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[answered] Case Studies: Overview Case Studies: Table of Contents WHAT IS CASE STUDY ANALYSIS?


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:


An introduction

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

 

investigation.

 

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

 

company.

 

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

 

evaluation.

 

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

 

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:

 

Gross Profit

 

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:

 

Net Profit

 

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

 

Common Stockholders

 

Return on

 

=

 

Total Assets

 

Total Assets

 

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:

 

Return on

 

=

 

Stockholders' Equity Net Income Available to

 

Common Stockholders Stockholders' Equity

 

Liquidity Ratios

 

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:

 

Current

 

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 =

 

Current Liabilities

 

Activity Ratios

 

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

 

follows:

 

Cost of Goods Sold

 

Inventory Turnover =

 

Inventory

 

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

 

follows:

 

DS

 

=

 

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.

 

Leverage Ratios

 

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

 

as follows:

 

Total Debt

 

Debt-to-Assets Ratio =

 

Total Assets

 

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:

 

Debt-to-Equity

 

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:

 

Price-Earnings

 

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

 

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

 

8. Recommendations

 

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

 

just noted.

 

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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