Analyzing, Synthesizing, Analyzing, Synthesizing, Scoring & Scoring & Reporting Reporting

Corporate Corporate Performance Performance

Welcome to Class 22Welcome to Class 22

Chapters 12 - 14Chapters 12 - 14

Performance Scorecard Grading

There are 44 categories and you should determine a grade for most, if not all of them. You will grade the company on the basis of 1 to 5.

Grade 1: Very bad

Grade 2: Bad

Grade 3: Don’t know?

Grade 4: Good

Grade 5: Very Good

Try to avoid 3 because it means you have no opinion. Some 3s may be necessary but too many will make your analysis worthless.

Scoring PerformanceScoring PerformanceReminder:

There are two major measurement areas:

Financial Measurements

Qualitative Measurements

These are divided into six (6) independent categories and each of the subcategories has multiple points of assessment.

It is, of course, possible to perform well on some measurement points while performing poorly on others.

JUDGE EACH POINT INDEPENDENTLY.

Profit, Equity, and Share Value ManagementProfit, Equity, and Share Value Management Debt ManagementDebt Management Cash ManagementCash Management Asset ManagementAsset Management (effective use of non-cash assets)(effective use of non-cash assets)

Organizational CitizenshipOrganizational Citizenship (Relationship Management)(Relationship Management)

Strategic PositioningStrategic Positioning (for continued growth)(for continued growth)

6 categories of the Performance Scorecard:6 categories of the Performance Scorecard:

The 60 measurement items are divided into:

(1)44 Financial measurement points for most industries

(2)16 Qualitative measurement points

Not all of the financial measurement items will apply to every company.

If one does not apply, simply leave the cell blank in your If one does not apply, simply leave the cell blank in your PSC software. PSC software. The program is prepared to compensate.

When assigning grades, take into consideration how well the company performed compared to the previous yearcompared to the previous year and how well it did when compared to the benchmarkcompared to the benchmark.

By factoring the benchmark, you effectively integrate economic fluctuations and normal business cycles.

The 60 Measurement points…The 60 Measurement points…

Compare each of the six categories to each other.

Does one category reflect better performance than another?

Does performance seem lopsided when comparing categories?

For example, has the corporation performed well with the profit ratios but poorly with the cash ratios?

How well are assets utilized?

Is leverage a problem? Compare equity financing to debt financing.

When assessing…

Look for linkages.

Create a list of questions and search for answers.

Consider: Did the TMT appear to have a clear, consistent, and successful strategy?

Was strategy different from its competitors? If so, was it better or not as good as the competitors strategy?

What do corporate achievements or lack thereof say about strategic effectiveness?

New questions may arise as you compare the grades in each category. Search for answers to all questions.

When assessing…

You may ask questions such as: You may ask questions such as:

Are the grades higherhigher in: in:

(1) Profit, Equity, and Share Value management

andand lowerlower in:in:

(2) Debt management?

This could reveal a strategy focusing on focusing on growth and profitabilitygrowth and profitability while de-de-emphasizing the dangers of accumulating emphasizing the dangers of accumulating debt. debt.

What are the long-term implications of this?

In addition to comparing one category to another, be sure to analyze the individual elements within a category.

For example, if item 4.43 (Inventory TurnoverInventory Turnover) is reflecting a poor performance whilewhile item

4.42 (Average Collection PeriodAverage Collection Period) is reflecting a positive performance it could indicate that inventory management is not a high priority but collecting outstanding customer accounts is important.

In a sense this would be an externally focused strategy rather than an internally focused strategy.

It might represent a “hardnosed” approach to customers and this may represent problems in the future.

Items in categories 5 and 6 represent qualitative performance areas and are extremely important.

These will have as much influence on long-term viability as any of the financial measures.

Consider each element within each category carefully.

Look for connections between these and financial results.

Assess the corporate culture.

Evaluate the relationship of the corporation with its various stakeholders.

Are they harmonious or confrontational?

Does the company have a well-defined mission?

Is it positioning itself so that it can grow stronger and expand its reach in its chosen markets?

Completing the Item Analysis is simply a matter of reviewing each of the Performance Scorecard categories and assigning a grade.

