Strategic Analysis - Research Paper Example

Strategic Analysis Introduction Strategic analysis is a systematic, logical and objective approach for making keydecisions in and organization. It put together both quantitative and qualitative information is a manner that permits effective decisions to be arrived at under uncertain conditions (Ferenczy, 2012). It consists of three different stages: formulation of strategy, implementation of strategy and evaluation of the strategy. The paper aims at analyzing “Home” Company (Microsoft) and Company to Acquire in a bid to explore the possibility of the acquisition. Evaluation of Mission and/or Vision Statement Microsoft Corporation is a leading software company in the world. It is best known for its Office software and Windows. It also develops and produces consumer electronics like game system and tablets. It is easily accessible thus making people hear, see and use technology. The company aims at enabling businesses and people worldwide to realize their full potential, a mission that they have succeeded in realizing. Nearly all businesses and individuals use their products. There are committed to their customers as they strive to design technology that is easily accessible to everybody. It is one of the industry leaders in building safe and easy to use products. Facebook, Inc., on the other hand, is an internet company that operates the social networking website Facebook. It is world’s largest social networking website with more than one billion active monthly users. It aims at making the world more connected and open, a mission that it has realized due to the rising number of Facebook users. It has offered people the power to share information. Strategic Analysis of “Home” Company COMPETITIVE PROFILE MATRIX (Microsoft)                         MICROSOFT GOOGLE INC. ORACLE CORP. CRITICAL SUCCESS FACTOR WEIGHT RATING SCORE RATING SCORE RATING SCORE market share   0.14 4 0.56 2 0.28 3 0.42 product quality   0.07 4 0.28 4 0.28 3 0.21 innovative culture   0.1 3 0.3 4 0.4 3 0.3 inventory system   0.06 2 0.12 3 0.18 3 0.18 customer loyalty   0.02 3 0.06 3 0.06 2 0.04 financial position   0.11 2 0.22 2 0.22 3 0.33 global expansion   0.13 3 0.39 2 0.26 2 0.26 organization structure 0.04 3 0.12 3 0.12 2 0.08 product design   0.1 4 0.4 2 0.2 2 0.2 distribution channels 0.08 3 0.24 2 0.16 2 0.16 customer service   0.09 3 0.27 3 0.27 2 0.18 price competitive   0.02 4 0.08 2 0.04 2 0.04 management experience 0.02 2 0.04 3 0.06 2 0.04 rate of OS crashes   0.01 3 0.03 3 0.03 2 0.02                 2   TOTAL   1   3.11   2.56   2.19                     The CPM analysis shows that Microsoft is the leading player in the industry. It has relative strengths in market share, product quality, product design and price competitive. On the other hand, Google Inc. prevails in innovative culture and product quality. Oracle Corporations is the weakest of them all. It does not have any relative strength against the rivals in the industry. The companies, therefore, need to create strategies in accordance with their strengths and weakness and enhance their ratings in the most crucial areas of the industry (Kumar, 2011).  IFE Matrix (Microsoft) Key internal factors Strengths Weight Rating score Revenue has not declined a single year for 10 years 0.1 4 0.40 Microsoft is the world most valuable computer software company 0.08 3 0.24 Trading volume increased by 11.54% in 2014 0.07 4 0.28 Dividends have been on the rise for the past 10 years 0.06 4 0.24 Rated AAA by both Moody’s and Standard and Poor’s with a total asset value of $41 billion with only $8.5 billion unsecured debt 0.05 3 0.15 Quick ratio of 2.45 shows high ability to cover cash needs 0.08 3 0.24 Excellent employee management 0.02 4 0.08 Extensive distribution channels 0.03 3 0.09 Microsoft is the second most valuable brand and eighth largest company in the world with a market capitalization of $314B 0.05 3 0.15 Brand reputation value at $ 57.8 billion. 