Ratio Analysis, Common size Income Statement, IFAS and Section IV of your SA; Internal Environment is about strengths and weaknesses. What evidence from the common size income state

Threaded Discussions

Discussion 1: Ratio Analysis, Common size Income Statement, IFAS and Section IV of your SA.

Section IV – Internal Environment is about strengths and weaknesses. What evidence from the common size income statements and ratio analysis do you have for strengths and weaknesses at the corporate resources level for your firm?

Discussion 2: Thinking on Section I of your SA

The basic starting point for Section I – Current Situation is to read the document about your case in the textbook, analyze the financial information for your firm in the 5-Year Financials excel document and read the questions for this section in Appendix 1A. Share the draft of 2 or 3 paragraphs for your chosen case.

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IFAS

Develop an Internal Factor Analysis Summary (IFAS) for your selected case study following the guidance in Chapter 5.

Helpful Hint #1: internal factors are those the firm as control over. I will be doing reality checks when reading your work, asking, "Does the firm control this activity?"

Helpful Hint #2: your explanation/comments column can make all the difference (as it did in the EFAS) in my answer to the question above.

Helpful Hint #3: yes, a generically named factor can be listed on both the EFAS and IFAS so long as the comments made the difference clear between the two. But a wiser student would modify the names, so this situation didn't arise.

EXAMPLE

The Strategic Audit: A Checklist for Organizational Analysis

5-6. Construct an IFAS Table that summarizes internal factors

One way of conducting an organizational analysis to examine a company’s strengths and weaknesses is by using the Strategic Audit found in Appendix 1.A at the end of Chapter 1. The audit provides a checklist of questions by area of concern. For example, Part IV of the audit examines corporate structure, culture, and resources. It looks at organizational resources and capabilities in terms of the functional areas of marketing, finance, R&D, operations, human resources, and information systems, among others.

Synthesis of Internal Factors (IFAS)

After strategists have scanned the internal organizational environment and identified factors for their particular corporation, they may want to summarize their analysis of these factors using a form such as that given in Table 5–2. This IFAS (Internal Factor Analysis Summary) Table is one way to organize the internal factors into the generally accepted categories of strengths and weaknesses as well as to examine how well a particular company’s management is responding to these specific factors in light of the perceived importance of these factors to the company. Use the VRIO framework (Value, Rareness, Imitability, and Organization) to assess the importance of each of the factors that might be considered strengths. Except for its internal orientation, this IFAS Table is built the same way as the EFAS Table described in Chapter 4 (in Table 4–5). To use the IFAS Table, complete the following steps:

In Column 1 (Internal Factors), list the 8 to 10 most important strengths and weaknesses facing the company.

In Column 2 (Weight), assign a weight to each factor from 1.0 (Most Important) to 0.0 (Not Important) based on that factor’s probable impact on a particular company’s current strategic position. The higher the weight, the more important is this factor to the current and future success of the company. All weights must sum to 1.0 regardless of the number of factors.

In Column 3 (Rating), assign a rating to each factor from 5.0 (Outstanding) to 1.0 (Poor) based on management’s specific response to that particular factor. Each rating is a judgment regarding how well the company’s management is currently dealing with each specific internal factor.

In Column 4 (Weighted Score), multiply the weight in Column 2 for each factor times its rating in Column 3 to obtain that factor’s weighted score.

In Column 5 (Comments), note why a particular factor was selected and/or how its weight and rating were estimated.

Finally, add the weighted scores for all the internal factors in Column 4 to determine the total weighted score for that particular company. The total weighted score indicates how well a particular company is responding to current and expected factors in its internal environment. The score can be used to compare that firm to other firms in its industry. Check to ensure that the total weighted score truly reflects the company’s current performance in terms of profitability and market share. The total weighted score for an average firm in an industry is always 3.0.

As an example of this procedure, Table 5–2 includes a number of internal factors for Maytag Corporation in 1995 (before Maytag was acquired by Whirlpool) with corresponding weights, ratings, and weighted scores provided. Note that Maytag’s total weighted score is 3.05, meaning that the corporation is about average compared to the strengths and weaknesses of others in the major home appliance industry.

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