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2013

In: Business and Management

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CASE EXAMINATION
EmRen Publishing
Incorporated
MAY 2013

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May 2013 Case Examination

TABLE OF CONTENTS
May 2013 Case Examination
Page
Case Question:
Backgrounder ................................................................................... 1
Additional Information ..................................................................... 15
General Comments on Performance ....................................................... 30
Steps for Approaching Business and Corporate Strategy ........................ 41
Marker Assessment Guide ....................................................................... 48
Solution Notes for Markers....................................................................... 58
Sample Response – Successful Attempt #1 ............................................ 79
Sample Response – Successful Attempt #2 .......................................... 111
Sample Response – Unsuccessful Attempt ........................................... 152

May 2013 Case Examination

May 2013
Case Examination
Backgrounder
The background information relating to the Case Examination (Backgrounder) is provided to candidates in advance of the examination date. The Backgrounder contains information about both the fictitious company and the industry involved in the case.
Candidates are expected to familiarize themselves with this information in preparation for the analysis that will be required during the Case Examination.
Candidates should note that they will not be allowed to bring any written material, including the advance copy of this Backgrounder, into the examination centre. A new copy of this Backgrounder, together with Additional Information about the organization and a supplement of formulae and tables, will be provided at the writing centre for the Case Examination. Only the following models of calculators are authorized for use during the Case Examination:
1. Texas Instruments
2. Hewlett Packard
3. Sharp

TI BA II Plus (including the professional model)
HP 10bII+ (or HP 10bll)
EL-738C (or EL-738)

Candidates are reminded that no outside research on the industry related to this case is required. Examination responses will be evaluated on the basis of the industry information provided in the Backgrounder and the question paper (Additional
Information).

CICA and CMA Canada joined together January 1, 2013, to create CPA Canada as the national organization to support unification of the Canadian accounting profession under the CPA banner. The CMA Entrance Examination,
CMA Case Examination and CMA Board Report are still being developed and provided under the direction of
CMA Canada until the final offerings of the CMA program are completed.

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May 2013 Case Examination

EmRen Publishing Incorporated
Backgrounder
Overview
EmRen Publishing Incorporated (EmRen) is a magazine publishing company located in
Toronto, Ontario. EmRen publishes and distributes both consumer and business magazines across Canada. Consumer magazines focus on fashion, health and beauty, and are sold from newsstands or by subscription. Business magazines offer industryspecific news and information, and are sold to industry professionals on a subscription basis only. EmRen employs over two hundred and fifty people, including part-time staff, in editing, publishing, sales and finance functions, and has a printing contract with an organization located in Quebec.

History
EmRen was founded more than thirty years ago by Emma Scott and Lauren
McCormick. They met at a convention and the two became business partners.
Scott worked with several large magazine companies in the United States as a freelance writer specializing in women’s fashion, beauty and fitness. She has a keen awareness of industry trends, and her passion is to create a brand of magazines focused on topics that matter most to women.
McCormick worked on the publishing side for several fashion and business magazines.
She has a business degree and is known in the industry for both her technical expertise and her ability to capture readers’ interest with creative content and design. McCormick has a good understanding of business and a vast network of industry contacts.
As part of their business plan, Scott and McCormick developed the following vision and mission statements:
Our vision is to create a unique brand of magazines for our Canadian readers.
At EmRen, our mission is to be the first choice of Canadian readers, both consumers and industry professionals, for expert advice in the areas of fashion, health, beauty and professional industry. Uncompromising with respect to our high standards of excellence, we strive to inform, educate and entertain our readers with a vast selection of magazines.
When operations began in the 1980s, EmRen offered five consumer magazines aimed at women aged 18 to 40. These publications met with success and attracted a subscriber base of 200,000 in total in the first two years. Shortly thereafter, the company added two business magazines that caught the attention of industry experts. Currently,

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EmRen owns over 30 consumer magazines and 10 business magazines with a total subscriber base of 2 million.
EmRen publications are known for their literary excellence. They are also known for their content, which consistently reflects industry trends. The company’s business magazines have a reputation among industry leaders and experts for bringing the latest industry news, expert discussions and the results of intensive research to professionals, such as physicians, cosmeticians, grocers and marketers.

