Inventory change

by Steven Bragg @ Articles - AccountingTools

Tue Mar 27 13:22:00 PDT 2018

Inventory change is the difference between the inventory totals for the last reporting period and the current reporting period. The concept is used in calculating the cost of goods sold, and in the materials management department as the starting point for reviewing how well inventory is being managed. It is also used in budgeting to estimate future cash requirements. If a business only issues financial statements on an annual basis, then the calculation of the inventory change will span a one-year time period. More commonly, the inventory change is calculated over only one month or a quarter, which is indicative of the more normal frequency with which financial statements are issued.

For example, if the ending inventory at the end of February was $400,000 and the ending inventory at the end of March was $500,000, then the inventory change was +$100,000.

The inventory change calculation is applicable to the following areas:

• Accounting. Inventory change is part of the formula used to calculate the cost of goods sold for a reporting period. The full formula is: Beginning inventory + Purchases - Ending inventory = Cost of goods sold. The inventory change figure can be substituted into this formula, so that the replacement formula is: Purchases + Inventory decrease  - Inventory increase = Cost of goods sold. Thus, it can be used to slightly compress the calculation of the cost of goods sold.
• Inventory management. The materials management staff uses the inventory change concept to determine how its purchasing and materials usage policies have altered the company's net investment in inventory. They typically drill down from the inventory change figure and review changes for each type of inventory (e.g., raw materials, work in process, and finished goods), and then drill down further to see where changes arose at the level of each stock keeping unit. The result of this analysis may include changes in ordering policies, the correction of faulty bills of material, and alterations to the production schedule.
• Cash budgeting. The budgeting staff estimates the inventory change in each future period. Doing so impacts the amount of cash needed in each of these periods, since a reduction in inventory generates cash for other purposes, while an increase in inventory will require the use of cash.

The concept is also used in a general sense to keep track of the overall investment in inventory, which management may monitor to see if working capital levels are increasing at too rapid a pace.

Related Courses

Accounting for Inventory 
How to Audit Inventory 

Continuing professional education

by Steven Bragg @ Articles - AccountingTools

Wed Mar 28 04:53:00 PDT 2018

Continuing professional education (CPE) is ongoing training that is required in order to remain certified as a professional in certain fields. The intent behind requiring this training is to force professionals to continue to update their knowledge of pertinent information that can improve their ability to serve their clients. In the accounting field, the state boards of accountancy all require a significant amount of CPE for certified public accountants (CPAs). Though the exact training requirements vary by state, the general requirements are:

• To take 40 hours of training per year, with some minimum number of hours spent on accounting or auditing subjects; and
• To take an ethics course every other year, which in some cases must pertain to the specific ethics requirements of the relevant state board of public accountancy.

If a CPA does not meet the CPE requirements of the governing state board of public accountancy, there is usually a requirement to make up the missing training time. If this does not happen within a reasonable period of time, then the person's CPA certificate is revoked.

There are a number of ways to fulfill the CPE requirement. A person may take classes from a CPE provider that is registered with the National Association of State Boards of Accountancy, or which is registered with the applicable state board of public accountancy. These classes can take the form of online self-study training, online webinars, in-person training, and so forth. A recent change in the rules is nano learning, where extremely short courses are offered that grant fractions of a credit hour for course completion. Some proportion of a person's CPE hours can also be earned by teaching classes or writing relevant professional articles or books.

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Transform Your Invoice Process with ACOM’s AP Automation

by Brian Edgmon @ ACOM Solutions Inc.

Fri Nov 03 15:49:04 PDT 2017

By now, most businesses are capitalizing on improved automation solutions for their AP processes. From processing invoices all the way to paying vendors, the AP department faces a lot of challenges that can be solved through innovative automation solutions. But what exactly does this mean? Streamlining processes through automation involves understanding organization needs and smoothly […]

The post Transform Your Invoice Process with ACOM’s AP Automation appeared first on ACOM Solutions Inc..

Time and Attendance Software – The Virtual Time Clock of the 21st Century!

by admin @ Work Force Solutions

Mon Mar 26 11:59:11 PDT 2018

If you’re running a business it can sometimes seem like you’ve got a revolving door at the entrance. People come and people go at all hours, and it’s virtually impossible […]

The post Time and Attendance Software – The Virtual Time Clock of the 21st Century! appeared first on Work Force Solutions.

