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Category: Business

Autor: anton 21 April 2011

Words: 1675 | Pages: 7

VERIZON COMMUNICATIONS

Verizon Communications formed by the merger of two big and successful companies, Atlantic Corp. and GTE Corp., is the largest telecommunication company. The company serves large part of the market in United States. However the company faces certain strengths and weaknesses which affect the way company formulate its strategies.

Internal Analysis:

The IFE (Internal Factor Evaluation) matrix summarizes the major strengths and weaknesses of Verizon Communications.

KEY INTERNAL FACTORS WEIGHTS RANKING SCORE

Strengths

1. Employee satisfaction. .05 3 .15

2. Well positioned company. .15 3 .45

3. Increase in revenue and EPS. .10 3 .30

4. Offering fiber-optic lines. .20 4 .80

5. Largest directory publisher. .05 4 .20

Weaknesses

1. Not much emphasis on R&D. .05 3 .15

2. Not yet achieved its goal. .05 2 .10

3. Global coverage. .10 3 .30

4. Poor financial position. .20 4 .80

5. Technological competencies. .05 2 .10

TOTAL 1.00 3.35

Strengths

1. Verizon communications has announced salary raise and job security for their employees which will result into increase in employee morale (management).

2. Verizon serves 49 out of the top 50 markets in United States which implies that the company is well positioned among its competitors (marketing).

3. There is increase in the company’s revenue and Earnings per share (EPS) which will attract investors to invest their money in the company (finance/accounting).

4. Verizon’s plan to offer extended fiber-optic lines to homes and businesses will give the company competitive advantage against cable companies (production/operations).

5. Verizon Communications is the largest telephone directory publisher in the world.

Weaknesses

1. Verizon Communication’s Income Statement implies that the company does not give much importance towards research and development.

2. Verizon Communications is not able to achieve its objective of becoming the market leader in delivering innovative, integrated communications solutions to its customers (management).

3. The company widely covers most of the territories in United States but its telecommunication services are not being expanded globally in other parts of the world in comparison to its competitors (marketing).

4. Verizon’s financial position is not very impressive. The company has $49 billion debt load. Moreover the Gross Profit Margin of 2003 has decreased to 0.67, which was 0.70 in 2002 (financial/accounting).

5. Verizon Communications is not well placed against its competitors like AT&T who offer services using technologies like TDMA (time division multiple access) (production).

FINANCIAL RATIOS

FINANCIAL RATIOS 2003 2002 2001

Liquidity Ratios

Current Ratios 0.68 0.79 4.49

Quick Ratios 0.64 0.73 0.55

Leverage Ratios

Debt to Total Asset Ratio 0.27 0.31 0.37

Debt to Equity Ratio 1.35 1.63 1.97

Long Term Debt To Equity Ratio 0.23 0.26 0.26

Times Interest Earned Ratio 0.11 0.22 0.17

Activity Ratios

Inventory Turnover 52.8 44.95 34.14

Fixed Asset Turnover 1.61 1.59 1.28

Total Asset Turnover 0.4 0.4 0.39

Accounts Receivable Turnover

Average Collection Period

Profitibility Ratios

Gross Profit Margin 0.67 0.7 0.38

Operating Profit Margin 0.11 0.22 0.17

Net Profit Margin 0.45 0.06 0.005

Return On Total Assets 0.18 0.02 2.27

Return On Stockholders' Equity 0.18 0.02 2.27

Earnings Per Share 11.12 1.48 0.14

Price-Earning Ratio

Growth Ratios

Sales 0.006 0.001

Net Income 0.24 9.48

Earnings Per Share 6.51 9.57

Dividend Per Share

EBAY

Ebay, the world’s largest and the most popular marketplace on the web is an internet based company located in California. Ebay serves as a worldwide market place where buyers and sellers from all over the world buy and sell items ranging from electronics and collectibles to cars and real estate. Company’s internal analysis helps in better understanding the financial and market position of the company.

Internal Analysis:

The company’s internal analysis can be done by building an IFE matrix.

KEY INTERNAL FATORS WEIGHT RANKING SCORE

Strengths

1. Effective promotion strategies. .10 3 .30

2. Accessible support centers. .05 3 .15

3. Distinctive features. .15 4 .60

4. Increase emphasis on R&D. .05 2 .10

5. Free and easy way to shop. .10 3 .30

6. Financially sound. .05 3 .15

Weaknesses

1. Manipulation of the system. .20 2 .40

2. Dealing with unknown people. .10 3 .30

3. Fraudulent activities. .05 3 .15

4. Poor financial ratios. .15 3 .45

TOTAL 1.00 2.90

Reasoning for weights and ranking:

Strengths

1. Ebay’s most effective promotion strategy is promotion by word of mouth. The company is also using media such as TV, radio and trade shows to reach its target audience (marketing).

