Altman Z Score Model Guide (+Examples)

Altman Z Score Model Guide (+Examples) Human beings love predictability. It provides knowledge about the future on a subject of interest. This is evident throughout life. From weather forecasts to world cup matches.These predictions help us make plans and decisions when we don’t know what the future holds. As such, they are not only great but necessary.But predictions, especially accurate ones, are not mere guesswork. They are the result of much analyses and the considerations of all sorts of probabilities.This is where knowledge on statistics comes in handy.Statistics offers a great way of understanding the trends.As such, statistics are widely used to make predictions.Making predictions can be made possible through a formula developed for that purpose.The Altman Z-ScoreThe Altman Z-Score was developed from the original z-score. Z-Scores are used to determine how far a value is from the mean.Depending on the data being analyzed, the values lead to various conclusions. For example, it may show a student’s performance in comparison to the average performance. Source: makemeanalystBuilding on the accuracy of the Z-Score, Edward I. Altman developed a formula for predicting the chances of a company becoming bankrupt.This formula was picked up by those who wanted to know the profitability of their investments. Also standing to benefit from it were the potential investors.Obviously, you would not want to put your money in a company which was about to file for bankruptcy. But preventing bankruptcy is more than an investor’s desire.When companies become bankrupt, many other challenges come up.If big companies become bankrupt, an entire economy can be affected because of the many direct and indirect losses suffered.How accurate is the Altman Z-Score?Reading the above section, you can tell that this model is accurate since it predicted the 2008 recession.More than that, there have been studies done to affirm its accuracy.A prediction of bankruptcy 2 years before it happened had an accuracy of 72%. The false positives accounted for 6%.Further tes ts in the course of 31 years after its launch, the Altman Z-Score proved accurate by 80%-90%.In predicting bankruptcy 1 year before it happened, false positives were recorded at 15%-20%Note: False positives are bankruptcy predictions where the company never became bankrupt.THE ALTMAN Z-SCORE FOR MANUFACTURING COMPANIESIn 1968, Altman published his Z-Score model which was primarily intended for use with publicly-held manufacturing companies.The reason for targeting this specific group was because of the availability of their financial records.Moreover, public companies have more transparency when it comes to reporting their financial status.This is not the case with many private firms. Especially financial institutions.Altman started evaluating the status of 66 companies.Out of these, half of them had already filed for bankruptcy between 1946 and 1965.At the beginning, he considered a total of 22 ratios for his calculations.These ratios were classified into categories of liquidity, p rofitability, leverage, solvency and activity. Later on, he narrowed the number of ratios to 5.The formula he came up with is shown below.Altman Z Score = (1.2 x A) + (1.4 x B) + (3.3 x C) + (0.6 x D) + (0.999 x E)Where:A = Working Capital / Total AssetsB = Retained Earnings / Total AssetsC = Earnings Before Interest and Tax / Total AssetsD = Market value of equity / Total LiabilitiesE = Sales / Total AssetsInterpreting the ScoreUpon calculating the Altman Z-Score, you will get a number which is the indicator you are looking for.For investment purposes, or whatever other reason, it is important to interpret the score correctly.The score is interpreted by checking it against a range of values.There are three ranges of numbers which show the financial status of the company in regards to bankruptcy.Score of 3 and above â€" a score of more than 3 indicates that the company is in the “safe zone.” This means that the company’s financial status is okay. It is financially healthy. If you are investing, this would be a good company to invest in.Score from 2.9 and 1.8 â€" this range is considered a “gray area.” Companies which have a score lying in this range are not very safe. Their finances are not stable and the companies may get into the “danger zone” if there are improvements.If you are looking for an investment, this would not be a very good bet. If you already have your money there, you will need to act fast.Decide to either follow keenly everything affecting the company or just sell off your investment.Score of below 1.8 â€" any score below 1.8 should scare you. Do not give it much thought as the company is in the “red area” or “distress zone.” The lower the score, the more danger there is in the company soon becoming insolvent.Example CalculationBelta manufacturers in China produce car engines. They have been in the business for almost 20 years.They have been profitable enough to employ more staff and increase their production. But with a recent loan taken to facilitate automation, investors want to know how the company is doing.Their total assets are worth $3,500,000 