Take the payroll process off your plate

by admin @ Payroll Processing

Wed Jan 11 09:39:02 PST 2017

For over 30 years, we have taken great pride in offering our clients a payroll service tailored to meet their individual payroll needs. We believe that a Payroll Service should be designed with you the client in mind. No contracts to sign No set up fees A variety of options for you to get your […]

The post Take the payroll process off your plate appeared first on Payroll Processing.

10 HR Mantras to Inspire Your Practice

by Rachel Bolsu @ Namely: Blog

Thu Mar 15 06:36:29 PDT 2018

When times get tough, here are the words of wisdom that keep HR people resilient.

What Should HR Do When a Manager is Dating a Direct Report?

by Rachel Bolsu @ Namely: Blog

Thu Mar 08 01:30:00 PST 2018

8 HR pros weigh in on how they would handle this case of love at work.

Economic order quantity

by Steven Bragg @ Articles - AccountingTools

Wed Mar 28 14:59:00 PDT 2018

The economic order quantity (EOQ) is a formula that derives the optimum quantity of goods to order, so that several costs related to inventory are minimized. These costs are inventory ordering costs, holding costs, and stock out costs. The formula incorporates the following factors:

• Setup costs
• Rate of demand
• Production costs
• Interest rate

The formula is most useful when standardizing the reordering of components on a repetitive basis. The formula can be inserted into a materials management system, so that the system automatically places replenishment orders with suppliers. The formula is least useful in lean production environments, where only the exact amount of components needed for the current production requirements are kept on hand; all other requirements are ordered on a just-in-time basis.

Related Courses

Inventory Management 

Will the Courts Accept a Jury Duty Excuse Letter If You’re in a Pinch?

by Rachel Gray @ Payroll Tips, Training, and News

Mon Mar 19 05:10:23 PDT 2018

Sometimes, you or your employees’ personal responsibilities conflict with your business. For many small businesses, if you miss work or lose an employee for an extended period of time, there can be harmful effects on productivity in the workplace. But if you or an employee are called in for jury duty, you might not have […]

The post Will the Courts Accept a Jury Duty Excuse Letter If You’re in a Pinch? appeared first on Payroll Tips, Training, and News.

Cities and Municipalities Can Jump off the Invoice Processing Treadmill

by Brian Edgmon @ ACOM Solutions Inc.

Thu Mar 08 10:43:12 PST 2018

The accounts payable departments at cities and municipalities must feel like they are on a treadmill. Much of their day is spent on transaction processing such as: Keying invoice information Tracking down approvals Physically routing invoices Following up on approvals Resolving exceptions via back-and-forth e-mails and phone calls Keying information on approved invoices into an […]

The post Cities and Municipalities Can Jump off the Invoice Processing Treadmill appeared first on ACOM Solutions Inc..

Price to book ratio

by Steven Bragg @ Articles - AccountingTools

Wed Mar 28 04:53:00 PDT 2018

The price to book ratio compares the current market price of a company's stock to its aggregate book value. When the ratio is excessively high, it can indicate that a company's shares are over-priced, especially when the ratio is high in comparison to the same calculation for other companies in the same industry. The calculation is:

Closing price of the stock ÷ (Total assets - Intangible assets - Liabilities)

Investors like to use the price to book ratio to search for undervalued companies, and invest in their stock in hopes of having the share price return to a more normal level over time. However, there are a number of issues with the ratio to be aware of, including the following:

• The ratio could be low because the company has been mismanaged, in which case there can be no expectation that the ratio will improve over time.
• The ratio could skewed too high because the company is using accelerated depreciation to write down the value of its fixed assets at an accelerated rate.
• The company may have valuable intellectual property that does not appear on its balance sheet at all, but which is being recognized by investors through a high market price for its stock.
• The company may be investing a large amount in research and development costs, which must be charged to expense as incurred, rather than capitalized. This tends to result in a comparatively low book value for the business.
• The ratio is not overly useful when evaluating services firms and technology companies, since these entities have comparatively fewer fixed assets on their balance sheets.

Related Courses

Business Ratios Guidebook 
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Determining Spread of Hours Pay in New York State

by admin @ Work Force Solutions

Mon Mar 12 08:55:42 PDT 2018

When you have employees who sometimes work longer than a regular eight-hour shift – a shift of at least 10 hours – employers are required to pay them for an […]

The post Determining Spread of Hours Pay in New York State appeared first on Work Force Solutions.

Capture Early Pay Vendor Discounts with an Automated ePayables Solution

by Brian Edgmon @ ACOM Solutions Inc.

