Maximizing Competitive Advantage: Assessing Firm Performance Through Revenue Growth and Profitability Trends

MGMT 475 FALL 2022 PERFORMANCE ANALYSIS READING Our objective of this task is to understand the current state of the firm’s performance and the expected direction of their future performance if no strategic level changes are made. Keep this end in mind. To plan a trip, you must know – precisely - both your desired destination and your starting point. The same is true for any endeavor. There are many reasons to assess a firm’s performance, each involving different parties using different methods. Examples: Investors consider performance, earning per share, dividend payout ratios, etc. to assess if the firm is a good investment. Banks analyze cash flow, coverage ratios, level of debt, etc. to assess if the firm is a good credit risk. But we aren’t evaluating their credit rating or their investment attractiveness …. We want to assess how well their current strategic choices and their ability to execute those choices are delivering competitive advantage and sustainable, superior performance. That is, after all, our ultimate goal of a for-profit business enterprise. How can we get a good, simple definition of what ‘superior performance’ means for this purpose? Firm performance can have many dimensions such as revenue, profits, employee satisfaction, customer loyalty, market share, investor sentiment, reputation, etc. But let’s keep it simple for our purposes and focus on economic performance. After all, nothing else matters if the firm (an economic entity) cannot pay its bills, invest for the future, and sustain its existence. With that, the ideal state of economic performance can be argued to look like this: * Revenue growth, and a rate (NOT the amount of dollars) of growt