VMC: Questions to Expect in a Case Competition

By Andrew Stotz | May 28, 2018 |

This post was originally published here.

Part 1 of 6: Revenue Questions

Over the years, I’ve been a judge in various case competitions from the CFA Research Challenge to the SCG Bangkok Business Challenge at Sasin. On top of sitting on that side of the ‘bench’, I’ve also racked up thousand hours of presenting experience as a sell-side analyst to fund managers. More on that in a bit though.

Today’s article is the first part in a series about the questions you should expect as a participant in such case competitions. There are six common areas to expect questions on (which we’ll cover across the series of these articles):

Revenue growth
Gross profit growth or margin and growth
Net profit margin
Asset growth and financing
Valuation
Share price and market perception

In Part 1, we’ll begin by discussing what you might get asked about revenue.

If you want to get down to it, we’re all ‘presenting’ ourselves on a daily basis. I’m always presenting myself and my ideas, and you are, too. Whether it’s to your colleagues, your boss, your friends, even your mom and dad, you’re always presenting your ideas. They’re not always on board with you sometimes, so it’s important to present your case properly. It’s just a matter of how focused you are on the presentation that you’re giving and, in particular, on the judges in front of you.

As I explain to my students in the Valuation Master Class, focus on getting the forecasts right as it’s the heavily weighted majority portion of most case competitions. Expect that 80% of questions will be about your forecasts and the remaining 20% about your valuation. On top that, judges want to understand the story of your presentation. Which is part of the reason why that 80% is so important because a company’s profit growth is its story.

(Of course, if you’re presenting a start-up company, you don’t have to worry about share price and market perception, but we could probably replace that with an exit strategy, i.e., what’s your exit plan?)

So, here are the three main questions you need to cover about revenue:

What are your key assumptions about the revenue drivers of this company?
What’s driving the revenue?
In what ways are your revenue growth assumptions different from the past?
Here is where you need to tell the company’s story.

For example, I am the co-founder of a B2B coffee roasting company in Thailand called CoffeeWORKS. About ten years ago, we expanded into a new distribution channel supplying hotels. What was the impact on revenue when we moved into that channel?

Well, it caused a significant one-time increase in revenue, the biggest since the year we started the company. The new channel also continued to build higher and higher revenue growth over time too. This is the story of the way our revenue changed at that moment in time. Your presentations should provide similar narratives to explain revenue growth.

Review and build out these points to cover the three main questions for your upcoming case competition:

- How are your revenue growth assumptions different from consensus?
  If you’re an analyst like I was on the sell-side going to the fund manager, this is critical. The fund manager already knows everything that’s out there in the market. They see all the reports daily, and all of that information is already reflected in stock prices. So, the only thing that the fund manager really wants to know─or any investor or judge─is, “What do you know that is different? Explain to me what you know that the market doesn’t know yet.”
- To reach your revenue growth assumptions, do you expect management to make significant changes from their prior management style?
  If you’re looking at a company that’s grown organically, it’s hard to argue that they’re going to grow further through mergers and acquisitions (M&A). If you look at a company that’s been growing through M&A, it’s hard to argue that it’s suddenly going to switch to organic growth.
- What level of confidence do you have in your revenue growth assumptions?
  Don’t waiver. Do your due diligence on your forecasts to have confidence in your assumptions. The two go hand-in-hand.
- What are the strongest opposing views that could prove your revenue forecast wrong?
  Do you want to win an argument? Start with your opponent’s potential core arguments against your case. Know the opposing views inside and out.
- What is your assessment of the competitive environment of the company’s market?
  In the Valuation Master Class, I teach my students that they should be focused on Porter’s Five Forces as it offers the best structure. The SWOT Analysis, to me, is a little bit more of brainstorming rather than a comprehensive study of an industry.
- What are the company’s constraints to growth?
  Whatever those constraints to growth are that are holding a company back, make sure you know all about them.
- Are there risk reduction benefits from expanding into new products and markets? At CoffeeWORKS, we started with the office coffee service. Later, we added in supplying restaurants and coffee shops─two very different markets which provided very different behaviors for the two revenue streams. After this, we began supplying coffee to hotels; a revenue stream based on tourism. The different characteristics of those different product lines brought our total revenue together to actually reduce its volatility. So always think about how you can reduce business risk through new products, new markets, new regions, and new areas.
- What are your assumptions about the company’s market share?
  In my CoffeeWORKS investments, we’re always asking the following questions to move forward and increase growth:
  - Why was our market share flat?
  - What are we doing to increase our market share?
  - What is it that is causing our market share to rise?

These are very important questions for the management of any company.

That’s it for revenue!

So, here are my personal tips for business case competitions:

Always tell a story.
Focus and repeat how you arrived at the above three main points over and over again.
Talk to the judges as if they were potential investors.
View the Q&A session as your chance to help the judges better understand your case, and don’t forget; have fun!
And finally: Be prepared for the most important question you will be asked: the one you don’t know the answer too! Don’t panic though. Respond as I would, “Wow! That’s an interesting question that nobody has ever asked me, and I haven’t thought about. Here are my preliminary thoughts; positive and negative, and I’m going to do more work on that particular point too.”

Keep an eye out for the remaining parts in this series where I’ll talk about gross profit margin, net margin, asset growth and financing, valuation, share price, and market perception. Until next time!

The Valuation Master Class provides you with the head start needed to achieve the equity analysis edge you need on the CFA exams. Over the course of five modules, you will accumulate a portfolio of 56+ practical valuations on real-world companies. No other course provides the same opportunity to hone your equity analysis skills in the same way.