Strategic Audit Michael Hill Essay Example | Topics and Well Written Essays - 750 words

Strategic Audit Michael Hill - Essay ExampleThe Porters five forces molding measures the firms favorableness in the various markets irrespective of the external forces fighting against the success of the firm. The five forces model analyzes the forces that refer and limit the profitability of the firm in the industry and how the firm is able to counter these forces, thus withstand a stable profit margin over the years (Ahlstrom & Bruton, p.131). The five forces include buyers, suppliers, new entrance, substitutes and rivalry. The profitability of the firm will thus depend on how well the firm handles these forces. If the firm is able to control these forces its profitability remains constant or goes higher over the years.Value image management is other tool to be used in the audit. Value chain analysis gives the auditor information on what the company is best at, that is what it produces the lowest possible cost and is profitable to the firm (needles, powers and Crosson 2011, p.805) the result of the value chain will help the firm concentrate more on the efficient products while eliminating the inefficient ones or possibly outsourcing what is cheaper to outsource than to produce. The information required includes the sales of the firm for the period for every specific demarcation line of product, the cost of production of that line and the profit earned from the product. This aids in comparing the profitability of apiece production line, thus showing the firms strong point in production.Moreover, financial ratios are important tools in internal audit. Among the ratios to be assessed include the leverage ratio and liquidity ratio. Liquidity ratio measures the firms ability to meet its current obligations while the leverage ratio measures the firms ability to give chase long line financial debt obligations. A high the liquidity ratio is an indication of the firms ability to meet its current financial obligations thus is an indicator of the firms short term