Blockbuster Internal-External

Blockbuster Internal-External - INTERNAL ANALYSIS An...

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INTERNAL ANALYSIS An internal analysis is conducted in order to identify current and potential sources of competitive advantages. This process is accomplished by understanding Blockbuster’s resources and capabilities, and identifying what does and does not create value. A. Financial Analysis -Blockbuster has a very high amount of debt and cannot rely on their financial strength for growth. As of December 31, 2006, Blockbuster’s total outstanding debt was approximately $984.2 million. The following list describes the adverse impact on earnings and cash flow due to their debt service obligations: Make it more difficult to pay debts as they become due during general adverse economic and market or industry conditions because any related decrease in revenues could cause Blockbuster not to have sufficient cash flows from operations to make their scheduled debt payments. Limit flexibility in planning for, or reacting to, changes in business and the industry in which Blockbuster operates, including limiting their ability to invest in strategic initiatives, and, consequently, place them at a competitive disadvantage to their competitors with less debt. Require a substantial portion of cash flows from operations to be used for debt service payments, thereby reducing the availability of cash flow to fund working capital, capital expenditures, acquisitions and other general corporate purposes. Cause trade creditors to change their terms for payment on goods and services provided to Blockbuster, thereby negatively impacting their ability to receive products and services on acceptable terms. Result in higher interest expense in the event of increases in interest rates since some of Blockbuster’s borrowings are, and will continue to be, at variable rates of interest. The Economic Value Added (EVA) measurement is used to determine the true economic value of a company. It is also a measure that reflects the absolute amount of shareholder value created or destroyed during each year. Blockbuster had an EVA measurement of -139.2 in 2006. This negative
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Blockbuster Internal-External - INTERNAL ANALYSIS An...

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