0.03 3 0.09 Weaknesses High debt level ($20.645 billion) 0.1 2 0.20 Incompetency in acquisition and investment 0.07 2 0.14 Competition based on prices 0.05 1 0.05 Overdependence on hardware manufacturers 0.05 2 0.10 Rigid (bureaucratic) organizational culture hampering fast introduction of new products 0.08 2 0.16 Negative publicity over security flaws 0.03 1 0.03 Slow innovation process 0.08 1 0.08 No racial diversity on supervisory and management board 0.07 2 0.14 Total 1.00 3.25 EFE Matrix (Microsoft Corporation) Key external factors Weight Ratings Score Opportunities The demand for cloud based services is rising 0.07 4 0.28 Mobile advertising markets are anticipated to expand in double digits over the next few years  0.06 2 0.12 Mobile devise industry is expected to grow steadily over the next few years 0.06 3 0.18 Huge reserve for cash necessary for acquisitions 0.08 4 0.32 Microsoft has patented the technology that raises the quality of their products and reducing the amount of the materials required to produce it. 0.05 4 0.20 New market for the product worth $0.95 billion per year, could be launched for the consumers 0.06 3 0.18 Computer usage is growing 15% annually 0.08 4 0.32 Reliable and loyal customers 0.05 3 0.15 More appropriate price level 0.04 3 0.12 Threats Intensive rise in competition in the market for software products 0.04 3 0.12 Changing consumer needs and habits from laptops to Smartphone’s and tablets 0.06 2 0.12 Emergence of open source projects 0.04 3 0.12 High potential for expensive lawsuits 0.07 4 0.28 Economic downturn 0.05 3 0.15 Competitors are pursuing horizontal integration strategy 0.07 2 0.14 Increase in tax rate by 12% for polluting companies 0.05 2 0.10 Inflation has risen to 6% 0.03 2 0.03 Increase in prices of key inputs 0.04 2 0.08 Total 3.04 The SWOT Matrix figure (Microsoft) Strengths Brand reputation Brand loyalty Easy to use software Acquisition of Skype Robust financial performance Strong distribution channels Weaknesses Slow to innovate Mature PC market Criticisms over security flaws Poor investments and acquisitions Overdependence on hardware manufacturers Opportunities Mobile device industry Mobile advertising Growth through acquisitions Cloud based-services Threats Open source projects Potential lawsuits Changing consumer habits and needs Intense competition in software products ST strategies 1) Increase the innovation process to be the first player in new markets 2) Develop Windows that are not vulnerable to viruses’ attacks 3) Install a program that collects information on user need to offer exactly what they require. Explanations Strengths a) Brand reputation Valued at $ 57.8 billion, Microsoft’s brand is the fifth most valuable brand in the world. Forbes lists it as seventh most reputable organization in the world. Brand reputation brings about greater market share and higher sales. b) Brand loyalty Microsoft has more than 90 percent market share since it is the leading software and OS provider. Most people are familiar with it and hence will keep using it. Few brands are, therefore, able to compete with it (Kumar, 2011). . c) Easy to use software Microsoft’s products are popular because they are of high quality and simple to use. d) Strong distribution channel It works with all the key computer hardware manufacturers thus enhancing the selling of the complete computers. e) Acquisition of Skype This has boosted its online presence thus capable of generating more income. f) Robust financial performance Microsoft revenues grew by 20 percent from 2008 to 2012. It also has more than $63 billion in cash and cash equivalents. Weaknesses a) Few of its acquisitions have been successful. Some of its acquisitions like Dangers, Massive, WebTV and LinkExchange soon shut down or divested. b) Microsoft does not produce its own hardware. It depends on manufacturers of computer hardware. Therefore, emergence of cheap alternative OS could attract these software manufacturers c) Microsoft’s Windows OS has been highly criticized for being very weak against numerous attacks by viruses. d) It is harder to grow revenues because markets for PCs have matured. e) Microsoft is slow to innovate despite having great position and huge R$D resources. It took so long to enter mobile OS market. Opportunities a) The demand for cloud-based services has been expanding, and this could enable the company to increase its range of cloud software and services (Kumar, 2011). . b) Mobile device industry is expected to grow steadily over the next few years c) Mobile advertising markets are anticipated to expand in double digits over the next few years d) Microsoft has a huge reserve for cash necessary for acquisitions Threats a) It faces intense competition from readily established companies like Apple and Google in the manufacturing of OS. b) Consumers are shifting from