SWOT Analysis PDF

SWOT Analysis What is SWOT Analysis? Acronym for Strengths, Strengths Weaknesses, Opportunities, and Threats. Techniq...

SWOT Analysis What is SWOT Analysis? Acronym for Strengths, Strengths Weaknesses, Opportunities, and Threats. Technique is credited to Stanford University in the 1960s and 1970s. Planning tool used to understand Oppurtunity SWOT Weakness Strengths, Weaknesses, Opportunities, & Threats Analysis involved in a project / business. Used as framework for organizing and using data and information gained from situation analysis of internal and external environment. Technique that enables a group / Threats individual to move from everyday problems / traditional strategies to a fresh perspective.  STRENGTHS WEAKNESSES Characteristics of the business or a team Characteristics that place the firm at a that give it an advantage over others in disadvantage relative to others. the industry. Detract the organization from its Positive tangible and intangible ability to attain the core goal and attributes, internal to an organization. influence its growth. Beneficial aspects of the organization Weaknesses are the factors which do or the capabilities of an organization, not meet the standards we feel they which includes human competencies, should meet. However, weaknesses process capabilities, financial are controllable. They must be resources, products and services, minimized and eliminated. customer goodwill and brand loyalty. Examples - Limited financial resources, Examples - Abundant financial resources, Weak spending on R & D, Very narrow Well-known brand name, Economies of product line, Limited distribution, Higher scale, Lower costs [raw materials or costs, Out-of-date products / technology, processes], Superior management talent, Weak market image, Poor marketing skills, Better marketing skills, Good distribution Limited management skills, Under-trained skills, Committed employees. employees. INTERNAL ANALYSIS  OPPORTUNITIES THREATS Chances to make greater profits in the External elements in the environment that environment - External attractive factors could cause trouble for the business - that represent the reason for an External factors, beyond an organization’s organization to exist & develop. control, which could place the Arise when an organization can take organization’s mission or operation at risk. benefit of conditions in its Arise when conditions in external environment to plan and execute environment jeopardize the reliability strategies that enable it to become and profitability of the organization’s more profitable. business. Organization should be careful and Compound the vulnerability when they recognize the opportunities and grasp relate to the weaknesses. Threats are them whenever they arise. Opportunities uncontrollable. When a threat comes, the may arise from market, competition, stability and survival can be at stake. industry/government and technology. Examples - Rapid market growth, Rival Examples - Entry of foreign competitors, firms are complacent, Changing customer Introduction of new substitute products, needs/tastes, New uses for product Product life cycle in decline, Changing discovered, Economic boom, Government customer needs/tastes, Rival firms adopt deregulation, Sales decline for a substitute new strategies, Increased government product. regulation, Economic downturn. EXTERNAL ANALYSIS Tips & Exercise Assume that a car manufacturing company has recently launched its products. Perform a SWOT analysis for the same. Tips & Exercise Helpful STRENGTHS WEAKNESSES No Competition in the EV High Price Segment. Low aesthetic appeal Environment friendly Small driving range [up to Economic to Drive [Rs. 0.4 80 KM] per km] * Competition from gasoline Government subsidies [8% vehicles excise duty] * OPPORTUNITIES THREATS Huge untapped EV market Government incentives External Growing demand of green to gasoline vehicles technologies Entry of competitors Rising fuel costs Stringent safety Growing road congestion requirements anticipated in urban cities Availability of hybrid vehicles * Hypothetical figures Harmful Tips & Exercise Mc Donald’s SWOT Analysis  Mc Donald’s SWOT Analysis INTERNAL STRENGTHS WEAKNESSES Tips & Ranks very high on the Fortune Magazine's most admired list Failing pizza test market thus limiting the ability to compete with pizza providers. Community oriented High training costs due to high turnover. Exercise Global operations all over the world Minimal concentration on organic foods. Cultural diversity in the foods Not much variation in seasonal products. Excellent location Quality concerns due to franchised operations. Assembly line operations. Focus on burgers / fried foods not on healthier Use of top quality products options for their customers. OPPORTUNITIES THREATS Opening more joint ventures. Marketing strategies that entice people from Being more responsive to healthier options. small children to adults. Advertising wifi services in the branches. Lawsuits for offering unhealthy foods. Expanding on the advertising on being Contamination risks that include the threat of more socially responsible e-coli containments. Expansions of business into newly developed The vast amount of fast food restaurants that parts of the world. are open as competition. Open products up to Focus on healthier dieting by consumers. allergen free options Down turn in economy affecting the ability to eat such as peanut free. that much. EXTERNAL  FINANCE