Tackling Weaknesses in Students’ Financial Analysis Capabilities: A Value-Based Exercise for Strategic Management Courses

Abstract

Appraising firm performance is an important aspect of the strategic management process. Unfortunately, many students in strategic management courses do not have adequate financial analysis skills to do this task. This deficiency affects their ability to learn and perform the full scope of the strategic management process. This article presents an exercise designed to address this challenge. The exercise emphasizes the central objective of strategic management, that is, the achievement of superior levels of creating and capturing value. The brief lesson and exercise enable students to use simple accounting metrics to appraise the quality of a firm’s current strategy, execution capabilities, and resulting competitive position. Primarily for undergraduate courses in which numerous students are challenged by quantitative analysis tasks, this exercise alleviates the need for instructors to invest an inordinate amount of time reteaching financial analysis.