selectives, ai whether it is ccting company to rivals are reliabi or strategy exec working include and so on furto ances with other enterprises The three best indicators of how well a company whether the company is achieving its stated financial and strategic cele whether its financial performance is above the industry average, and (3) gaining customers and gaining market share. Persistent shortfalls in meetin performance targets and weak marketplace performance relative to rivals warning signs that the company has a weak strategy, suffers from poor strate tion, or both. Specific indicators of how well a company's strategy is working Trends in the company's sales and earnings growth. Trends in the company's stock price. The company's overall financial strength. The company's customer retention rate. FIGURE 4.1 Identifying the Components of a Single-Business Company's Strate Moves to attract customers and outcompete rivals via Improved product design, better features, higher quality, wider selection, lower prices, and so on Moves to respond to changing conditions in the macro-environment or in industry and competitive conditions R&D technology. product design strategy Initiatives to build competitive advantage based on: Lower costs relative to rivals? A better product offering? Superior ability to serve a market niche or specific group of buyers? BUSINESS STRATEGY (The action plan for managing a single business) Supply chain management strategy Production strategy KEY FUNCTIONAL Efforts to expand or narrow geographic coverage AL STRATEGIES Sales, marketing and distribution strategies Information technology strategy Efforts to build competitively valuable partnerships and strategic alliances with other enterprises within its industry Human resource strategy Finance strategy hales sense ition? This the way halvel as well as situuton to iden financially and strategy and ist of strategic tively vulnerable. W where one or more rivals are well, exploit rivals' competitive weaknesses. When all tive weaknesses in areas where one or more rivals are strong. ilma consider defensive moves to curtail its vulnerability. 6. What magic issues and problems merir front-burner managerial analytic step zeros in on the strategic issues and problems that stand the company's success. It involves using the results of industry analys resource and value chain analysis of the company's competitive situ tify a priority list of issues to be resolved for the company to be fina competitively successful in the years ahead. Actually deciding on a what specific actions to take is what comes after developing the list issues and problems that merit front-burner management attention. Like good industry analysis, solid analysis of the company's competitive sin -visits key rhals is a valuable precondition for good strategy making tive situation vis ASSURANCE OF LEARNING EXERCISES connect LO 1 1. Using the financial ratios provided in Table 4.1 and the financial statemen mation presented below for Costco Wholesale Corporation, calculate the follo ing ratios for Costco for both 2013 and 2014: a. Gross profit margin b. Operating profit margin c. Net profit margin d. Times-interest-earned (or coverage) ratio e. Return on stockholders' equity f. Return on assets g. Debt-to-equity ratio h. Days of inventory i. Inventory turnover ratio j. Average collection period Based on these ratios, did Costco's financial performance improve, weaken, of remain about the same from 2013 to 2014? Consolidated Income Statements for Costco Wholesale Corporation, 2013-2014 (in millions, except per share data) 2014 2013 Net sales Membership fees... Total revenue $110,212 2.428 112,640 98.458 10,899 3,220 $102,870 2.286 105.156 $ 91,948 10.155 3,053 Merchandise costs Selling, general, and administrative Operating income ........... Other income (expense) ........... (113) Interest expense Interest income and other, net .... 90 Income before income taxes ..... Provision for income taxes (99) 97 3,051 990 2,061 (22) 2,039 4.68 4.63 3,197 1,109 2,088 (30) 2,058 4.69 4.65 Net Income including noncontrolling interests ........ Net Income attributable to noncontrolling interests - Net income ......... Basic earnings per share .......... Diluted earnings per share ......... $ $ $ $ $ $ Source: Costco Wholesale Corporation 2014 10-K. Consolidated Balance Sheets for Costco Wholesale Corporation, 2013-2014 (in millions, except per share data) August 31. September 1, 2013 2014 Assets Current Assets Cash and cash equivalents ... Short-term investments Receivables, net........ Merchandise inventories ... $ 5.738 1,577 1.148 8,456 $ 4,644 1.480 1.026 7,894 (continued) September NETI Concepts and Techniques for Crafting and August 31, 2014 2013 669 -621 55,840 Retain 17,588 Total Deferred income taxes and other current assets. Total current assets Property and Equipment Nonc Total Total Land $ 4,716 12,522 4,845 592 22,675 7.845) Buildings and improvements Equipment and factures Construction in progress Source: $ 4.409 11.556 4.472 585 21.022 (7.141) 13,881 562 $30,283 14,830 606 $33,024 Less accumulated depreciation and amortization Net property and equipment Other assets Total assets Liabilities and Equity Current Liabilities Accounts payable Accrued salaries and benefits Accrued member rewards Accrued sales and other taxes ... Deferred membership fees $ 8.491 2,231 773 $ 7,872 2,037 710 382 442 1.167 1.254 1,221 14,412 Other current liabilities Total current liabilities - Long-term debt, excluding current portion ..... Deferred income taxes and other liabilities... Total liabilities Commitments and Contingencies Equity 5,093 1,004 20.509 1,089 13,257 4.998 1,016 $19.271 Preferred stock $0.005 par value: 100,000,000 shares authorized, no shares issued and outstanding Common stock $0.005 par value: 900,000,000 shares authorized: 436,839,000 and 432.350.000 shares issued and outstanding Additional paid-in capital Accumulated other comprehensive (loss) income $ 4,919 $ 4,670 (122) (76) (continued CHAPTER 4 Evaluating a Company's Resources. Capabilities, and Competitiveness LO 2, LO 3 connec LO 4 August 31. September 1. 2014 2013 Retained earnings 7.458 Total Costco stockholders' equity. 6,283 12.303 Noncontrolling interests 10,833 212 179 Total equity - 12.515 11.012 Total Liabilities and Equity $33,024 $30.283 Source: Costco Wholesale Corporation 2014 10-K. 2. Panera Bread operates more than 1,900 bakery-cafs in more than 45 states and Canada. How many of the four tests of the competitive power of a resource does the store network pass? Using your general knowledge of this industry, perform a SWOT analysis. Explain your answers. 3. Review the information in Illustration Capsule 4.1 concerning Boll & Branch's average costs of producing and selling a king-size sheet set, and compare this with the representative value chain depicted in Figure 4.3. Then answer the following questions: a. Which of the company's costs correspond to the primary value chain activities depicted in Figure 4.3? b. Which of the company's costs correspond to the support activities described in Figure 4.3? c. What value chain activities might be important in securing or maintaining Boll & Branch's competitive advantage? Explain your answer. 4. Using the methodology illustrated in Table 4.3 and your knowledge as an auto- mobile owner, prepare a competitive strength assessment for General Motors and its rivals Ford, Chrysler, Toyota, and Honda. Each of the five automobile manu- facturers should be evaluated on the key success factors and strength measures of cost-competitiveness, product-line breadth product quality and reliability, finan cial resources and profitability, and customer service. What does your competitive strength assessment disclose about the overall competitiveness of each automobile manufacturer? What factors account most for Toyota's competitive success? Does Sota have competitive weaknesses that were disclosed by your analysis? Explain. LO 5 CAERCISE FOR SIMULATION PARTICIPANTS and the data in your company's latest financial LO 1 1 parformance for your