The Magazine Publishing Industry in Canada
Canada has a vibrant magazine publishing industry, with over 2,300 titles—more than
1,200 of these being consumer titles—and more than 750 million copies in circulation.
The industry employs over 14,000 people as freelance writers, editors, photographers, designers and illustrators. It contributes significantly to Canada’s economic growth and provides content that is relevant to Canadians.
Advertising revenue is generated by the advertisements placed in the magazine. It forms the largest part of a publisher’s revenue but is susceptible to fluctuations in the economy. In 2009, the economic recession led to the largest decline in profits as advertisers reduced discretionary spending. Since then, there has been a modest recovery; it is anticipated that the total value of the Canadian consumer magazine market, including both advertising and circulation, will grow from $1.1 billion in 2011 to
$1.3 billion by 2015, and advertising is expected to grow steadily. Most magazine publishers are located in Ontario and Quebec, and these organizations account for the majority of the industry’s operating revenues.
Advertisers try to maximize the efficiency of their spending by concentrating on magazines read by their target groups. Consumer magazines appeal to a variety of readers and therefore enable advertisers to reach a wide audience. Conversely, business magazines fall into narrow categories, such as engineering, dentistry, healthcare, architecture and retail; each publication has a highly focused subscriber base, and business leaders rely on these magazines for industry-specific information and research. When advertisers want to reach a niche group within a specific industry, they focus their spending on the appropriate business magazines. When they prefer to expand the reach of an advertisement, they focus on consumer magazines, and the variety of magazines available through a given publisher becomes an important selling point. Other sources of revenue for publishers include sales of magazines by subscription and through newsstands (circulation), sales of articles produced in-house and the associated royalty payments (production revenue), and special events driven by business publications. Such events produce revenue in the form of ticket sales and, occasionally, event sponsorship. In the publishing industry, advertising revenue accounts for approximately 73% of the operating revenue, while approximately 26% of operating revenue is attributed to circulation.

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The major expenses for publishers are salaries, wages and benefits, commissions, printing, postage and distribution, and content costs.
Staff salaries, wages and benefits are major expenses, and commissions are based on the advertising revenue generated by the sales team. Printing costs vary according to the type of paper used—glossy, fine or regular grade. Postage and distribution expenses are mainly from Canada Post and other third-party courier services to deliver the magazines to retail outlets and subscribers across Canada. Postage costs per magazine are higher in Canada than in other countries, and those costs are increasing by 3% to 4% annually.
Content costs include payments to freelance writers and the cost of photography.
Publishers often pay a premium for hot-topic or last-minute articles; this may have a material impact on operational expenses.
In recent years, digital media has emerged and helped create additional advertising revenue streams for the publishing industry. Digital media consists of websites, mobile applications, content for electronic readers and overall connectivity across different electronic platforms. In digital media, online advertising revenue is measured by the number of impressions made on a website, one impression being one view of a given web page by one person. The developmental costs associated with this revenue are the creation and management of websites, mobile applications and promotional programs.
Readers are willing to pay more for content that reflects their current interests; the highend client group provides the highest profit margin but is underserved in the industry.
Since reader preferences are constantly changing, creating content that is up-to-date and relevant is an ongoing challenge for publishers. In a traditional magazine, content means articles and photography. With respect to digital media, content means a given website, its associated articles and its availability through different electronic platforms.
Digital format has not been formally adopted for EmRen publications. Scott strongly believes that readers still prefer hard copy magazines.

Shareholders and Board of Directors
EmRen’s Board of Directors is composed of five individuals with a wealth of knowledge in various industries. Derek Woodsworth, Chair of the Board, holds a position of vicepresident of the largest telecommunications organization in Canada. The other Board members are Patsy Deacon, an independent lawyer, Aadi Singh, owner of a management consulting firm, and the two founders, Scott and McCormick.
The Board meets every quarter to review EmRen’s financial results and provides recommendations regarding strategic directions. Every two years, the directors review the company’s strategic plan and, at their last meeting, they conducted a high-level environmental scan (see Appendix 1).

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Senior Leadership Team
EmRen’s senior leadership team consists of the co-presidents, Scott and McCormick, and four directors, each overseeing one of the four main divisions: Consumer
Publishing, Business Publishing, Operations and Logistics (see Appendix 2).
Collectively, these six individuals have a vast amount of experience in different aspects of the publishing industry.
James Arnold, Director of Consumer Publishing, has ten years of experience in production and sales at EmRen. He began his career as a salesman and was promoted quickly, due to his aggressive nature and his ability to build strong networks.
Cathy Kareva, Director of Business Publishing, has twenty years of experience in various publishing companies in Canada. She is knowledgeable in all facets of the publishing process and has always been a valuable member of the senior leadership team. Georges Manon, Director of Operations, is responsible for production, editing and design, project management, sales and marketing. Prior to joining EmRen in 2008, he oversaw a number of mergers involving small publishing firms in the United States.
Jinah Moon, Director of Logistics, joined EmRen two years ago. She was the owner of a small courier service in Montreal and decided to move to Toronto to start a career in publishing. The Publishing Process
EmRen’s publishing process is similar to that used by most magazine publishers (see
Appendix 3).
Content Development and Production
The Consumer Publishing and Business Publishing divisions have the greatest responsibility in developing magazine content and must coordinate efforts with the production team to finalize the content. The divisions solicit material from a network of freelance writers with whom relationships have been established over a period of years, and ensure that articles are readily available as needed. The strength of the network is reflected in the high quality of the articles in EmRen’s magazines. In order to complement the written material, the divisions either engage photographers to produce specific sets of photographs or purchase photographs from other organizations. Each division also tracks the inventory (articles and photographs) purchased, keeping unused items on hand and reviewing them quarterly with Accounting.

