CSR Case Study - Seventh Generation & DB WK 6

StudentSampleAppleIndividualCaseStrategicMgmtFinalVersion5-5-16.xls

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Instructions

Q - SWOT

The study of Business Analysis and Decision Making requires one to be thoughtful and organized. This spreadsheet is meant to be

used as a tool to assist you with organizing the information presented to you in various cases. The process of listing, ranking and

classifying the internal and external factors for any particular business is the first step to understanding the current effectiveness of

the business strategy, and a guide for the decisions that need to be made in the future.

Begin by listing the internal factors on the Internal tab (below) and the external factors on the external tab. Follow the

instructions on each of the tabs. Do not add or delete columns or rows - use those that are provided. Don't modify the formulas that

exist in the spreadsheet.

Next, move to the SWOT tab and click the button that says "sort".

Next, move to the "I&E Matrix".

If the * appears in cells I, II or IV = Grow and Build. Internal is strong, and external is primarily one of opportunity.

If the * appears in cells VII, V or III = Hold and Maintain. Moderate to average both internally and externally.

If the * appears in cells VIII, IX or VI = Harvest and Divest. Company is predominantly weak, and external environment is mostly threats.

Keep in mind that these are only suggestions, and are based on your own list of factors, your weights and your ratings.

Next, move on to the Strategies tab. Create potential strategies by making combinations from the SWOT page. Use these combinations:

Strength and opportunity

Strength and threat

weakness and opportunity

weakness and threat

Next, on the Strategy - Summary page, briefly describe the cost and ROI of your strategy, including when the cost and return will be realized.

Next, show your work regarding financial analysis - show both the caclulations and the explanation of what the analysis is telling you.

Lastly, construct both your pro-forma income statement and balance sheets on the tabs shown. Add tabs if necessary.

Internal

Internal Factor Evaluation
Internal Key Factors	Rate	Weight	Total
	1 - 4	.01 - .99			FACTOR RATING SCALE
Turns over inventory very quickly	3	0.10	0.30
Rapidly increased debt-to-equity ratio too high now	2	0.10	0.20		1. Major Weakness 3. Minor Strength
High net profit margin allows for lots of cash to continue growing	3	0.10	0.30		2. Minor Weakness 4. Major Strength
Diversified array of products for sale	3	0.10	0.30
Strong brand recognition and brand loyalty	4	0.28	1.12		Factor Weighting Scale - 0.01 = Low importance 0.99 = High importance
Limited Distribution Network currently	2.5	0.07	0.18		All Factor Weights must sum to 1.0.
High Selling Prices limit customers to high end market	2	0.10	0.20		INTERNAL FACTOR CODE:
Effective and proven innovation process	3	0.05	0.15		FN = FINANCE
Growth portion of iPhone product life cycle is over	2	0.05	0.10		MG = MANAGEMENT
Ability to collect funds from customers quickly	3	0.05	0.15		MK = MARKETING
			0.00		IS = INFORMATION SYSTEMS
			0.00		PR = PRODUCTION OF A PRODUCT
			0.00		RD = RESEARCH AND DEVELOPMENT
			0.00		SV = THE PROVIDING OF A SERVICE
			0.00
			0.00
			0.00
			0.00
			0.00
	Total Weight must equal 1.0 =	1.00	3.00	Internal Score Analysis
				1.0 - 2.0 = Weak internal structure and execution.
				2.0 - 3.0 = Moderate to Average internal strength is seen in the in the analysis of the busienss.
				3.0 - 4.0 = Internal factors are primarily very strong and can be used to advantage over competitors.

External

External Factor Evaluation
External Key Factors	Rate	Weight	Total
	1 - 4	.01 - .99
Aggressive competition in all areas of business	1	0.25	0.25		FACTOR RATING SCALE
Rapidly changing technology market	2.5	0.10	0.25
Dependent upon global and regional economic conditions	2	0.10	0.20		1. Major Threat 3. Minor Opportunity
Plenty of room for continued market share growth currently at 20% of global market	4	0.25	1.00		2. Minor Threat 4. Major Opportunity
The acquisition of Beats offers growth opportunities with iWatch & iTunes radio	3	0.15	0.45
Creation of new product lines	3	0.05	0.15		Factor Weight Scale - 0.01 = low importance 0.99 = high importance
Distribution network expansion opportunities	3	0.10	0.30
			0.00		EXTERNAL FACTOR CODE:
			0.00		CP = COMPETITIVE
			0.00		CL = CULTURAL
			0.00		DM = DEMOGRAPHIC
			0.00		EC = ECONOMIC
			0.00		GE = GEOGRAPHIC
			0.00		GV = GOVERNMENT
			0.00		IN = INDUSTRY
			0.00		LG = LEGAL
			0.00		PL = POLITICAL
			0.00		SC = SOCIAL
			0.00		TC = TECHNOLOGICAL
	Total Weight must equal 1.0 =	1.00	2.60	External Score Analysis
				1.0 - 2.0 = External environment is hostile and threatening. Will require definsive strategies for success.
				2.0 - 3.0 = External environment is average and may contain pockets of opportunity.
				3.0 - 4.0 = External environment is primarily loaded with opportunity.

