In this section, you begin working on your course project; you will return to this assignment three more times during this course. At this stage, it is essential to select a topic that interests you and that has a broad scope for research and further study. Select your topic with care.
At this point, identify a topic for your case study analysis and the research paper. You may select any of the cases located in Part 5 of your text. Write a paper in which you identify the case study you will work on during this course project. Your paper should include the following components:
A description of the case study (summary)
An initial assessment of the company under consideration
A short list (five to ten sources) of potential research materials)
An overview of the challenges you anticipate when completing this project
Need 2-4 pages worth of original?work and not work that has been used before. ?It will be checked for plagiarism.
Case Studies: Overview
Case Studies: Table of Contents
WHAT IS CASE STUDY ANALYSIS?
A case study presents an account of what happened to a business or industry over a number of
years. It chronicles the events that managers had to deal with, such as changes in the
competitive environment, and charts the managers' response, which usually involved changing
the business- or corporate-level strategy.
Cases prove valuable in a course for several reasons. First, cases provide you, the student, with
experience of organizational problems that you probably have not had the opportunity to
experience firsthand. In a relatively short period of time, you will have the chance to appreciate
and analyze the problems faced by many different companies and to understand how managers
tried to deal with them.
Second, cases illustrate what you have learned. The meaning and implication of this information
are made clearer when they are applied to case studies. The theory and concepts help reveal
what is going on in the companies studied and allow you to evaluate the solutions that specify
companies adopted to deal with their problems. Consequently, when you analyze cases, you
will be like a detective who, with a set of conceptual tools, probes what happened and what or
who was responsible and then marshals the evidence that provides the solution. Top managers
enjoy the thrill of testing their problem-solving abilities in the real world. It is important to
remember, after all, that no one knows what the right answer is. All that managers can do is to
make the best guess. In fact, managers say repeatedly that they are happy if they are right only
half the time in solving strategic problems. Management is an uncertain game, and using cases
to see how theory can be put into practice is one way of improving your skills of diagnostic
Third, case studies provide you with the opportunity to participate in class and to gain
experience in presenting your ideas to others. Instructors may sometimes call on students as a
group to identify what is going on in a case, and through classroom discussion the issues in and
solutions to the case problem will reveal themselves. In such a situation, you will have to
organize your views and conclusions so that you can present them to the class. Your
classmates may have analyzed the issues differently from you, and they will want you to argue
your points before they will accept your conclusions; so be prepared for debate. This is how
decisions are made in the actual business world.
Instructors also may assign an individual, but more commonly a group, to analyze the case
before the whole class. The individual or group probably will be responsible for a thirty- to fortyminute presentation of the case to the class. That presentation must cover the issues involved,
the problems facing the company, and a series of recommendations for resolving the problems.
The discussion then will be thrown open to the class, and you will have to defend your ideas.
Through such discussions and presentations, you will experience how to convey your ideas
effectively to others. Remember that a great deal of managers' time is spent in these kinds of
situations, presenting their ideas and engaging in discussion with other managers, who have
their own views about what is going on. Thus, you will experience in the classroom the actual
process of what goes on in a business setting, and this will serve you well in your future career. If you work in groups to analyze case studies, you also will learn about the group process
involved in working as a team. When people work in groups, it is often difficult to schedule time
and allocate responsibility for the case analysis. There are always group members who shirk
their responsibilities and group members who are so sure of their own ideas that they try to
dominate the group's analysis. Most business negotiations take place in groups, however, and it
is best if you learn about these problems now.
WRITING A CASE STUDY ANALYSIS
Often, as part of your course requirements, you will need to present your instructor with a
written case analysis. This may be an individual or a group report. Whatever the situation, there
are certain guidelines to follow in writing a case analysis that will improve the evaluation your
work will receive from your instructor. Before we discuss these guidelines and before you use
them, make sure that they do not conflict with any directions your instructor has given you.