while they have a working capital of $4,200,000. Their liabilities stand at $5,000,000 while retained earnings amount to $800,000. Earnings Before Interest and Tax come to $6,500,000. Sales total $8,300,000 while the market value of equity is $7,000,000.Here is the calculation of Belta’s Altman z-score:Altman Z Score = (1.2 x A) + (1.4 x B) + (3.3 x C) + (0.6 x D) + (0.999 x E)(1.2 x (4,200,000 / 3,500,000)) + (1.4 x (800,000 / 3,500,000)) + (3.3 x (6,500,000 / 3,500,000)) + (0.6 x (7,000,000 / 5,000,000)) + (0.999 x (8,300,000 / 3,500,000))= (1.2 x 1.2) + (1.4 x 0.229) + (3.3 x 1.857) + (0.6 x 1.4) + (0.999 x 2.371)Altman Z-Score = 11.097The investors can comfortably toss away their fears and relax, expecting higher returns. With a score of 11.097, Belta is firmly in the safe zone.THE ALTMAN Z-SCORE FOR PRIVATE COMPANIESThere was a need for predictin g the possibilities of private companies filing bankruptcy. This made Altman come up with a formula for these too. The formula is as below.Altman Z Score = (0.717 x A) + (0.847 x B) + (3.107 x C) + (0.420 x D) + (0.998 x E)Where:A = (Working Capital) / Total AssetsB = Retained Earnings / Total AssetsC = Earnings Before Interest and Taxes / Total AssetsD = Book Value of Equity / Total LiabilitiesE = Sales / Total AssetsInterpreting the ScoreThe interpretation of the score for private companies is slightly different from that of the public manufacturers.Here is the guide:Score of 3 and above â€" this score indicates that a private company is in the “safe zone.” A company with this score is financially stable and the chances of going bankrupt are very low.Score from 2.99 to 1.23 â€" this is the “gray area.” The chances of bankruptcy are moderate and these companies should work on improving their financial standing.Score of below 1.23 â€" this is the “distress zone.” A compa ny in this position is highly likely to become bankrupt. Investors in such companies should be on high alert.Example CalculationKeriko is a medium-sized marketing agency.They have been in operation for 2 years. Business has not yet hit their expectation but things are running smoothly.Wanting to know the outlook of their business, they seek to calculate their Altman z-score.Keriko’s earnings before tax and interest are $650,000. Their revenues (sales) are $857,000 while total assets amount to $1,200,000 with liabilities being $320,000. Book value of equity stands at $7,000,000. Retained earnings are $135,000 and working capital is at $400,000.Altman Z Score = (0.717 x A) + (0.847 x B) + (3.107 x C) + (0.420 x D) + (0.998 x E)= (0.717 x (400,000 / 1,200,000)) + (0.847 x (135,000 / 1,200,000)) + (3.107 x (650,000 / 1,200,000)) + (0.420 x (7,000,000 / 320,000)) + (0.998 x (857,000 / 1,200,000))Altman Z-Score = 11.917The management of Keriko can rest assured that they are on the right path.Their score shows they are not anywhere near bankruptcy.THE ALTMAN Z-SCORE FOR NON-MANUFACTURING COMPANIES AND THOSE IN EMERGING MARKETSAltman also worked on a formula for non-manufacturers as well as those companies in emerging markets.Below is the guide on calculating their scores.For non-manufacturersAltman Z-Score = (6.56 x A) + (3.26 x B) + (6.72 x C) + (1.05 x D)For companies in emerging marketsAltman Z-Score = 3.25 + (6.56 x A) + (3.26 x B) + (6.72 x C) + (1.05 x D)Where:A = Working Capital / Total AssetsB = Retained Earnings / Total AssetsC = Earnings Before Interest and Taxes / Total AssetsD = Book Value of Equity / Total LiabilitiesInterpreting the ScoreThe score interpretation is as below:Score above 2.6 â€" this is the “safe zone” for these companies.Score from 2.6 to 1.1 â€" this is the range for those companies in the “gray area.” This means some work should be done to avoid getting into the danger zone.Score below 1.1 â€" this is the “distress zone.” These companies might be filing for bankruptcy any time.LIMITATIONS OF THE ALTMAN Z-SCOREAltman’s Z-Score provides any investor or regulator with a great way of knowing what is yet to come. With accuracy rates of over 80%, this model is certainly worth utilizing.As is normally the case, advantages rarely come alone. Strengths are usually accompanied by weaknesses.The Altman Z-Score model has some limitations as it’s usage in some scenarios may not be ideal. Below are some of the limitations.Cannot be used with financial companiesLike other companies, financial organizations can have their scores calculated using the Altman Z-Score model. The problem is that data for these companies may not be available.This is not because the data doesn’t exist, but because it isn’t readily available or easily accessible.If inaccurate data causes inaccurate results, what would unavailable data do?In the absence of data there would obviously be no results.Financial organizations tend to keep much of their records private. This may be seen as just the nature of anything to do with money.People keep their financial status secret and so do banks. Though they are businesses like the others, this seems to be widely practiced in the finance sector.Reports on fraud also put a lot of pressure on the banks. And as they work on tightening security, the criminals seem to be improving their