SWOT

S W O T
	STRENGTHS (S)	Rating	Weight		WEAKNESSES (W)	Rating	Weight
1	Strong brand recognition and brand loyalty	4	0.28	1	Growth portion of iPhone product life cycle is over	2	0.05
2	Diversified array of products for sale	3	0.10	2	High Selling Prices limit customers to high end market	2	0.10
3	High net profit margin allows for lots of cash to continue growing	3	0.10	3	Rapidly increased debt-to-equity ratio too high now	2	0.10
4	Turns over inventory very quickly	3	0.10	4	0	9	9.00
5	Effective and proven innovation process	3	0.05	5	0	9	9.00
6	0	0	0.00	6	0	9	9.00
7	0	0	0.00	7	0	9	9.00
8	0	0	0.00	8	0	9	9.00
9	0	0	0.00	9	0	9	9.00
10	0	0	0.00	10	0	9	9.00
11	0	0	0.00	11	0	9	9.00
12	0	0	0.00	12	0	9	9.00
13	Ability to collect funds from customers quickly	3	0.05	13	0	9	9.00
14	0	0	0.00	14	0	9	9.00
15	0	0	0.00	15	0	9	9.00
16	0	0	0.00	16	0	9	9.00
17	0	0	0.00	17	0	9	9.00
18	0	0	0.00	18	0	9	9.00
19	0	0	0.00	19	0	9	9.00
	OPPORTUNITIES (O)	Rating	Weight		THREATS (T)	Rating	Weight
1	Plenty of room for continued market share growth currently at 20% of global market	4	0.25	1	Aggressive competition in all areas of business	1	0.25
2	The acquisition of Beats offers growth opportunities with iWatch & iTunes radio	3	0.15	2	Dependent upon global and regional economic conditions	2	0.10
3	Distribution network expansion opportunities	3	0.10	3	0	9	9.00
4	Creation of new product lines	3	0.05	4	0	9	9.00
5	0	0	0.00	5	0	9	9.00
6	0	0	0.00	6	0	9	9.00
7	0	0	0.00	7	0	9	9.00
8	0	0	0.00	8	0	9	9.00
9	0	0	0.00	9	0	9	9.00
10	0	0	0.00	10	0	9	9.00
11	0	0	0.00	11	0	9	9.00
12	0	0	0.00	12	0	9	9.00
13	0	0	0.00	13	0	9	9.00
14	0	0	0.00	14	0	9	9.00
15	0	0	0.00	15	0	9	9.00
16	0	0	0.00	16	0	9	9.00
17	0	0	0.00	17	0	9	9.00
18	0	0	0.00	18	0	9	9.00
19	0	0	0.00	19	0	9	9.00

SORT

I&E Matrix

THE INTERNAL AND EXTERNAL FACTOR MATRIX (I/E)
			IFEM TOTAL WEIGHTED SCORES
			INTERNAL FACTOR SPACE
			HIGH			LOW
EFEM			3	2	1
TOTAL
WEIGHTED		HIGH
SCORES
	EXTERNAL
	FACTOR
	FAVORABLENESS
EFEM Total:	2.60
		LOW
IFEM Total:	3.00
STRATEGY AREA:
	2.80
		*NOTE: DIVESTITURE, LIQUIDATION, RETRENCHMENT,
		AND RESTRUCTURING SHOULD BE ONGOING STRATEGIES,
		REGARDLESS OF THE ORGANIZATION'S STRATEGIC POSTURE.
POSSIBLE STRATEGIES:			GROW &	HOLD &	HARVEST &
			BUILD	MAINTAIN	DIVEST
BACKWARD INTEGRATION................			X
CONCENTRIC DIVERSIFICATION.........			X	X	X(?)
CONGLOMERATE DIVERSIFICATION.......			X	X(?)
DIVESTITURE..........................			X*	X*	X*
FORWARD INTEGRATION...............			X
HORIZONTAL DIVESIFICATION...........			X	X(?)
HORIZONTAL INTEGRATION...........			X	X(?)
LIQUIDATION....................			X*	X*	X*
MARKET DEVELOPMENT................			X	X(?)
MARKET PENETRATION................			X	X
PRODUCT DEVELOPMENT.....................			X	X(?)
RESTRUCTURING.....................			X*	X*	X*
RETRENCHMEMT......................			X*	X*	X*
(?) DEPENDS ON THE FINANCIAL CONDITION OF THE ORGANIZATION