The structure of your written report is critical. Generally, if you follow the steps for analysis
discussed in the previous section, you already will have a good structure for your written
discussion. All reports begin with an introduction to the case. In it you outline briefly what the
company does, how it developed historically, what problems it is experiencing, and how you are
going to approach the issues in the case write-up. Do this sequentially by writing, for example,
"First, we discuss the environment of Company X...Third, we discuss Company X?s businesslevel strategy... Last, we provide recommendations for turning around Company X?s business."
In the second part of the case write-up, the strategic-analysis section, do the SWOT analysis,
analyze and discuss the nature and problems of the company?s business-level and corporate
strategy, and then analyze its structure and control systems. Make sure you use plenty of
headings and subheadings to structure your analysis. For example, have separate sections on
any important conceptual tool you use. Thus, you might have a section on Porter?s five forces
model as part of your analysis of the environment. You might offer a separate section on
portfolio techniques when analyzing a company?s corporate strategy. Tailor the sections and
subsections to the specific issues of importance in the case.
In the third part of the case write-up, present your solutions and recommendations. Be
comprehensive, and make sure they are in line with the previous analysis so that the
recommendations fit together and move logically from one to the next. The recommedations
section is very revealing because, as mentioned earlier, your instructor will have a good idea of
how much work you put into the case from the quality of your recommendations.
Following this framework will provide a good structure for most written reports, though obviously
it must be shaped to fit the individual case being considered. Some cases are about excellent
companies experiencing no problems. In such instances, it is hard to write recommendations.
Instead, you can focus on analyzing why the company is doing so well, using that analysis to
structure the discussion. Following are some minor suggestions that can help make a good
analysis even better.
1. Do not repeat in summary form large pieces of factual information from the case. The
instructor has read the case and knows what is going on. Rather, use the information in the
case to illustrate your statements, to defend your arguments, or to make salient points. Beyond
the brief introduction to the company, you must avoid being descriptive; instead, you must be
analytical. 2. Make sure the sections and subsections of your discussion flow logically and smoothly from
one to the next. That is, try to build on what has gone before so that the analysis of the case
study moves toward a climax. This is particularly important for group analysis, because there is
a tendency for people in a group to split up the work and say, "I?ll do the beginning, you take the
middle, and I?ll do the end." The result is a choppy, stilted analysis because the parts do not flow
from one to the next, and it is obvious to the instructor that no real group work has been done.
3. Avoid grammatical and spelling errors. They make the paper sloppy.
4. In some instances, cases dealing with well-known companies don?t include up-to-date
research because it was not available at the time the case was written. If possible, do a search
for more information on what has happened to the company in subsequent years. Following are
sources of information for performing this search:
The World Wide Web is the place to start your research. Very often you can download copies of
a company?s annual report from its Web site, and many companies also keep lists of press
releases and articles that have been written about them. Thoroughly search the company?s Web
site for information such as the company?s history and performance, and download all relevant
information at the beginning of your project.
Compact disk sources such as Lotus One Source and InfoTrac provide an amazing amount of
good information, including summaries of recent articles written on specific companies that you
can then access in the library.
F&S Predicasts provide a listing on a yearly basis of all the articles written about a particular
company. Simply reading the titles gives an indication of what has been happening in the
Annual reports on a Form 10-K often provide an organization chart.
Companies themselves provide information if you write and ask for it.
Fortune, BusinessWeek, and Forbes have many articles on companies featured in most cases.
Standard & Poor's industry reports provide detailed information about the competitive conditions
facing the company's industry. Be sure to look at this journal.
5. Sometimes instructors hand out questions for each case to help you in your analysis. Use
these as a guide for writing the case analysis. They often illuminate the important issues that
have to be covered in the discussion.
