Ivy Case System

Question 1

Core Questions to Ask about a Company

Answer 1

1. Revenues and profits for the last three years?
   - What are the major revenue streams? And what percentage of total revenue does each stream represent?
   - What are the major costs? Do any seem out of line?
2. Who are its customers?
   - Characteristics?
   - Changing needs?
   - Profitability by segment?
3. What does it sell (product mix)?
   - Cost / margins? (Cost leadership?)
   - Product differentiations?
   - Market share?
   - Cannibalization between products
4. How does it make the product? (Production capabilities / capacity)
5. How does its products stand out? (Brand? Market leader?)
6. How does its products reach its consumers? (Distribution channels? )
   - How can it reach new markets?
7. WCS (what constitutes success?)
   - What metric to use? Consulting mainly, but company may want 10% of market share

Question 2

Core questions to ask about an Industry

Answer 2

1. How is the market doing today? (Market Size, Growth Rate, and Trends)
   - Ask for 3 years of data
   - Compare how company is growing compared to industry
2. Where in its life cycle? (Emerging, mature, decline)
   2a. Incumbents’ market share over time
3. Throw it through the Porter’s 5 Forces to find Industry drivers
   - Suppliers, substitutes, customers, entrants, rivalry
   - Competitive dynamics = Cost leadership or differentiation
4. Customer segmentation?
   - Specific niche?
5. Margins
6. Industry changes (M&A? Entrants? Tech? Regulation?)
7. Distribution channels? (how many ways can you watch a movie?)
8. Barriers to entry and exit
   - Entry: scale advantages, know how, asset specificity, patents, distribution channels, raw materials

Question 3

Profit and Loss Questions

Answer 3

E(P=R-E)M

• E = Environment / external
• M = Market

1. Look at external factors first! (to determine if it’s a company or industry/macro problem)
   - Have competitor profits also fallen? If yes, take a closer look at the industry (declining market, barriers to entry, obsolete) or external (tariffs, interest rates, natural disasters)
   
   • If no, look to core company questions
2. Look inside perenteses at company factors

Sales (price * quantityc)
less variable costs (vc*units)
less fixed costs
= Profit

• Core company questions
• Core market questions
• Other external factors?

Question 4

Unemployment Rate

Answer 4

8% (Sep 2020)

5.2 Sep 2021

Question 5

Disposable Income

Answer 5

17k, 3% decline Month over month

Question 6

Consumer confidence

Answer 6

100 in Feb 2020

75 Feb 2021

80 currently

Question 7

Interest rates

Answer 7

UST 30 yr: 1.6%, 10 yr = 0.8%

LIBOR = 0.23%

Question 8

Dollar’s strenght in the currency market

Answer 8

1 USD | 0.85 Euro

Question 9

Petrol prices

Answer 9

Oil around $40, NG around $2.6

Question 10

GDP Growth

Answer 10

Q1 = (5%); Q2 = (31%)

Question 11

Enter a new market?

Answer 11

Yes / No; Why / Why not; How; risks of entering; next steps
- If chose not to enter, provide alternatives

Not just yes or no or is this market attractive?
Is it attractive to our company?
- Core co questions. Core industry questions
How do we enter?
- M&A, scratch, JV, outsource (cost benefit of each)

Question 12

How to increase sales?

Answer 12

Price

• Customer elasticity
• Sales = what when you increase, decrease or keep prices the same?

Volume

• Distro channels
• M&A, R&D, build to enter new market
• Focus on niche / one of your segments
• Marketing campaign

What is our company doing?
What is the industry doing?
- Co growth
- Industry growth
- vs peers?

If sales declining, could be due to:

• Demand
• Market share
• Obsolete product

Question 13

Turnarounds

Answer 13

1. Analyze co and the industry
   - Is it a company or industry problem? why is it failing (products, MGT, economy?)
2. If profits are down bc of sales, focus on distro and marketing (Revlon). M&A?
3. If profits are down because of expenses, line by line inspection of the income statement
   - COGS = Production and inventory management
   - SG&A = labor
   - Interest expense and other financial decisions

Question 14

Cutting Costs - 3 Buckets

Answer 14

Labor

• Reduce salary, OT, commissions, 401K matching, work week, other benefits
• Cross train
• Layoffs

Production

• Assess value chain (supplier concentration), diff raw materials
• Product line (make more flexible); import products
• Consolidate facilities / leases
• Automate

Finance / Capital Allocation / Liquidity
- Refi debt, sell non-core assets, hedge

Question 15

Risks - 2 Buckets

Answer 15

Non-Controlled
- Economy, Enviro, Gov’t regulation, Pace of tech change, decisions of competitors (unless you provoke), tariffs, geopolitics

Controlled

• Inventory management (too little, too much, obsolete), Accounts payable, AR terms
• Capex investments vs ROI
• Employee (hires, layoffs, incentives)
• Entering new markets
• Mergers
• Product cannibalization
• Public image
• Lowering costs impacting your brand image?

Question 16

Answer: what’s going on in the economy?

Answer 16

• Pick out what’s relevant to the company
• GDP growth down 30% in this quarter
• Real estate: exodous from cities, low interest rates
• Treasury rates at record lows
• Covid
• Geopolitical tension
• Oil at 40 per barrel. Still low where companies cannot break even
• Unemployment high around %
• Concerns around inflation
• US dollar []

Question 17

3 ways to increase market share

Answer 17

Lower Prices
Marketing campaign
Increase distro channels
Acquisition
(JV)