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The success in delivering the content of the magazines is determined by the skillful use of photographs, illustrations, captions and typography. The production team spends much time planning the layout, fonts and visuals for each article in order to better engage readers.
Discussions are held among the Consumer Publishing and Business Publishing divisions and the production team regarding advertising space, page layout and the costs of articles and photographs.
At EmRen, consumer magazines have always been the primary focus, because they are the main drivers of advertising revenue and sales, and business magazines are viewed as a lower priority. As a result, the Business Publishing Division has frequent disagreements with the production team. In addition, because of heavy workloads and lower wages, staff turnover is higher in the Business Publishing Division.
Editorial and Design
The Editorial and Design Department is responsible for the final layout of each magazine issue as well as the editing of the final product.
The design team is responsible for ensuring that the look and feel of the magazine are consistent with its brand and content. Each magazine has a cover design as well as department page designs. The department page designs are recurring sections found in a magazine and often have a similar format. In addition, each issue has from two to five feature stories that require different feature spread designs, depending on the nature of the article. More effort is invested in the designs for feature spreads because these play an important role in capturing the reader’s interest.
Once the design and layout have been approved, the content transferred from the production team is added. The editorial team then edits the completed issue and sends the approved version to the chief editor for a final review.
Before sending the magazine to the printer, the chief editor ensures that the format is within the printer’s specifications. The printer checks the specifications and produces printed proofs for editorial review and final sign-off.
Printing and Distribution
The printing company is responsible for printing, trimming, folding and binding the magazines. The Logistics Division communicates the printing volume, delivery schedule and timelines before the printer prints and prepares the magazines for shipping to various subscribers and newsstands across Canada.
EmRen has a printing contract with Pentagon Printing Incorporated (Pentagon), located in Quebec. EmRen is Pentagon’s largest customer; the contract is reviewed every three years and the price is fixed for the term regardless of fluctuations in commodity prices.
Pentagon has over 1,800 square metres of warehouse space, has been in operation for

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more than 20 years and has serviced the nearby businesses well. Pentagon is responsible for printing and storing EmRen magazines until it is time to distribute them.
Over the years, EmRen has worked closely with Pentagon to ensure the responsible and sustainable use of raw materials. Pentagon is a major supporter of forest restoration programs and works to minimize its environmental footprint.
In the past few years, labour disputes at Pentagon have impacted services and have had a negative effect on customer experience. In addition, some inventory has been misplaced and some security issues have arisen.

Project Management
The project management team is responsible for coordinating and overseeing research activities, special events and special projects.
At EmRen, research activities are completed by both the Consumer Publishing and
Business Publishing divisions either in-house or in partnership with other organizations; the purpose is to present thoroughly researched content. Research for business publications focuses on professional activities; for example, the medical magazines typically publish reports on new drugs available in the marketplace. Research for consumer publications focuses on consumer intelligence; for example, a fashion magazine may publish a study of the buying behaviour of a particular age group, information that can help advertisers reach a target audience.
The business publications rely heavily on special events held throughout the year in order to gain subscribers. Whether these events are organized entirely by EmRen or jointly with other sponsors, the project management team is responsible for securing a venue, guest speakers and other needed contractors. Over the years, the resources required to organize these events in the industry have increased due to their complexity.
The project management team is also responsible for special projects, which are usually driven by the Consumer Publishing Division. Such projects can range from covering a royal wedding to creating cookbooks as inserts in one of the women’s magazines.

Finance and Accounting
The accounting team deals with accounts payable, accounts receivable and payroll, and is involved in the preparation of month-end statements, budgets and forecasts.
To ensure that EmRen does not pay for the same article twice, a clerk checks each invoice against the inventory for each magazine. In EmRen’s database, articles are listed in order by date, title, freelance writer and the name of the magazine in which the material will be published.

