Welcome to Class 12Welcome to Class 12

Corporate Research Methodologies –Corporate Research Methodologies –

DataData Mining Methods Mining Methods

Chapter 6Chapter 6

CAT PSC

DataMining

Data MiningData Mining

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

Search, Investigate, CollectSearch, Investigate, Collect

(1) Profit, Equity, & Share Value

(2) Debt Management

(3) Cash Management

(4) Asset Management

(5) Organizational Citizenship (Social Responsibility)(Social Responsibility)

(6) Strategic Positioning (Sustainable growth) (Sustainable growth)

Search, Investigate, & Collect data in Search, Investigate, & Collect data in sixsix (6) key categories (6) key categories

Data Mining Corporate PerformanceData 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 BuildingData Mining and Database Building

Data Mining Methods

Data mining involves researching Data mining involves researching & collecting two types of data:& collecting two types of data:

(1) Context Data (1) Context Data

(2) Performance Data(2) Performance Data

Nine-Step System Nine-Step System

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

Nine-Step SystemNine-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.

Step 9: Organize your data into a 5-folder system5-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… Drawing an OVERVIEW of…

Industries, Data Mining, and Annual Industries, Data Mining, and Annual ReportsReports

What is an industry?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 Studying an industry is essential to the performance evaluation process.the performance evaluation process.

The condition of an industry is a window into The condition of an industry is a window into the challenges and opportunities that your the challenges and opportunities that your target company is facing.target company is facing.

SIC and NAICS SIC and NAICS Industrial CategoriesIndustrial 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 ClassificationNAICS = North American Industrial Classification

System

For more information on SIC & NAICS see Chapter Two in your text.

Agriculture, Forestry, Fishing and HuntingMiningUtilitiesConstructionManufacturingWholesale TradeRetail TradeTransportation and WarehousingInformationFinance and InsuranceReal Estate and Rental and LeasingProfessional, Scientific, and Technical ServicesManagement of Companies and EnterprisesAdministrative and Support and Waste Management and Remediation ServicesEducational ServicesHealth Care and Social AssistanceArts, Entertainment, and RecreationAccommodation and Food ServicesOther Services (except Public Administration) Public Administration

Categories of IndustriesCategories of Industries

Sources of Sources of InformationInformation

Several of the many choices:

Standard & Poor’s Industry Surveys

U.S. Industrial Outlook

Business newspapers and magazine

The Internet

U.S. Government sites

www.albany.edu/faculty/vanness

Data Mining: The Mother Lode

The annual report is “The Mother Lode” of The annual report is “The Mother Lode” of company-specific performance data. company-specific performance data.

It includes information about both – It includes information about both – ► ► Financial Performance Financial Performance ► ► Qualitative PerformanceQualitative Performance

The letters to the stockholders contain The letters to the stockholders contain numerous clues about the internal numerous clues about the internal environment of the company and how environment of the company and how management is coping with the competitive management is coping with the competitive and general environments.and general environments.

What are Annual Reports?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

Statement of Earnings (Income StatementIncome Statement),

Statement of Financial Position (Balance SheetBalance Sheet), and

Statement of Cash Flows are basic requirements by the SEC.

Other items can be included.

Selected Financial DataThis provides information helpful for making comparisons over

longer periods of time.

Financial Statements in The Annual ReportFinancial 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)Financial Statements in The Annual Report (cont)

Statement of Stockholders’ Equity – The NET value in the stockholder’s account is simply…

Assets less Debts. 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 ActivitiesOperating Activities

Investing ActivitiesInvesting Activities

Financing Activities Financing Activities

Proxy Statement & DEF 14AProxy 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 Evaluation Report

Financial Qualitative SynthesizeDefend

Recommendation

FinancialRecommend

ActionQualitative

Profit, Equity, Share Value

Debt

Cash

Asset

OrganizationalCitizenship

StrategicPositioning

Holistic Judgment

Holistic Data Review

EmployeesInvestors

Customers

DirectorsGovernments

CompetitorsEnvironmental

Community

Vision and Mission

Competitive Advantage

Innovation

Cultural sensitivityCreditors

Other StakeholdersGrowth Plans

End: Research Methodologies – Data Mining

Read Chapter 7: Research: Qualitative Domain

Also: 1st Term Secretary Report due