for any data that are ‘benchmarked’ against direct competitors). Show example data for the company in question (in tabular or graphical form) that ideally spans four or five financial years to the present day.

Include in this section a brief discussion concerning the difficulties in determining and measuring business success (cite some of the key authors that have written about this subject).

3. REASONS FOR SUCCESS What do experts suggest as the reasons for this company’s relative business success? An outline of 6 to 10 business reasons behind the success stated in a simple, straightforward way with a brief (4 or 5 sentence) explanation of each reason. Each reason should be sub-titled in this section (i.e. 3.1, 3.2, 3.3 etc.). Cite the expert source(s) that have the opinion that you are listing. Do not speculate yourself in this section; just collect and sort the opinions of third-party experts. Do not rely solely upon the company’s own website or its publications. All company “jargon” and “acronyms” must have a brief explanation in brackets at the point of their first usage; thereafter they can be used without explanation.

SM9636 Assessment Brief

SM9636 Assignment Brief

4. STRATEGIC ANALYSIS (AVC+VRIN) What are the possible internal success factors and where might they be located in the company’s activities? This will be a detailed dual analysis of the company’s strategic capabilities starting with an Adapted Value Chain (AVC) and followed by a VRIN evaluation. This section carries the most marks. To score well in Section 4, you must also synthesise the AVC with the VRIN. This is achieved by demonstrating clear linkages between the two so that you can answer the two questions “What internal factors are contributing to future success?” (using VRIN); combined with, “Where are they happening within the activities of the company?” (using the AVC to show location, or locations).

The synthesis of AVC and VRIN is an iterative process (multi-pass), so we only need you to show the end result. To save words, only use additional textual description to make key points to which you refer in your Section 7 Recommendations, or where something is not obvious in the diagram or table of the AVC+VRIN synthesis.

5. LEADERSHIP CONTRIBUTION How is the current leadership guiding towards success? Is there a leadership legacy from a predecessor? An evaluation of the contribution of leadership to the company’s success, basing this on appropriate leadership theory (as taught on this module). A wide range of topics will be acceptable including (but not limited to):

o Leadership Attributes or Styles o Organisational Culture o Decision-making Theory

6. STRATEGY FOCUS Which particular strategic factor of this company deserves closer scrutiny? A detailed analysis and interpretation based on one additional topic area from the following list:

o Business Strategy (consistent with strategic capabilities) o International Strategy o Innovation Strategy o Collaboration Strategy (alliances, joint ventures, mergers and acquisitions) o Sustainability (can the company gain competitive advantage this way) Choose just one of the above to demonstrate your ability to conduct more in-depth research on one aspect of the company’s future.

7. STRATEGIC RECOMMENDATION With page referencing to your previous sections, can explain your strategic recommendation for this company? In this section, you make your strategic recommendation (which might encompass more than one particular suggestion to the company). Using the SAFe criteria (from your textbook); consider how Suitable your suggestions are to achieve the desired outcome of Sustained Competitive Advantage. Further estimate how Acceptable your suggestions might be to key stakeholders, and finally comment on the Feasibility of your suggestions.

Your recommendation must also demonstrate an awareness of future Sustainability issues.

SM9636 Assessment Brief

SM9636 Assignment Brief

Notes on the Assignment Structure:  ALL sections should cite sources of research data and theories/concepts on which your analysis is based.

The only exception to this are the suggestions contained in your strategic recommendation that you make in Section 7; these should be YOUR original ideas and therefore citations are not expected. However, we do expect you to refer to elements of your previous analysis (by page number) to support your arguments.

 All cited sources should be listed in APA format in the References section at the end of your assignment.

 Cutting and pasting material directly from sources without citation is Plagiarism.

 Cutting and pasting material directly from sources with citation is Poor Scholarship.

• Short quoted extracts from cited sources are permissible – use double quotation marks”” and citation that includes the page number of the cited document.

 The vast majority of your assignment word count should use your own words or paraphrase reputable sources. Large and frequent amounts of direct quotation text will be included in the word count.