2. Customers are capable of contacting Ebay’s support centers through e-mail, text, and phone seven days a week and twenty four hours a day (management).

3. The company distinctive features like PayPal, Feedback Forum provides Ebay competitive advantage over its competitors (production/operations).

4. There is a continuous increase in the company’s R&D expenditure in order to better understand the global market for expansion (research & development).

5. Customers do not need to pay to shop on ebay. The process for registration is very simple and requires very minute listing fee (marketing).

6. There is a significant percentage increase in sales for 2003. Also there is improvement in the company’s debt ratios.

Weaknesses

1. Ebay’s self regulating feedback forum system may tempt the users to manipulate the system which might cause the users to doubt the efficiency of the system (management).

2. Ebay being a virtual market might not attract individuals who do not prefer dealing with unknown people (marketing).

3. The occurrence of fraudulent activities may lead to elimination of potential customers. There is a need to establish more new rules and policies in order to make the system more secure (production).

4. The financial ratios for Ebay do not present a very sound financial position of the company. There has been percentage decrease in net income since 2002. Moreover there is no improvement in the company’s profit margin (finance/accounting).

FINANCIAL RATIOS

FINANCIAL RATIOS 2003 2002 2001

Liquidity Ratios

Current Ratios 3.31 3.8 4.9

Quick Ratios 3.31 3.8 4.9

Leverage Ratios

Debt to Total Asset Ratio 0.02 0.004 0.016

Debt to Equity Ratio 0.02 0.004 0.016

Long Term Debt To Equity Ratio 0.02 0.003 0.008

Times Interest Earned Ratio

Activity Ratios

Inventory Turnover

Fixed Asset Turnover 0.58 0.47 0.94

Total Asset Turnover 0.37 0.3 0.44

Accounts Receivable Turnover

Average Collection Period

Profitibility Ratios

Gross Profit Margin 0.8 0.82 0.81

Operating Profit Margin 0.29 0.28 0.16

Net Profit Margin 0.2 0.2 0.12

Return On Total Assets 0.07 0.06 0.05

Return On Stockholders' Equity 0.09 0.07 0.06

Earnings Per Share 0.68 0.4 0.16

Price-Earning Ratio

Growth Ratios

Sales 0.78 0.62

Net Income 0.76 1.76

Earnings Per Share 0.7 1.5

Dividend Per Share

LIMITED BRANDS

Internal Analysis:

Internal analysis of the company is useful in making strategic decisions. Limited Brands has achieved success in the specialty retailing industry. IEF matrix can summarize the company’s strength and weaknesses.

KEY INTERNAL FACTORS WEIGHT RANKING SCORE

Strengths

1. Executive involvement. .15 3 .45

2. Clear job specification. .05 3 .15

3. In-house advertising agency. .05 4 .20

4. Current & unique inventory. .10 3 .30

5. Effective distribution system. .10 3 .30

6. Well organized management information system. .10 2 .20

7. Improved liquidity ratios. .05 2 .10

Weaknesses

1. Centralized planning system. .05 3 .15

2. Problem of coordination among suppliers. .15 3 .45

3. Number of stores closing down. .05 4 .20

4. Needs more emphasis on marketing strategies. .05 4 .20

5. Decrease in net income and profit margins. .10 2 .20

TOTAL 1.00 2.90

Reasoning for weights and rankings:

Strengths

1. The company uses an effective centralized process for planning. Strategic decisions are made by the company’s CEO and delegated down the line of authority. This allows executive level involvement in each store brands (management).

2. Limited Brands have various support businesses which are responsible for performing specific functions. Clear job description and specification is helpful in attaining the organizational objectives (management).

3. Limited Brands created Limited Brand and Creative Services division which serve as an in-house advertising agency working towards creating brands with distinctive features (marketing).

4. Limited Brands has a contract with Mast Industries for manufacturing high quality and low cost products. This helps the company to keep inventory current and unique (production).

5. Limited Brands has an effective distribution system aid by a computerized system which is helpful in monitoring the inventory levels and sales patterns at each store (production).

6. The company’s Limited Technology Services division connects and exchange information between the separate business groups and stores (management information system).

7. Limited Brands liquidity ratios have improved since 2002 which implies that the company efficiently utilizes its inventory (finance/accounting).

Weaknesses

1. The company follows a centralized planning and delegation system. Employees at lower level are more close to the customers and have better knowledge about the market trends. The company should take into account its employees while making strategic planning decisions (management).

2. Mast industries purchase merchandise from large number of suppliers which affects the coordination of work and consistency in quality (production).

3. Except for Victoria’s Secret store, there has been decrease in the number of Limited Brand’s stores which implies lack of market and customer analysis (research & development).