purchasing laptops to Smartphone and tablets c) Open source projects such as Open Source Office and Linus OS are coming to the market. Since they are free, they are alternatives to expensive products of Microsoft. d) The company has lost some large-scale lawsuits and still has high potential for other expensive lawsuits BCG matrix table and example Example Microsoft Corporation RELATIVE MARKET SHARE HIGH MEDIUM LOW 1 0.5 0 HIGH             20%           4   3         2   MARKET       GROWTH MEDIUM             RATE 10%                               LOW 1     0%             Microsoft RELATIVE MARKET SHARE HIGH cash generation LOW HIGH               STARS         QUESTION MARKS   earnings- growing   earnings- stable   cash flow- neutral   cash flow-negative   MARKET strategy- invest for growth strategy- sell   GROWTH cash usage             RATE           DOGS     CASH COWS earnings-low   earnings-high   cash flow- neutral   cash flow- neutral   strategy- divest   LOW strategy- invest for growth               A SPACE matrix table Microsoft corporation   internal strategic position   external strategic position   competitive (CA)   industry (IS)         X-axis -1 product quality   6 growth potential   -2 loyalty   5 consolidation   -3 market share   4 access to financing   -1 brand and image   4 barriers to entry   average--1.75     average-4.75     financial (FS)   environment Y-axis       5 cash flow   -1 inflation     6 ROA   -2 taxation     4 liquidity   -4 technology   5 leverage   -2 competition   average- 5     average- -2.25   total X-axis score- 3.00 Total Y-axis score- -2.75 Aggressive Conservative 2.75 3.00 QSPM analysis table and analysis Strategic alternatives 1) Increase innovation process 2) develop impervious Windows 1 2 Weight AS TAS AS TAS Opportunities The demand for cloud based services is rising 0.07 4 0.28 3 0.21 Mobile advertising markets are anticipated to expand in double digits over the next few years  0.06 2 0.12 2 0.12 Mobile devise industry is expected to grow steadily over the next few years 0.06 - - - - Huge reserve for cash necessary for acquisitions 0.08 4 0.32 2 0.16 Microsoft has patented the technology that raises the quality of their products and reducing the amount of the materials required to produce it. 0.05 - - - - New market for product worth $0.95 billion per year, could be launched for the consumers 0.06 3 0.18 2 0.12 Computer usage is growing 15% annually 0.08 - - - - Reliable and loyal customers 0.05 - - - - More appropriate price level 0.04 - - - - Threats Intensive rise in competition in the market for software products 0.04 - - - - Changing consumer needs and habits from laptops to Smartphone’s and tablets 0.06 - - - - Emergence of open source projects 0.04 3 0.12 2 0.24 High potential for expensive lawsuits 0.07 4 Economic downturn 0.05 3 Competitors are pursuing horizontal integration strategy 0.07 2 0.14 3 0.21 Increase in tax rate by 12% for polluting companies 0.05 - - - - Inflation has risen to 6% 0.03 - - - - Increase in prices of key inputs 0.04 2 0.08 1 0.04 Total Strengths Revenue has not declined a single year for 10 years 0.1 4 0.40 2 0.20 Microsoft is the world most valuable computer software company 0.08 - - - - Trading volume increased by 11.54% in 2014 0.07 4 0.28 2 0.14 Dividends have been on the rise for the past 10 years 0.06 - - - - Rated AAA by both Moody’s and Standard and Poor’s with a total asset value of $41 billion with only $8.5 billion unsecured debt 0.05 - - - - Quick ratio of 2.45 shows high ability to cover cash needs 0.08 3 0.24 10.08 Excellent employee management 0.02 - - - - Extensive distribution channels 0.03 - - - - Microsoft is the second most valuable brand and eighth largest company in the world with a market capitalization of $314B 0.05 - - - - Brand reputation value at $ 57.8 billion. 0.03 3 0.09 3 0.09 Weaknesses High debt level ($20.645 billion) 0.1 2 0.20 2 0.20 Incompetency in acquisition and investment 0.07 2 0.14 1 0.07 Competition based on prices 0.05 Overdependence on hardware manufacturers 0.05 2 0.10 2 0.10 Rigid (bureaucratic) organizational culture hampering fast introduction of new products 0.08 2 0.16 1 0.08 Negative publicity over security flaws 0.03 Slow innovation process 0.08 1 0.08 2 0.16 No racial diversity on supervisory and management board 0.07 Total 1.00 2.93 2.1 Analysis As evidenced for Microsoft Corporation, the QSPM is a useful strategic planning tool (Kumar, 2011).  