If you follow the guidelines in this section, you should be able to write a thorough and effective
THE ROLE OF FINANCIAL ANALYSIS
Another important aspect of analyzing a case study and writing a case study analysis is the role
and use of financial information. A careful analysis of the company's financial condition
immensely improves a case write-up. After all, financial data represent the concrete results of the company's strategy and structure. Although analyzing financial statements can be quite
complex, a general idea of a company's financial position can be determined through the use of
ratio analysis. Financial performance ratios can be calculated from the balance sheet and
income statement. These ratios can be classified into five different subgroups: profit
ratios, liquidity ratios, activity ratios, leverage ratios, and shareholder-return ratios. These ratios
should be compared with the industry average or the company's prior years of performance. It
should be noted, however, that deviation from the average is not necessarily bad; it simply
warrants further investigation. For example, young companies will have purchased assets at a
different price and will likely have a different capital structure than older companies. In addition
to ratio analysis, a company's cash flow position is of critical importance and should be
assessed. Cash flow shows how much actual cash a company possesses.
Profit ratios measure the efficiency with which the company uses its resources. The more
efficient the company, the greater is its profitability. It is useful to compare a company's
profitability against that of its major competitors in its industry. Such a comparison tells whether
the company is operating more or less efficiently than its rivals. In addition, the change in a
company's profit ratios over time tells whether its performance is improving or declining. A
number of different profit ratios can be used, and each of them measures a different aspect of a
company's performance. The most commonly used profit ratios are gross profit margin, net
profit margin, return on total assets, and return on stockholders' equity.
1. Gross profit margin. The gross profit margin simply gives the percentage of sales
available to cover general and administrative expenses and other operating costs. It is
defined as follows:
Margin Sales Revenue - Cost of Goods Sold
Sales Revenue 2. Net profit margin. Net profit margin is the percentage of profit earned on sales. This ratio
is important because businesses need to make a profit to survive in the long run. It is
defined as follows:
Margin Net Income
Sales Revenue 3. Return on total assets. This ratio measures the profit earned on the employment of
assets. It is defined as follows:
Net Income Available to
4. Net income is the profit after preferred dividends (those set by contract) have been paid.
Total assets include both current and noncurrent assets. 5. Return on stockholders' equity. This ratio measures the percentage of profit earned on
common stockholders' investment in the company. In theory, a company attempting to
maximize the wealth of it stockholders should be trying to maximize this ratio. It is
defined as follows:
Stockholders' Equity Net Income Available to
Common Stockholders Stockholders' Equity
A company's liquidity is a measure of its ability to meet short-term obligations. An asset is
deemed liquid if it can be readily converted into cash. Liquid assets are current assets such as
cash, marketable securities, accounts receivable, and so on. Two commonly used liquidity ratios
are current ratio and quick ratio.
1. Current ratio. The current ratio measures the extent to which the claims of short-term
creditors are covered by assets that can be quickly converted into cash. Most companies
should have a ratio of at least 1, because failure to meet these commitments can lead to
bankruptcy. The ratio is defined as follows:
Ratio Current Assets
Current Liabilities 2. Quick ratio. The quick ratio measures a company's ability to pay off the claims of shortterm creditors without relying on the sale of its inventories. This is a valuable measure
since in practice the sale of inventories is often difficult. It is defined as follows:
Current Assets - Inventory
Quick Ratio =
Activity ratios indicate how effectively a company is managing its assets. Inventory
turnover and days sales outstanding (DSO) are particularly useful:
1. Inventory turnover. This measures the number of times inventory is turned over. It is
useful in determining whether a firm is carrying excess stock in inventory. It is defined as
Cost of Goods Sold
Inventory Turnover =
2. Cost of goods sold is a better measure of turnover than sales, since it is the cost of the
inventory items. Inventory is taken at the balance sheet date. Some companies choose
to compute an average inventory, beginning inventory, plus ending inventory, but for
simplicity use the inventory at the balance sheet date.
