Victor Cheng Frameworks

Question 1

What are the four Victor Cheng frameworks?

Answer 1

1. Profitability Framework
2. Business Situation
3. Merger & Acquisitions
4. Capacity Change Framework

Question 2

What are the components of the Victor Cheng profitabilty framework?

Answer 2

• Revenue
  
  • Price/Unit
  • # Units Sold
    • Product Mix (incl. proportion)
    • Distribution Channels
• Cost
  
  • Variable Costs
    
    • Cost/Unit
    • # Units Sold
  • Fixed Costs

Question 3

When presented with a new company metric (either through calculation or given), what two things do you compare them to?

Answer 3

1. Compare metric to itself in a previous time period
2. Compare metric to the rest of the industry

Question 4

What are the four high-level areas that Victor Cheng’s business situation framework explores?

Answer 4

-> CPCC

1. Customers
2. Product
3. Company
4. Competition

Question 5

Five key questions to ask when gathering information about customers in VC’s business situation framework?

Answer 5

Key Questions:

1. Who is the customer?
   
   • Identify segments (size, growth, % of mkt)
   • Compare current year metrics to historical metrics
2. What does each customer segment want? (Key needs)
3. Price sensitivity of each segment
4. Distribution channel preference by segment (how do they like / expect to be sold to)?
5. Customer concentration and power

Question 6

Seven key questions to ask when gathering information about company in VC’s business situation framework?

Answer 6

Key Questions:

1. Capabilities and expertise
2. Distribution channels

Additional Questions:

1. Cost structure (fixed vs. variable)
2. Investment cost (only if case involves an investment decision)
3. Intangibles (brand, goodwill, etc.)
4. Financial situation (cash on hand, debt, etc.)
5. Organiztional structure (flat, hierarchical)

Question 7

Six key questions to ask when gathering information about competition in VC’s business situation framework?

Answer 7

Key Questions:

1. Competitor market share concentration
2. Competitor behaviors (target segments, pricing, distribution, products)
3. Best practices (are they doing things we are not?)
4. Barriers to entry (do we need to worry about new entrants? is it hard to break in?)

Additional Questions:

1. Supplier concentration
2. Regulatory environment

Question 8

Six key questions to ask when gathering information about product in VC’s business situation framework?

Answer 8

Key Questions:

1. Nature of product
2. Commodity or differentiable good
3. Identify complementary goods
4. Identify substitutes

Additional Questions:

1. Product life cycle (new vs. obsolete)
2. Packaging

Question 9

How do you use VC’s M&A framework?

Answer 9

• Business situation framework for Company A
• Business situation framework for Company B
• Business situation framework for both companies combined.

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Framework I like better:

• Standalone value of Company A
• Synergies for a combined Company A + B
• Negative synergies for Company A + B (e.g., cannabilization, customers switching because of new concentration)
• Implemention process and risks