E145/STS173E145/STS173Workshop AWorkshop AThe Case MethodThe Case MethodandandBasics of AccountingBasics of AccountingProfessors Tom Byers and Randy KomisarStanford UniversityCopyright © 2007 by the Board of Trustees of the Leland Stanford Junior Universityand Stanford Technology Ventures Program (STVP). This document may bereproduced for educational purposes only.Workshop A AgendaWorkshop A Agenda• Case Method Thoughts• Accounting Principles• Some “Accounting” ApplicationsThe Case Method - AgendaThe Case Method - Agenda• Introduction to the Case Method• Analysis Tips• Write-up TipsThe Case Method of InstructionThe Case Method of Instruction• A case is a “simulation” of business life and decision-making. Itusually sets the stage for a set of business problems and complexdecisions.• Cases present lots of information arranged in an unstructuredway. Goal of case analysis is to select the relevant information,and structure it in a way that helps addressing the issues of thecase and making decisions.• Many times, decisions will have to be made with insufficientinformation – this reflects real life!• Teamwork is essential for case-based learning and for thedevelopment of well grounded opinions. Disagreement is normaland even necessary, since unique solutions are rare.(please read E145 handouts on Case Analysis)Seven Tips for Case AnalysisSeven Tips for Case Analysis1- Gain a Basic Understanding of the Company• What does the company sell, to whom, how, and why do people buy it?• Size of revenues - How big is the business?• Growth of revenue and assets – How quickly is the company growing?• Profitability of the business (several measures)2- Understand the Financial Situation of the Company• Is operational cash flow positive or negative?• How is the short term cash position?• How much debt does the company have?3- Benchmark the company against competitors and the industry average• Measures of profitability• Measures of operational efficiency• How are the company’s products differentiated from competition?4- Analyze the historical evolution of the company’s financial situationSeven Tips for Case AnalysisSeven Tips for Case Analysis5- Analyze the sustainability of growth and the cash burn rate• How long will the company be able to maintain operations with the currentcash position?6- Don’t confuse symptoms with problems. Often the numbersreflect symptoms that help in diagnosing business problems. Oneof the most important tasks of case analysis is to identify theproblems addressed by the case.7- You should reach a clear decision on the case, which is wellsupported and logically consistent with the analysis. Write theassignments in concise language, using a bullet point format.Case Write-Up TipsCase Write-Up Tips1- Skip the intro. We know what question you’re answering; we have toread at least 16 answers to the same question. You’ve only one pagein which to make your case, make effective use of it.2- Build an argument. Don’t just answer the “what” question, back it upwith the “why”. If you make assertions or assumptions outside of thecase, justify them. We ought to be able to read your answer andcreate a resprentative outline of the form:• “I think _________ should do/choose _______ option because– Reason X– Reason Y– Reason ZIn fact, maybe make the outline first. If the outline is good enough,you can just turn it in. Content over style.Case Write Up TipsCase Write Up Tips3- Read the case carefully and learn to filter. These cases have a lotof info, not all of it is relevant. Many of these cases were written withdifferent case questions in mind. Some of them deal withtechnologies you may not be familiar with. If there’s terminology oranything in the text that you don’t quite understand, feel free to ask.The teaching team is here to help.4- Use the study questions. At least read them. Preferably, discussand answer them. The study questions have been carefully designedto help you narrow down the scope of the actual homework questionor, at very least, to point you in the right direction. Again, if you’re notsure, ask.Case Write Up TipsCase Write Up Tips5- Feel free to use outside knowledge. Make full use of your own andyour team’s knowledge. What do you know about this particulartechnology or market? Between you and all of your team members,you probably know a lot more than you think you know. What wouldyou do in this situation? From what you know of the personalities inthe case, which of the decision options do you think they wouldprefer?6- But, don’t just look up an answer. With point 5 in mind, don’t justlook up what really happened and let historical determinism answeryour question. Answer the case from the time and perspective of thepersonalities in the case. We don’t look for right or wrong answers,we look for well-constructed arguments.Case Write Up TipsCase Write Up Tips7- Think through the alternatives. They won’t always be laid out in thecase or the question.8- Think about limitations as well as advantages. Argue for yourchoice, but recognize the risks. Every choice has tradeoffs, else thesedecisions wouldn’t be so interesting or so difficult. What are the bigrisks for each alternative and why, despite these risks, do you thinkyour choice is the best path of action?9- Know when to use the numbers. Hint: if we teach you financing inclass and then you get a case with financing numbers in it, weprobably want you to run the numbers. You’ll note that you won’t haveall the values you need – you can solve for some values, others you’lljust have to guess (and justify why those numbers are reasonable).Workshop A AgendaWorkshop A Agenda• Case Method Thoughts• Accounting Principles• Some “Accounting” ApplicationsBasics of Accounting - AgendaBasics of Accounting - Agenda• Review main accounting documents and financialanalysis• Balance Sheet• Income Statement (Statement of Operations)• Statement of Cash FlowsPlease refer also to the Merrill Lynch document: How to Read a FinancialReport• Company burn rate, forecasted required capital to reach milestones, …• Head count, loaded cost per employee, equipment expenses, regulatory expenses, …• Business model, acquisition costs, steady state financialsSome Accounting PrinciplesSome Accounting Principles• Accounting items are classified into “accounts”according to their nature,