When assigning a grade, take into consideration how well the target company performed when compared to:

Their performance during the previous year, Their performance during the previous year, and

The performance of the benchmark The performance of the benchmark company company

By factoring the benchmark, you effectively integrate economic fluctuations and normal business cycles.Very Poor Poor Average Good Very Good

(1) (2) (3) (4) (5)

Try to avoid using the grade of “3”“3”

because it is indecisive and the more 3s you have the less

valuable your report.

Your PSC will automatically provide you with a numerical and graphical representation of the overall performance of your target company.

This will enable you to step back from the details and test your critical thinking skills as you ponder the overall performance of your target company.

You will have ample opportunity to assess performance on a year-over-year basis as well as a target-to-benchmark basis.

This double comparison is This double comparison is IMPERATIVE IMPERATIVE for an for an ADEQUATE ADEQUATE ASSESSMENTASSESSMENT..

Forest through the trees…

So many details sometimes make it difficult to gain an overall picture of a company’s performance.

You must evaluate and you must judge performance.

You must evaluate and you must judge performance.

Judge: YouJudge: You

Financial Financial PerformancePerformance

Grading Points1.01 Net Income to Revenue (Net Margin)1.02 Gross Margin / Margin Efficiency1.03 Operating Efficiency1.04 Income Tax / Pretax Earnings1.05 Return on Equity1.06 Capital: Paid-in / Total1.07 Capital: Earned / Total1.08 Capital: % of Change1.09 Basic EPS1.10 Diluted EPS1.11 Share Price (Market Price)1.12 Price-Earnings Ratio1.13 Diluted EPS / Basic EPS1.14 Book Value Per Share1.15 Book Value Per Share / Market Value1.16 Dividends per Common Share ($)1.17 Dividend Payout Ratio1.18 Dividend Yield Ratio1.19 Investment Productivity1.20 Projected Time to Investment Payback1.21 Price Potential1.22 Beta

2.23 Current Debt to Total Debt2.24 Non-current debt to Total Debt2.25 Total Debt to Total Assets2.26 Current Assets to Total Assets2.27 Non-current Assets to Total Assets2.28 Times Interest Earned2.29 Current Cash Coverage Ratio2.30 Accounts Payable Turnover2.31 Average Payment Period (days)2.32 Total Debt to Equity 3.33 Working Capital3.34 Working Capital / Total Revenue3.35 Current Ratio3.36 Quick Ratio3.37 Cash Flow Op Act to Revenue3.38 Cash Emphasis4.39 Revenue / Total Assets4.40 Net Income to Total Assets (ROA)4.41 Accounts Receivable Turnover4.42 Average Collection Period (days)4.43 Inventory Turnover4.44 Average Age of Inventory (days)

5.29 Employee5.30 Customer5.31 Competitor5.32 Directors5.33 Government5.34 Environment5.35 Community5.36 Stockholder5.37 Communication5.38 Persona5.39 Vendor6.40 Vision and Mission6.41 Competitive Advantage6.42 General Environment6.43 Innovation6.44 Plans and Progress

Qualitative Qualitative PerformancePerformance

The PSC and Qualitative PerformanceThe PSC and Qualitative Performance

Beyond the numbers...Beyond the numbers... The PSC performance The PSC performance

assessment is more than assessment is more than just about numbers.just about numbers.

Corporate performance Corporate performance evaluation also includes evaluation also includes social behavior and social behavior and planning with skill and planning with skill and vision.vision.

Qualitative Performance Grading Sheet

Organizational CitizenshipOrganizational Citizenship Grade 1-5 Note: You MUST insert a number for every categoryNote: You MUST insert a number for every category

Employee 4.0

Customer 5.0

Competitor 3.0

Directors 4.0

Government 5.0

Environment 2.0

Community 2.0

Stockholder 3.0

Communication 2.0

Persona 4.0

Vendor 4.0

Strategic PositioningStrategic Positioning Grade 1-5

Vision and Mission 4.0

Competitive Advantage 5.0

General Environment 5.0

Innovation 2.0

Plans versus Progress 3.0

Evaluate the firm’s social Evaluate the firm’s social behaviorbehavior…

Evaluate the ability to plan for Evaluate the ability to plan for the futurethe future…

Be sure your writing focuses on OBJECTIVITY…

Focus on ObjectivityFocus on Objectivity

When writing, consider each statement carefully. Do you have data to support your statement? Exactly what data led you to your conclusion?

