Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
Chapter 4 Evaluating a Company’s Resources, Capabilities, and Competitiveness
151
ASSURANCE OF LEARNING EXERCISES
1. UsingthefinancialratiosprovidedinTable4.1andthefinancialstatementinformationpresentedbelowfor
Costco Wholesale Corporation, calculate the following ratios for Costco for both 2013 and 2014:
a. Grossprofitmargin
b. Operatingprofitmargin
j. Average collection period
Basedontheseratios,didCostco’sfinancialperformanceimprove,weaken,orremainaboutthesamefrom
2013 to 2014?
ACTIVITY
This Assurance of Learning exercise is available as a Connect Assignment. The assignment can be
graded and posted automatically.
Response:
The student should prepare the following analysis:
a. Grossprofitmargin—Grossprofitmarginequals(sales—costofgoodssold)dividedby(sales).For
Costco, this is represented in the following equations:
2014($112,640M—$98,458M)/($112,640M)=0.1259or12.59%
b. Operatingprofit margin—Operatingprofit marginequals (operating income) dividedby (sales). For
Costco, this is represented in the following equations:
2014($3,220M)/($112,640M)=0.0286or2.86%
c. Netprofitmargin—Netprofitmarginequals(profitsaftertaxes)dividedby(sales).ForCostco,thisis
represented in the following equations:
Chapter 4 Evaluating a Company’s Resources, Capabilities, and Competitiveness
152
d. Times-interest-earned (coverage) ratio—Times-interest-earned equals (operating income) divided by
(interest expense). For Costco, this is represented in the following equations:
e. Return on shareholders’ equity—ROE or return on stockholders’ equity equals (profits after taxes)
divided by (total stockholders’ equity). For Costco, this is represented in the following equations:
f. Returnonassets—ROAornetreturnontotalassetsequals(profitsaftertaxes)dividedby(totalassets).
For Costco, this is represented in the following equations:
g. Debt-to-equity ratio—Debt-to-equity equals (total debt) divided by (total stockholders’ equity). For
Costco, this is represented in the following equations:
2013($19,271M)/($111,012M)=1.75[favorabledecrease]
h. Days of inventory—Days of inventory equals (inventory) divided by (Cost of goods sold divided by
365).ForCostco,thisisrepresentedinthefollowingequations:
2014($8,456M)/($98,458M/365days)=31.35days
i. Inventory turnover ratio—Inventory turnover ratio equals (Cost of goods sold) divided by (inventory).
For Costco, this is represented in the following equations:
2014($98,458M)/($8,456M)=11.64turnsperyear
j. Average collection period—Average collection period equals (accounts receivable) divided by (total
salesdividedby365).ForCostco,thisisrepresentedinthefollowingequations:
2014($1,148M)/($112,640M/365days)=3.72days
Performance Analysis—The student should identify that overall, Costco’s financial performance is at
from2013.Themostsignificantchangeisinnetprofitnumber.Despitethesmallchangesinmeasuresthe
studentmustkeepinmindthesignificantincrease/decreaseinperformancereectedgiventhesizeofthe
Chapter 4 Evaluating a Company’s Resources, Capabilities, and Competitiveness
153
2. PaneraBreadoperatesmorethan1,900bakery-cafésinmorethan45statesandCanada.Howmanyofthe
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.
Response:
The student might identify the following items in their analysis of competitive power:
1. Is the resource or capability competitively valuable—Is it directly relevant to the company’s strategy.
The combination of product and the experience provided by the store are the most essential components
of Panera Bread’s value proposition.
2. Is the resource or capability rare—Is it something rivals lack.—Other companies are able to copy many
The student should identify that when taken together, these factors show Panera Bread has strong competitive
power in the Fast Casual sector.
The student might identify the following in their SWOT analysis:
Strengths:
• Strong brand image
• Tight control on food ingredients
Weaknesses:
• Exclusive North American focus
Opportunities:
• Growing fast-casual dining markets in the US and in Europe
Chapter 4 Evaluating a Company’s Resources, Capabilities, and Competitiveness
154
Threats:
• Fast casual sector is growing, providing increased competition
The student might highlight the threat provided by increased competitive pressure in the Fast Casual
sector combined with the weakness of only focusing in the North American markets could be overcome
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:
• Which of the company’s costs correspond to the primary value chain activities depicted in Figure 4.3?
• Which of the company’s costs correspond to the support activities described in Figure 4.3?
• What value chain activities might be important in securing or maintaining Boll & Branch’s competitive
advantage? Explain your answer.
ACTIVITY
This Assurance of Learning exercise is available as a Connect Assignment. The assignment can be
graded and posted automatically.
Response:
The student should identify that the primary activities are those that create value for customers while support
activities facilitate and enhance the performance of the primary activities. The cost information provided
in Figure 4.3 highlights costs associated with Supply Chain Management, Operations, Distribution, and
Marketing and therefore all are primary value chain costs. Costs associated with Product R&D, Human
4. Using the methodology illustrated in Table 4.3 and your knowledge as an automobile owner, prepare a
competitive strength assessment for General Motors and its rivals Ford, Chrysler, Toyota, and Honda. Each
of the five automobile manufacturers should be evaluated on the key success factors/strength measures
of: cost competitiveness, product line breadth, product quality and reliability, financial resources and
profitability,andcustomerservice.Whatdoesyourcompetitivestrengthassessmentdiscloseabouttheoverall
competitiveness of each automobile manufacturer? What factors account most for Toyota’s competitive
success? Does Toyota have competitive weaknesses that were disclosed by your analysis? Explain.
Response:
1. The student should identify Key Success Factors in the automotive industry sector being evaluated,
which include:
• Quality/ProductPerformance
• Reputation/Image
Chapter 4 Evaluating a Company’s Resources, Capabilities, and Competitiveness
155
• Product Portfolio
• Relative Cost Position
2. The Key Success Factors should be assigned weights based on how important they feel the factor is
relative to other factors. The total of all weights should equal 1 (100%).
3. Each company should be graded from 0-10 for each factor and that grade should be multiplied by the
weight for the factor score.
look like.
7. ThestudentshouldbeabletodeterminenumericallyanyspecificareaswhereToyotahascompetitive