PRODUCT “SWOT” Real Estate Investment Trust Direct access to the Philippine real estate market without large capital outlay Asset management handled by real estate professionals Regular dividend payouts Information transparency and timely company disclosures, including share price, company performance, investment strategy, etc. SOURCE: PSE PESTLE Analysis PORTER’S Analysis  END OF PRESENTATION  THE STATEMENT OF CASHFLOW REFERENCE: MANAGERIAL ACCOUNTING 15TH ED (2019) By Warren & Tyler, Cengage Learning  Reports a company’s cash inflows and outflows for a period Provides useful information about a company’s ability STATEMENT OF to do the following: Generate cash from operations CASH FLOWS Maintain and expand its operating capacity Meet its financial obligations Pay dividends  The statement of cash flows is used by managers in evaluating past operations and in planning future investing and financing activities. It is also used by external users such as investors and creditors to assess a company’s profit potential and ability to pay its debt and pay dividends. The statement of cash flows reports three types of cash flow activities, as follows: 1.Cash flows from operating activities are the cash flows from transactions that affect the net income of the company. Example: Purchase and sale of merchandise by a retailer. 2.Cash flows from investing activities are the cash flows from transactions that affect investments in the noncurrent assets of the company. Example: Purchase and sale of fixed assets, such as equipment and buildings. 3.Cash flows from financing activities are the cash flows from transactions that affect the debt and equity of the company. Example: Issuing or retiring equity and debt securities. The cash flows are reported on the statement of cash flows as follows: The ending cash on the statement of cash flows equals the cash reported on the company’s balance sheet at the end of the year SOURCES AND USES OF CASH AND THREE ACTIVITIES  Cash Flows from Operating Activities Cash flows from operating activities report the cash inflows and outflows from a company’s day-to-day operations. Companies may select one of the following two alternative methods for reporting cash flows from operating activities on the statement of cash flows: The direct method The indirect method Both methods result in the same amount of cash flow from operating activities. They differ in the way they report cash flows from operating activities.  Cash Flows from Operating Activities DIRECT METHOD Reports operating cash inflow (receipts) and cash outflows (payments) as follows:  Cash Flows from Operating Activities DIRECT METHOD Primary operating cash inflow Cash received from customer Primary operating cash outflow Cash payments for merchandise, operating expenses, interest and income tax payments  Cash Flows from Operating Activities DIRECT METHOD ADVANTAGE Directly reports cash receipts and cash payments DISADVANTAGE (s) Not readily available More costly  Cash Flows from Operating Activities INDIRECT METHOD Reports operating cash inflow beginning with net income and adjusting it for revenues and expenses  Cash Flows from Operating Activities INDIRECT METHOD ADVANTAGE(s) It reconciles the differences between net income and net cash flow from operations It shows how net income is related to the ending cash balance that is reported on the balance sheet DISADVANTAGE(s) Less costly to prepare Most used in practice CASH FLOWS FROM OPERATIONS: DIRECT AND INDIRECT METHODS – NET SOLUTIONS  Cash Flows from Investing Activities Cash flows from investing activities show the cash inflows and outflows related to changes in a company’s long-term assets. Cash flows from investing activities are reported on the statement of cash flows as follows:  Cash Flows from Investing Activities Cash inflows from investing activities normally arise from selling fixed assets, investments, and intangible assets. Cash outflows normally include payments to purchase fixed assets, investments, and intangible assets. Cash Flows from Financing Activities Cash flows from financing activities show the cash inflows and outflows related to changes in a company’s long-term liabilities and stockholders’ equity. Cash flows from financing activities are reported on the statement of cash flows as follows:  Cash Flows from Financing Activities Cash inflows from financing activities normally arise from issuing long- term debt or equity securities. Example: issuing bonds, notes payable, preferred stock, and common stock creates cash inflows from financing activities. Cash outflows from financing activities normally include paying cash dividends, repaying long-term debt, and acquiring treasury stock. Noncash Investing and Financing Activities A company may enter into transactions involving investing and financing activities that do not directly affect cash. For example, a company may issue common stock to retire long- term debt. Because such transactions indirectly affect cash flows, they are reported in a separate section that usually appears at the bottom of the statement of cash flows Analysis for Decision Making: Free Cash Flow Positive free cash flow is considered favorable. A company that has free cash flow is able to fund growth and acquisitions, retire debt, purchase treasury stock, and pay dividends. A company with no free cash flow may have limited financial flexibility, potentially leading to liquidity problems.  