Mon Nov 13 13:47:51 PST 2017

If you are a B2B company, you know that processing payments efficiently is one of the best ways to maintain positive client relationships. You may also know about the high cost that can be associated with issuing payments efficiently, especially via paper checks, which is currently estimated to be $26 to $54 billion annually! This […]

The post Capture Early Pay Vendor Discounts with an Automated ePayables Solution appeared first on ACOM Solutions Inc..

Types of financial analysis

by Steven Bragg @ Articles - AccountingTools

Tue Mar 27 14:44:00 PDT 2018

Financial analysis involves the review of an organization's financial information in order to arrive at business decisions. This analysis can take several forms, with each one intended for a different use. The types of financial analysis are:

• Horizontal analysis. This involves the side-by-side comparison of the financial results of an organization for a number of consecutive reporting periods. The intent is to discern any spikes or declines in the data that could be used as the basis for a more detailed examination of financial results.
• Vertical analysis. This is a proportional analysis of the various expenses on the income statement, measured as a percentage of net sales. The same analysis can be used for the balance sheet. These proportions should be consistent over time; if not, one can investigate further into the reasons for a percentage change.
• Short term analysis. This is a detailed review of working capital, involving the calculation of turnover rates for accounts receivable, inventory, and accounts payable. Any differences from the long-term average turnover rate are worth investigating further, since working capital is a key user of cash.
• Multi-company comparison. This involves the calculation and comparison of the key financial ratios of two organizations, usually within the same industry. The intent is to determine the comparative financial strengths and weaknesses of the two firms, based on their financial statements.
• Industry comparison. This is similar to the multi-company comparison, except that the comparison is between the results of a specific business and the average results of an entire industry. The intent is to see if there are any unusual results in comparison to the average method of doing business.

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Cook the books

by Steven Bragg @ Articles - AccountingTools

Wed Mar 28 04:57:00 PDT 2018

To cook the books means that the managers of a business are deliberately falsifying certain aspects of its financial statements to give investors a false impression of the true state of the business. Alternatively, they engage in business practices to enhance financial results that are technically legal, but which will have a negative impact on the business over the long term. A number of techniques can be used to cook the books, such as the following:

Falsification activities

• Leaving the books open past the end of the month to record additional sales within the prior reporting period.
• Not recording expenses in the reporting period, even though they clearly reflect resource consumption in the period.
• Altering the terms of leasing arrangements so that the liability appears to be held by a third party, thereby keeping the liability off the entity's balance sheet.
• Falsely recording pension liabilities lower than is really the case.
• Setting up expense reserves, such as the allowance for doubtful accounts, that do not reflect the actual loss rate.
• Recording consignment sales as though they are actual sales.
• Taking a one-time charge that is set up as a "cookie jar," which can be used in subsequent periods to write off expenses and artificially inflate profits.

Business practices

• Engage in channel stuffing to sell more goods to customers than they can realistically use.
• Grant much higher credit levels to customers in order to boost sales, even though the customers may not be able to pay off the receivables.

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Here’s How to Improve Your Credit Score Faster

by Paul Sisolak @ Chime Banking

Thu Mar 08 14:44:08 PST 2018

Good things may come to those who wait, but time isn’t on your side if you’re struggling to raise your credit score quickly. More than 30 percent of Americans have poor credit, and if you’re one of them it can be hard to improve it. Many people aim for a credit-building secured credit card, but it could […]

The post Here’s How to Improve Your Credit Score Faster appeared first on Chime Banking.

Turnover ratios

by Steven Bragg @ Articles - AccountingTools

Tue Mar 27 15:24:00 PDT 2018

A turnover ratio represents the amount of assets or liabilities that a company replaces in relation to its sales. The concept is useful for determining the efficiency with which a business utilizes its assets. In most cases, a high asset turnover ratio is considered good, since it implies that receivables are collected quickly, fixed assets are heavily utilized, and little excess inventory is kept on hand. This implies a minimal need for invested funds, and therefore a high return on investment.

Conversely, a low liability turnover ratio (usually in relation to accounts payable) is considered good, since it implies that a company is taking the longest possible amount of time in which to pay its suppliers, and so has use of its cash for a longer period of time.

