Introduction to Corporate Research Chapter 5

Research is a structured enquiry that relies on scientific methodology to answer questions and create NEW knowledge. Remember “research” is comprised of two syllables – “re” and “search” This means the careful “re”thinking what is assumed and conducting a systematic search for facts related to the area of curiosity.

Research is divided into two broad categories: (1) Basic (2) Applied NEW Basic Research is the pursuit of NEW Knowledge for the sake of Knowing NEW Applied Research is the pursuit of NEW Knowledge for a specific Purpose.

Basic Research   Basic Research attempts to improve the "knowledge of humanity.“ Applied Research   Applied Research attempts to improve the "condition of humanity."

Corporate research is a branch of applied research. It involves two initial steps: (1) Formulating a research question or questions. (2) Pursuing answers by exploring (mining) multiple data sources. Sources include: Independent technical reports by performance analysts Media reports about the firm's achievements and behaviors The 10-K, 10-Q, 8-K, Annual Report, Proxy Statements, etc. Direct observations of the firm – specifically on site visitations and inspections

Research Basic Applied Corporate Research ContextPerformance

YOUR SEMESTER PROJECT… The Corporate Research question contains three dimensions: 1) Did the company appropriately fulfill its social responsibilities? 2) Did the company adequately fulfill its financial objectives? 3) Did the company position itself for future growth and prosperity?

 Ethical  Appropriately People-sensitive  Environmentally sensitive  Balanced for all stakeholders Were decisions and actions:

 Was firm performance in each of the four crucial financial measurement areas satisfactory? The four areas are known as the Financial Four:  1. Profit, Equity, & Share Value Management  2. Debt Management  3. Cash Management  4. Asset Management

 Does the firm have clear vision and mission statements?  Does the mission statement seem grounded in logic?  Do these statements suggest a company committed to forward thinking?  Has the TMT suggested the need to balance between long- term and short-term priorities? sustainable  Has the company achieved a sustainable competitive advantage?  Can the firm cope with rapid changes in the general and competitive environments?  Does the TMT appear to be capable of innovative thinking?  Has the TMT entertained expansion plans?  Does the firm have a history of making plans without successful implementation?

Corporate research is a process of: [1] current[2] correct I. Gathering [1] current, [2] correct, [3] complete data  The Triple Cs of research validated I. Organizing the findings by using a “ validated ” model ( analysis template ) III. Assessing the findings IV. Reporting findings and conclusions The CAT is an analysis template that can ensure reliable corporate research

The C orporate A nalysis T emplate (CAT) guides three crucial activities: 1. Research Activities ( gathering & organizing ) assessing 2. Evaluation Activities ( assessing ) reporting 3. Reporting Activities ( reporting )

Research Evaluate Report CAT

CAT Corporate Analysis Template Research Activities (Contextual and Performance Data) 1. General Environment 2. Competitive Environment 3. Internal Environment 4. Qualitative Performance 5. Financial Performance Evaluation Activities (Target and Benchmark) 1. Profit, Equity, & Share Value 2. Debt (financial leverage) 3. Cash 4. Asset (utilization) 5. Organizational Citizenship 6. Strategic Positioning Reporting Activity (Findings and Conclusions) 1. Grade assigned to each performance category 2. Overall performance assessment 3. Rationale for conclusions

I. Two categories of “data mining” in the CAT system:  (1) Context (The firm’s external environment – general & competitive)  (2) Performance ( The firm’s behavior and achievements ). II. Data mined involves both: primary and secondary information.  “Primary” refers to observable data directly related to performance  “Secondary” refers to opinions of other analysts about performance

DataMining ContextDataPerformanceData TargetCompany BenchmarkCompanyGeneralEnvironmentCompetitiveEnvironment Qualitative Financial Qualitative Financial Research Activities

Context data relate to the external environment Context data are crucial to the understanding of the conditions and challenges confronting TMTs Context data help identify strengths and weaknesses as well as its opportunities and threats. Context Data are crucial to the accurate and fair assessment a firm’s Performance Data. The External Environment = General + Competitive

Context Data General Environment Competitive Environment

Sociocultural Technological Political/Legal Demographics Economic TargetCompany General Environment

Competitive Environment Suppliers Unions Associations NewEntrants OtherInterestGroups Competitors Creditors Customers Substitutes TargetCompany

General Environment Competitive Environment Demographic Sociocultural Political/LegalEconomicTechnological Customers Creditors Competitors Suppliers Substitutes Unions Associations New Entrants Interest Groups Target Company Resources Leadership

Includes a firm’s decisions, actions, & results – Examples:  Reputation  Relationships  Behaviors  Competitive advantages  Strategies  Financial achievements There are multiple sources for performance data: 1. The firm’s annual report and/or 10K 2. The Internet 3. Newspapers and periodicals including The Wall Street Journal, Barron’s, Fortune, Newsweek, etc. These can reveal additional data related to the firm’s financial health, credit rating, rumors, scandal, litigation, or bankruptcy potential.

Performance Data QualitativeFinancial

Organizational Citizenship EmployeesCustomersCompetitorsDirectorsGovernmentEnvironmentCommunityStockholdersCommunicationPersonaVendors

Strategic Positioning Vision Mission Competitive Advantage Environment Adaptability Innovation Plan & Progress

 Balance Sheets  Assets  Liabilities  Equity  Income Statements  Revenues  Expenses  Statement of Cash Flows  Operating Activities  Investing Activities  Financing Activities

Financial Performance Profit, Equity, & Share Value DebtCashAsset

The Financial Four are: 1) Profit, Equity, & Share Value Management 2) Debt Management 3) Cash Management 4) Asset Management Effective TMTs create harmony by simultaneously balancing the attention given to each of the Financial Four.

DebtManagement AssetUtilization StrategicPositioning OrganizationalCitizenship Cash Management Profit, Equity, & Share Value PerformanceScorecardPSC The CAT system guides the collection of crucial data that is then entered into the computerized PSC analysis program for a coalesced summary of corporate performance.

PerformanceEvaluation Qualitative Data FinancialData OrganizationalCitizenshipStrategicPositioning Profit, Equity, & Share Value ManagementDebtManagementCashManagementAssetManagement Evaluation Activities

 Read Chapter 6: Research Methodologies  Elect New Officers  Essay #1 Questions?