SM9636 Assessment Brief

SM9636 Assignment Brief

Mapping to Programme Goals and Objectives

Module Level Objectives:

Knowledge & Understanding:

MLO-1: Know how leaders and various stakeholder groups measure and appreciate business success.

MLO-2: Understand how to critically evaluate endogenous and exogenous strategy perspectives for a sustainable business environment.

Intellectual / Professional Skills & Abilities:

MLO-3: Develop Desk Research skills in preparing and writing a thoroughly researched and compelling strategic argument for a company.

MLO-4: Ability to critically analyse business strategies and present suitable, feasible, acceptable and sustainable recommendations to business leaders in a succinct manner.

Programme (Level) Learning Outcomes that this module contributes to:

Knowledge and Understanding:

6.1.1 Assess knowledge of contemporary professional practice in business and management informed by theory and research.

6.1.2 Critically apply knowledge of business and management to complex problems in or related to professional practice in order to identify justifiable, sustainable and responsible solutions.

Intellectual / Professional Skills and Abilities:

6.3.2 Critique their personal skills and attitudes for progression to post-graduate contexts including professional work, entrepreneurship and higher level study.

Personal Values Attributes (Global / Cultural awareness, Ethics, Curiosity):

6.1.3 Appraise an awareness of the cultural and ethical contexts in which international business operates.

6.2.2 Critique creative and critical thinking skills that involve independence, understanding, justification and the ability to challenge the thinking of self and others

SM9636 Assessment Brief

SM9636 Assignment Brief

Module Specific Assessment Criteria and Rubric

 No print copy will be accepted for SM9636, it is on-line submission to TurnItIn ONLY.

• We strongly recommend that you do not leave submission to the final hour.

• This module requires only one submission to the eLP Assignment FINAL Submission Folder before the Module Submission Deadline.

• You must submit an electronic copy of your assignment in PDF format.

• Check that all of your tables, diagrams, charts and images are represented correctly in PDF (using a PDF file viewer before submitting).

• Do not submit in Word (or any other Word Processor file format).

 You will not receive a TurnItIn Similarity Report for a Final Submission.

 You must obtain (and safely retain) a receipt from TurnItIn with a timestamp showing that you submitted before deadline.

 If you encounter difficulty in getting the receipt with a valid timestamp, you must contact the Module Tutor by email before the deadline expires; otherwise we have no evidence that you were prevented from submitting.

• If you miss the deadline (and have no approval for an extension) you must submit to the “24 HOURS LATE” Folder that opens after the deadline closes. See section on penalties for lateness.

 Students with Approved Extensions will find that a special APPROVED EXTENSION submission folder will be available after the normal deadline has expired.

SM9636 Assessment Brief RUBRIC SHEET 1 of 2

SM9636 Assignment Brief Page 7 of 9

Grade Bad Inadequate Adequate Good Very Good Excellent Outstanding Exemplary

Nominal % Integer Range 0 – 29% 30 – 39% 40 – 49% 50 -59% 60 – 69% 70 - 79% 80 – 89% 90 -100%

A pp

ro pr

ia te

M ea

su re

s of

S uc

ce ss

% w

ei gh

tin g

Almost no relevant measurement data of business success.

Inadequate and very little relevant measurement data. No attempt at evaluation of business success.

An adequate statement of how successful the company is consistent with only one type of relevant measurement data

A good statement of how successful the company is consistent with two types of appropriate measurement data.

A very good discussion of how successful the company is consistent with at least two types of appropriate measurement data. Recognises that “success” can be difficult to evaluate.

An excellent discussion of what is meant by “business success” for this particular company. Argument demonstrated by different data types. Includes cited academic discussion of how success can be measured in firms. Some alignment with strategic recommendations.

An outstanding discussion of what is meant by “business success” for this particular company. Argument demonstrated by a range of data types. Includes cited academic discussion of how success can be measured in firms. Mostly aligned with strategic recommendations.

An exemplary discussion of what is meant by “business success” for this particular company. Argument demonstrated by a range of key data types. Appropriate measures nominated with data samples shown. Includes cited academic discussion of how success can be measured in firms. Closely aligned with strategic recommendations.

