Analysis Framework: Financial & Strategic Directions

drjohn11aDr. John Psarouthakis, Executive Editor, www.BusinessThinker.com. Founder and former CEO, JP Industries, Inc, a Fortune 500 industrial corporation. Adjunct professor, Strategy and Acquisitions, Ross School of Management, University of Michigan.

This is the 6th of short articles of my thoughts about Leading and Managing winning companies. 

Analysis Framework: Financial

Financial ratio analysis will review, in part, the health and strength / weakness of the company and help decide the strategic direction of the company. The ratios such as: Liquidity, Leverage, Activity, and Profitability are basic to the analysis. To determine the risk in the company, the above ratios do not provide a measure directly. These ratios are descriptive and not prescriptive. We’d need to look at the “degree of operating leverage” and the degree of “operating leverage”. The product of these two ratios is the “degree of total leverage” which measures the company’s overall risk.

Evaluating the above sets of ratios to determine the operational and financial health of the firm an d project into the future the strategic set of ratios for a healthy growth.

Strategic Directions

In the final analysis decisions will be made, essentially, as to the direction of the business / company: the choice will be in determining the most desirable direction for and by its owner(s): i.e. Current direction with as much improvement as possible; Chart a new direction considerably different from the current one; Consideration of a strategic merger, or sale of the company to a financial group.



Preliminary due diligence

JP Bio PhotoDr. John Psarouthakis, Executive Editor, www.BusinessThinker.com. Founder and former CEO, JP Industries, Inc, a Fortune 500 industrial corporation. Adjanct professor, Strategy and Acquisitions, Ross School of Management, University of Michigan

This is the 6th of short articles of my thoughts about Acquisition of a business.

This brief article reviews the important step of preliminary due diligence that takes place once a confidentiality agreement is signed and you are satisfied that the acquisition prospect meets your major criteria. The preliminary due diligence has three important aspects, a meeting with the seller, one or two company visits and a preliminary review of documentation. There are four key goals in the preliminary due diligence phase. They are:

  1. To determine whether this company is what you want to buy (barring any unexpected “skeletons” you might uncover during formal due diligence) ?
  2. To determine price you want to offer in your letter of intent
  3. To determine whether the seller is serious about selling and why
  4. To develop rapport with the seller

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The Winning Strategy

drjohn11aDr. John Psarouthakis, Executive Editor, www.BusinessThinker.com. Founder and former CEO, JP Industries, Inc, a Fortune 500 industrial corporation. Adjunct professor, Strategy and Acquisitions, Ross School of Management, University of Michigan

This is the 5th of short articles of my thoughts about Leading and Managing winning companies.

The development of a winning strategy requires that the company considers the interrelated dynamics between the enterprise itself, its customers, and its competitors. This strategy in turn must be implemented through “effective corporate actions resulting from superior decisions, which in turn rest heavily on solid management practices rather than luck or general business acumen” according to Professor J. Frank Yates** of the School of Business at the University of Michigan. A good decision manager understands the process of making good decisions and in the turn helps others within the organization to learn the good decision process. This is of extreme importance to understand before a Strategy and a plan to implement this strategy is developed.

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