3. Days sales outstanding (DSO), or average collection period. This ratio is the average
time a company has to wait to receive its cash after making a sale. It measures how effective the company's credit, billing, and collection procedures are. It is defined as
O Accounts Receivable
Total Sales/360 4. Accounts receivable is divided by average daily sales. The use of 360 is standard
number of days for most financial analysis.
A company is said to be highly leveraged if it uses more debt than equity, including stock and
retained earnings. The balance between debt and equity is called the capital structure. The
optimal capital structure is determined by the individual company. Debt has a lower cost
because creditors take less risk; they know they will get their interest and principal. However,
debt can be risky to the firm because if enough profit is not made to cover the interest and
principal payments, bankruptcy can occur.
Three commonly used leverage ratios are debt-to-assets ratio, debt-to-equity ratio, and timescovered ratio.
1. Debt-to-assets ratio. The debt-to-asset ratio is the most direct measure of the extent to
which borrowed funds have been used to finance a company's investments. It is defined
Debt-to-Assets Ratio =
2. Total debt is the sum of a company's current liabilities and its long-term debt, and total
assets are the sum of fixed assets and current assets.
3. Debt-to-equity ratio. The debt-to-equity ratio indicates the balance between debt and
equity in a company's capital structure. This is perhaps the most widely used measure of
a company's leverage. It is defined as follows:
Ratio Total Debt
Total Equity 4. Times-covered ratio. The times-covered ratio measures the extent to which a company's
gross profit covers its annual interest payments. If the times-covered ratio declines to
less than 1, then the company is unable to meet its interest costs and is technically
insolvent. The ratio is defined as follows:
Profit Before Interest and Tax
Times-Covered Ratio =
Total Interest Charges Shareholder-Return Ratios
Shareholder-return ratios measure the return earned by shareholders from holding stock in the
company. Given the goal of maximizing stockholders' wealth, providing shareholders with an
adequate rate of return is a primary objective of most companies. As with profit ratios, it can be
helpful to compare a company's shareholder returns against those of similar companies. This
provides a yardstick for determining how well the company is satisfying the demands of this
particularly important group of organizational constituents. Four commonly used ratios are total
shareholder returns, price-earnings ratio, market to book value, and dividend yield.
1. Total shareholder returns. Total shareholder returns measure the returns earned by
time t + 1 on an investment in a company's stock made at time t. (Time t is the time at
which the initial investment is made.) Total shareholder returns include both dividend
payments and appreciation in the value of the stock (adjusted for stock splits) and are
defined as follows: Total Shareholder Returns = Stock Price (t + 1) Stock Price (t) + Sum of Annual Dividends per Share
Stock Price (t) 2. Thus, if a shareholder invests $2 at time t, and at time t + 1 the share is worth $3, while
the sum of annual dividends for the period tto t + 1 has amounted to $0.2, total
shareholder returns are equal to (3 - 2 + 0.2)/2 = 0.6, which is a 60 percent return on an
initial investment of $2 made at time t.
3. Price-earnings ratio. The price-earnings ratio measures the amount investors are willing
to pay per dollar of profit. It is defined as follows:
Ratio Market Price per Share
Earnings per Share 4. Market to book value. Another useful ratio is market to book value. This measures a
company's expected future growth prospects. It is defined as follows:
Market Price per Share
Market to Book Value =
Earnings per Share
5. Dividend yield. The dividend yield measures the return to shareholders received in the
form of dividends. It is defined as follows:
Dividend per Share
Dividend Yield =
Market Price per Share
6. Market price per share can be calculated for the first of the year, in which case the
dividend yield refers to the return on an investment made at the beginning of the year.
Alternatively, the average share price over the year may be used. A company must
decide how much of its profits to pay to stockholders and how much to reinvest in the company. Companies with strong growth prospects should have a lower dividend payout
ratio than mature companies. The rationale is that shareholders can invest the money
elsewhere if the company is not growing. The optimal ratio depends on the individual
firm, but the key decider is whether the company can produce better returns than the
investor can earn elsewhere.