skills too.Watch the below video to see how easy cloning a credit card is. There is definitely a need to be more cautious with your card. Reporting the full amount lost is seen as possibly damaging the image of the company.When customers hear the amounts lost and the frequency of the losses, they might conclude that the company is insecure.And no-one wants to put his money where it’s not safe.With this mode of operation, there is little predicting which can be done from the outside. But from the inside, it’s possible.Yet it’s not the inside prediction that is needed because that can be ke pt secret.The people who need the information i.e. shareholders and other investors, may be inconvenienced by this.Only as accurate as the data usedThis is quite expected. This model uses data from a company to calculate the possibility of insolvency.Obviously, the results can only be as good as the data used.If the company provides inaccurate data, then that is what will go into the model. After calculations, the model will still give a score and that score is what will be used to determine possible bankruptcy.The challenge lies in the possibility of a company’s management or accounting department deciding to falsify information.As much as the model was initially developed using publicly-available records, there is no guarantee that these can’t be inaccurate.For example, a CFO or other high-ranking employee may have his job on the line. If the records available prove his under-performance, he may decide to falsify the information.Doing the calculations himself, he may alter the records and provide data which will result in a high Z-Score.This will make the public, shareholders or regulators happy. But the problem in the company will still exist.If the company eventually goes down, everyone will be taken by surprise. Many will lose their money since they never saw the need to sell off their stock.Cannot be used with new companiesMany companies are being registered everyday as entrepreneurs venture into business. As good as this is, many startups fail to become the big businesses they were envisioned to be.Many new companies lack finances. Though they may have managed well enough with the much they had, piling debt can bring them down fast. With sales being low, the situation may get too hard for the entrepreneur to handle.Yet even new companies often have investors. There are people who put their money in new companies. Others invest by giving products on credit trusting that the company will sell and pay its debts on time.Wouldn’t it be good if these pe ople could tell if the company would be unable to stand?It certainly would. Unfortunately, the hero model, Altman’s Z-Score can’t help in such a situation.The biggest problem is that there is simply too little data to facilitate this calculation. Two particular variables are not well captured in a new company, making the Altman Z-Score unusable. These are:1. Retained earnings â€" these earnings are determined at least after 1 year of business operation. This is because you have to calculate profits or losses so as to know whether you have any retained earnings. If you have some, then you will be able to have the figures to use.Without retained earnings in the formula, there will be no accurate results. Every piece of information required in the formula must be available. With this situation, it means that the model cannot be utilized.2. Market value of equity â€" the market value of a new company’s equity can be very difficult to determine. This is because the company may not have traded enough to be known. This may be because there are no investors interested in the company.Also, it’s products may not have been well received by the public yet. Maybe the company was still in the marketing period working on some strategies when it went down.Maybe it was looking for funds and not attracting an investor in good time, it closed down.Such scenarios make it difficult to put a number on the market value of the company’s equity. With an unconfirmed figure, the results may not reflect the true state of the company. The calculation may not even be possible.The model is based on old discriminatory dataThe Altman Z-Score model was published in 1968, which is over 50 years ago. At that time, the dataset used by Altman was for 66 manufacturing companies whose net worth was more than $1 million.The dataset in itself was discriminatory.Although picking publicly-help companies for the task was okay, why discriminate against smaller companies?Many reasons can be given but using this as the foundation of the model can be limiting to its use.More than that, the sheer age of the model creates room for opponents to discredit it. The business environment in 1968 was very different from the current one. You may wonder whether there are considerations the model is missing.Could it be that smaller companies have a Z-Score which might be interpreted differently? Or the score might differ greatly depending on the size of the company?CONCLUSIONThe Altman Z-Score is a good model which can accurately show the direction a company is taking. If the alarm is raised in good time, then corrective measures can be taken.