END OF PRESENTATION THREE MAJOR ACTIVITIES OF THE FIRM WHAT IS A FIRM? A firm is a business organization that sells goods or services Firms exist because investors want access to risky investment opportunities Goal #1: Maximize Shareholder Wealth The primary goal of managers should be to maximize the wealth of the firm’s owners In most instances this is equivalent to maximizing the stock price Maximize Profit? Does profit maximization lead to the highest possible share price? For at least three reasons, the answer is often no: Timing Cash Flows Risk FINANCING ACTIVITIES Include cash activities related to noncurrent liabilities and owner’s equity Noncurrent liabilities and owner’s equity items includes: The principal amount of long-term debt Stock sales and repurchases Dividend payments PRIMARY SOURCES OF OUTSIDE FUNDS 1. DEBT FINANCING – BORROWING MONEY 2. EQUITY FIANANCING – ISSUING / SELLING SHARES OF STOCKS IN EXCHANGE OF CASH INVESTING ACTIVITIES Investing activities involve the purchase of the resources a company needs to operate Include cash activities related to non-current assets Non-current assets includes Long term investment Property, plant and equipment Principal amount of loans made to other entities (cash generated from sale of land and cash paid for an investment in another company Note: interest received from loans is included in operating activities Investments (stocks / bonds) are another example of investing activities Purchases of many resources (computers, delivery trucks, furniture, and buildings) OPERATING ACTIVITIES Include cash activities related to net income For example, cash generated from the sale of goods (revenue) and cash paid for merchandise (expenses) are operating activities because revenues and expenses are included in net income  END OF PRESENTATION  THE ROLE AND OBJECTIVE OF FINANCIAL MANAGEMENT Reference: Contemporary Financial Management 14th edition by Moyer, McGuigan and Rao (Cengage Learning) OBJECTIVES Understanding of the following topics: The primary goal of the firm The determinants of the value of a firm The meaning and implications of agency problems in a corporation The importance of ethics in running a business organization The role and function of the financial manager The relationship between finance and other business disciplines Reference: Contemporary Financial Management 14th edition by Moyer, McGuigan and Rao (Cengage Learning)  Financial Managers have the primary responsibility for acquiring funds (cash) needed by a firm and for directing those funds into projects that will maximize the value of the firm. The financial management has a wide range of rewarding career opportunities in the fields of corporate financial management, investment banking, investment analysis and management, portfolio management, commercial banking, real estate, insurance, risk management, wealth management and the public sector. Managers daily face questions like the following: Will a particular investment be successful? Where will the funds come from to finance the investment? Does the firm have adequate cash or access to cash – through bank borrowing agreements, for example – to meet its daily operating needs? Which customers should be offered credit, and how much should they be offered? How much inventory should be held? Is a merger or an acquisition advisable? How should cash flows be used or distributed? That is the optimal dividend policy? Or should shares be repurchased In trying to arrive at the best financial management decisions, how should risk and return be balanced? Are there intangible benefits (for example, real option aspects) from an investment project that the firm is considering that will affect the accept / reject decision emerging from traditional quantitative analysis procedures?  WHAT IS THE PRIMARY GOAL OF THE FIRM?? WHAT OBJECTIVE(S) SHOULD GUIDE BUSINESS DECISION MAKING WHAT SHOULD MANAGEMENT TRY TO ACHIEVE FOR THE OWNERS OF THE FIRM? The most accepted objective of the firm Is to make the most efficient use of the firm’s resources Maximize the value of the firm for its owners Maximize the shareholders wealth SHAREHOLDERS WEALTH Is represented by the market price of a firm's common stock AGENCY RELATIONSHIPS Occurs when one or more individuals (principals) hire another individual (agent) to perform a service on behalf of the principals. Principals often delegate decision – making authority to the agent Most important agency relationship Stockholders and creditors Stockholders (owners) and managers STOCKHOLDERS AND CREDITORS Creditors have a fixed financial claim on the company’s resources in the form of long-term debt, bank loans, commercial paper, leases, accounts payable taxes payable Conflicts may arise between the creditors and owners because of the fixed returns STOCKHOLDERS AND MANAGERS Inefficiency called agency problems Agency problems occur because each party to a transaction is assumed to act in a manner consistent with maximizing his or her own utility (welfare) Example: Long-run survival rather than shareholder wealth maximization Consumption of on-the-job perquisites (company airplanes, limousines, and luxurious offices by managers who have no (or only partial) ownerships interest in the firm Agency Problem can lead to agency costs: Expenditures to structure the organization in such a way as to minimize the incentives for management to take actions contrary to shareholder interest Expenditures to monitor managements actions, such as paying for audits of managerial