Strategy Evaluation

Topics: Strategic management, Strategy, Pro forma Pages: 6 (1674 words) Published: March 2, 2005
Suppose your company has just acquired a firm that produces battery-operated lawn mowers, and strategists want to implement a market-penetration strategy. How would you segment the market for this product? Justify your answer.

Explain how you would estimate the total worth of a business.

In order to estimate the total worth of a business, I would determine its net worth or stockholders equity. After calculating net worth, I would add or subtract an appropriate amount for goodwill and overvalued or undervalued assets. I would establish the businesses to worth at five times its current annual profit. I may chose to use a five-year average profit level. I would also consider using the price-earnings ratio method or possibly the outstanding shares method.

Explain why EPS/EBIT analysis is a central strategy-implementation technique.

"An Earnings Per Share/Earnings Before Interest and Taxes (EPS/EBIT) analysis is the most widely used technique for determining whether debt, stock, or a combination of debt and stock is the best alternative for raising capital to implement strategies. EPS/EBIT analysis is a valuable tool for making capital financing decisions needed to implement strategies, but several considerations should be made whenever using this technique."

(http://faculty.jwu.edu/rwahl/HM4060/HM4060%20Chapter%208.htm)

How would the R&D role in strategy implementation differ in small versus large organizations?

Resource availability largely determines the research and development of a company. Because small companies have less capital to attain those resources, their emphasis would probably not be on research and development. Because of the rising costs of R&D, consortiums have developed among companies to all have access each other's R&D. The larger companies can take more risks in this area which is highly risky financially.

Discuss the limitations of EPS/EBIT analysis.

"First, profit levels may be higher for stock or debt alternatives when EPS levels are lower. Another consideration when using EPS/EBIT analysis is flexibility. As an organization's capital structure changes, so does its flexibility for considering future capital needs. Control is also a concern. When additional stock is issued to finance strategy implementation, ownership and control of the enterprise are diluted. When using EPS/SBIT analysis, timing in relation to movements of stock prices, interest rates, and bond prices becomes important."

(http://faculty.jwu.edu/rwahl/HM4060/HM4060%20Chapter%208.htm)

Explain how marketing, finance/accounting, R&D, and management information systems managers' involvement in strategy formulation can enhance strategy implementation.

Marketing is important in development of products and services to meet the needs of customers. Its strategies involve gauging consumer interests and tastes, developing the desired products, gaining a foothold to ward off competitors, and diversifying to further satisfy and keep customers. Market segmentation allows small firms to target specific customers and to more wisely use limited resources. Marketing is geared to a more exact match of product to consumer in a more streamlined approach. Marketing also involves more research and analysis toward the abovementioned aims. This tact is called product positioning. The needs of customers are targeted and identified and are paramount to what is produced and sold.

Finance/Accounting is concerned with finding the right mix of debt and equity in a company's capital structure. Debt obligations are of primary importance. If a company's mission is shareholder wealth, then debt to raise capital is not a consideration. If not, then the best route for capital is to raise debt. An Earnings Per Share/Earnings Before Interest and Taxes analysis is the way most companies evaluate which strategy is best. Many variables are considered in this process. Pro Forma financial statements is a strategy technique that forecasts the...
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