case flash cards

8/9/2019 Case Flash Cards

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GENERAL CASE TIPS

Repeat the question

State your hypothesis / key decision criteria

Expain the !ra"e#ork to $e used

%ak the inter&ie#er throu'h your anaysis

(ra# &isuas i! possi$e )) charts *e+'+, #ater!as, $u$$es- .x. "atrices, pies, etc+

Su""arie concusions and expain #hat additiona anayses "ay $e ree&ant

Generate options and aternati&es

I! you 'et stuck, restate #hat !acts you kno#

REMEMBER0

Try and "ake the inter&ie# an interacti&e diao'ue $et#een you and the inter&ie#er+ The inter&ie#er is

not an ad&ersary1 you are #orkin' to'ether to so&e the cient2s pro$e"+

Reax and ha&e !un3


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PRICING

Esti"ate de"and *pricin' is ar'ey de"and dri&en-

Anaye custo"er2s #iin'ness to pay !or co"pany2s product / ser&ice

Tar'et custo"er se'"ent*s-

Price easticity

Price o! su$stitute products / ser&ices

45aue)added6 o! co"pany2s product / ser&ice *either rea or percei&ed-Consider costs, $ut don2t et costs dictate the outco"e+

Ad7ust !or anticipated co"petitor response+

Anaye co"pany2s strate'y0

Pre"iu" &s+ &aue product / ser&ice

Niche &s+ ar'e "arket share

Capa$iities in positionin' product / ser&ice

Consider &arious pricin' strate'ies0

Price discri"ination

T#o)part tari!!

8undin'

%arranties


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PR9(:CT / LINE ;I *i+e+, as > o! e&ery inco"in' doar-

Locate inka'es $et#een &aue chain and custo"ers


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NE% ;ARHET ENTR

Ask i! this !its the co"pany2s "ission / cuture )) e+'+, #hy does the co"pany #ant to expand=

In&est excess cash !o#

Increase "arket share

(ecine in existin' "arket *shrinkin' saes, hi'her costs, o#er "ar'ins-

Assess the !ir"2s resources and capa$iities0

Econo"ies o! scope and scae

A$iity to e&era'e current &aue chain co"ponents *in!rastructure needed-

Capita, a$or, and capacity constraints *see CAPACIT card-

E&auate "arket conditions

Sie and 'ro#th rate o! ne# tar'et "arket

Co"petiti&e pro!ie / trends and ikey co"petiti&e responses

8arriers to entry *and ho# to o&erco"e the"- and re'uatory considerationsConsider co"pe"ents #ith current product / "arkets, potentia issues o! canni$aiation, and "arket

cross)easticities

Anaye cost ) $ene!it o! ne# "arket entry

Niche &s+ ar'e "arket share

Consider "ethods o! entry *e+'+, 5, direct in&est"ent, exportin', acquisition-


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INF9R;ATI9N TECON9L9G

E&auate cost ) $ene!its o! IT in&est"ent

Is the pro7ect a strate'ic necessity= I! so, don2t e&auate IT in&est"ent $ased on current pro7ect

e&auation "ethods *i+e+, M year pay$ack, R9I criteria, etc+-

9utsource &s+ de&eop in)house

:nderstand that IT in!rastructure deter"ines #hat a co"pany #i $e a$e to do and not do in the

!uture

(e!ines a co"pany2s or'aniationa capa$iity

;ust ha&e cose ink $et#een strate'ic pannin' and IT in!rastructure pannin'

Assess co"petitor strate'ies #ith respect to IT in&est"ents

Consider i"pact o! current IT issues *e+'+, the ear .KKK pro$e"- on the co"pany2s costs andpro!ita$iity

A&oid o&er)in&estin'

;ake sure that e"poyees are prepared to earn and adopt ne# syste"

Identi!y the i"pact o! IT in!rastructure on rede!inin' the &aue chain


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F9R;:LAST9TAL ASSETS ? Current assets @ PPE @ In&est"ents @ 9ther Assets