Investigate closely, areas that concerns Investigate closely, areas that concerns you. When identifying organizational you. When identifying organizational problems do so with an problems do so with an open mindopen mind to to

help ensure objectivity.help ensure objectivity. (1)(1) Think carefully about each situation and do not jump Think carefully about each situation and do not jump

to conclusions too quickly. What at first to conclusions too quickly. What at first appears to be the problem may simply be a appears to be the problem may simply be a symptom.symptom.

(2)(2) Your report should propose solutions to problems Your report should propose solutions to problems but if you have incorrectly identified the but if you have incorrectly identified the problem your recommendation will be of no problem your recommendation will be of no value.value.

(3)(3) Novices often try to find a solution without fully Novices often try to find a solution without fully understanding the actual problem.understanding the actual problem.

Be Be Methodical and ThoroughMethodical and Thorough in your analysis, in your analysis, evaluation, and summary.evaluation, and summary.

Use holistic approach to drawing your conclusions.Use holistic approach to drawing your conclusions.

The Performance Scorecard helps you organize your research The Performance Scorecard helps you organize your research

into into evaluation centersevaluation centers..

The evaluation centers are:The evaluation centers are:

Profit, Equity, and Share Value ManagementProfit, Equity, and Share Value Management

Debt ManagementDebt Management

Cash ManagementCash Management

Asset ManagementAsset Management

Organizational Citizenship (Relationship Management)Organizational Citizenship (Relationship Management)

Strategic Positioning (Preparation for future growth)Strategic Positioning (Preparation for future growth)

Be sure to Be sure to Propose SolutionsPropose Solutions

Remember, it is not enough to identify a Remember, it is not enough to identify a problem, you must also propose a problem, you must also propose a solution(s). Try to identify some area solution(s). Try to identify some area that needs improvement in each of the that needs improvement in each of the evaluation centers and then evaluation centers and then PROPOSE PROPOSE A METHOD TO STRENGTHENA METHOD TO STRENGTHEN that that area. area.

The absence of a proposed solution is often a The absence of a proposed solution is often a reflection of weak analyses or lack of creativity reflection of weak analyses or lack of creativity and imagination. and imagination. This is not an impression This is not an impression that you want to give. that you want to give.

Go Beyond Go Beyond Proposing SolutionsProposing SolutionsAfter proposing a solution, you should recommend After proposing a solution, you should recommend

a specific course of action.a specific course of action.

In other words, if a firm has a liquidity problem In other words, if a firm has a liquidity problem you should you should not stopnot stop at saying at saying that it should that it should increase its liquidity. increase its liquidity.

State State howhow you would accomplish this. For you would accomplish this. For example, debt restructuring, or speeding the example, debt restructuring, or speeding the average collection period of customer accounts, average collection period of customer accounts, adopting JIT inventory management, etc. adopting JIT inventory management, etc.

The quality of your report will be The quality of your report will be measured in 6 categories and measured in 6 categories and

multiple subcategories.multiple subcategories.

6 Categories for evaluation6 Categories for evaluation

(1) Physical Characteristics & Technical Inclusions(1) Physical Characteristics & Technical Inclusions (2) Syntax, Grammar, Punctuation, Spelling, etc.(2) Syntax, Grammar, Punctuation, Spelling, etc. (3) Strength of Introduction(3) Strength of Introduction (4) Technical correctness/completeness ((4) Technical correctness/completeness (Financial)Financial)

(5) Body of Project (5) Body of Project (Basic Content)(Basic Content)

(6) Conclusion/Recommendations(6) Conclusion/Recommendations

(1) Physical Characteristics & Inclusions: Your “outside” Cover

Select a Select a thinthin metal or metal or plastic binding. DO plastic binding. DO NOT use a three-ring NOT use a three-ring binder.binder.

Your cover page Your cover page should be apparent should be apparent when the report is when the report is flat.flat.

Your NameYour Name

Course # ????Course # ????