4. As the company is offering clothing and related goods of different price range and styles and have various stores in different parts of the country, it needs to spend large amount of money and resources in defining each store’s image, fashion, advertising and maintaining its market position (marketing).

5. The company’s financial position is not very sound. There has been percentage decrease in net income. Moreover there is a decrease in profit margin and very insignificant percentage increase in sales (finance/accounting).

FINANCIAL RATIOS

FINANCIAL RATIOS 2003 2002

Liquidity Ratios

Current Ratios 2.86 1.91

Quick Ratios 2.09 1.25

Leverage Ratios

Debt to Total Asset Ratio 0.32 0.46

Debt to Equity Ratio 0.49 0.85

Long Term Debt To Equity Ratio 0.11 0.09

Times Interest Earned Ratio

Activity Ratios

Inventory Turnover 8.74 8.71

Fixed Asset Turnover 2.32 3.64

Total Asset Turnover 1.16 1.65

Accounts Receivable Turnover

Average Collection Period

Profitibility Ratios

Gross Profit Margin 0.09 0.1

Operating Profit Margin 0.73 0.74

Net Profit Margin 0.059 0.06

Return On Total Assets 0.069 0.1

Return On Stockholders' Equity 0.1 0.18

Earnings Per Share

Price-Earning Ratio

Growth Ratios

Sales 0.002

Net Income -0.03

Earnings Per Share

Dividend Per Share

AVON PRODUCTS, INC.

Avon, the world’s largest direct-selling organization and merchandiser of beauty products, face direct competition from other companies in the cosmetics business. The internal analysis of the company will help in highlighting the strengths and weaknesses of the company.

Internal Analysis:

The company’s internal analysis can be conducted by formulating the IFE matrix.

KEY INTERNAL FACTORS WEIGHT RANKING SCORE

Strengths

1. Appropriate Organizational chart. .10 3 .30

2. Excellent leadership skills. .15 3 .45

3. Investment in research & development .10 2 .20

4. Pioneer in direct selling. .15 4 .60

5. In house agency for marketing. .05 3 .15

6. Efficient management information system. .05 3 .15

7. Impressive profitability ratios. .05 2 .10

Weaknesses

1. Direct selling, expensive. .10 4 .40

2. Market share not improved. .05 3 .15

3. Narrow product line. .10 3 .30

4. Not much improvement in sales. .10 3 .30

TOTAL 1.00 3.10

Reasoning for the weights and rankings:

Strengths

1. Avon’s organizational chart implies clear distribution of job and responsibilities. Each person is accountable to the person superior to him resulting into better performance (management).

2. Excellent leadership skills of the company’s CEO reflects emphasis on the progress and growth of Avon (management).

3. The company spend substantial amount of money on research and development in order to find out selling strategies relevant to contemporary women (research & development).

4. Avon is the pioneer in direct door to door selling. Company’s well trained independent sales representatives have increased company’s revenue to $6.88 billion in 2003 which is 10% higher than the previous year (marketing).

5. Avon’s Creative Artists Agency (CAA) provides marketing based expertise and strategies for the introduction of new product line (marketing).

6. Avon’s representatives are connected with each other through youravon.com which helps them in exchanging information and reach out to their customers globally (management information systems).

7. The profitability ratios for the company show continuous improvement in Avon’s profit margin and earnings per share reflecting a sound financial position of the company (finance/accounting).

Weaknesses

1. Avon’s direct selling approach is viewed as expensive because of various problems associated like hiring, training, managing and motivating (marketing).

2. In spite of the fact that Avon is spending huge amount of expenditure in order to strengthen its global image, the company has not experienced large amount of change in its sales and market share (production).

3. The company has a narrow product line as compared to its competitors (production).

4. In spite of contributing substantial amount in research and development, there is an insignificant change in Avon’s sale figures (finance/accounting).

FINANCIAL RATIOS

FINANCIAL RATIOS 2002 2001

Liquidity Ratios

Current Ratios 1.03 1.29

Quick Ratios 0.72 0.87

Leverage Ratios

Debt to Total Asset Ratio 1.03 1.02

Debt to Equity Ratio -27 -43.3

Long Term Debt To Equity Ratio 0.23 0.38

Times Interest Earned Ratio 16.06 9.7

Activity Ratios

Inventory Turnover 10.03 9.72

Fixed Asset Turnover 3.98 3.84

Total Asset Turnover 1.85 1.87

Accounts Receivable Turnover

Average Collection Period

Profitibility Ratios

Gross Profit Margin 0.14 0.12

Operating Profit Margin 0.13 0.11

Net Profit Margin 0.08 0.07

Return On Total Assets 0.16 0.13

Return On Stockholders' Equity 0.16 0.13

Earnings Per Share 2.26 1.87

Price-Earning Ratio

Growth Ratios

Sales 0.03

Net Income 0.2

Earnings Per Share 0.2

Dividend Per Share

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