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Each magazine has a dedicated accountant as well as a business manager. The business manager acts as a liaison among the accounting, operations, consumer publishing and business publishing teams to ensure that each issue, special event and project is accounted for accurately and completely, and that the appropriate month-end statistics are recorded. These data, which include the number of advertising pages and issues sold in the month as well as the corresponding revenue and costs, help management monitor the profitability of each magazine on a monthly basis. Forecasts are prepared every two months, and budgets, once a year.
EmRen’s old accounting system did not integrate sales, billing and reporting functions.
Two years ago, the system was upgraded so that it now contains modules for sales, billing and monthly reporting. However, due to difficulties with module integration and training, the accounting team still has reporting issues to resolve. For example, there are insufficient controls to prevent costs from being recorded in the wrong accounts or in multiple accounts, causing costs to appear in the wrong expense category. Once these problems have been resolved, the new system will be a useful tool in the decision-making process.
EmRen had early adopted Accounting Standards for Private Enterprises (ASPE) in
2009, and the audited financial statements are provided in appendices 4 and 5. The company pays income taxes at a rate of 30%.

Sales and Billing
EmRen’s sales team is well-trained. The sales representatives are paid a minimum base salary and must sell advertising space in order to be eligible for commissions. On a monthly basis, the report of sales generated is used to calculate the commissions paid. When advertising space is sold, the sales representative enters the information in the accounting system. The billing team then validates the data by counting the number of advertisements in each magazine and generates invoices using the accounting system.
In addition to selling advertising space, the sales team negotiates the placement of
EmRen’s magazines in retail outlets across Canada. Physical position on the racks of a newsstand is extremely important in driving sales, and EmRen’s sales team has done an excellent job of securing and maintaining good placement and visibility for the company’s publications.

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Marketing
For each magazine, EmRen relies on marketing and promotions to attract more subscribers and increase sales. The marketing team is responsible for increasing awareness of the different magazines by using a variety of appropriate advertising media and effectively targeted messages that appeal to the distinct groups of readers for each magazine. For example, EmRen advertises its running magazine on transit shelters along popular running routes.

Facilities
McCormick firmly believes that the company should operate in an upscale location and be in close proximity to its clients. As a result, EmRen’s office is conveniently positioned near several main advertising clients, and this has helped the company build good relationships with those clients over the years. Currently, EmRen occupies two floors of a prestigious downtown building.
Assets included in property, plant and equipment are production machinery, computers, shelving and fixtures. These assets are amortized on a straight-line basis over their estimated useful lives.

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Appendix 1
EmRen Publishing Incorporated
Environmental Scan
Strengths
1. EmRen publications are known for their literary excellence and their content reflecting industry trends.
2. The founders, Scott and McCormick, are industry experts. The senior leadership team is strong and experienced.
3. EmRen has a good working relationship with freelance writers who have up-to-date industry knowledge.
4. Long-term favorable contract with
Pentagon.
5. EmRen is socially responsible and participates in environmental initiatives.
6. The company has good connections with advertising clients and suppliers in the industry. 7. Prestigious downtown location; close proximity to existing clients.
8. The accounting system is fairly new and was upgraded two years ago.
9. Well-trained sales team.
10. The sales team has maintained good placement and visibility for the company’s publications in retail outlets.
Opportunities
1. The Canadian consumer magazine market is expected to grow.
2. Advertising is expected to grow steadily.
3. Readers are willing to pay a premium price for content that reflects their current interests. The high-end clients provide the highest profit margin.

Weaknesses
1. Decline in net income.
2. Disagreement between the Business
Publishing Division and the production team because business magazines are viewed as a lower priority.
3. Problems retaining staff in the Business
Publishing Division.
4. Module integration and training issues of the accounting system are causing inaccurate reporting. 5. Labour disputes at the current printer
(Pentagon) have impacted services and have had a negative effect on customer experience. 1.
2.
3.
4.
5.
6.

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Threats
Commodity prices are subject to fluctuation.
Printing, postage and distribution costs are increasing. Competition in the industry is intense.
Readers’ preferences are constantly changing. The resources required to organize the special events have increased.
Advertising revenue is susceptible to economic fluctuations.

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Appendix 2
EmRen Publishing Incorporated
Organizational Chart

Board of Directors
Derek Woodsworth – Chair
Patsy Deacon
Aadi Singh
Emma Scott
Lauren McCormick

Emma Scott

Lauren McCormick

Co-president

Co-president

James Arnold

Cathy Kareva

Georges Manon

Jinah Moon

Director of
Consumer
Publishing

Director of
Business
Publishing

Director of
Operations

Director of
Logistics

Editorial and Design

Production

Business
Managers

Business
Managers

Sales

Project
Management

Marketing

Administration

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Finance

Accounting

Billing

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Appendix 3
Publishing Process Flow Chart
Consumer and Business
Publishing divisions solicit authors on specific topics

Authors and freelance writers submit articles to
EmRen for review

Production schedule and timelines are discussed and communicated

Production team works on content layout, font and visuals Articles are reviewed by
Consumer and Business
Publishing divisions

YES

Accepted?