Security Code: 999Security Code: 999

PIN # 12PIN # 12

(1) Physical Characteristics (continued):

Your “inside” Cover

(1) Physical Characteristics (continued):

Your “inside” Cover

Be sure to create a professional Be sure to create a professional looking cover page.looking cover page.

It should be creative and eye catching.It should be creative and eye catching. It should describe your project.It should describe your project. It should contain your complete It should contain your complete

identification.identification. You You MUST MUST have your individual have your individual

security numbersecurity number

Be sure to create a professional Be sure to create a professional looking cover page.looking cover page.

It should be creative and eye catching.It should be creative and eye catching. It should describe your project.It should describe your project. It should contain your complete It should contain your complete

identification.identification. You You MUST MUST have your individual have your individual

security numbersecurity number

(1) Physical Characteristics (continued):

Size of Binder

(1) Physical Characteristics (continued):

Size of Binder

Please keep binding as small as possible Please keep binding as small as possible while still maintaining a professional while still maintaining a professional appearance. appearance.

Most office supply stores will bind your Most office supply stores will bind your report for you for a very small charge.report for you for a very small charge.

You can also use “Rapid Copy” on the You can also use “Rapid Copy” on the University campusUniversity campus

Please keep binding as small as possible Please keep binding as small as possible while still maintaining a professional while still maintaining a professional appearance. appearance.

Most office supply stores will bind your Most office supply stores will bind your report for you for a very small charge.report for you for a very small charge.

You can also use “Rapid Copy” on the You can also use “Rapid Copy” on the University campusUniversity campus

(1) Physical Characteristics (continued):

& Technical Inclusions

(1) Physical Characteristics (continued):

& Technical Inclusions maintain high quality printing maintain high quality printing use 12 font (use 12 font (except on headingsexcept on headings) )

INCLUDE: INCLUDE: Table of contents Table of contents Numbered pages Numbered pages Appropriate spacing (Appropriate spacing (do not engage in excessive spacingdo not engage in excessive spacing) ) Works Cited pageWorks Cited page ALL tabs from the PSC ALL tabs from the PSC Financial statements from your target & benchmark Financial statements from your target & benchmark

companies (companies (balance sheet, income statement, cash flow statementbalance sheet, income statement, cash flow statement))

maintain high quality printing maintain high quality printing use 12 font (use 12 font (except on headingsexcept on headings) )

INCLUDE: INCLUDE: Table of contents Table of contents Numbered pages Numbered pages Appropriate spacing (Appropriate spacing (do not engage in excessive spacingdo not engage in excessive spacing) ) Works Cited pageWorks Cited page ALL tabs from the PSC ALL tabs from the PSC Financial statements from your target & benchmark Financial statements from your target & benchmark

companies (companies (balance sheet, income statement, cash flow statementbalance sheet, income statement, cash flow statement))

(2) Syntax, Grammar, Punctuation, Spelling, etc.(2) Syntax, Grammar, Punctuation, Spelling, etc.

Appropriate CapitalizationAppropriate Capitalization Logical framing of sentencesLogical framing of sentences Ease of reading: Lack of choppy sentencesEase of reading: Lack of choppy sentences Proper punctuationProper punctuation SpellingSpelling GrammarGrammar Sentences flow into each otherSentences flow into each other Paragraphs have connecting Paragraphs have connecting

sentencessentences

Appropriate CapitalizationAppropriate Capitalization Logical framing of sentencesLogical framing of sentences Ease of reading: Lack of choppy sentencesEase of reading: Lack of choppy sentences Proper punctuationProper punctuation SpellingSpelling GrammarGrammar Sentences flow into each otherSentences flow into each other Paragraphs have connecting Paragraphs have connecting

sentencessentences

(3) Strength of Introduction(3) Strength of Introduction

The report provides an The report provides an adequate outlineadequate outline of the of the order in which the material and analysis will be order in which the material and analysis will be presented.presented.

Explains the reason for and/or importance of the Explains the reason for and/or importance of the studystudy

Captures AttentionCaptures Attention Engages the Reader (reinforces interest)Engages the Reader (reinforces interest) Introduction has sufficient depthIntroduction has sufficient depth Introduction remained focused Introduction remained focused

The report provides an The report provides an adequate outlineadequate outline of the of the order in which the material and analysis will be order in which the material and analysis will be presented.presented.