0 – 2.5 marks 3 – 3.5 4 – 4.5 5 – 5.5 6 – 6.5 7 – 7.5 8 - 8.5 9 - 10

B us

in es

s R

ea so

ns fo

r Su

cc es

s ci

te d

by e

xp er

10 %

w ei

gh tin

No understanding of the reasons underpinning success. Very poor research. Fails to demonstrate any significant business knowledge.

Inadequate set of reasons. Either rather limited or else a scattergun list with weak explanations that are mostly uncited. Research very limited – does not demonstrate adequate business knowledge.

Adequate set of reasons but either too few or too many to be considered a set of key reasons. Basic explanation, basic research, adequate business knowledge.

A good set of reasons, some less than key, but good explanations. Reasonable research and demonstration of business knowledge.

A very good set of reasons with good explanations. Very good research and demonstration of business knowledge.

An excellent set of key reasons with clear explanations. Excellent research conducted into authoritative sources. An excellent demonstration of business knowledge.

An outstanding set of ranked key reasons with very clear explanations and reasons for ranking. Outstanding research conducted into authoritative sources and expert opinion. An outstanding demonstration of business knowledge.

An exemplary set of ranked key reasons with very clear explanations and coherent reasons for ranking. Exemplary research conducted into the best of authoritative sources and expert opinion. An exemplary demonstration of business knowledge.

0 – 2.5 marks 3 – 3.5 4 – 4.5 5 – 5.5 6 – 6.5 7 – 7.5 8 - 8.5 9 - 10

En do

ge no

St ra

te gi

c A

na ly

si s

(A VC

+ V

R IN

) 30

% w

ei gh

tin g

No evidence that the student understands endogenous strategy. Attempted use of incorrect exogenous tools. Analysis is of very poor quality.

Inadequate analysis with poor use of endogenous strategy tools. Poor quality, partial analysis that does not support any further discussion.

Adequate analysis use of individual endogenous strategy tools. Analysis that is competent, but no more. No apparent attempt made to synthesise the AVC with VRIN.

Good analysis using endogenous strategy tools, but has an occasional gaps or minor errors. Some AVC and VRIN synthesis attempted in words but rather difficult to understand.

Very Good analysis using endogenous strategy tools, with no occasional gaps or minor errors. Some AVC and VRIN synthesis attempted in words which can be mostly understood.

Excellent analysis using endogenous strategy tools. The AVC and VRIN synthesis is demonstrated in a clear manner to the reader.

Outstanding analysis with extended use of endogenous strategy tools. The AVC and VRIN synthesis is demonstrated in an easily assimilated manner. Results ranked in terms of importance to the strategic suggestions. Near professional consultancy quality.

Exemplary analysis with innovative use of endogenous strategy tools. The AVC and VRIN synthesis is demonstrated in a concise and compelling manner. Results ranked in terms of importance to the strategic recommendations to come. Professional consultancy quality.

0 – 8.5 9 - 11.5 12 – 14.5 15 – 17.5 18 – 20.5 21 – 23.5 24 – 26.5 27 - 30

Goal 1 Obj 3 not met Goal 1 Obj 3 not met Goal 1 Obj 3 met Goal 1 Obj 3 met Goal 1 Obj 3 met Goal 1 Obj 3 exceeded Goal 1 Obj 3 exceeded Goal 1 Obj 3 exceeded

* “Goal / Objectives” relate to Assurance of Learning (AoL) data collected for our Degree Accreditation Bodies.

SM9636 Assignment Brief Page 8 of 9

SM9636 Assessment Brief RUBRIC SHEET 2 of 2

Grade Bad Inadequate Adequate Good Very Good Excellent Outstanding Exemplary

Nominal % Integer Range 0 – 29% 30 – 39% 40 – 49% 50 -59% 60 – 69% 70 - 79% 80 – 89% 90 -100%

Le ad

er sh

ip c

on tr

ib ut

io n

to S

uc ce

15 %

w ei

gh tin

No evidence the student understands any relevant theory. No evaluation.

Inadequate evaluation – either the theory is not relevant or the analysis is of poor quality.

Adequate evaluation based on relevant theory. Analysis competent but no more.

Good evaluation based on relevant theory with good data.