Content is reviewed and finalized

NO

Rejection letters are sent Content sent to Editorial and Design

Editorial and Design Department works on cover design, departmental designs and feature spread designs, and edits the completed magazine issue

Magazines are printed and distributed

Logistics
Division sets the printing volume, the delivery schedule and timelines Printer sends an electronic version for final editing and sign-off

Magazine is sent to the printer

Pre-press review is completed and magazine is sent to the chief editor for a final review Supporting Departments

Project
Management

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Sales

Marketing

Finance

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Appendix 4
EmRen Publishing Incorporated
Income Statement
For the Years Ended December 31 (Audited)
(in ’000s)
2011

2010

2009

$17,716
10,005
3,808
677
649
32,855

$16,820
10,295
2,823
603
950
31,491

$14,813
8,240
1,384
409
468
25,314

11,079
886
10,375
2,572
1,827
2,200
514
848
247
126
30,674

9,585
841
10,013
2,482
1,706
2,200
415
679
233
187
28,341

9,003
741
7,484
1,856
1,678
2,200
367
462
227
129
24,147

2,181
654

3,150
945

1,167
350

$ 1,527

$ 2,205

Opening retained earnings
Net income

$3,172
1,527

$ 967
2,205

$150
817

Closing Retained Earnings

$4,699

$3,172

$967

Revenue
Advertising
Subscription
Newsstand
Production
Events
Total Revenue
Expenses
Salaries, wages and benefits
Commissions
Printing
Postage and distribution
Content
Rent
General and administrative
Marketing and promotion
Amortization
Interest
Total Expenses
Income before taxes
Income taxes (30%)
Net Income

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$

817

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Appendix 5
EmRen Publishing Incorporated
Balance Sheet
As at December 31 (Audited)
(in ’000s)
2011

2010

2009

$ 2,413
3,405
3,430
1,148
10,396

$ 1,847
2,912
2,858
1,396
9,013

$1,360
1,363
1,893
1,399
6,015

2,514

2,352

2,243

$12,910

$11,365

$8,258

$ 1,779
1,248
268
192
1,025
4,512

$ 1,353
1,056
638
192
638
3,877

$1,313
1,196
534
192
578
3,813

Long-term debt
Total Liabilities

1,699
6,211

2,316
6,193

1,478
5,291

Shareholders’ Equity
Common stock
Retained earnings

2,000
4,699

2,000
3,172

2,000
967

$12,910

$11,365

$8,258

Assets
Current Assets
Cash and cash equivalents
Accounts receivable
Inventory
Other current assets

Property, plant and equipment (net)
Total Assets
Liabilities and Shareholders’ Equity
Current Liabilities
Accounts payable
Accrued liabilities
Income tax payable
Current portion of long-term debt
Unearned revenue

Total Liabilities and Shareholders’ Equity

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May 2013
Case Examination
Additional Information
(Time Allowed: 4 hours)
Notes:
i)

Candidates must not identify themselves in answering the question.

ii)

All answers must be written on official answer sheets or in the approved electronic file. Work done on the Additional Information or on the Backgrounder will NOT be marked.

iii)

Included in the examination envelope is a standard supplement consisting of formulae and tables that may be useful for answering the question.

iv)

Examination materials MUST NOT BE REMOVED from the examination writing centre, except for the Instruction Sheet to Electronic Exam Writers, if applicable. All used and unused answer sheets, working papers, the
Backgrounder, the Additional Information, the supplement and, if applicable, a
USB key containing the electronic answer file must be sealed in the examination envelope and submitted to the presiding officer before the candidate leaves the examination room. Candidates writing the examination electronically must keep the Instruction Sheet to Electronic Exam Writers, which provides instructions for uploading their responses following the examination.

v)

Only the following models of calculators are authorized for use on the Case
Examination:
1. Texas Instruments
2. Hewlett Packard
3. Sharp

TI BA II Plus (including the professional model)
HP 10bII+ (or HP 10bll)
EL-738C (or EL-738)

CICA and CMA Canada joined together January 1, 2013, to create CPA Canada as the national organization to support unification of the Canadian accounting profession under the CPA banner. The CMA Entrance
Examination, CMA Case Examination and CMA Board Report are still being developed and provided under the direction of CMA Canada until the final offerings of the CMA program are completed.

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EmRen Publishing Incorporated
Additional Information
Update
Traditional print advertising, although successful in reaching targeted audiences, is now seen as being too restrictive. Advertisers are eager to reach a broader spectrum of customers through online advertising.
Readers want content to be available anywhere and at any time, and publishers must deliver what consumers need in a timely and innovative manner. Consumers are spending more time online, and publisher’s information technology systems must be upto-date and integrative in order to deliver online content seamlessly. As a result, the competitive landscape has shifted, and companies are looking for more ways to differentiate themselves in the online world.
For traditional publishing companies, profitability has declined in recent years as costs have increased for paper, printing and postage.