Explains the reason for and/or importance of the Explains the reason for and/or importance of the studystudy

Captures AttentionCaptures Attention Engages the Reader (reinforces interest)Engages the Reader (reinforces interest) Introduction has sufficient depthIntroduction has sufficient depth Introduction remained focused Introduction remained focused

(4) Technical correctness/completeness(Quantitative/Financial Data)

Avoided unnecessary minus signsAvoided unnecessary minus signs No unallocated expensesNo unallocated expenses No unallocated Assets – for correct reasons No unallocated Assets – for correct reasons (do not plug numbers) No unallocated Liabilities – for correct reasonsNo unallocated Liabilities – for correct reasons Correct amounts in Statement of Cash FlowsCorrect amounts in Statement of Cash Flows Correct number of shares outstandingCorrect number of shares outstanding Includes complete grading (Includes complete grading (bar chart – overall performance bar chart – overall performance

should be complete in ALL six sectionsshould be complete in ALL six sections)) Interest Expense included (as instructed) Interest Expense included (as instructed) Include the Balance Sheet, Income Statement, & Cash Flows Include the Balance Sheet, Income Statement, & Cash Flows

from BOTH the target and benchmark companiesfrom BOTH the target and benchmark companies

Content was meaningful in terms of Strategic Content was meaningful in terms of Strategic Management Management

Ideas were clearly expressed and carefully considered.Ideas were clearly expressed and carefully considered.

Comments were clear & sufficiently supported by Comments were clear & sufficiently supported by research (facts) research (facts)

Sufficient attention paid to:Sufficient attention paid to:

1. Profit, Equity, & Share Value1. Profit, Equity, & Share Value

2. Debt Management2. Debt Management

3. Cash Management3. Cash Management

4. Asset Management4. Asset Management

5. Organizational Citizenship5. Organizational Citizenship

6. Strategic Positioning6. Strategic Positioning

Paint an interesting picture as you write your project report.Paint an interesting picture as you write your project report.

Content was meaningful in terms of Strategic Content was meaningful in terms of Strategic Management Management

Ideas were clearly expressed and carefully considered.Ideas were clearly expressed and carefully considered.

Comments were clear & sufficiently supported by Comments were clear & sufficiently supported by research (facts) research (facts)

Sufficient attention paid to:Sufficient attention paid to:

1. Profit, Equity, & Share Value1. Profit, Equity, & Share Value

2. Debt Management2. Debt Management

3. Cash Management3. Cash Management

4. Asset Management4. Asset Management

5. Organizational Citizenship5. Organizational Citizenship

6. Strategic Positioning6. Strategic Positioning

Paint an interesting picture as you write your project report.Paint an interesting picture as you write your project report.

(5) Primary Body (5) Primary Body ((Basic ContentBasic Content))

(6) Conclusion/Recommendations

Project concluded with finality and Project concluded with finality and RECOMMENDATIONSRECOMMENDATIONS

Conclusion included sufficient attention to Conclusion included sufficient attention to each of the six areas of focus each of the six areas of focus (financial four and (financial four and OS and SP)OS and SP)

Summary is clear, complete, and convincing Summary is clear, complete, and convincing (In other words, hammer out your positions)(In other words, hammer out your positions)

(6) Conclusion/Recommendations

Project concluded with finality and Project concluded with finality and RECOMMENDATIONSRECOMMENDATIONS

Conclusion included sufficient attention to Conclusion included sufficient attention to each of the six areas of focus each of the six areas of focus (financial four and (financial four and OC and SP)OC and SP)

Summary is clear, complete, and convincing Summary is clear, complete, and convincing (In other words, hammer out your positions)(In other words, hammer out your positions)

Caution: PLEASE: Review these slides carefully.PLEASE: Review these slides carefully.

Ignoring the data on any of these slides will Ignoring the data on any of these slides will automaticallyautomatically COST you a gradeCOST you a grade..

How to get a bad grade! How to get a bad grade! Click

Good Luck!Good Luck!Good Luck!Good Luck!

5th Edition5th Edition

Research, Analyze, and ReportResearch, Analyze, and Report

Raymond K. Van NessRaymond K. Van Ness

ManagementStrategy & Performance

ManagementStrategy & Performance