Society & Individual Whether Riches Partition is Moral - 1650 Words

Social Wealth as a Growing Concern, Relationship Between Society and an Individual: Tell Whether Riches Partition is Moral (Essay Sample) Content: Social Wealth as a Growing ConcernStudent NameInstitutionThe relationship between the society and an individual can be best reasonably described by social equity (Purtilo Doherty, 2011). The idea of social capital has frequently alluded to the procedure of guaranteeing that people satisfy their societal parts and get what was their due from society. It doles out rights and obligations in the establishments of society, which empowers individuals to get the fundamental advantages and weights of participation. The relevant organizations regularly incorporate tax assessment, social protection, general wellbeing, open administrations, state-funded school work law and direction of business sectors, to guarantee reasonable dispersion of riches, equivalent open door and equity of outcome. Interpretations that relate investment to an equal relationship to society intercede.To answer the principal question on whether riches partition is moral, we may start by considering the r amifications of a late reality finding by the National Bank of Canada. According to Rachels and Rachels (2015), the primary drivers that go far towards clarifying both the relative stagnation of the U.S. economy and the augmenting of the hole between the exceptionally rich and whatever remains of the populace. Initially, the belief system of an open world business sectors as well as the free development of capital and organizations, and secondly, a broken movement strategy. Not just does the administration permit its organizations to send out their capital and innovation abroad, yet its movement arrangement of letting in ineffectively prepared or low wage remote migrants likewise has had the impact of keeping down the wages of low-gifted laborers in numerous commercial enterprises (Gornick JaÃÅ'ntii, 2013).Thirdly, a duty code skewed for the exceptionally wealthy. Purtilo and Doherty allude that, the general monetary emergency is the consequence of low financial development, of a declining offer of corporate assessment incomes and colossal tax breaks for the exceptionally well off (2011). Less powerful tax collection for substantial organizations and for the extremely well off people who can stop part or the greater part of their budgetary riches abroad has permitted them to maintain a strategic distance from household tax collection. Fourthly, the housing emergency, the financial crisis and the Fed's approaches to shore up huge banks (Rachels Rachels, 2015).Savers and retirees have been pounded by a Fed approach of negative genuine short-and medium-term loan costs that have to diminish premium salary, a strategy outlined fundamentally to shore up huge almost ruined, and near insolvency. Fifthly, the pursuing of foreign wars financed with obligation. The exceptionally rich are unavoidably at the front line with regards to supporting outside wars of hostility abroad, yet they are most hesitant to pay for such wars with the required duty incomes. Also, not ju st do such remote wars expand the government monetary deficiency, they additionally build the exchange parity shortfall, and they put weight on the dollar (Gornick JaÃÅ'ntii, 2013).Therefore, it is very unethical to allow rising injustices to continue, disparity stifles growth. A level of imbalance can go about as a positive impact on financial development in the transient as it partitions riches. Poverty is connected with expanded wrongdoing and poor general wellbeing, which places troubles on the economy. Well, off subjects keep up unbalanced political influence contrasted with more impoverished natives, which empowers the improvement of wasteful expense structures skewed for the rich. Unequal wage dispersion increments political unsteadiness, which undermines property rights, builds the danger of state revoked contracts and demoralizes capital collection (Purtilo Doherty, 2011). Additionally, Rachels and Rachels indicate that disparity increases crime (2015). Initially, distra ught individuals from a general public might will probably experience the ill effects of disdain and threaten vibe as an aftereffect of their financial position or rivalry over rare occupations or assets, bringing about a higher penchant for criminal conduct. Imbalance additionally builds the motivating force to perpetrate wrongdoings. A wide hole amongst rich and poor tends to create wrongdoing by diminishing law authorization spending in low-wage regions. Well-off individuals from a general public tend to move in confined groups, especially since the divergence between the rich and poor increment.On the other hand, Purtilo and Doherty believe that imbalance decreases health (2011). The ruined individuals from the society are liable to unbalanced event rates of particular sorts of ailments. Access to quality human services and robust sustenance is in some cases restricted or distracted for poor people. The consequence of a poor generous populace, a characterizing highlight of finan cial imbalance, is a less compelling lower-salary work power, higher illness and death rates, higher human services costs, and logically developing destitution for distressed gatherings.Moreover, Rachels and Rachels (2015) cite financial inequality as ...