Examples of turnover ratios are:

• Accounts receivable turnover ratio. Measures the time it takes to collect an average amount of accounts receivable. It can be impacted by the corporate credit policy, payment terms, the accuracy of billings, the activity level of the collections staff, the promptness of deduction processing, and a multitude of other factors.
• Inventory turnover ratio. Measures the amount of inventory that must be maintained to support a given amount of sales. It can be impacted by the type of production process flow system used, the presence of obsolete inventory, management's policy for filling orders, inventory record accuracy, the use of manufacturing outsourcing, and so on.
• Fixed asset turnover ratio. Measures the fixed asset investment needed to maintain a given amount of sales. It can be impacted by the use of throughput analysis, manufacturing outsourcing, capacity management, and other factors.
• Accounts payable turnover ratio. Measures the time period over which a company is allowed to hold trade payables before being obligated to pay suppliers. It is primarily impacted by the terms negotiated with suppliers and the presence of early payment discounts.

The turnover ratio concept is also used in relation to investment funds. In this context, it refers to the proportion of investment holdings that have been replaced in a given year. A low turnover ratio implies that the fund manager is not incurring many brokerage transaction fees to sell off and/or purchase securities. The turnover level for a fund is typically based on the investment strategy of the fund manager, so a buy-and-hold manager will experience a low turnover ratio, while a manager with a more active strategy will be more likely to experience a high turnover ratio and must generate greater returns in order to offset the increased transaction fees.

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Key Benchmarks to Measure the Effectiveness of your Accounts Payable

by Brian Edgmon @ ACOM Solutions Inc.

Thu Nov 09 09:16:09 PST 2017

Over 40 years ago, renowned management consultant Peter Drucker said, “What gets measured gets improved.” That concept is still true today, and it applies to accounts payable processing. The questions for CFOs and Controllers are, “What do I measure?” and “How do I know if my numbers are great or just okay?” The key to […]

The post Key Benchmarks to Measure the Effectiveness of your Accounts Payable appeared first on ACOM Solutions Inc..

Throughput definition

by Steven Bragg @ Articles - AccountingTools

Tue Mar 27 15:19:00 PDT 2018

Throughput is the number of units that pass through a process during a period of time. This general definition can be refined into the following two variations, which are:

• Operational perspective. Throughput is the number of units that can be produced by a production process within a certain period of time. For example, if 800 units can be produced during an eight-hour shift, then the production process generates throughput of 100 units per hour.
• Financial perspective. Throughput is the revenues generated by a production process, minus all completely variable expenses incurred by that process. In most cases, the only completely variable expenses are direct materials and sales commissions. Given the small number of expenses, throughput tends to be quite high, except for those situations in which prices are set only slightly higher than variable expenses.

For operations, throughput can be increased by enhancing the productivity of the bottleneck operation that is constraining production. For example, an additional machine can be purchased, or overtime can be authorized in order to run a machine for an extra shift. The key point is to focus attention on the productivity of the bottleneck operation. If other operations are improved, the overall throughput of the system will not increase, since the bottleneck operation has not been enhanced. This means that the key focus of investment in the production area should be on the bottleneck, not other operations.

For financial analysis, throughput can be increased by altering the mix of products being produced, to increase the priority on those products that have the highest throughput per minute of time required at the constrained resource. If a product has a smaller amount of throughput per minute, it can instead be routed to a third party for processing, rather than interfering with the bottleneck operation. As long as some positive throughput is gained by outsourcing, the result is an increased overall level of the throughput for the company as a whole.

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What You Need to Know About a Qualifying Life Event

by Rachel Gray @ Payroll Tips, Training, and News

Mon Mar 12 05:10:40 PDT 2018

Employees have a window of time each year to sign up for certain types of employer-sponsored insurance. Although this open enrollment period takes place at the end of each year for all employees, an employee can add or remove coverage at any time of the year if they have a qualifying life event. What is […]

The post What You Need to Know About a Qualifying Life Event appeared first on Payroll Tips, Training, and News.

Payroll records

by Steven Bragg @ Articles - AccountingTools

Tue Mar 27 12:00:00 PDT 2018

Payroll records contain information about the compensation paid to employees and any deductions from their pay. These records are needed by the payroll staff to calculate gross pay and net pay for employees. Payroll records typically include information about the following items:

• Bereavement pay
• Bonuses
• Commissions
• Deductions for pensions, benefits, charitable contributions, stock purchase plans, and so forth
• Direct deposit information
• Gross wages
• Hours worked
• Manual check payments
• Net wages paid
• Salary rates
• Vacation and/or sick pay

The information in payroll records have traditionally been stored on paper documents, but can also be recorded as electronic documents.

Payroll records can be considered a subset of the information stored in human resources records, which can contain considerably more information than items pertaining to just employee pay and deductions.