I&E Matrix

IFEM

EFEM

I&E Chart

STRATEGIES

THE SWOT MATRIX STRATEGIES

STRENGTH/OPPORTUNITY (SO) STRATEGIES

Add additional distribution networks to expand global market share.

WEAKNESS/OPPORTUNITY (WO) STRATEGIES

Develop a moderately priced new product to attract a wider customer base and help grow market share.

STRENGTH/THREAT (ST) STRATEGIES

Continually develop new products and innovate current products to stay on top of competition.

WEAKNESS/THREAT (WT) STRATEGIES

Use high net income to pay down debt and decrease debt-to-equity ratio to a healthier level under 1.0. This will help protect the

company during times of global and regional economic recessions.

III

VII

VIII

Strategy - Summary

Apple currently only holds 20% of the global market share for their industry. Although they are a premium priced brand

they still have a significant portion of the global market that they can grow into. The strategy is to add Marketing Distribution Channels

in order to increase market share and as a result increase revenue and net income.

After looking at Customer Acquisition Costs (CAC's) for companies in the eCommerce and retail sectors I found that a reasonable

number for new customers is $82 online and $31 in brick and mortar stores.

The simplest way for Apple to grow market share is to increase marketing through Social Media in order to acquire new customers

and generate sales from existing customers.

We will increase the Selling General & Administrative expense by about 7% which gives an additional $1 Billion to spend on customer acquistion and re-engagement.

The plan is to spend $500 Million on acquiring new customers and $500 Million on re-engaging existing customers.

We will assume that a portion of new customers will be acquired from online and a portion will be acquired in store so we will average the two for a CAC.

Additionally, we will assume that customer re-engagement cost is 50% of the CAC for new customers.

This will allow us to acquire about 8.85 million new customers with a CAC of $56.50 each

This will allow us to re-engage about 17.7 million existing customers with a cost of $28.25 each

Although there isn't a lot of information available for the average revenue per customer Apple typically sells expensive high end products so we will assume

average revenue per customer is $150

We will expect an additional 26.55 million customer transactions from this strategy with an average revenue per customer of $150 generating $3,982,500,000 of revenue the first year

We will assume that 1 in 5 of these customers will make a purchase in year 2 and 1 in 10 customers will make a purchase in year 3 for this strategy.

As a result this will generate an additional $796.5 Million of revenue during year 2 and $398.25 Million of revenue in year 3.

Financial Analysis

Place selected ratios and trends here - show both the calculation and what the ratio or trend is telling about performance.
Apple, Inc. Financial Ratios Analysis
Financial Ratio:	2015	2014	2013
Gross Profit Margin	40.05%	38.58%	37.62%
Operating Profit Margin	30.48%	28.72%	28.67%
Net Profit Margin	22.85%	21.61%	21.67%
Return on Assets	18.38%	17.04%	17.89%
Return on Stockholder's Equity	44.73%	35.42%	29.98%
Debt-to-Equity Ratio	1.43	1.08	0.68
Inventory Turnover	59.63 Turns	53.18 Turns	60.43 Turns
Average Collection Period	3.67 Days	4.22 Days	3.77 Days
Days of Inventory	6.12 Days	6.86 Days	6.04 Days