8ALANCE SOEET ? Assets ? Lia$iities @ Stockhoder2s Equity

ST9CHO9L(ER2S E:IT ? Sharehoder2s Equity @ Co""on Stock @ Retained Earnin's

REAL INTEREST RATE ? No"ina Interest Rate ) In!ation

PR9FIT 8EF9RE TA


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;ARHET SOARE

Consider chan'in' "arket characteristics0

Lon')ter" 'ro#th rate o! existin' Entry or exit o! "a7or !ir"s

"arkets and ne# se'"ents not currenty (i!!usion o! proprietary

$ein' ser&ed kno#ed'e

Custo"ers and ho# they use the product Re'uatory chan'es

Product, process, and "arket inno&ation Chan'es in cost structure

I! the market is growing,the nu"$er o! entrants increases and it2s easier !or a payers to achie&e

i"pro&ed per!or"ance *non)ero su" 'a"e-1 there!ore it2s easier and cheaper to take

"arket share+ Strate'ies incude0

;aintain prices as costs and achie&e hi'h pro!ita$iity *price e!!ect-

(rop prices as costs to increase "arket share *"arket share e!!ect-

Note: in a growing market you want to increase market share over the long-run

I! the market is slowing,one !ir"2s 'ain is another !ir"2s oss *ero)su" 'a"e-

Price co"petition increases especiay #hen there are ar'e econo"ies o! scae, o# "ar'ina

costs, and earnin' cur&e e!!ects

Check that "arket share is not !ro" turno&er o! "ost pro!ita$e custo"ers


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C9STS

Anaye "ain cost co"ponents as a > o! Tota Costs *and > o! Tota Saes-0 irect !abor "union vs#

non-union$, irect %aterial, &llocated Overhead "including S'(& and e)reciation$,istribution *osts, +inancing *osts

Consider potentia !a#s in the co"pany2s cost accountin' "ethod

8reak do#n tota costs into !ixed and &aria$e cost co"ponents

Fixed Cost Issues: Variable Cost Issues:

) Capacity utiiation *if its low, identify ) Suppiers *consolidate?-

cause, e#g#, demand vs# efficiency- ) Cost contro

) 8reak)e&en anaysis "echanis"s and

*. volume +* / "0rice - 1*$- incenti&es in pace=

) Econo"ies o! scope and scae ) 9utsourcin' aternati&es

) NP5 o! !ixed cost in&est"ent #ith ) I"pact o! horionta or

sensiti&ity anaysis &ertica inte'ration

(eter"ine sope o! industry cost cur&e

Co"pare cost structure to that o! co"petitors

Identi!y and e&era'e potentia cost ad&anta'es *e+'+, ra# "aterias, a$or, ener'y sources,in!rastructure, patents, ocation-


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;ERGERS AC:ISITI9NS

Assess 'oas and o$7ecti&es !or such consideration

Increase "arket access

(i&ersi!y horiontay or &erticay

Pre)e"pt co"petition

Achie&e operatin' syner'ies *e+'+, econo"ies o! scope or scae-

Achie&e !inancia syner'ies *e+'+, o#er cost o! capita-

Reaie tax 'ains *e+'+, acquirer trans!ers tax osses o! tar'et to o!!set inco"e-Consider i"pact on acquirer2s !inancia condition

Co"parison o! "ar'ins A$iity to !inance the acquisition

Issues o! accretion / diution on EPS Tax issues

E&auate i"pact on co"petiti&e en&iron"ent

Co"petiti&e trends and ikey co"petiti&e responses

Le'a and re'uatory i"pications *anti)trust-

Consider post)"er'er inte'ration issues

Strate'ic !it Exit strate'ies

Cuture i"pications

(iscuss ;A aternati&es *e+'+, outsourcin', 5, corporate restructurin', etc+-


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5AL:ATI9N

:nderstand co""on "ethods o! &auation0

Discounted Cash Flow (DCF) -pro7ection o! !uture earnin's and seection o! appropriate

discount rate *$e prepared to esti"ate re&enues and costs3-

Comparable Multiples - appy "utipes o! inco"e or re&enues o! co"para$e co"panies to

esta$ish purchase price

Asset-oriented Approaches - !air "arket &aue, !air &aue, $ook &aue, iquidation &aue