United Kingdom Council For International Student Affairs

The teaching and learning methods which are unique to universities in the UK constitute the greatest obstacle facing international students. Discuss. The last two decades have seen a growing trend towards the number of international students who have chosen the UK as their studying destination. According to United Kingdom Council for International Student Affairs, the enrolment of overseas students into the UK universities rose by 21% in 2010. Under this circumstance, the issues that face the international candidates during studying their disciplines increase, not only because language barrier but also many factors including different teaching and learning methods from their countries. This essay begins by discussing the main obstacle, English as a second language, which is relevant to studying abroad. It will then go on discussing other obstacles such as, academic skills and plagiarism, which international students might face during their degree. One of the greatest challenges that face students in their degree is the language barrier, which many students feel less confident to speak, read, listen and write in a language that is different from their mother tongue. One possible implication of this is that students who have week academic English abilities and skills that could affect negatively on their proficiency, performance and accuracy. Even though they are greatly strong in their academic disciplines and have a wide knowledge, lacking these essential English skillsShow MoreRelatedVisa Application Process From Nepal Essay768 Words   |  4 PagesCStudent visa application process from Nepal for different countries have different application procedures and requirements. This writing explores the student visa application process for United Kingdom (UK) for Nepalese student. First of all, the student visa application process begins from proper visa application counseling. 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10 Nitrogen Facts Learn About Element Atomic Number 7

You breathe oxygen, yet the air we inhale is mostly nitrogen. You need nitrogen to live and encounter it in the foods you eat and in many common chemicals. Here are some quick facts and detailed information about this crucially important element. Fast Facts: Nitrogen Element Name: NitrogenElement Symbol: NAtomic Number: 7Atomic Weight: 14.006Appearance: Nitrogen is an odorless, flavorless, transparent gas under ordinary temperatures and pressure.Classification: Nonmetal (Pnictogen)Electron Configuration:  [He] 2s2  2p3 Nitrogen is atomic number 7, which means each nitrogen atom has 7 protons. Its element symbol is N. Nitrogen is odorless, tasteless, and colorless gas at room temperature and pressure. Its atomic weight is 14.0067.Nitrogen gas (N2) makes up 78.1% of the volume of the Earths air. Its the most common uncombined (pure) element on Earth. Its estimated to be the 5th or  7th most abundant element in the Solar System and Milky Way (present in much lower amounts than hydrogen, helium, and oxygen, so its hard to get a hard figure). While the gas is common on Earth, its not so abundant on other planets. For example, nitrogen gas is found in the atmosphere of Mars at levels of about 2.6 percent.Nitrogen is a nonmetal. Like other elements in this group, it is a poor conductor of heat and electricity and lacks metallic luster in solid form.Nitrogen gas is relatively inert, but soil bacteria can fix nitrogen into a form that plants and animals can use to make amino acids and proteins.The French chemist Antoine Laurent Lavoisier named nitrogen azote, meaning without life. The name became nitrogen, which derives from the Greek word nitron, which means native soda and genes, which means forming. Credit for the discovery of the element is generally given to Daniel Rutherford, who found it could be separated from air in 1772.Nitrogen was sometimes referred to as burnt or dephlogisticated air, since air that no longer contains oxygen is almost all nitrogen. The other gases in air are present in much lower concentrations.Nitrogen compounds are found in foods, fertilizers, poisons, and explosives. Your body is 3% nitrogen by weight.  All living organisms contain this element.Nitrogen is responsible for the orange-red, blue-green, blue-violet, and deep violet colors of the aurora.One way to prepare nitrogen gas is by liquefaction and fractional distillation from the atmosphere. Liquid nitrogen boils at  77 K (−196  °C, −321  Ã‚ °F). Nitrogen  freezes at 63 K ( -210.01  °C).Liquid nitrogen is a cryogenic fluid, capable of freezing skin on contact. While the Leidenfrost effect protects skin from very brief exposure (less than one second), ingesting liquid nitrogen can cause severe injury. When liquid nitrogen is used to make ice cream, the nitrogen vaporizes. However, the liquid nitrogen is used to produce fog in cocktails, there is a real danger of ingesting the liquid. Damage occurs from pressure generated by expanding gas as well as from the cold temperature.Nitrogen has a valence of 3 or 5. It forms negatively charged ions (anions) that readily react with other nonmetals to form covalent bonds.Saturns largest moon, Titan, is the only moon in the solar system with a dense atmosphere. Its atmosphere consists of over 98% nitrogen.Nitrogen gas is used as a nonflammable protective atmosphere. The liquid form of the element is used to remove warts, as a computer coolant, and for cryogenics. Nitrogen is part of many important compounds, such as nitrous oxide, nitroglycerin, nitric acid, and ammonia. The triple bond nitrogen forms with other nitrogen atoms is extremely strong and releases considerable energy when broken, which is why it is so valuable in explosives and also strong materials such as Kevlar and cyanoacrylate glue (super glue).Decompression sickness, commonly known as the bends, occurs when reduced pressure causing nitrogen gas bubbles to form in the bloodstream and organs. Sources Liquid nitrogen cocktail leaves teen in hospital, BBC News, October 8, 2012.  Meija, J.; et al. (2016). Atomic weights of the elements 2013 (IUPAC Technical Report). Pure and Applied Chemistry. 88 (3): 265–91.Neptune: Moons: Triton. NASA. Archived from the original on October 5, 2011. Retrieved March 3, 2018.Priestley, Joseph (1772). Observations on different kinds of air.  Philosophical Transactions of the Royal Society of London.  62: 147–256.  Weeks, Mary Elvira (1932). The discovery of the elements. IV. Three important gases. Journal of Chemical Education. 9 (2): 215.