Microsoft should, therefore, use its great position and huge R$D resources to increase innovation process and be a market leader by being the first to enter potential markets. The said alternative is more favorable than developing impervious Windows. Financial ratio analysis Microsoft Corporation Profitability ratios 2011 2012 2013 industry Net profit margin =NP/net sales 1000/3711 =26.95 53/5089 =1.04 1500/7872 =19.05 18% Profitability ratios indicate the ability of a firm to generate its earnings comparative to sales, assets, and equity. The company’s profitability decreased considerably in 2011. It increased in 2013 indicating an increase in its efficiency and overall performance that in turn implies an increase in profitability. These ratios are above the industry average value; this implies that the company is more profitable than other firms in the industry. Liquidity ratio 2011 2012 2013 industry Liquid ratio =current assets/current liabilities 4604/889 =5.12 11267/1052 =10.71 13070/1100 =11.88 8.00 Liquidity ratios show the ability of a firm to meet or pay for its short-term liabilities or short-term debt obligations as they fall due (Kapil, 2011).  The firm’s current ratio has increased over time indicating that the firm’s ability to meet its short-term debt obligations has increased as well. This shows that the company is able to meet its short-term liabilities with lots ease. The company’s liquidity ratios are greater than the industry average. This implies that it is more liquid and is able to meet its short-term liabilities as they fall due. Activity ratios 2011 2012 2013 Asset turnover ratio =total revenue/total assets 3711/6331 =0.59times 5089/15103 =0.34 7872/17895 =0.44 0.50 This ratio measures how effectively a company is utilizing its assets to generate income and how well it is managing its liabilities. Asset turnover ratio decreased in 2012 but increased in 2013. This implies an increase in the efficiency of the assets of the company to generate sales revenue. The company is however less efficient than the industry. Leverage ratios 2011 2012 2013 industry Debt ratio= total debt/total assets 1432/6331 =22.62% 3348/15103 =22.17% 2425/17895 =13.55% 20.00% It measures a company’s long-term solvency. The trend shows a reduction in financial leverage. Microsoft is relatively less risky than other firms in the industry because it uses fewer debts. Growth ratios 2011 2012 2013 industry EPS= net income/total outstanding shares 1000/2332 =0.43 53/2166 =0.02 1500/2517 =0.60 0.40 Growth ratios measure how fast a business is growing. Even though EPS decreased in 2012, the company is growing very fast as exhibited by the increase in the ratio in 2013. Microsoft is growing at a faster rate than other firms in the industry. Strategic Analysis of Company to Acquire COMPETITIVE PROFILE MATRIX                         FACEBOOK YAHOO INC. TWITTER INC. CRITICAL SUCCESS FACTOR WEIGHT RATING SCORE RATING SCORE RATING SCORE market share   0.13 4 0.52 3 0.39 2 0.26 employee satisfaction 0.1 4 0.4 4 0.4 3 0.3 frequency of updates 0.06 3 0.18 4 0.24 4 0.24 design   0.07 3 0.21 3 0.21 3 0.21 usability   0.11 4 0.44 3 0.33 2 0.22 superior IT skills capabilities 0.11 3 0.33 2 0.22 2 0.22 company brand reputation 0.05 4 0.2 3 0.15 2 0.1 organization structure 0.04 3 0.12 3 0.12 3 0.12 customization features 0.1 3 0.3 3 0.3 2 0.2 R$D spending   0.04 3 0.12 2 0.08 2 0.08 customer service   0.12 3 0.36 4 0.48 3 0.36 successful new introductions 0.02 4 0.08 2 0.04 2 0.04 management experience 0.08 3 0.24 3 0.24 2 0.16                                     TOTAL     1   3.5   3.2   2.42   The CPM analysis shows that Facebook is the key player in the industry. It has relative strengths in employee satisfaction, market share, usability, successful new introductions and company brand reputation. Alternatively, Yahoo Inc. prevails in customer service, frequency of updates and employee satisfaction. Twitter Inc. is the weakest of them all. It has relative in only frequency of updates. The companies, therefore, need to create strategies in accordance with their strengths and weakness and enhance their ratings in the most crucial areas of the industry. IFE matrix Key internal factors (Facebook) Strengths Weight Rating score Revenue has been increasing for the past 8 years 0.09 4 0.36 Microsoft is the world largest social networking company 0.09 3 0.27 