Welcome to Class 12 Corporate Research Methodologies – Data Mining Methods Chapter 6

CAT PSC Data Mining Data Mining Corporate research is a process of mining (extracting) valuable informational gems from existing databases.

Search, Investigate, Collect

(1)Profit, Equity, & Share Value (2)Debt Management (3)Cash Management (4)Asset Management (Social Responsibility) (5)Organizational Citizenship (Social Responsibility) (Sustainable growth) (6)Strategic Positioning (Sustainable growth) Search, Investigate, & Collect data in six (6) key categories

Data Mining Corporate Performance 1.Establish Context (Gather information about the external environment [General and Competitive] to develop a clear understanding of the context in which the target firm competes) 2. Assemble Internal Data (Gather information about the firm's internal environment [Resources and Leadership] to understand the infrastructure the TMT has created) General & Competitive environments = sources of Opportunities and Threats Resources & Leadership = sources of Strengths and Weaknesses

1. Does not require a degree in accounting orfinance 2. Involves an enormous body of data with considerable "noise distractions" (irrelevant data) 3. Requires a technique for filtering the noise and extracting the data gems 4. Is aided by a procedural template such as the CAT Data Mining and Database Building

Data Mining Methods Data mining involves researching & collecting two types of data: (1) Context Data (2) Performance Data

Nine-Step System Nine-Step System Nine-Step System Collect and Organize your semester project data by using the Nine-Step System.

Nine-Step System Step 1: Select a target company Step 2: Select a benchmark company Step 3: Determine the primary industry in which your target competes Step 4: Research information about the competitive environment Step 5: Research information about the general environment

Nine-Step (cont) Step 6: Search for published information about the target’s internal environment and its qualitative and financial performance. Step 7: Research how the company views itself – ( Its self-perception ). Find this information on the company website and in the letters to shareholders in the annual report. Step 8: Repeat steps 6 & 7 for your benchmark. 5-folder system Step 9: Organize your data into a 5-folder system.

5-folder System Folder 1: All data pertaining to the target’s external environment (general & competitive) Folder 2: All data pertaining to the target’s internal environment and qualitative performance Folder 3: All data pertaining to the target’s financial performance Folder 4: All data that identifies the internal environment and qualitative performance of the benchmark Folder 5: All data that pertains to the benchmark’s financial performance

Drawing an OVERVIEW of… Industries, Data Mining, and Annual Reports

What is an industry? An industry is an environment in which a number of companies are providing services or producing products that are closely related.

Studying an industry is essential to the performance evaluation process. The condition of an industry is a window into the challenges and opportunities that your target company is facing.

SIC and NAICS Industrial Categories SIC and NAICS Industrial Categories

SIC & NAICS Codes These are government codes to identify industries. They are helpful in identifying and collecting data about the target’s competitive environment. SIC = Standard Industrial Classification NAICS = North American Industrial Classification System For more information on SIC & NAICS see Chapter Two in your text.

Agriculture, Forestry, Fishing and Hunting Mining Utilities Construction Manufacturing Wholesale Trade Retail Trade Transportation and Warehousing Information Finance and Insurance Real Estate and Rental and Leasing Professional, Scientific, and Technical Services Management of Companies and Enterprises Administrative and Support and Waste Management and Remediation Services Educational Services Health Care and Social Assistance Arts, Entertainment, and Recreation Accommodation and Food Services Other Services (except Public Administration) Public Administration Categories of Industries

Sources of Information Several of the many choices: Standard & Poor’s Industry Surveys U.S. Industrial Outlook Business newspapers and magazine The Internet U.S. Government sites

Data Mining: The Mother Lode The annual report is “The Mother Lode” of company-specific performance data. It includes information about both – ► Financial Performance ► Qualitative Performance The letters to the stockholders contain numerous clues about the internal environment of the company and how management is coping with the competitive and general environments.

What are Annual Reports? An annual report is a written document detailing certain aspects of performance as well as the company’s philosophy and plans. Many annual reports also include information about the firm’s perception of its VISION and MISSION.

General segments of the Annual Report Report of Management Board Chair accepts responsibility for annual report and asserts that it complies with SEC requirements. Also indicates control systems and internal auditing procedures are in place. Auditor’s Report Public accounting firm summarizes its independent audit of the company and indicates whether or not the company appears to be fairly representing its financial condition. It also states an opinion about the adherence to generally accepted accounting principles. Management Discussion This is management’s interpretation of its own performance. It includes a gamut of items both quantitative and qualitative. It will discuss results of operations and funding items.

Mandated general segments of the Annual Report (cont) Financial Statements Income Statement Statement of Earnings (Income Statement), Balance Sheet Statement of Financial Position (Balance Sheet), and Statement of Cash Flows are basic requirements by the SEC. Other items can be included. Selected Financial Data This provides information helpful for making comparisons over longer periods of time.

Financial Statements in The Annual Report Statement of Earnings (Income Statement) – The Income Statement summarizes the revenues and expenses for a complete accounting period. Generally three years of data are included in the Income Statements Statement of Financial Position (Balance Sheet) – The Balance Sheet reveals the year-end values of assets, debts, and equity. Generally two years of data are included in the Balance Sheets.

Financial Statements in The Annual Report (cont) Statement of Stockholders’ Equity – The NET value in the stockholder’s account is simply… Assets less Debts. A comprehensive detail of changes in stockholders’ equity is usually provided. Statement of Cash Flows – Consists of a three-category summary of how cash has been flowing through the company. The broad categories are: Operating Activities Investing Activities Financing Activities

Proxy Statement & DEF 14A Proxy statements Proxy statements are available from all publicly traded companies. It contains information such as: Invitation to the annual meeting Legal rights and administrative details available to the shareholders Biographies of all directors (most with pictures) Board committees & board compensation Executive compensation Shareholder proposals SEC Form DEF 14A SEC Form DEF 14A is a filing with the Securities and Exchange Commission (SEC) used in combination with an annual proxy. It includes: 1.Adequate information to allow shareholders to make informed decision when voting their shares. 2.Date, time and place of shareholder meetings, 3.Dissenter’s right of appraisal, modification or change of securities, voting procedures, and other relevant issues and data.

Corporate Analysis Template [CAT] Research FinancialQualitative Evaluation Synthesize Financial Profit, Equity, Share Value Debt Cash Asset Qualitative Organizational Citizenship Employees Investors Customers Directors Governments Competitors Environmental Community Cultural sensitivity Creditors Other Stakeholders Strategic Positioning Vision and Mission Competitive Advantage Innovation Growth Plans Report Defend Recommendation Recommend Action Holistic Judgment Holistic Data Review

End: Research Methodologies – Data Mining Read Chapter 7: Research: Qualitative Domain Also: 1 st Term Secretary Report due