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When you look at case analysis, what does it give? Basically, we are looking at anorganization; it is performance, over a period of time. When you are looking at theperformance of an organization, you should also give the information on theorganizations history and the operations environment.How did this organization come into being and what is the type of environment in whichit is operating? A case analysis should essentially contain data with respect to thefunctional areas like, marketing, finance, operation and human resources. So, it isessential in a case that you looked at the functional areas of management.By doing this case analysis, what are we trying to give to the student? This case analysispresents to the students, a realistic situation by which they are exposed to decision
making practices. In other words as far as possible a case analysis should present arealistic situation that is it must present in real data not a hypothetical data. So, then onlythe student will be in a position to appreciate, the decision making that is involved in thiswhole exercise.(Refer Slide Time: 03:07)
By doing this case analysis and this type of method what are we trying to do? What arewe trying to achieve as objectives of this that is with respect to the student. The studentwill be able to acquire skills to apply theoretical knowledge to practice. So, he has gottensome theoretical knowledge and how does he apply that theoretical knowledge topractice is one of the important factors that he gets through this. The other importantaspect, which he gets is he gets into the habit of diagnosing the problem.Suppose you are presenting to him a situation, he will try to find out what is a problemthat the organization is facing. Then make his own analysis and evaluations ofalternatives and he forms an action plan. So, he gets into the habit of diagnosing theproblem, analysis and evaluation of alternatives and formulation of an action plan. Thethird most important thing which the student gets is he will try to analyze a caseindependently. Do not go to what has happened, what is the type of decision taken?.Instead suppose it was you who are to take the decision, then how would you have takenthe decision given this particular situation? So, he tries to learn to independently findanswers to practical problems. In this wonderful process he gets exposure to a variety of
organizational and managerial situations. Having done this five objectives, that is gettingexposed to this five objects through the case method. The student is a for better informedperson kindly appreciate the with respect to a realistic situation. He can intently diagnosethe problem and take decisions.(Refer Slide Time: 06:21)
Suppose a similar situation were to present in his work place later on he will be in a farmore better position to take decisions using this case analysis. In other words what is atype of benefits he is going to get? He gets clear thinking in complex situations.Normally, organizations present a myriad data. Many times one does not know whetherthis much of data is required for a particular situation.Now, it becomes the responsibility of the student to call out that particular extract ofdata, which will be useful for him in taking decisions. A case study might give lot ofunwanted data also so, he has to read out that unwanted data and take that particular datawhich will be useful for him to analyze a situation. So, in other words his thinking abilityis going to get drastically improved, then what is a second benefit is likely to get hebecomes consistent, he becomes rational, he becomes creative.So, he would try to devise a consistent rational and creative actional action plans that iswhat a realistic case study provides a student with it is a wonderful scenario, where astudent gets to know through the case studies what is really happening in real life. He hasover his theoretical knowledge gained a lot of quantity abilities.
The case method provides for him a wonderful opportunity to apply this quantitativeknowledge. So, this application of quantitative knowledge is one of the key benefits isgoing to give get through this case analysis. What he gets more importantly in a case isrecognizing the value of information?Kindly note that data by itself may not be able to give you much, when you start workingon this data; the raw data, you will get information. The raw data when it is converted toget information, the student is in a better position to recognize this value of information.Normal cases or handled in groups that is students will work in groups, they will try toanalyze different aspects come out with different viewpoints with respect to a situation.So, how does this help? It helps them with their communication ability. So, groupcommunication becomes an important tool, which the student gets. After this groupcommunication a student has to write down what happened, what transferred in thegroup? In the whole process he gets better written communication skills also. A studentmight be having lot of personal values in a bring to the tables so many personal valuesethics. And, he may like to apply this values to the decision making process. So, this caseanalysis provides for him a wonderful opportunity to apply personal values to thedecision making process.(Refer Slide Time: 11:39)
Suppose, we have to develop a case study, how do we go about it, that is as a student oras a professional also you have to develop a case study, then how will you go about it?