The time period over which payroll records must be retained will depend upon government requirements. The Internal Revenue Service typically states a required retention period in each document it issues dealing with payroll issues. In general, wage calculations should be retained for two years, while collective bargaining agreements should be retained for three years.

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Payroll Management 

Depreciable asset

by Steven Bragg @ Articles - AccountingTools

Wed Mar 28 13:48:00 PDT 2018

A depreciable asset is property that provides an economic benefit for more than one reporting period. A capitalization limit may also be applied to keep lower-cost purchases from being classified as depreciable assets. A qualifying asset is initially classified as an asset, after which its cost is gradually depreciated over time to reduce its book value. Examples of the classifications of assets used to record depreciable assets are:

• Buildings
• Computers and software
• Furniture and fixtures
• Land
• Machinery
• Vehicles

The time period over which an asset is depreciated depends on its classification. Land is not depreciated at all, since it is considered to have an infinite lifespan.

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The difference between an invoice and a statement

by Steven Bragg @ Articles - AccountingTools

Tue Mar 27 16:21:00 PDT 2018

A customer may receive an invoice and a statement from a supplier. What is the difference between these two documents? When a seller issues an invoice to a buyer, the invoice is related to a specific sale transaction where goods or services were provided to the buyer. Since the invoice relates to a specific sale transaction, it itemizes all of the information the buyer needs to know in order to pay the seller, including:

• Invoice number
• Invoice date
• Item description
• Item price
• Shipping and handling charges
• Sales tax
• Total amount payable
• Remit to address
• Payment terms and early payment discount terms (if any)

The intent of an invoice is either to collect payment from the buyer, or to create evidence of the sale (if payment was made in advance or in cash). If payment was made at the time of sale, the invoice is stamped "Paid" before issuing it to the buyer.

When a seller issues a statement, the document itemizes all invoices that have not yet been paid by the buyer, as well as partial payments. In this case, the intent is to remind the buyer that it has an obligation to pay the seller. Since the statement is more aggregated than an invoice, it provides less detailed information at the invoice level. It typically includes the following items:

• Statement date
• Invoice numbers
• Invoice dates
• Invoice totals

A more sophisticated statement will aggregate invoice totals by time bucket, so that overdue invoices are clearly shown.

Invoices are issued whenever a sale has been completed, so they may be issued every day and in significant quantities. However, statements are usually only issued at regular intervals, such as once a month, as part of a company's collection activities.

From the perspective of the buyer, the receipt of an invoice triggers an accounting transaction, which is an account payable. Conversely, the receipt of a statement is strictly informational - it does not trigger the creation of an accounting transaction.

It can be unwise to treat a statement as an invoice and pay items listed on the statement, since it is possible that the buyer already paid for those items, but the payment has not yet been reflected in the seller's accounting system. A better alternative for the buyer is to make inquiries about any invoices that are listed on the statement, and obtain more detailed information before issuing a payment.

There can be some confusion between the invoice and statement terms when dealing with credit card providers, since they issue a "statement" that is actually an invoice.

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How to Prepare for an Interview When You’re Self-Employed

by Due.com @ Chime Banking

Tue Mar 27 13:03:23 PDT 2018

There are many myths about self-employment that people may start to mistake for fact. Working for yourself can be a great thing, but it doesn’t always mean you’ll be 100% in control of your career and the day-to-day operations. Often times, you’ll still have to work with others and may even have to please clients if you’re […]

The post How to Prepare for an Interview When You’re Self-Employed appeared first on Chime Banking.

Cookie jar accounting

by Steven Bragg @ Articles - AccountingTools

Wed Mar 28 11:09:00 PDT 2018

Cookie jar accounting occurs when a business sets up excessive reserves in profitable periods and draws down these reserves during lower-profit periods. The intent is to give the impression that the organization generates more consistent results than is really the case. When investors believe that a firm is able to consistently meet its earnings targets, they tend to place a higher value on its stock. There is a greater temptation to use cookie jar accounting among publicly held businesses, since doing so can mislead analysts into issuing more favorable reports about them to the investment community. This approach to reporting earnings does not reflect actual results, and so can be considered fraudulent reporting.

Cookie jar reserves can be created either by over-estimating the more common reserves (such as for bad debts) or by taking large one-time charges for expected losses from one-time events, such as acquisitions or downsizings.

The term comes from the practice of using a “cookie jar” of reserves whenever needed.