Trading volume increased by 33 percent in 2011 0.10 4 0.40 Facebook showed fast growth in brand value last year 0.06 3 0.18 Brand reputation value at $ 33.2 billion 0.07 3 0.21 Quick ratio of 11.88 shows high ability to cover cash needs 0.08 3 0.24 Facebook has increased worldwide, it has More than a billion active monthly users 0.09 4 0.36 Raking in market capitalization steadily improving 0.04 3 0.12 Weaknesses Lower click through rate (CTR) for adverts 0.09 1 0.09 Decrease of 94.7% in net income between 2011 and 2012 0.08 2 0.16 Overdependence on one source of revenue- advertisements 0.11 1 0.11 Negative publicity over users’ privacy 0.03 1 0.03 Rigid (bureaucratic) organizational culture hampering fast introduction of new products 0.04 2 0.08 No racial diversity on supervisory and management board 0.03 2 0.06 Total 1.00 2.67 EFE Matrix (Facebook) Key external factors Weight Ratings Score Opportunities Facebook has more than 600 million users globally 0.07 3 0.21 Expansion to China 0.05 3 0.15 Social network usage is growing 10% annually 0.12 4 0.48 Facebook can diversify sources of revenue since it is the number two website in the world 0.03 4 0.12 Social networking is luring for younger generation 0.11 3 0.33 Low P/E ratio which attracts value investors 0.05 4 0.20 Well positioned to open Facebook marketplace 0.06 2 0.12 Companies are 25% likely to use social network to advertise 0.10 2 0.20 Threats Credit rates are increasing by 5% 0.04 2 0.08 Inflation has risen to 5.5% 0.06 4 0.24 Competition is intensifying in the market 0.04 3 0.12 Fast economic growth is likely to tighten credit availability 0.05 2 0.1 Identity thefts are on the rise 0.03 2 0.06 Slow growth rate of online advertising 0.05 2 0.1 Growing number of educated users who use ad-block extensions 0.09 3 0.27 Changing conditions that weaken Facebook’s business model 0.05 4 0.2 2.98 The SWOT Matrix figure Facebook Strengths Integration with applications and websites Understanding of the needs and behaviors of users Over one billion active monthly users Excellent users experience Weaknesses Weak CTR advertisements Lack of website customization Only one revenue source- advertisements Weak protection of users’ information Social networks lack some features Access to users’ privacy Opportunities Expansion to China Increased Facebook users through mobile devices Open Facebook market place Diversification of revenue source Threats Weak business model Identity thefts Some user blocking ads Rising number of people who use mobile internet Online advertising growing slowly SO strategies 1) Monetize mobile internet users to increase advertising income 2) Develop strong firewall to safeguard users’ private information 3) Create new software that customizes the social network account of their customers Strengths a) The company has launched a number of features that engage more users and enrich their experience. This close integration with other applications and websites provides a competitive advantage to the company. b) Facebook is more socially connecting both globally and locally since it has more than one billion monthly users. c) It has an interface that is easy to connect more people hence. d) It has more data on their users hence able to understand their needs and behavior. Weaknesses a) It has only 0.05% click-through rate compared to 4% of an average website. b) The website lacks group chats, video chats, and ability to unsubscribe from alerts and dislike buttons. c) Facebook only relies on advertising as revenue source. Revenue growth, therefore, only depends on the growth of its users. d) Its popularity has decreased due to its close interaction with users’ private information. e) Facebook is unable to customize the needs of the users unlike Google+ that allows for personalization of users’ social network account. f) Facebook has weak protection hence is vulnerable to attacks that steal personal information. Opportunities a) It has more users of Facebook through mobile devices hence has an opportunity of creating platforms that may be used in displaying ads for mobile users thus increasing their income. b) Facebook has the potential of entering China’s social networking market due to favorable government regulations. c) Facebook is capable of exploiting other opportunities in order to attract more revenue because it has over one billion active monthly users. d) It is well positioned to