performance and internal audits of a firm's expenditures Bonding expenditures to protect the owners from managerial dishonesty The opportunity cost of lost profits arising from complex organizational structures that prevent management from making timely responses to opportunities A. CORPORATE GOVERNANCE The SEC, NYSE, AMEX, NASDAQ, The Conference Board and other experts propose to deal the issues about corporate governance 1. The board of directors of a corporation should have a majority of independent directors 2. The Independent director are individuals who are not current or former employees of the company and who have no significant business ties to the company 3. The committee responsible for nominating members of the board of directors must be composed only of independent directors 4. The post of chairman of the board of directors should be split from the CEO position 5. An independent lead, or presiding, director should chair board meetings 6. All members of the audit and compensation committees must be independent directors 7. The company must disclose whether it has adopted a code of ethics for the CEO and senior financial officer B. MANAGERIAL COMPENSATION Properly designed compensation contracts can help to align shareholders –management conflicts Providing part of the compensation in the form of stock or options to purchase stock Stock options granted to managers entitle them to buy shares of the company at a particular price (exercise price) Restricted Stock cannot be sold unless manage remains with the company for a stated period of time. Performance shares is a tock grants based on the company meeting specific performance targets C. THREAT TAKEOVERS Takeovers can serve as an important deterrent to shareholder – management conflicts If managers act in their self-interest, then share values will be depressed, providing an incentive for someone to take over the company at a depressed level The acquirer can then benefit from instituting policies that are consistent with shareholder wealth maximization like eliminating underperforming units and cutting overhead MAXIMIZATION OF SHAREHOLDERS WEALTH: Reasons why profit maximization model is not useful 1. The standard microeconomic model of profit is static (it lacks a time dimension) 2. Profit or earnings or income THREE MAJOR FACTORS DETERMINE THE MARKET VALUE OF A COMPANY’S SHARES OF STOCK 1. The amount of the cashflow expected to be generated for the benefit of stockholders Cashflow relates to the actual cash generated or paid by the firm 2. The timing of cash flows The market value of a share of stock is influenced not only by the amount of the cash flows it is expected to produce but also by the timing of those cashflows The financial managers must consider the magnitude of cash flow they expect to generate and the timing of the cash flow 3. The risk of the cash flow The market value of a share is influenced by the perceived risk of the cash flow it is expected to generate. CORPORATION Legal person composed of one or more actual individuals or legal entities. Considered as separate and distinct from those individuals or entities The owners are called STOCKHOLDERS OR SHAREHOLDERS CORPORATE ORGANIZATION AND GOVERNANCE The stockholders elect a board of directors (responsible for overseeing the management of the corporation) The board of directors deals with broad policy matters, leaving day-to-day operations of the business to the officers Corporate officers includes: Chairman of the board Chief executive officer (CEO) Chief operating officer (COO) Chief financial officer (CFO) President Vice President (s) Treasurer Secretary CORPORATE SECURITIES Represents claims against the assets and future earnings of the firm Two types; Debt securities – Investors who lends money to the corporation and expect periodic interest payments as well as eventual return of principal Equity Securities – either common or preferred stock Common Stock – is a residual form of ownership, the claims are only after all other claims (debt holders, preferred stockholders, those on the governments) Preferred Stock – priority over common stockholders with regards to earnings and assets. ORGANIZATION OF THE FINANCIAL MANAGEMENT FUNCTION CONTROLLER is responsible in all accounting-related activities Financial Accounting Involves the preparation of FS Cost Accounting Prepares operating budgets and monitors the performance of the department Taxes Prepares reports for government agencies Data Processing Involves corporate accounting and payroll activities TREASURER is concerned with the acquisition, custody and expenditures of funds including duties such as Cash and marketable securities management Capital budgeting analysis Financial planning Investors Relations Pensions Fund Management  ORGANIZATION OF THE FINANCIAL MANAGEMENT Financial Management and other Disciplines Accounting Financial managers are primarily concerned with a firm’s cash flow Economics Microeconomics Financial Managers use the concepts of setting marginal cost equal to marginal revenue when making long-term investment decisions and when managing working capital Macroeconomics Financial managers should recognize and understand how monetary and fiscal policies affect the economy and the cost of funds and the availability of credit Marketing, Production, Quantitative Methods and Human Resources Management All are directly related to the key day0to day decisions made by financial managers  END OF PRESENTATION