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Human resource accounting

by Steven Bragg @ Articles - AccountingTools

Wed Mar 28 16:21:00 PDT 2018

Human resource accounting involves the tracking of all costs related to employees in a separate report. These costs may include the following:

• Employee compensation
• Employee payroll taxes
• Employee benefits
• Employee training

Such an accounting system can be used to determine where human resources costs are especially heavy or light in an organization. This information can be used to redirect employees toward those activities to which they can bring the most value. Conversely, the report can be used to identify those areas in which employee costs are too high, which may lead to a reduction in force or a reallocation of staff away from those areas.

A more comprehensive human resource accounting system goes beyond the simple tracking of employee-related costs, and addresses the following two additional areas:

• Budgeting. An organization's annual budget includes a component, in which is concentrated all employee costs being incurred from across the organization. By concentrating cost information by its nature, management can more clearly see the total impact of human resource costs on the entity.
• Employee valuation. Rather than looking at employees as costs, the system is redirected toward viewing them as assets. This can involve the assignment of values to employees based on their experience, education, innovativeness, leadership, and so forth. This can be a difficult area in which to achieve a verifiable level of quantification, and so may have limited value from a management perspective.

From an accounting perspective, the expense-based view of human resources is quite easy - employee costs from the various departments are simply aggregated into a report. The employee valuation approach is not a tenable concept for the accountant, since this is an internally-generated intangible asset, and so cannot be recorded in the accounting system.

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Financial model

by Steven Bragg @ Articles - AccountingTools

Wed Mar 28 16:52:00 PDT 2018

A financial model is a mathematical representation of the key variables impacting an organization, which is used to make estimates of how future scenarios will impact the performance and financial position of the business. This model is usually constructed on an electronic spreadsheet, using summary-level revenues and expenses, and employing formulas that change the results of the model when certain variables are altered. For example, variables could be used to model the impact of an increase in energy prices, a decline in product prices, a product recall, a change in the rate of sales growth, or a successful employee strike that results in increased compensation and benefit costs.

A financial model is useful for estimating the effects of a number of scenarios within a short period of time, though its effectiveness depends on how well the model mimics the business. An analyst can use a financial model for a number of purposes, such as:

• Acquisitions. To determine the range of possible outcomes that an acquirer can expect with an acquiree, depending on the actions it takes after the deal has been closed.
• Budgeting. To develop several scenarios as part of the budgeting process, to decide which scenarios to pursue when a detailed budget is constructed.
• Capital budgeting. To determine a range of outcomes that might impact the cash flow return related to a prospective fixed asset purchase.
• Risk analysis. To determine which variables can have the greatest negative effect on a firm, as part of a formal risk analysis.

There are two potential problems with financial models. One is that a model may not properly account for the variables that will impact the model's projected future results. The other problem is that a more complex model is at risk of having calculation errors built into it, which can be difficult to detect.

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Competitive advantage

by Steven Bragg @ Articles - AccountingTools

Tue Mar 27 14:27:00 PDT 2018

Competitive advantage is the ability of an organization to gain a material edge over its competitors. Having such an advantage can result in above-average profits or high levels of customer loyalty. There are many types of competitive advantage that a business can take advantage of, such as the following:

• Having a supply of unusually inexpensive raw materials
• Having access to a low-cost labor force
• Owning a patent that is key to a product category
• Having a large field servicing operation that can maintain products on short notice
• Having a large chain of retail stores through which goods can be sold
• Having a highly-regarded Internet store that experiences a large number of return visits
• Having a design team that routinely produces leading-edge designs
• Having a short product development cycle that pushes new products into the marketplace faster than what competitors can achieve

An example of how a core competency is used is to leverage a strong field service operation by noting the company's 24-hour response time when pitching a prospective sale to a customer. Another example is being able to offer a commodity product to a customer at an unusually low price, since the seller's workforce is located overseas, where labor costs are reduced by more than half.

Competitive advantage can be taken away by a determined competitor in one of two ways:

• Match and then exceed the advantage offered by the company; or
• Undermine the company's position by developing an entirely new competitive advantage that is highly prized by customers.

It is essential to maintain a competitive advantage, in order to sustain long-term profitability. This means that management must be aware of the advantage and continually reinforce it with ongoing investments in the targeted area.

A competitive advantage can even be achieved by unethical means, such as by offering bribes to the purchasing manager of a customer. Since other sellers are presumably not willing to engage in unethical behavior, the use of bribes can be seen as a competitive advantage.