Internal Audit Involvement in performing an internal strategic-management audit provides vehicle for understanding nature and effect of decisions in other functional business areas of the firm
Internal Audit Coordination & understanding among managers from all functional areas Key to Organizational Success
Internal Audit Number and complexity increases relative to organization size Functional Relationships
Internal Audit Exemplifies complexity of relationships among functional areas of the business Financial Ratio Analysis
Resource Based View (RBV) Approach to Competitive Advantage Internal resources are more important than external factors
Resource Based View (RBV) 3 All Encompassing Categories
Resource Based View (RBV) Empirical Indicators
Hard to imitate
Not easily substitutable
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 Organizational Culture
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
Effectiveness shown by returns on sales & investment Ratios Gross profit margin Operating profit margin Net profit margin Return on total assets (ROA) Basic Financial Ratios Profitability Ratios
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)
Firm’s ability to maintain economic position Ratios Sales Net income Earnings per share Dividends per share Basic Financial Ratios Growth Ratios
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?
0.15 3 0.05 5. As a direct seller, Gateway holds high brand recognition 0.40 4 0.10 4. Consumer Reports (Sept 2002) recommended Gateway 500X as #1 0.15 3 0.05 3. Well-known brand name 0.15 3 0.05 2. Continuous decline in operating costs and cost of goods sold 0.40 4 0.05 1. Several new senior executive with world-class skills and leadership experience Strengths Wtd Score Rating Weight Key Internal Factors IFE– Gateway Computers (2003)
0.15 3 0.05 9. Gateway retails stores excellent 0.20 4 0.05 8. Economies of scale, the 6 th largest PC maker I the world 0.20 4 0.05 7. Good relationship with its suppliers. 0.30 3 0.10 6. Gateway is diversifying into non-PC products Strengths (cont’d) Wtd Score Rating Weight Key Internal Factors IFE– Gateway Computers (2003)
0.05 2 0.025 4. No niche market 0.10 1 0.025 3. Low return on assets ratio 0.05 1 0.10 2. Almost no budget for R&D vs. Dell’s 18% of revenue 0.15 3 0.05 1. High operating expense (22% of revenue vs. 10% for Dell) Weaknesses Wtd Score Rating Weight Key Internal Factors IFE– Gateway Computers (2003)
2.85 1.00 TOTAL 0.20 2 0.10 7. Weak performance in overseas market 0.10 2 0.05 6. Limited number Gateway stores 0.20 2 0.10 5. Shortage of cash due to successive losses Weaknesses (cont’d) Wtd Score Rating Weight Key Internal Factors IFE– Gateway Computers (2003)
For Review (Chapter 4) Dividend Decision Functions of Finance/Accounting Empirical Indicators Functions of Management Financial Ratio Analysis Functions of Marketing Financing Decision Functions of Production/ Operations