Financial Ratio Analysis
Why is it hard to gain a competitive advantage?
Gaining competitive advantage is difficult because identifying clients to compel an insight of framing the organizational capabilities is difficult. All competitors seem to speak to impending clients in similar ways. One challenge that clients experience is that different organizations supply extremely similar products. Consequently, building competitive advantage requires a firm to go beyond standard communication methods (Hitt, Ireland, & Hoskisson, 2017).
Challenges in maintaining competitive advantage
The key to an enviable long-term performance within a company entails continuously providing higher value to its clients. Sustainable superior value needs the ability to erect imitation barriers. Legal provisions against imitations assist in guarding company patents and trademarks against duplication. However, safeguarding unique production is difficult. Additionally, erecting imitation barriers is hard. As a result, sustaining competitive advantage becomes difficult. The more obvious a competitive advantage is, the easier a rival can develop an improved offering. Most production is copied from innovations of other companies.
Does Microsoft have a competitive Advantage over Apple?
Presently, according to accounting profitability approach, apple has a competitive advantage over Microsoft. For instance, Apple has a Return on Invested Capital (ROIC) of 28.1% higher by 8% that of Microsoft (20.0%), implying that, for each $ 1.00 that Apple invested the organization earned almost $ 1.28. Equally said, for each $ 1.00 the Microsoft invest the company generates $ 1.20. The company has further increased innovation in production. In this regard, Apple was the most valuable organization by 2012 worth $ 629 billion regarding market capitalization.
Another source of competitive advantage of Apple is evident in high inventory turnover. While the Inventory Turnover for Apple is 53.2 %, Microsoft has an inventory turnover of 10.1 %. In this regard, Apple managed to sell a half of its stock during the year while Microsoft managed to sell a tenth of its stock. In other words, Apple stock sold faster in comparison to Microsoft.
Equally, Apple is generating competitive advantage from efficient utilization of its working capital as compared to Microsoft. The working capital turnover for Apple is 36.0 % while for Microsoft is 1.3 %. This implies that Apple is better in utilizing working capital turnover by 34.7%.
However, the competitive advantage of Microsoft higher in comparison to Apple. Microsoft has a Return on Revenue 32.0% while Apple 29.3%. This implies that Apple has more expenses that are reducing profitability while Microsoft is managing its expenses efficiently.
Additionally, according to shareholding approach, Microsoft is profitable and thus enjoys a competitive advantage because of having a higher payable turnover ratio. The Payable Turnover ratio for Apple is 6.1 % and 11.7 % for Microsoft. Microsoft paid the creditors with ease while Apple strained. Therefore, Microsoft has a good competitive advantage of repaying suppliers.
Furthermore, Microsoft seems the best according to the creation of shareholders value approach. Specifically, the company replicated its corporate clients by setting standards within operating system coupled with bundling discounted applications suite. Microsoft also, engaged in 80 % franchise of Windows to facilitate creating favorable marketing conditions and increase shareholders value (Barney, & Hesterly, 2010).
Nadella as the CEO
Before CEO Satya Nadella, Microsoft strategy was Windows-Only model of business. However, under the new leadership, the strategy has changed to availing Office Suit to Apple iOS as well as Android. Nadella has formulated a promising strategy because the availability of Office Suit will increase.