Voluntourism Self-Interest or Altruism - 1973 Words

Volunteer Tourism: Self-Interest or Altruism? Abstract The idea to traveling, of seeing new places, cultures, and hearing new languages has fascinated humanity for centuries. Today, one can travel physically, just about any place in the world, or electronically. The ease with which society has created technological linkages between incredibly disparate cultures and people is something at which one can truly marvel, and something quite successful, the result of which has been to unify the world, in a metaphorical, highly technological way. Yet tourism is still in vogue. Undoubtedly, many travel for fun, on business, or voluntarily. While one may understand the previous two concepts fully, one must wonder at the third. This paper will talk about volunteer tourism, thus, to better understand it, as well as to better explain it and examine whether it is done in the promotion of self-interest or simply through altruistic ideals. Introduction Definition of Voluntourism In order to be able to speak about volunteer tourism one must first understand what it means. This concept goes by many different names, one of the most common of which is voluntourism. In essence, what this type of tourism implies is that an individual could travel some place, at a discounted rate, in exchange for some sort of favor, volunteer capacity, etc. and in this way, one could theoretically afford to go wherever he or she wishes, as well as help that community in some way. The formal definitionShow MoreRelatedvolunteer tourism Essay9739 Words   |  39 Pages 2004). The research generally accepted that the volunteer tourist sought altruistic experiences that were different from the mass tourist. Furthermore, the research identified a number of positive motivations for volunteer tourism, including altruism, self-development, giving back to the host community, participating in community development, and cultural understanding (Brown, 2005;Brown Morrison, 2003;Callanan Thomas , 2005;Coghlan, 2008;McIntosh Zahra, 2007;Stoddart Rogerson, 2004; Wearing

Erin Brockovich And The King s Speech - 965 Words

Both Erin Brockovich and The King’s Speech have strong themes of friendship and finding a voice. These themes not only coexist but work together. In both of these films themes of friendship and finding a voice progress because of the intertwining of the two. In Erin Brockovich, the themes of friendship and finding a voice seem to be at odds, but slowly become woven over the course of the film. Towards the beginning of the film Erin and Ed do not get along at all. This is partly because of Erin’s unwillingness to compromise with anyone. This does not sit well with Ed who is used to getting what he wants because he is a lawyer. The two clash initially, but establish a working friendship which turns into a real friendship by the end of the film. Their friendship is built up as Erin learns more about the case and begins to find her voice in the legal community, despite her lack of schooling. At the beginning of the film, when Ed is Erin’s lawyer for her injury case , they are not on good terms. He claims to be her friend when he meets her. Erin believes that he is being sincere and is angered when he does not seem bothered by losing her case. She asks him, â€Å"Do they teach lawyers how to apologize, because you suck at it?† (Erin Brockovich, Soderbergh), indicating that she really believed that they were friends and he would win her case. When she finds out this is not true she looks for work to cover her medical bills and ends up working at Ed’s firm. She practically makes himShow MoreRelatedMarketing Mistakes and Successes175322 Words   |  702 PagesUniversity of Minnesota and George Washington University. His MBA and Ph.D. are from the University of Minnesota, with a BBA from Drake University. Before coming into academia, he spent thirteen years in retailing with the predecessor of Kmart (S. S. Kresge), JCPenney, and Dayton-Hudson and its Target subsidiary. He held positions in store management, central buying, and merchandise management. His first textbook, Marketing: Management and Social Change, was published in 1972. It was ahead

Vodafone Plc SWOT Analysis and Five Forces Free Essays