Cash flow position is simply cash received minus cash distributed. The net cash flow can be
taken from a company's statement of cash flows. Cash flow is important for what it tells us about
a company's financing needs. A strong positive cash flow enables a company to fund future
investments without having to borrow money from bankers or investors. This is desirable
because the company avoids the need to pay out interest or dividends. A weak or negative cash
flow means that a company has to turn to external sources to fund future investments.
Generally, companies in strong-growth industries often find themselves in a poor cash flow
position (because their investment needs are substantial), whereas successful companies
based in mature industries generally find themselves in a strong cash flow position.
A company's internally generated cash flow is calculated by adding back its depreciation
provision to profits after interest, taxes, and dividend payments. If this figure is insufficient to
cover proposed new-investment expenditures, the company has little choice but to borrow funds
to make up the shortfall or to curtail investments. If this figure exceeds proposed new
investments, the company can use the excess to build up its liquidity (that is, through
investments in financial assets) or to repay existing loans ahead of schedule.
Case Studies: Table of Contents
ANALYZING A CASE STUDY
As just mentioned, the purpose of the case study is to let you apply the concepts you've learned
when you analyze the issues facing a specific company. To analyze a case study, therefore, you
must examine closely the issues with which the company is confronted. Most often you will need
to read the case several times - once to grasp the overall picture of what is happening to the
company and then several times more to discover and grasp the specific problems.
Generally, detailed analysis of a case study should include eight areas:
1. The history, development, and growth of the company over time
2. The identification of the company's internal strengths and weaknesses
3. The nature of the external environment surrounding the company
4. A SWOT analysis
5. The kind of corporate-level strategy pursued by the company
6. The nature of the company's business-level strategy 7. The company's structure and control systems and how they match its strategy
To analyze a case, you need to apply what you've learned to each of these areas. We offer a
summary of the steps you can take to analyze the case material for each of the eight points we
1. Analyze the company's history, development, and growth. A convenient way to
investigate how a company's past strategy and structure affect it in the present is to
chart the critical incidents in its history - that is, the events that were the most unusual or
the most essential for its development into the company it is today. Some of the events
have to do with its founding, its initial products, how it makes new-product market
decisions, and how it developed and chose functional competencies to pursue. Its entry
into new businesses and shifts in its main lines of business are also important
milestones to consider.
2. Identify the company's internal strengths and weaknesses. Once the historical
profile is completed, you can begin the SWOT analysis. Use all the incidents you have
charted to develop an account of the company's strengths and weaknesses as they have
emerged historically. Examine each of the value creation functions of the company, and
identify the functions in which the company is currently strong and currently weak. Some
companies might be weak in marketing; some might be strong in research and
development. Make lists of these strengths and weaknesses. The SWOT checklist gives
examples of what might go in these lists.
3. Analyze the external environment. The next step is to identify environmental
opportunities and threats. Here you should apply all information you have learned on
industry and macro environments, to analyze the environment the company is
confronting. Of particular importance at the industry level is Porter's five forces
model and the stage of the life cycle model. Which factors in the macro environment will
appear salient depends on the specific company being analyzed. However, use each
factor in turn (for instance, demographic factors) to see whether it is relevant for the
company in question.
Having done this analysis, you will have generated both an analysis of the company's
environment and a list of opportunities and threats. The SWOT checklist lists some
common environmental opportunities and threats that you may look for, but the list you
generate will be specific to your company.
4. Evaluate the SWOT analysis. Having identified the company's external opportunities
and threats as well as its internal strengths and weaknesses, you need to consider what
your findings mean. That is, you need to balance strengths and weaknesses against
opportunities and threats. Is the company in an overall strong competitive position? Can
it continue to pursue its current business- or corporate-level strategy profitably? What
can the company do to turn weaknesses into strengths and threats into opportuniti...
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