WELCOME TO CLASS 11

Introduction to Corporate Research

Chapter 5

Research Overview

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 OverviewResearch is divided into two broad

categories: (1) Basic (2) Applied

Basic Research is the pursuit of NEW Knowledge for the sake of Knowing

Applied Research is the pursuit of NEW Knowledge for a specific Purpose.

Research Differentiation

Basic Research attempts to improve the "knowledge of humanity.“

Applied Research attempts to improve the "condition of humanity."

Applied Research: Corporate Research

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

CorporateResearch

Context Performance

Components of:Corporate Research Questions

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?

1) Did the company appropriately fulfill its social responsibilities?

Ethical Appropriately People-sensitive Environmentally sensitive Balanced for all stakeholders

Were decisions and actions:

2) Did the company adequately fulfill its financial objectives?

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

3) Did the company position itself

for future growth and prosperity? 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? 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, The Triple Cs, and The CAT

Corporate research is a process of:

I. Gathering [1] current, [2] correct, [3] complete data

The Triple Cs of research

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 CAT & Corporate Research

The Corporate Analysis Template (CAT) guides three crucial activities:

1. Research Activities (gathering &

organizing)

2. Evaluation Activities (assessing)

3. Reporting Activities (reporting)

CAT

CAT Corporate Analysis Template

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

Data Mining

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

Context Data

PerformanceData

Target Company

Benchmark Company

General Environment

Competitive Environment

Qualitative

Financial

Qualitative

Financial

Research Activities

Context Data

Context Data

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 DataGeneral

Environment

Competitive

Environment

Sociocultural

Technological

Political/Legal

Demographics

Economic

Target Company

General Environment

Competitive Environment

Suppliers

Unions

Associations

New Entrants

Other Interest Groups

Competitors

Creditors

Customers

Substitutes

Target Company

General Environment

Competitive Environment

Demographic

Sociocultural

Political/Legal

Economic Technological

Customers

Creditors

Competitors

Suppliers

Substitutes

Unions

Associations

New Entrants

Interest Groups

Target Company

ResourcesLeadershi

p

Performance Data

Performance DataIncludes 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 Internet3. 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

Qualitative

Financial

Qualitative Performance

Organizational

Citizenship

StrategicPositionin

g

Financial Performance

Financial Performance focus:

Balance Sheets Assets Liabilities Equity

Income Statements Revenues Expenses

Statement of Cash Flows Operating Activities Investing Activities Financing Activities

Financial Performance

Profit, Equity, &

Share ValueDebt Cash Asset

The Financial Four

The Financial Four are:

1) Profit, Equity, & Share Value Management

2) Debt Management

3) Cash Management

4) Asset Management

The Financial FourEffective TMTs create harmony

by simultaneously balancing the attention given to each of the Financial Four.

Summary

DebtManagement

Asset Utilization

StrategicPositioning

OrganizationalCitizenship

CashManagement

Profit, Equity, &Share Value

Performance Scorecard

PSC

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

Financial Data

OrganizationalCitizenship

StrategicPositioning

Profit, Equity, &Share ValueManagement

DebtManagement

CashManagement

AssetManagement

Evaluation Activities

End: Introduction to Corporate Research

Read Chapter 6: Research Methodologies

Elect New Officers

Essay #1

Questions?