Analysis of the Operation and Financial Condition of the Enterprise

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Analysis of the Operation and Financial Condition of the EnterpriseBased on the portfolio analysis conclusions may be drawn about the basic strategieschosen, for example, in case with concerns the risks can be leveraged by taking intoconsideration its range of products and services.In order to achieve sales of products in a saturated market, all risks of a concernmust be leveraged by the range of products, and the different squares of the portfoliomatrix must be worked on.In the majority of situations the philosophy for leveraging the risks under theportfolio analysis for production investors is associated with risk as the distribution of theenterprise forces and resources leads to a diminished competitive position in the market.Portfolio analysis is thus a good means to clarify the position, while it is notsuitable for drawing the conclusions to obtain the right basic strategy.The basic underlying strategy appropriate for an enterprise is derived from findingout its actual state of affairs as it is displayed by the portfolio analysis.The basic strategy is derived from the combination of the factors of theperformance results and the analysis of the potential of an enterprise, generally fromadaptation of the enterprise performance results. So, for example, absolute believers inportfolio matrix would say that from position 1 (see Table 2.1) in the square on the left(highly attractive industry, large competitive advantage) automatically followed a marketstrategy of a typical market leader.A typical market strategy of a market leader would presuppose that it would furtherstrengthen its absolute and relative positions in the market and that it would invest morethan the proportional share into this particular market segment. However, this strategymust not be adopted as the only one which is correct. An enterprise can find a fullyapplicable strategy without increased competition activities in order to stay a leader in themarket. Even in a growing market with a relatively high competitive advantage it can besatisfied with the number two in certain circumstances.Provided a higher return on the capital invested and provided free cash resourcesthe transactions can be further optimised, instead of expanding or diversifying them.The question of which is the correct strategy – expansion of the market share oroptimisation without expanding the market share, can’t be solved by portfolio analysisalone.Orthodox followers of the portfolio matrix believe that item 4 of Table 2.1presupposes that an enterprise, provided that the competitive position is good, but themarket is not attractive, should no more expand its activities, but only receive the return onthe capital invested. The correct strategy, which is derived from the potential analysis mayturn out to be quite different, i.e., an enterprise located in square 4 by applying additionaleffort in strengthening its position in the market could become a monopoly. In the case of amonopoly a completely different pricing policy may be applied.In other words, one must be very careful in using the portfolio matrix as anautomatically correct means for selection of the basic and market strategy as this may leadto errors and expose the enterprise to future risks.As a means of finding out of the present and past positions the portfolio matrix is adidactic and easy visual aid. For the selection and evaluation of the future basic strategythe potential analysis is more suitable than the portfolio analysis.14
Analysis of the Operation and Financial Condition of the EnterpriseAn enterprise analyst can create the full picture and the concept of an enterprise bycombining the results derived from the portfolio matrix (present, past), potential analysis(future), the basic strategy chosen and the present and past financial and managementaccounting. If such combinations have not been looked at in such a context, an enterprisecase analysis is erroneous.1.2. Role of competitiveness and methods of measurementCompetitiveness is an economically effective force tended at reducing costs andimproving quality in the struggle for attracting the potential and retaining the existingcustomers.Competitiveness is a conditional, dynamic concept which is directly dependent onspecific circumstances formed in any particular market (market structure, accessibility,type of goods, sales conditions and terms of payment). In some cases it is fully sufficient tooffer beneficial terms of payment in order to achieve large-scale distribution.In the general meaning competitiveness is the ability to surpass others in the attainmentof the targets set in the course of strengthening one’s position in internal and externalmarket.Competitiveness is a comparative and relative measurement of the qualities ofgoods/services. If there were no competitors in the market to whose products the consumercould compare the goods/services of a specific enterprise there would be no point talkingabout the competitiveness of this enterprise.Competitiveness is an aggregate indicator combining the characteristics of both thebusiness subject and the product made or the service provided.Successful competitiveness in the market is determined mainly by the potential of anenterprise. The enterprise potential is the real or possible ability to carry out targetedactivities. The enterprise potential may be subdivided into four categories as follows:Basic potential provides the possibility to an enterprise to achieve its main tradingobjectives, produce economical value and gain profit. The basic potential is related to itscompetitive advantage. Retaining and growth of this potential gives stable market position.Hidden potential – assets without obvious advantages in one moment of time, while inthe perspective they can be transformed into basic assets. Potential of the enterpriseemployees and the experience accumulated in a certain area of activity is considered ashidden potential.There is also the so-called cost ineffective potential. Ineffective potential meansutilisation of resources without bringing any profit to the enterprise.Cross-potential is characterised by the assets at the disposal of an enterprise that ensurean effective us of the other types of potential, i.e., well-functioning sales or financialsystems.Competitiveness of goods or services is one of the main components for successfulfunctioning of an enterprise in the market.Competitiveness of goods/services would often be a combination of the price and theprime cost ensuring success of the particular goods/services in comparison with othersuppliers or providers of homogenous goods or services.15
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