Consider the !oo#in' !actors in &auin' a cosey)hed or pri&ate co"pany0nature and history o! the $usiness

econo"ic and industry conditions

$ook &aue o! tar'et co"pany and it2s !inancia conditions

earnin's capacity o! the co"pany

di&idend)payin' capacitye&idence o! 'ood#i or other intan'i$es

other saes o! stock

prices o! co"para$e stocks

Assess "eans o! !inancin' the transaction


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C9;PETITI9NAnaye the co"petitors2 stren'ths, #eaknesses, opportunities and threats *S%9T anaysis-

Fir" resources

;ana'e"ent pro!ie and stye

Product ine *i+e+, su$stitutes-

Cout and e&era'e #ith $uyers and suppiers

Industry trends

(eter"ine i! there are anyBarriers to ntr! =

Econo"ies o! scae Product di!!erentiation

Existence o! earnin' cur&e e!!ects Capita require"ents

Access to distri$ution channes Go&ern"enta actions

Exa"ine the cost structure o! co"petitors *especiay as it reates to the cient2s cost structure- )) cost

di!!erences "ay $e $ased on the de'ree o! &ertica inte'ration *see C9STS

card-

Consider ikey co"petiti&e responses to the cient2s actions and potentia cooperati&e strate'ic

options


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C9;PETIT9R INTENSIFICATI9NConsider &arious responses in an intensi!ied co"petiti&e en&iron"ent0

:se resource ad&anta'es to raise $arriers to entry

Raise s#itchin' costs !or custo"ers

Step up "arketin' e!!ort

Increase pro"otiona e!!orts *e+'+, i"pe"ent custo"er oyaty pro'ra"s-

Consider price si'nain' *e+'+, o#er your price in a s"aer "arket-

Le&era'e custo"er in!or"ation to identi!y and stea "ost pro!ita$e custo"ers a#ay !ro"

co"petitors *4crea")ski""in'6-1 ike#ise, protect your "ost pro!ita$e custo"ers

Gro# "arket share throu'h "er'ers or acquisitions

A&oid price #ars and other irrationa $eha&ior1 re"e"$er that acco""odatin' your co"petition

so"eti"es "akes the "ost sense

Esta$ish on')ter" contracts to ock in custo"ers


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PR9FITS AN( ;ARGINSGR9SS PR9FITS ? RE5EN:ES ) C9STS

Identi!y root causes o! decine in pro!ita$iity *e+'+, "ar'ins &s+ quantity-

8reak do#n"e#enue co"ponent *see RE5EN:E card-0

Price

uantity

8reak do#n Cost co"ponent *see C9ST card-0

Fixed Costs &s+ 5aria$e Costs

(irect La$or, (irect ;ateria, Aocated 9&erhead *incudin' SGA and (epreciation-,

(istri$ution Costs, Financin' Costs )) a as a > o! Tota Costs and Tota Saes

Anaye product pro!ita$iity and product "ix *i+e+, ook at &ou"e shi!ts-

Identi!y "ix o! custo"er se'"ents and associated se'"ent pro!ita$iity

Expore trends in o&era industry pro!ita$iity *co"petitors2 pro!ita$iity=-

Exa"ine the i"pact o! any unusua char'es *e+'+, one)ti"e capita outays, contin'ent ia$iities,

iti'ation char'es, en&iron"enta char'es, etc+-

Consider chan'in' "arket !actors *de"o'raphics, tastes, econo"y, chan'es in technoo'y, re'uatory

actions-


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RE5EN:ERE5EN:ES ? PRICE x :ANTIT