Very good evaluation with careful analysis based on relevant theory with well- researched data

An excellent evaluation supported by rigorous analysis based on relevant theory. The data has been collected from a wide range of sources.

An outstanding evaluation supported by rigorous analysis based on relevant theory. The data has been collected from a wide range of sources.

An exemplary evaluation supported by rigorous analysis based on relevant theory. The data has been collected from a wide range of sources.

0 – 4 marks 4.5 – 5.5 6 - 7 7.5 – 8.5 9 - 10 10.5 – 11.5 12 - 13 13.5 - 15

St ra

te gi

c Fo

cu s

C ho

ic e

15 %

w ei

gh tin

No evidence the student understands any relevant topic areas. Analysis of very poor quality.

Either the topic area is not relevant or the analysis is of poor quality.

Basic discussion based on analysis that is competent but no more.

Good discussion based on analysis that is generally good but has gaps or small errors.

Very good discussion based on accurate analysis.

An excellent focused evaluation of a strategically important factor supported by rigorous and detailed analysis.

An outstanding focused evaluation of a strategically important factor supported by rigorous and detailed analysis.

An exemplary focused evaluation of a strategically important factor supported by rigorous and detailed analysis.

0 - 4 4.5 – 5.5 6 - 7 7.5 – 8.5 9 - 10 10.5 – 11.5 12 - 13 13.5 - 15

St ra

te gi

c Re

co m

m en

da tio

n( s)

% w

ei gh

tin g

Bad strategic recommendation that lacks any suitable suggestions for the company.

Inadequate strategic recommendation. Suggestions lack relevance and are not supported by evidence from previous sections.

Adequate strategic recommendation with one relevant suggestion. A brief rationale that is insufficiently based on evidence from previous sections.

Good strategic recommendation containing one relevant suggestion with good rationale based on identified factors OR two relevant suggestions with brief rationales.

Very good strategic recommendation containing two good suggestions appropriate to the company. Very good rationales based on identified factors from previous sections (referred by page number).

Excellent strategic recommendation with more than two good suggestions. Excellent rationales based on identified factors from previous sections (referred by page number).

Outstanding strategic recommendation with more than two good suggestions. Outstanding rationales based on identified factors from previous sections (referred by page number).

Exemplary strategic recommendation with more than two good suggestions. Exemplary rationales based on identified factors from previous sections (referred by page number).

0 – 5.5 6 – 7.5 8 – 9.5 10 – 11.5 12 – 13.5 14 – 15.5 16 – 17.5 18 - 20

Goal 2 Obj 4 not met Goal 2 Obj 4 not met Goal 2 Obj 4 met Goal 2 Obj 4 met Goal 2 Obj 4 met Goal 2 Obj 4 exceeded Goal 2 Obj 4 exceeded Goal 2 Obj 4 exceeded

* “Goal / Objectives” relate to Assurance of Learning (AoL) data collected for our Degree Accreditation Bodies.

SM9636 Assignment Brief Page 9 of 9

SM9636 Assessment Brief

ASSESSMENT REGULATIONS

You are advised to read the guidance for students regarding assessment policies. They are available online here.

Late submission of work

Where coursework is submitted without approval, after the published hand-in deadline, the following penalties will apply.

For coursework submitted up to 1 working day (24 hours) after the published hand-in deadline without approval, 10% of the total marks available for the assessment (i.e. 10 marks) shall be deducted from the assessment mark.

Coursework submitted more than 1 working day (24 hours) after the published hand-in deadline without approval will be regarded as not having been completed. A mark of zero will be awarded for the assessment and the module will be failed, irrespective of the overall module mark.

These provisions apply to all assessments, including those assessed on a Pass/Fail basis.

The full policy can be found here.

Word limits and penalties

If the assignment is within +10% of the stated word limit no penalty will apply.

The word count is to be declared on the front page of your assignment and the assignment cover sheet. The word count does not include:

The word count is to be declared on the front page of your assignment and the assignment cover sheet. The word count does not include: • Title, Contents and Glossary of Terms • Cited Quotations • Tables, Figures, Diagrams, Charts and Illustrations • Reference List • Bibliography • Headers or Footnotes (with Student ID number on each page).