Pro Forma Income Statement

Apple, Inc.
Pro Forma Income Statement
Fiscal Years: 2016 - 2018
(All Numbers in Thousands)
	2016	2017	2018
Revenue	$ 235,000,000.00	$ 246,750,000.00	$ 259,087,500.00
Revenue from Strategy	$ 3,982,500.00	$ 796,500.00	$ 398,250.00
Total Revenue	$ 238,982,500.00	$ 247,546,500.00	$ 259,485,750.00
COGS (60%/Rev.)	$ 141,000,000.00	$ 148,527,900.00	$ 155,691,450.00
COGS Strategy (60% Rev.)	$ 2,389,500.00	$ 477,900.00	$ 238,950.00
Gross Profit	$ 94,000,000.00	$ 99,018,600.00	$ 103,794,300.00
Gross Profit Strategy	$ 1,593,000.00	$ 318,600.00	$ 159,300.00
Research & Development (3.5%/Rev.)	$ 8,225,000.00	$ 8,636,250.00	$ 9,068,062.50
Selling General & Administrative	$ 14,500,000.00	$ 15,225,000.00	$ 15,986,250.00
SG&A from Strategy	$ 1,000,000.00	$ - 0	$ - 0
Total Operating Expenses	$ 23,725,000.00	$ 23,861,250.00	$ 25,054,312.50
Operating Income	$ 71,275,000.00	$ 75,157,350.00	$ 78,739,987.50
Operating Income Strategy	$ 593,000.00	$ 318,600.00	$ 159,300.00
Other Income (0.55%/Rev.)	$ 1,314,403.75	$ 1,361,505.75	$ 1,427,171.63
Earnings Before Taxes	$ 72,589,403.75	$ 76,518,855.75	$ 80,167,159.13
Earnings Before Taxes Strategy	$ 593,000.00	$ 318,600.00	$ 159,300.00
Income Tax Expense (26%)	$ 18,873,244.98	$ 19,894,902.50	$ 20,843,461.37
Income Tax Expense Strategy (26%)	$ 154,180.00	$ 82,836.00	$ 41,418.00
Net Income	$ 53,716,158.78	$ 56,623,953.25	$ 59,323,697.75
Net Income from Strategy	$ 438,820.00	$ 235,764.00	$ 117,882.00

Pro Forma Balance Sheet

Apple, Inc.
Pro Forma Balance Sheet
Fiscal Years: 2016 - 2018
(All Numbers in Thousands)
Assets		2016	2017	2018
Current Assets
	Cash	$ 74,836,159.00	$ 131,460,112.26	$ 190,783,810.01
	Cash from Strategy	$ 438,820.00	$ 235,764.00	$ 117,882.00
	Short Term Investments	$ 20,481,000.00	$ 21,505,050.00	$ 22,580,302.50
	Net Receivables	$ 35,889,000.00	$ 37,683,450.00	$ 39,567,622.50
	Inventory	$ 2,349,000.00	$ 2,466,450.00	$ 2,589,772.50
	Other Current Assets	$ 9,539,000.00	$ 10,015,950.00	$ 10,516,747.50
Total Current Assets		$ 143,532,979.00	$ 203,366,776.26	$ 266,156,137.01
Long Term Investments		$ 164,065,000.00	$ 172,268,250.00	$ 180,881,662.50
Property Plant and Equipment		$ 22,471,000.00	$ 23,594,550.00	$ 24,774,277.50
Goodwill		$ 5,116,000.00	$ 5,371,800.00	$ 5,640,390.00
Intangible Assets		$ 3,893,000.00	$ 4,087,650.00	$ 4,292,032.50
Other Assets		$ 5,556,000.00	$ 5,833,800.00	$ 6,125,490.00
Total Assets		$ 344,633,979.00	$ 414,522,826.26	$ 487,869,989.51
Liabilities
Current Liabilities
	Accounts Payable	$ 60,671,000.00	$ 63,704,550.00	$ 66,889,777.50
	Short/Current Long Term Debt	$ 10,999,000.00	$ 11,548,950.00	$ 12,126,397.50
	Other Current Liabilities	$ 8,940,000.00	$ 9,387,000.00	$ 9,856,350.00
Total Current Liabilities		$ 80,610,000.00	$ 84,640,500.00	$ 88,872,525.00
Long Term Debt		$ 53,463,000.00	$ 56,136,150.00	$ 58,942,957.50
Other Liabilities		$ 33,427,000.00	$ 35,098,350.00	$ 36,853,267.50
Deferred Long Term Liability Charges		$ 3,624,000.00	$ 3,805,200.00	$ 3,995,460.00
Total Liabilities		$ 171,124,000.00	$ 179,680,200.00	$ 188,664,210.00
Stockholders' Equity
Common Stock		$ 27,416,000.00	$ 28,786,800.00	$ 30,226,140.00
Retained Earnings		$ 146,438,979.00	$ 206,418,076.26	$ 269,360,002.01
Other Stockholder Equity		$ (345,000.00)	$ (362,250.00)	$ (380,362.50)
Total Stockholder Equity		$ 173,509,979.00	$ 234,842,626.26	$ 299,205,779.51
Total Liabilities & Stockholders' Equity		$ 344,633,979.00	$ 414,522,826.26	$ 487,869,989.51