Board Meeting
At the Board meeting on January 15, 2013, the audited financial statements for 2012 were presented (see appendices 1 and 2). Following are excerpts from the meeting.
Derek Woodsworth: As you all know, our net income has been declining over the last two years. We need to find ways to increase revenues or reduce costs. Any ideas?
Lauren McCormick: Many of the large publishing houses are starting to go digital. The readers are definitely moving in this direction, since they can go online and easily find the articles that appeal to them. As I see it, all of EmRen’s existing magazines could benefit from having online versions that would reach larger groups of subscribers.
Patsy Deacon: But right now we don’t have the capacity and up-to-date information technology to go digital for all of our publications. Although some of our magazines have websites and traffic is increasing, our online presence is still in its infancy. Our in-house website developers have the knowledge they need to create online content, but they are not as experienced in doing so as their counterparts in companies that specialize in this area. Website development skill combined with magazine publishing knowledge is difficult to find these days.
McCormick: I understand that we don’t have enough capability and experience at present, but I found an innovative Toronto company that could give us a foothold in the digital media sector. LDMedia Incorporated has a group of websites focused on wellness, health and sports with a solid subscriber base. I’ve had some discussions with the owners, and they are interested in selling the company.

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Woodsworth: That’s a great idea. From my point of view, we need the capabilities that
LDMedia has, and we need to establish a strong foundation right from the start.
Aadi Singh: On another note, our contract with Pentagon will expire at the end of next month. Jinah has proposed that we purchase the necessary equipment and print magazines in-house. I think this will benefit us in the long term, given the rising costs and the issues we had with Pentagon.
Woodsworth: I want to discuss another opportunity that has come up. Deir Trail
Incorporated is a niche tourism company that specializes in providing tour packages to high-end customers and is looking to publish a magazine six times a year for its customers and travel professionals. Lauren and I think this is an excellent opportunity to reach a different set of readers.
Emma Scott: Deir Trail uses grade A paper, which is more expensive than the grade B paper that we currently use for our magazines. Not all printing companies carry multiple grades, for cost reasons, and Pentagon does not have grade A paper. Should we proceed with Deir Trail, we would need to ensure that grade A paper is available.
Deacon: Regardless of what we decide to do, we need to return to a pre-tax profit margin of 10% or greater by 2015.
Woodsworth: You’re right, we also need to consider our financing options and do a thorough analysis on all the current opportunities.
EmRen is eligible for a maximum bank loan of $3 million payable over 15 years with an
8% interest rate, and a discount rate of 13% should be applied when evaluating the options. LDMedia Incorporated (LDMedia)
The four wealthy entrepreneurs who founded LDMedia are now looking to sell their company to a more experienced management team. LDMedia’s proprietary information technology platform is extremely user-friendly and allows advertisers to customize advertising space; different advertising banners run across the websites depending on the target audience and website accessed. In contrast, its competitors do not offer such customization and flexibility. Given the unique capability of LDMedia’s platform, the company is well positioned for future growth as advertisers continue to look for more customized ways to reach their target audiences.
The company has enjoyed strong profits over the years. However, the billing and administrative functions are handled by a team that is prone to make errors.
LDMedia’s organizational structure is decentralized, and its employees have multiple responsibilities. For example, the developer of a website would also be in charge of

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selling the website to a client. This decentralized structure has enabled the company to respond quickly to changing market conditions and evolving customer preferences.
After the Board meeting, McCormick and Scott continued to discuss the purchase option as follows:
McCormick: We could utilize LDMedia’s capabilities and experience to develop online versions of our magazines and formally go digital. I think this opportunity would benefit
EmRen by increasing our subscriber base and advertising revenues. Advertisers could choose to advertise online or in print.
Scott: I’m concerned about how this would affect our employees. LDMedia’s structure is so different from ours. There are already rumours about possible layoffs at EmRen, and this purchase would definitely not help the situation.
McCormick: If the numbers show that this opportunity would help us meet our targets, I would like to see EmRen head in this direction. The only thing I’m concerned about is the security of customers’ information; LDMedia used to have negative press on information confidentiality breaches, which would need to be addressed.
Scott: I think we should consider building the websites for all our magazines in-house, rather than via LDMedia. I would rather focus on providing creative content and utilizing the resources within our company. One of our magazines recently won the Readers’
Choice Award for Best Magazine of the Year, confirming that our content is great. We can just hire talented people to develop the websites.
McCormick: I agree, but LDMedia’s unique information technology platform and the experience to manage websites would be great additions to our company if we want to go digital. We need to see some numbers and a detailed report before we can make the decision. Here are LDMedia’s 2012 financial data and some other details about the potential acquisition (see Appendix 3).