launch Facebook market place due to its extensive world coverage and many users. Threats a) There is growing the number of educated users who use ad-block extensions b) Change in some conditions is likely to weaken Facebook’s business model c) Facebook experience identity thefts and has been heavily criticized for failing to protect private information of their users. d) The company is likely to face decreasing income should it fail to monetize mobile users that are currently on the rise. e) The growth of Facebook’s income is threatened due to slow the rate of growth of online advertising. Boston Consulting Group Matrix (BCG) figure and example Facebook RELATIVE MARKET SHARE HIGH cash generation LOW HIGH               STARS         QUESTION MARKS   earnings- stable   earnings- unstable   cash flow- neutral   cash flow- negative   MARKET strategy- invest for growth strategy- sell   GROWTH cash usage             RATE           DOGS     CASH COWS earnings-low   earnings-high   cash flow- neutral   cash flow- neutral   strategy- divest   LOW strategy- invest for growth               Facebook RELATIVE MARKET SHARE HIGH MEDIUM LOW 1 0.5 0 HIGH             20%           4             MARKET       GROWTH MEDIUM 1           RATE 10%   3                         2 LOW       -10%             SPACE matrix table Facebook   internal strategic position   external strategic position     competitive (CA)   industry (IS)             X-axis -2 integration   6 growth potential     -2 loyalty   4 consolidation     -3 market share   2 access to financing     -2 brand and image   3 weak business model     average--2.25     average-3.75       financial (FS)   environment   Y-axis         6 cash flow   -3 inflation       6 ROA   -1 taxation       6 liquidity   -4 technology     5 leverage   -4 competition     average- 5.75     average- -3.00   total X-axis score- 1.5 Total Y-axis score--2.75 Aggressive Conservative 2.75 1.50 Defensive Competitive QSPM matrix table and analysis Facebook Alternatives 1) Monetize mobile internet users to increase advertising income 2) Develop strong firewall to safeguard users’ private information 1 2 Weight AS TAS AS TAS Opportunities Facebook has 600 million users globally 0.07 3 0.21 2 0.14 Expansion to China 0.05 3 0.15 2 0.10 Social network usage is growing 10% annually 0.12 4 0.48 3 0.36 Facebook can diversify sources of revenue since it is the second world’s best social networking website 0.03 4 0.12 2 0.06 Social networking is luring for younger generation 0.11 - - - - Low P/E ratio which attracts value investors 0.05 Well positioned to open Facebook marketplace 0.06 2 0.12 2 0.12 Companies are 25% likely to use social network to advertise 0.10 2 0.20 1 0.1 Threats Credit rates are increasing by 5% 0.04 - - - - Inflation has rose to 5.5% 0.06 - - - - Competition is intensifying in the market 0.04 3 0.12 2 0.08 Fast economic growth is likely to tighten credit availability 0.05 - - - - Identity thefts are on the rise 0.03 - - Slow growth rate of online advertising 0.05 2 0.1 3 0.15 Growing number of educated users who use ad-block extensions 0.09 3 0.27 2 0.18 Changing conditions that weaken Facebook’s business model 0.05 4 0.2 3 0.15 Strengths Revenue has been increasing for the past 8 years 0.09 4 0.36 3 0.27 Microsoft is the world largest social networking company 0.09 3 0.27 2 0.18 Trading volume increased by 35 percent in 2011 0.10 4 0.40 3 0.30 Facebook showed fast growth in brand value last year 0.06 - - Brand reputation value at $ 33.2 billion 0.07 Quick ratio of 11.88 shows high ability to cover cash needs 0.08 Facebook has increased worldwide, it has more than a billion active monthly users 0.09 4 0.36 3 0.27 Raking in market capitalization steadily improving 0.04 Weaknesses Lower click through rate (CTR) for adverts 0.09 1 0.09 2 0.18 Decrease of 94.7% in net income between 2011 and 2012 0.08 2 0.16 2 0.16 Overdependence on one source of revenue- advertisements 0.11 1 0.11 1 0.11 Negative publicity over users’ privacy 0.03 1 0.03 1 Rigid (bureaucratic) organizational culture hampering fast introduction of new products 0.04 2 0.08 2 0.08 No racial diversity on supervisory and management board 0.03 Total 3.83 2.99 Analysis As evidenced for Facebook, the QSPM is a useful strategic planning tool. Facebook should, therefore, monetize mobile internet users to increase advertising income and be a market leader by being the first to enter