8reak do#n !actors #hich in!uence$rice *see PRICING card-0

Anaye custo"er2s #iin'ness to pay !or co"pany2s product / ser&ice

Tar'et custo"er se'"ent*s-

Price easticity

Price o! su$stitute products / ser&ices

45aue)added6 o! co"pany2s product / ser&ice *either rea or percei&ed-

E&auate product "ix and a$iity to di!!erentiate product *$ased on di"ensions o! quaity, desi'n,

ocation, ser&ice, ad&ertisin', price-

Consider co"petitors2 pricin' strate'ies and reati&e "arket pricin' po#er

8reak do#n !actors #hich in!uence %uantit! *see ;ARHET SOARE card-0

Consider "arket share &s+ "arket de"and *and 'ro#th patterns-

Expore ina$iity to "eet "arket de"and $ased on capacity constraints *demand vs# ca)acity

utili2ation vs# through)ut-

Anaye types o! custo"ers 'ained / ost *protect "ost pro!ita$e custo"ers-

E&auate i"pact o! product su$stitutes &s+ co"pe"ents

Consider the cycica or seasona nature o! the $usiness, i! appica$e


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C9NS9LI(ATI9NExa"ine !easi$iity and o$7ecti&es o! industry consoidation

create econo"ies o! scae or earnin' cur&e e!!ects

standardie di&erse "arket needs

"ake acquisitions !or critica "ass

reco'nie industry trends eary

E&auate i"pact o! consoidation

achie&e operationa and !inancia syner'ies

capacity utiiation &s+ de"and

cutura !it

Assess i"pications o! &ertica &s+ horionta consoidation

:nderstand re'uatory issues

Anaye cost ) $ene!it to the co"pany


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9:TS9:RCINGAnaye the 4"ake &s+ $uy6 decision

I'nore !ixed and other sunk costs, ony consider &aria$e costs

Exa"ine the co"pany2s cost aocation "ethod

Assess $ene!its o! outsourcin'0

o#ers cost

increases !exi$iity and access to externa capa$iities

$ene!it !ro" econo"ies o! scae and speciaiation o! third)party pro&ider

"ay reduce ne# product de&eop"ent cyce

Assess costs o! outsourcin'0

oss o! contro o&er "anu!acturin' process, quaity, turnaround ti"e, etc+

increased di!!icuty associated #ith inte'ratin' di!!erent technoo'ies and kno#ed'e $ases

*"ay di!!use the concept o! core co"petencies #hich resuts in oss o! a co"pany2s a$iity to

inno&ate and de&eop-

costs o! "onitorin' the contractor and contract speci!ications "ay out#ei'h o#er unit costs


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9PERATI9NS EFFICIENC

Consider three co"ponents #hen e&auatin' pant e!!iciency0

&tili'ation0 percent o! tota a&aia$e ti"e that pant is actuay runnin'

Identi!y causes o! oss *e+'+, ack o! de"and, a$or pro$e"s, ine $reakdo#n-

hrouhput rate0 co"pare actua production rate to "axi"u" potentia rate

Identi!y causes o! oss *e+'+, cai$ration, a$or per!or"ance, poor "aintenance, other pant

!unctions-

*aste0 "easure #hat percenta'e o! ra# "ateria inputs is ost in producin' output

Identi!y causes o! oss *e+'+, cai$ration, quaity o! inputs, "achinery $reakdo#ns-

REMEMBER: %hen asked to anaye 4capacity utiiation6 o! a pant, consider ALL three o! the

a$o&e points3


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S:PPLIERSSe'"ent suppiers on $asis o! cient2s needs *e+'+, quaity, cost, &aue)added, ti"einess, IT, ser&ice,

etc+-

Identi!y key decision criteria in e&auatin' suppiers *e+'+, o# cost, hi'h quaity contro, o# de!ect

rates, quick turnaround ti"es, etc+-

E&auate co"pany2s reati&e $ar'ainin' po#er #ith suppiers $ased on > o! suppier2s tota saes

Anaye suppier po#er )) 'reatest #hen0

do"inated $y a !e# suppiers

product is di!!erentiated *hi'h s#itchin' costs, !e# su$stitutes-

suppier poses credi$e threat o! !or#ard inte'ration

Exa"ine #ays to o#er o&era suppy costs0

consoidation o! suppiers increases capacity utiiation o! suppiers #hich o#ers suppiers2costs and there$y coud o#er the co"pany2s costs and prices *ho#e&er, $e care!u o!

suppier concentration-

econo"ies o! scope a"on' suppiers

in&entory &s+ IT


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ALLIANCES 9INT 5ENT:RES

Assess $ene!its o! such a strate'y0

A$iity to expoit critica interna resources and 'ain access to resources o! partner quicker, at o#ercost, and #ith ess uncertainty