Printing In-house Proposal
Half of a floor inside EmRen’s office building became available for lease recently, and
Jinah Moon believes it is time for the company to take control of the printing and distribution services. The office space available will be enough to fit the printers, storage shelves and additional employees; the entire office building was upgraded last year and is secured with an alarm system and motion sensor, and the working environment is excellent. EmRen would be able to negotiate a favourable fixed rate of $500,000 per year, with a lease renewal every 5 years.
After the Board meeting, McCormick and Scott met with Moon to discuss the proposal:

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Moon: Personally, I strongly prefer printing our magazines in-house, which would give us access to the lowest printing price and the maximum control of quality. The commodity price has been increasing rapidly, and Pentagon has already increased its price on the new draft contract. In addition, we would be able to provide grade A paper that Deir Trail requested if we handled printing internally.
McCormick: My concern is the durability of this proposal. As you know, we may gradually move towards digital media, and the demand for print magazines will decrease as online versions mature. For us to fully handle printing and distribution, we need to purchase equipment, hire additional employees and provide training, and I’m not sure whether this would be worthwhile.
Scott: The demand for our traditional magazines is still steady, even with digital media emerging, as some customers still prefer hard copies. However, I recently read a market report forecasting that the demand for print magazines will decline.
Moon: It isn’t difficult to find qualified employees, as the skill set required isn’t high. If we decided to get rid of some printers in the future, we could always use the extra space for possible expansion, as it isn’t easy to find office space at such a good price in the downtown core. Also, our current office space is tight and will be tighter if we acquire LDMedia.
McCormick: True, but we do not have any experience in managing printing. I’m concerned that, at least in the short term, an inexperienced team would harm our quality of services.
Scott: On another note, I just had a telephone conversation with a manager at
Pentagon; she confirmed that Pentagon would be able to provide grade A paper as well.
Let’s look at the numbers before we make the decision.
Costs and the other details associated with this proposal are outlined in Appendix 4.

Deir Trail Incorporated (Deir Trail)
Deir Trail’s travel packages are among the most expensive in North America. The planned magazine would be available by subscription only and would emphasize travel destinations, the company’s tour packages, and the Deir Trail rewards program. The proposed contract has a three-year term, with a renewal option, and contains no requirements for a digital version of the magazine.
McCormick met with Scott and Cathy Kareva to discuss the contract terms outlined in
Appendix 5.
McCormick: This opportunity would allow EmRen to tap into the high-end market, but I need to see more financial analysis before making up my mind.

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Kareva: I agree. As part of the contract, we would participate in four business shows per year to promote Deir Trail’s travel packages. With our expertise in handling business events and Deir Trail’s marketing efforts, it would be a win-win situation. Our brand would be highly visible to the wealthiest people in Toronto. In addition, our marketing people would have access to Deir Trail’s distribution list of industry professionals, which could benefit our Business Publishing Division.
Scott: We do have the expertise for business shows, but we recently experienced high turnover in the event planning group, and the new hires are not as good at budgeting and keeping track of costs.
McCormick: In order to determine the ultimate impact of the Deir Trail opportunity on our bottom line, we have to consider the new printing costs. We would need the grade A paper whether we stay with Pentagon or print the magazines in-house.

Other Information
Kareva is looking into a proposal to co-sponsor a business event with a local company
(see Appendix 6) and has requested a break-even analysis. This opportunity to share best practices with one of the most experienced vendors in Canada could result in an increased subscriber base for EmRen and would emphasize the company’s position as a leader in the business magazine sector. The lead events coordinator, who would handle the arrangements, has asked for an incentive payment.
A group of freelance writers is suing EmRen for $1 million for publishing their articles without permission. It is very likely that the court would approve the settlement with the current portion being $0.2 million. The accounting team needs to determine how to disclose this pending lawsuit in the financial statements in accordance with Accounting
Standards for Private Enterprises (ASPE).
James Arnold has approached McCormick to discuss a telephone conversation between Kareva and a Deir Trail executive. It was discovered that they were close friends, and Kareva agreed to share EmRen’s subscriber database with Deir Trail regardless of acceptance of the contract. This is against industry practice and is very concerning to McCormick.
For the next three years, advertising revenue at EmRen is expected to grow by 5% per year; subscription and newsstand projections are provided in Appendix 4. Assume production and events revenues remain unchanged. Unless otherwise specified, expenses are expected to increase annually at the estimated inflation rate of 2%.