These are the following aspects that one should dwell on while developing a case study.One is give the origin history and growth of company over time.So, it might be a 50 year old company, when it is a 50 year old company you give asmall history of the organization, then at least for the last 5 years you trace how thiscompany has grown, over the last 5 years what is the type of products or product lines,how they have performed in a market? This is one of the essential aspects that you haveto dwell on that is you should not immediately come to the present year; you have to goback in time and slowly bring it to the present year old.So, this origin or the history and the growth of company over time firms the first aspectof developing a case study. The second aspect is when you are looking at anorganization, you should give to the student who is reading this case an organizationalanalysis, that is how is this organization structured?.And, who are all the decision making players in this organization? And, at what level arethis decisions being made, whether it is being made at the supervisory level, or themanagerial level, or at the top management level, or is it just getting peculated from thetop management down to the supervisory level, or is there a consultative process whichgoes on before any decision takes place.All these aspects have to be brought out in the organizational analysis. The third aspectwhich has to be dwelt upon is what is the nature of the external environmental? Is thisorganization a monopoly? If you look at the present day Indian business environment,you will find it very difficult to categorized an organization as monopoly. Perhaps someorganizations like the Indian railways you can call them operating in monopoly market.Earlier you use to have many organizations like, the Indian airlines, a posts andtelegraphs department, never did one think that these organizations will also be affectedby the changes. So, if you look at posts and telegraphs you have for them a very stiffcompetition coming to the posts and telegraphs department through private players, youhave so many carriers. They can also do this speed post, which the Indian post do andthey can give you many times better tracking of how your are post is going to thedestination.
So, in other words the environment in which the organizations are operating they haveundergone a thorough change. After giving this external environment, you have to giveor you should attempt to give at least a SWOT analysis for the organization, that isstrengths, weaknesses, opportunities and threats, that is you should present to the studentthis four aspects.This is what we refer to normally as what? This what analysis of the organization?Sometimes a case study may not specifically give the SWOT, but ask the student todevelop a SWOT. The next aspect which the student has to be presented in a case is whatis the present corporate strategy? By saying corporate strategy we are referring to theentire organization, we are not just referring to one particular product line, or businessunit.First this case has to give the strategy for the entire organization, second when it comesto the particular business unit you also have to present the business strategy of thatparticular unit. Can be it is a consumer durable, can be it is a perishable product,whatever it might be it might be of it might be coming to the market through a businessunit and that business units strategy has to be delineated.By doing all this what are you trying to give in the case, you are giving lot of food forthought to the case analyzer, that is the student, you will the student will think oh is thisorganization has this organization gone in the right direction has it been is it goingaccording to the plan, which it envisaged.After, this aspect is touched you also have to present to the student. The structure of thisorganization and the type of control systems that this organization has with respect to asituation, decision making situation. So, how does this whole process of decision makingpeculate down the layers in an organization? All this will help you to makerecommendations on the different aspects of the problem that is touched upon in theparticular case.
(Refer Slide Time: 19:51)
When look at any case for that matter, you have to look at 4 key financial ratios, that is 4key financial ratios you can look at more. What are these financial ratios which you haveto look at? One of the things which you look at with respect to an organization is theprofitability ratios. I have uploaded a PDF on this key financial ratios how it can helpyou?.The gross profit margin with respect to an organization, kindly refer to that particulararticle that upload and try to understand, how these different ratios can be helpful? Forexample, this gross profit margin what does it give you? It provides for you anindication, an indication of the total margin available to cover operating expenses andyield profit.What does the operating profit margin give you? It provides for you any indication of thefirm’s profitability, from current operations, without regard to the interest charges,accruing from the capital structure. So, what is the difference between the gross profitmargin and the operating profit margin? If you look at the gross profit margin, you arelooking at the sales minus the cost of goods sold in the numerator, when you look at theoperating profit margin; you are looking at profit before taxes and interest in thenumerator.When you come down to the net profit margin, you are deducting the taxes from that is itwill be profit after tax in the numerator. So, you are getting with respect to the sales
revenue, what is the type of gross profit margin the organization is making? What is thetype of operate operating profit margin the organization is making and the net profitorganize margin it is making with respect to the organization in that particular year? So,you are analyzing with respect to a particular year the operations.So, you are looking at profit and loss accounts and it is with respect to a particular year,then the fourth ratio that you are looking at is the return on total assets, in order to set upan organization you make a lot of investment and this investment whether it is comingfrom your side, or different organizations side, or different financial institutions sidewhatever it may be. These stake holders expect there will be some return on the assetsthat is created.So, this return on total assets it should not be as zero profit type of scenario for anyorganization, because an organization is operating in a business environment, a businessenvironment entails that you make profits through business. There is in other wordsnothing wrong if a business thinks that it should make profits no business would like tomake losses.Now, when it makes profit only you can compensate the stockholders, they would haveput money on the equity shares of the company. So, they could be a return on thestockholders equity that is this stock holder can be a preference shareholder, or aninvestor all those types of things, or you can be a very common retail equity holder also.So, you first make provision for return on the stock holder’s equity from the profits, thenthe return on the common equity from the remaining profits. Suppose, your shares arelisted which normally happens, we calculate what is called in earnings per share, whatdoes the earnings per share give you, the earnings per share shows the earnings availableto the owners of the common stock?So, how do you calculate these earnings per share? Is earnings per share referred toprofits after tax minus be preferred stockholders divided by the number of shares of thecommon stock outstanding, that is you take care of the stockholders, that is a preferenceshareholders, first from the profits, then the remaining profits you try to find out howmuch dividend can be, how much return can be made on this common equity?.