Gain access to "arkets and technoo'y in "uch shorter ti"e than #oud resut !ro" !ir" 'oin' at it

aone

Share "ana'e"ent responsi$iity

Assess potentia pro$e"s and costs0

A'ree"ent on the &aue o! each partner2s contri$ution to the 5 / aiance

A$iity to achie&e cooperation $et#een !ir"s that are aso co"petitors

Con!ictin' o$7ecti&es / di&er'ent "ana'e"ent styes

(isputes o&er quaity and a$or practices

Potentia ack o! contro

Reco'nie that the sharin' o! $ene!its #i depend on0

Strate'ic intent o! the partners

A$iity o! each partner to capture and appropriate the skis o! the other

Co"pany2s recepti&eness to the partnership

Identi!y aternati&e strate'ies *e+'+, outsourcin', ;A, etc+- )) expore as needed


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(I5ESTIT:RES SPIN)9FFS

E&auate reasons !or a di#estiture0

Poor strate'ic !it and/or poor per!or"ance o! a di&ision

Parts o! a co"pany are #orth "ore than the #hoe *re&erse syner'y-

Capita "arket !actors *'reater access to capita "arkets post)di&estiture-

I""ediate in!usion o! cash !ro" the sae

E&auate reasons !or a spin-o++0

Rede!inition o! core $usinessParts o! a co"pany are #orth "ore than the #hoe *re&erse syner'y-

Capita "arket !actors *'reater access to capita "arkets post)di&estiture-

I"pact on cost o! capita

Assess "arket conditions

Is ti"in' ri'ht to se=

Co"petiti&e response *i+e+, ead to price or quaity -

Conduct cost ) $ene!it anaysis

Can su$sidiary ine!!iciency / hi'h costs $e turned around=

E!!ect on quaity o! product / ser&ice

I"pact on econo"ies o! scae and scope

Current / !uture cost $reakdo#n *!ixed costs &s+ &aria$e costs, transition costs-


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(I5ERSIFICATI9NExa"ine existin' $usiness situation and understand "oti&ation $ehind di&ersi!ication *in&est !ree cash

!o#=-

A&oid di&ersi!ication strate'y soey to s"ooth earnin's

Anaye di!!erent types o! di&ersi!ication

Expandeoraphicall!*oca, re'iona, nationa, internationa-

Inte'rate #erticall! *o!!sets po#er o! suppiers, s"oother production !o#, $etter accessi$iity to

"arkets, distri$ution cost ad&anta'e-

Expand into related mar,ets *product, $usiness, distri$ution, "ana'eria ski-

Expand into unrelated mar,ets * risk, $ene!its !ro" econo"ies o! scae, acts as 4in!or"a6

"arket #hen externa "arkets e+'+, a$or or capita, are #eak-

E&auate a$iity to e&era'e existin' resources, &aue chain, in!rastructure and econo"ies o! scope and

scae

Consider co"petition and ikey co"petitor response *e+'+, i"pact on pricin'-

Conduct cost ) $ene!it anaysis o! di&ersi!ication strate'y

Econo"ic conditions

;arket suppy / de"and

Re'uatory issues


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CAPACIT

Assess o&era !ixed asset e!!ecti&eness *see 9PERATI9NS EFFICIENC card-

:tiiation

Throu'hput a'ainst its theoretica potentia

Product acceptance and #aste e&es

Co"pare to industry a&era'es and recent trends

Identi!y causes o! utiiation oss

Lack o! de"andPant $reakdo#ns

Sta!!in' issues

Issues to consider in addin' ne# capacity

(e"and considerations

Ties up capita and "ay resut in excess capacity

E&auate co"pany2s "ini"u" e!!icient pant sie *;ES- reati&e to tota "arket output *it2seasier to enter i! ;ES as > o! tota "arket is s"aer-

Esti"ate sope o! industry cost cur&e )) it2s easier to $rin' a ne# pant on)ine $eo# capacity i!the cost cur&e is !at

RE;E;8ER0 I"portance o! utiiation as !ixed costs as a > o! tota costs

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