Abstract Aim: This essay aims to perform an analysis on the basis of integration of SWOT and Porter’s Five Forces frameworks. The key aim of this essay is to establish the reasons behind the success of Vodafone, which is ranked 3rd in FTSE100 Company ranking, and thereby represent the implications and recommendations. Methodology: This paper is based on integration of the secondary research, which includes recent reports, books and journal articles. We will write a custom essay sample on Vodafone Plc SWOT Analysis and Five Forces or any similar topic only for you Order Now Findings: The key findings indicate that Vodafone is a well – established global company with a highly successful internationalization strategy. This implies that Vodafone has a lot of opportunities to take advantage of, despite the recent economic adverse events. 1.0.Introduction This paper aims to demonstrate an analytical essay on the company, which is FTSE100 Top 20 Company as of July, 2012. A chosen company for this report is Vodafone Group Plc, which is ranked third in FTSE100, with the market capitalization of $ 87.53 billion (Financial Times, 2012). 2.0.SWOT analysis SWOT framework is utilized in order to evaluate the main strengths, weaknesses, opportunities and threats on a micro-level (Kotler and Armstrong, 2010) 2.1.Strengths As the recent FTSE100 report demonstrates, Vodafone is ranked 3rd on the basis of market capitalization numbers. This suggests that Vodafone Company has a strong brand reputation in domestic (UK) and international markets. According to Brand Directory, (2011), Vodafone has increased the brand value by 6 % in 2011 (from $ 28,995 to $ 30,674 millions). Vodafone has always followed an aggressive internationalization strategy, which has been supported by the recent investments in Australian and African markets (Brand Finance, 2011). 2.2.Weaknesses Vodafone faces a tough competition in the domestic market from another mobile network leader – O2 and recently merged T-Mobile and Orange (BBC News, 2012). The rivalry is further intensified in the light of recently introduced high data excess charges by Vodafone (Guardian, 2011). The primary emphasis is placed on domestic (UK) market, which in turn weakens Vodafone’s position in international markets (i.e. US) 2.3.Opportunities The partnership between O2 and Vodafone may influence the enhancement of the certain services (4G services). This, in turn, would align with the recent trends in the technology area (BBC News, 2012). Further aggressive expansion to the untapped markets (i.e. recent internationalization to Australia and Africa) may align well with the core strategy of Vodafone (Strategic Direction, 2002). Constant increase in popularity of smartphones and tablets may also increase the revenue of Vodafone as a result of utilization of 3G data services (KPMG, 2012). Additionally, there is an opportunity for development of the new services and products that would align with the technological innovations. 2.4.Threats New mobile market entrants and future strategic partnerships may become a threat to Vodafone. Inability to satisfy the needs of the target markets, (i.e. students) may reduce the market share of Vodafone. This implies that there are a lot of international students, residing in UK whilst Vodafone tends to apply high charges for them, regardless the potential decrease of the demand for Vodafone services within this consumer group. SWOT analysis has demonstrated that one of the main Vodafone’s problems is a tough competition and lack of focus on the presence in international markets versus domestic markets. In UK, one of the key threats is related to the company’s inability to meet consumer needs on the basis of service quality and price ratio. Additionally, some of the consumer groups are being disregarded (i.e. students). 3.0.Porter Five Forces Porter’s Five Forces framework is utilized in order to evaluate the attractiveness of the particular industry on the basis of the measurement of the strengths of the following forces, namely power of buyers, power of suppliers, threat of new entrants, threat of substitutes and degree of rivalry (Kotler and Armstrong, 2010). 3.1.Power of Buyers The power of buyers is low, due to the strong market presence in UK and internationally. Additionally, due to the complexity of the mobile market structure, products and services, it is difficult for buyers to implement backward integration. This suggests that the power of buyers is low. 3.2.Power of Suppliers The power of suppliers is of medium strength. Vodafone has several main suppliers, with whom they tend to have long term relationships. Huawei is a one of Vodafone’s official suppliers since 2005 (Huawei Official Website, 2012). However, as the market research demonstrates, there are a lot of suppliers in the mobile market, which may substitute Huawei. 