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Strategic Management (General environment Which consists six interrelated…

- - - - the difference between the perceived costumer benefits associated witrh buying a firm's product or service and the full economic cost of producing and selling these products or sercice
  - - - One firm generates more economic value each time it sells a product or service, whereas the other one generates less economic value each time it sells a product or service
      - The one it generates more economic value each time when it sells a product or service has a competitive advantage over the other firm
      - The size of this competitive advantage is equal to the difference in the economic value these two firms create
    - - The two firms create the same level of perceived costumer benefit but have different costs
        
        If one firm has lower cost per unite than the other one it still creates more economic value the the other one
- - - - The threats of new competitors depends on the cost of entry and the cost of entry, in turn, depends on the existence and height of barriers to entry
        
        The greater the cost of entry, the greater the height of these barriers and when there are significant barriers to entry, potential new competitors will not enter into an industry even if incumbent firms are earning competitive andvatage
        
        Barriers to entry
        
        Economies of scale
        
        Economies of scale exist in an industry when a firm's costs fall as a function of its volume of production
        
        Diseconomies of scale
        
        Exist when a firm's costs rise as a function of its volume of production
        
        Product differentation
        
        Cost advantages independent of scale
        
        Government regulation of entry
- - - - different firms use different accounting statements
    - - Profitability ratios
        
        measure of profit and measure of firm size
      - LIQUIDITY RATIOS
        
        focus on the ability of a firm to meet its short-term financial obligations
      - LEVERAGE RATIOS
        
        focus on the level of firm's financial flexibility and its ability to obtain more debt
      - ACTIVITY RATIOS
        
        focus on the level of activity in firm's business