Please note, in text citations [e.g. (Smith, 2011)] and direct secondary quotations [e.g. “dib-dab nonsense analysis” (Smith, 2011, p.123)] are INCLUDED in the word count.

Students must retain an electronic copy of this assignment (including ALL appendices) and it must be made available within 24 hours of them being requested by the Module Tutor or an Administrator.

The full Word Limit Policy is available here.

Academic Misconduct

The Assessment Regulations for Taught Awards (ARTA) contain the Regulations and procedures applying to cheating, plagiarism and other forms of academic misconduct.

You are reminded that plagiarism, collusion, using a “ghost writer” and other forms of academic misconduct (as referred to in the Academic Misconduct Procedure of the Assessment Regulations) are taken very seriously. Assignments in which evidence of Academic Misconduct is found may receive a mark of zero.

The full policy is available here.

https://www.northumbria.ac.uk/about-us/university-services/academic-registry/quality-and-teaching-excellence/assessment/guidance-for-students/

https://northumbria-cdn.azureedge.net/-/media/corporate-website/new-sitecore-gallery/services/academic-registry/documents/qte/assessment/guidance-for-students/late-submission-of-work-and-extension-requests-policy.pdf?la=en&modified=20181005134740&hash=AF8200F74AF421F9F19E5332B8FD3F3D8E116292

https://northumbria-cdn.azureedge.net/-/media/corporate-website/new-sitecore-gallery/services/academic-registry/documents/qte/assessment/guidance-for-students/word-limits-policy.pdf?la=en&modified=20181005134742&hash=D06E866BA9C788D7B1FD8EE3E7E3F34026CE9673

https://northumbria-cdn.azureedge.net/-/media/corporate-website/new-sitecore-gallery/services/academic-registry/documents/qte/assessment/guidance-for-students/pl%2C-d-%2C005-v003-academic-misconduct-policy.pdf?modified=20190605171211&la=en&hash=A55A56D5BAD5746FC530D31C6291B10F861275CE

Instructions on Assessment:

The Assignment Task:
Format for Submission:
Assessment Guidance
Assignment Structure
1. INTRODUCTION

What is contained in the document? Why should someone read it?
What measures should be used to assess the relative success of your chosen company?

3. REASONS FOR SUCCESS

What do experts suggest as the reasons for this company’s relative business success?

4. STRATEGIC ANALYSIS (AVC+VRIN)

What are the possible internal success factors and where might they be located in the company’s activities?

5. LEADERSHIP CONTRIBUTION

How is the current leadership guiding towards success? Is there a leadership legacy from a predecessor?

6. STRATEGY FOCUS

Which particular strategic factor of this company deserves closer scrutiny?

7. STRATEGIC RECOMMENDATION

With page referencing to your previous sections, can explain your strategic recommendation for this company?

Mapping to Programme Goals and Objectives

Module Level Objectives:

Knowledge & Understanding:
Intellectual / Professional Skills & Abilities:

Programme (Level) Learning Outcomes that this module contributes to:

Knowledge and Understanding:
Intellectual / Professional Skills and Abilities:

Personal Values Attributes (Global / Cultural awareness, Ethics, Curiosity):

Module Specific Assessment Criteria and Rubric
SM9636 Assessment Brief

ASSESSMENT REGULATIONS
Late submission of work
Word limits and penalties

Students must retain an electronic copy of this assignment (including ALL appendices) and it must be made available within 24 hours of them being requested by the Module Tutor or an Administrator.

Academic Misconduct

Pick one business corporation (not Bank) of your choice anywhere in the world and generate its financial ratios (use chp. 4, slides 22 to 140) table; as your case study. The required financial ratios are: (a) Liquidity Ratios; (b)Capital Structure Ratios; (c) Asset Management Efficiency Ratios; (d) Profitability Ratios; and (e) Market Value Ratios

2. Use company income & balance sheet statements of 2018 and 2019 to generate the financial ratios. Paste these in your paper.

3. Without the financial ratios’ calculation; no analysis, and no conclusion

4. Keep to the number of pages per section given to you to write; excess pages will not be graded.

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