3.3.Threat of New Entrants Threat of new entrants is low. The barriers for new entrants are relatively high due to the complexity of the mobile market structure and a need for a high degree of investments. Furthermore, given the current poor economic conditions, the risk of new mobile players’ entrance is decreased. It is also supported by the intense competition in UK mobile market, with such clear leaders as O2 and Vodafone (Independent, 2012). 3.4.Threat of Substitutes Threat of substitutes is high. There are a lot of alternatives that may be utilized instead of the mobile phone, due to the rapid development of new technology, (Lane, 2010). The most popular are the landline phones and video conference. Additionally, VOIP services are quite popular now, due to the associated low costs of communication (i.e. Skype, Yahoo Messenger) (Tsai, Lo and Chou, 2009). 3.5.Degree of Rivalry The degree of rivalry is high, since there are two mobile market leaders in UK, namely O2 and Vodafone. Additionally, the mobile companies tend to form the strategic alliances, as T-Mobile and Orange have done recently (BBC News, 2012). This, in turn, increases the competition. The switching costs are low, especially on Pay as You Go basis, whereas the switching costs are more increased on a Pay Monthly contractual basis. It is further supported by the increased loyalty towards a particular mobile operator in case of the subscription to Pay Monthly contract. The exit barriers are also high, due to the complexity of the mobile industry and its structure. Porter’s Five Forces analysis has demonstrated that there are three forces with low and/or medium strength, which may be taken advantage of, namely power of buyers, power of suppliers and threat of new entrants. 4.0.Conclusion It has been estimated as a result of SWOT analysis that Vodafone is a global, well-established competitive company with a lot of opportunities to take advantage. As a result of Porter’s Five Forces analysis, it is recommended for Vodafone to continue emerging into the new markets in order to align with the successful globalization strategy. Additionally, it is recommended to implement more personalized approach toward consumer groups. This implies that is advisable for Vodafone to establish the prices for the products that would be attractive for certain target groups in relation to their needs and profiles. This would increase the competitive advantage of Vodafone, thus differentiating this company in highly competitive UK market arena. 5.0.References BBC News, (2012), â€Å"O2, Vodafone, and a 4G promise†, Available from: http://www.bbc.co.uk/news/technology-18355569 (Accessed on 26/07/2012) Brand Directory, (2011), â€Å"Global 500 2011†, Available from: http://brandirectory.com/league_tables/table/global_500_2011 (Accessed on 26/07/2012) Brand Finance, (2011), â€Å"Vodafone is the world’s most valuable Telecoms brand†, Available from: http://www.brandfinance.com/news/in_the_news/vodafone-is-the-worlds-most-valuable-telecoms-brand (Accessed on 26/07/2012) Financial Times, (2012), â€Å"Vodafone Group Plc†, Available from: http://markets.ft.com/Research/Markets/Tearsheets/Summary?s=VOD:LSE (Accessed on 25/07/2012) Guardian, (2011), â€Å"Vodafone price rises unleash customer fury†, Available from: http://www.guardian.co.uk/money/2011/sep/23/vodafone-price-rises-customer-fury (Accessed on 25/07/2012) Huawei Official Website, (2012), Available from: http://www.huawei.com/en/ (Accessed on 25/07/2012) Independent, (2012), â€Å"Vodafone and O2 to save ‘hundreds of millions of pounds’ by sharing networks†, Available from: http://www.independent.co.uk/news/business/news/vodafone-and-o2-to-save-hundreds-of-millions-of-pounds-by-sharing-networks-7827959.html (Accessed on 26/07/2012) Kotler P., Armstrong G., (2010), â€Å"Principles of Marketing†, 13th ed., Pearson: USA KPMG, (2012), â€Å"‘Smartphone and tablet popularity brings maturity to mobile payment marketplace’ says KPMG†, Available from: http://www.kpmg.com/uk/en/issuesandinsights/articlespublications/newsreleases/pages/%E2%80%98smart-phone-and-tablet-popularity-brings-maturity-to-mobile-payment-marketplace%E2%80%99-says-kpmg.aspx (Accessed on 25/07/2012) Lane M., (2010), â€Å"Slash the Cost of Your Landline†, Available from: http://www.money.co.uk/article/1005940-slash-the-cost-of-your-landline.htm (Accessed on 25/07/2012) Strategic Direction, (2002), â€Å"The phenomenal growth of Vodafone: Rapid rise through an aggressive leadership style†, Strategic Direction, Vol.19, Iss.7, pp. 25-26 Tsai W., Lo H., Chou W., (2009), â€Å"Evaluation of mobile services for the future of 3G operators†, International Journal of Mobile Communications, Vol.7, Iss.4, pp.470-493 How to cite Vodafone Plc SWOT Analysis and Five Forces, Essay examples