The second one which you are going to look at is what is called the leverage ratios? Inthese leverage ratios, we will be looking at debt to assets an organization might takeloans for carrying out it is operations. Suppose hypothetically, let us say a you haveinvested one rupee in an organization. How much loan or debt can you comfortablecover, that is what is the maximum debt on this 1 rupee you can make.Normally, we say it can be double what you have invested? That is suppose you haveinvested 1 rupee you can take a debt of 2 rupees not beyond that. If you are within thisrupee margin you are in a better position to service these assets. Suppose yourorganization is faced with a challenge or a situation calling for these assets to be servicedthat is the debts sundry assets.So, it is debts can be easily serviced by this margin which you have, but if it becomes tooheight heavy a margin or too high a margin, then it becomes difficult to service thisassets, then the second ratio that you are going to look at is debt to equity. Suppose anorganization operates only an debt, it is very difficult to provide return to the equityholders.So, in other words the equity holders most of the times in a debt ridden organization willbe left high and dry. This is what happened to many of the textile units in India? Earlierthe textile units, where providing or where giving dividends to their equity holders, butsince the operational cost kept on increasing, they found it very difficult to service thisdebts and when it became so, difficult the equity holders became almost a nonexistentportion of this whole scenario.The third aspect of this is the long term debt. A financial institution might be giving along term debt to an organization. And, what is the interest of this financial institution?The interest of the financial institution is that this organization must serve or service thislong term debt it must make the payment of installments regularly. So, this long termdebts it is a widely used measure of the balance between debt and equity in the firmslong term capital structure.So, many large financing companies provide long term debts to organizations. So, howdo they provide this they make this calculation of long term debt to equity ratio, beforeextending further credits to this organization. The fourth ratio that you are looking at isthe times interest earned, what is this times interest earned? It is calculated by the
formula profit before interest and taxes divided by the total interest charges. What doesthis give you?.It measures the extent to which earnings can decline without the firm becoming unable tomeet the annual interest cost. Any debt which is given to an organization carries with itinterest. Suppose an organization is not able to service the interest of the loan itself thenthe question of servicing the loan does not arise. So, in many of our defaulting publicsector units also this was the type of situation. Many times they were not able to servicethe interest portion only.So, question of servicing the principal was a little beyond the ability of this organization.So, this is where you find in the present day setup many of the public sector units goingout on off the screen, why did they go out of the screens? This is because of this leverageratios, which worked against them, because it worked against them, they found thatsustaining the business was a very big challenge and many of them went off the screen.If you look at HMT this is one classic case, the tagline of HMT was timekeepers to thenation. It is very hard to believe that timekeepers to the nation, itself has become extinct.So, they have not been able to keep time to their organization only, how they can keeptime to the nation that was the type of questions which the market was asking. The nextratio which you look at with respect to leverage ratios is what is called the fixed chargecoverage? What is this fixed charge coverage it is a more inclusive indication of thefirm’s ability to meet all it is fixed charges obligation.So, how is it calculated? It is calculated taking the profit before interest and taxes plusthe lease obligations divided by the total interest charges plus lease obligations. All theseformulae to calculate this is given to you in this uploaded PDF on introduction to caseanalysis. Kindly refer to this it helps you to know how you should calculate these ratiosand also, what is the type of indications these ratios can give to an organization?
The third ratio with which we are interested is what is called the activity ratios? So, wewill stop here we will continue in the next lecture the activity ratios.