potential markets. Such an alternative is more favorable than developing impervious Windows. Financial ratio analysis Facebook Profitability ratios 2012 2013 2014 industry Net profit margin =NP/net sales 16978/73723 =23.03% 21863/77849 =28.08% 22074/86833 =25.42% 40% Profitability ratios indicate the ability of a firm to generate its earnings comparative to sales, assets, and equity. Even though, the company’s profitability decreased in 2014, it is relative profitable. The ratio is below the industry average value; this implies that the company is less profitable than other firms in the industry. Liquidity ratio 2012 2013 2014 industry Liquid ratio =current assets/current liabilities 85084/32688 =2.60 101466/37417 =2.71 114246/45625 =2.50 5.00 Liquidity ratios show the ability of a firm to meet or pay for its short-term liabilities or short-term debt obligations as they fall due (Griffin, 2012).  The firm’s current ratio increased in 2013 but decreased in 2014. The decrease is however minimal, and the company is still able to meet its short-term debt obligations. The company’s liquidity ratios are less than the industry average hence less liquid than the competitors. Activity ratios 2012 2013 2014 Industry Asset turnover ratio =total revenue/total assets 73723/121271 =0.61times 77849/142431 =0.55 86833/172384 =0.50 0.60 This ratio measures how effectively a company is utilizing its assets to generate income. The effectiveness in the use of assets to generate revenue has been on the decline. This implies a decrease in the firms’ efficiency. The firm is less efficient than other firms in the industry. Leverage ratios 2012 2013 2014 industry Debt ratio= total debt/total assets 54908/121271 =45.28% 63487/142431 =44.57% 82600/172384 =47.92% 30% It measures a company’s long-term solvency. There has been an increase in the use of debts by the company. It uses more debt than other firms in the industry. This implies an increase in business risks. Growth ratios 2012 2013 2014 industry EPS= net income/total outstanding shares 16978/8506 =2.00 21863/8470 =2.58 22074/8399 =2.63 4.00 Growth ratios measure how fast a business is growing (Brigham et al 2013).. The ratio has shown an upward trend implying an increase in growth. However, the rate of growth is below that of the industry. Comparison/Contrast of the Two Companies According to the CPM, both the companies have more strengths than weaknesses. They are relatively stronger than their rivals. The company has launched a number of features that engage more users and enrich their experience. This close integration with other applications and websites provides a competitive advantage to the company. Facebook has more users of Facebook through mobile devices hence has an opportunity of creating platforms that may be used in displaying ads for mobile users thus increasing their income. However, Microsoft is stronger financially than Facebook. It is more profitable. It has strong financial position due to a range of product offerings. Strategic Plan Regarding Acquisition Microsoft should proceed with the acquisition because it has the following benefits. It is likely to create synergies. Facebook will be capable of exploiting other opportunities in order to attract more revenue because it has over one billion active monthly users. Mobile advertising markets are expected to expand in double digits over the next few years. Synergy created by the above acquisition is likely to increase the revenue as the new company will be able to tap the idle market (Hubbard, 2009).  In addition, it will strengthen business work by enhancing market research. The resulting company will be able to provide their customers solutions that they need with lots of ease. References Brigham, Eugene F, and Michael C. Ehrhardt. (2013). Financial Management: Theory and Practice. Mason, Ohio: South-Western. Ferenczy, I. (2012). Employee benefits in mergers & acquisitions: 2012 -2013 edition. S.l.: Kluwer Law International. Griffin, R. W. (2012). Fundamentals of management. Mason, OH: South-Western Cengage Learning. Hubbard, N. (2009). Acquisition strategy and implementation. West Lafayette, Ind: Ichor Business Books. Kapil, Sheeba. (2011). Financial Management. Noida, India: Pearson. Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2011). Intermediate Accounting. 13th Ed. New York: Wiley. Kumar, R. 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