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Required:
As Ethan Vu, CMA, EmRen’s accounting manager, develop an integrated report addressing the alternatives discussed at the Board meeting as well as any other organizational issues and concerns requiring attention. Include details of your analysis, supported recommendations, an implementation plan and a financial forecast. In undertaking this task, you will need to take into consideration your background knowledge of the company as well as the additional information provided above.

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Appendix 1
EmRen Publishing Incorporated
Income Statement
For the Year Ended December 31, 2012 (Audited)
(in ’000s)
Revenue
Advertising
Subscription
Newsstand
Production
Events
Total Revenue
Expenses
Salaries, wages and benefits
Commissions
Printing
Postage and distribution
Content
Rent
General and administrative
Marketing and promotion
Amortization
Interest
Total Expenses
Income before taxes
Income taxes (30%)
Net Income

$18,732
11,557
4,570
598
560
36,017
12,349
937
12,088
2,997
1,627
2,200
578
974
251
110
34,111
1,906
572
$ 1,334

Opening retained earnings
Net income
Closing Retained Earnings

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$4,699
1,334
$6,033

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Notes:
1. For all of EmRen’s magazines, the annual subscription price is $7.50 per copy and the newsstand price, $10 per copy.
2. Commissions at EmRen are paid at 5% of the advertising revenue.
3. Printing, postage and distribution expenses are variable depending on production volume. In 2012, the average printing cost per page was $0.11, and the average postage and distribution cost per copy was $1.50.
4. EmRen has a favourable long-term lease contract with the current office building, and the rent expense will remain unchanged for another three years.

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Appendix 2
EmRen Publishing Incorporated
Balance Sheet
As at December 31, 2012 (Audited)
(in ’000s)
Assets
Current Assets
Cash and cash equivalents
Accounts receivable
Inventory
Other current assets

Property, plant and equipment (net)
Total Assets
Liabilities and Shareholders’ Equity
Current Liabilities
Accounts payable
Accrued liabilities
Income tax payable
Current portion of long-term debt
Unearned revenue

$ 2,687
3,280
3,719
1,228
10,914
2,263
$13,177

$ 1,402
1,045
173
160
986
3,766

Long-term debt
Total Liabilities

1,378
5,144

Shareholders’ Equity
Common stock
Retained earnings

2,000
6,033

Total Liabilities and Shareholders’ Equity

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$13,177

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Appendix 3
LDMedia Incorporated
2012 Financial Data
(in ’000s)
Revenue
Advertising – banner
Advertising – microsite/web video

$5,950
1,329

Total Revenue

$7,279

Expenses
Salaries, wages and benefits
Commissions
Information and communications
Programming and production
Content
Rent
General and administrative
Marketing and promotion
Amortization
Other miscellaneous

$2,824
364
45
1,507
450
400
143
249
238
26

Total Expenses

$6,246

Notes:
1. The purchase price is $5 million for all of the assets of LDMedia.
2. On analysis of LDMedia’s equipment, it was determined that the market value is
$3.5 million and the remaining life is 10 years, after which the salvage value will be
$150,000. Amortization is calculated using the straight-line method over the estimated useful life of the related asset.
3. If the acquisition is completed, LDMedia’s employees would assist EmRen in developing online versions of magazines and going digital, and it is expected that
EmRen’s online advertising revenue would increase by $600,000 by the end of 2013 and by $200,000 every year for the next two years.
4. LDMedia currently employs 46 employees who would all be relocated to EmRen’s office building should the acquisition happen. Instead of renting extra office space,
EmRen would rearrange the existing space, which would cost $230,000 and could be completed by the end of June 2013. The relocation expense and lease termination fee for LDMedia would be $180,000 in total.

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5. There would be duplicated job positions should the acquisition happen; headcount would be reduced, and consequently the salaries, wages and benefits expenses would decrease by $350,000 in 2013.
6. Commissions at LDMedia are paid at 5% of the total advertising revenue.
7. For the next three years, advertising revenues at LDMedia are expected to grow by
5.5% per year. Unless otherwise specified, all other expenses are expected to increase annually at the estimated inflation rate of 2%.

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Appendix 4
Printing In-house Proposal
Average Cost per Page
Pentagon
EmRen
(External)*
(In-house)**
$0.20
$0.13
$0.12
$0.09
$0.10
$0.09

Paper
Grade
B
B
B

Number of Pages
200M
2M

A
A
A

Other Costs
Initial investment on equipment
Relocation expense
Training expense
Equipment setup
Rent
Salaries, wages and benefits

$0.40
$0.38
$0.37

$0.32
$0.32
$0.31

Occurrence
One-time
One-time
One-time
One-time
Yearly
Yearly

Pentagon
(External)







EmRen
(In-house)
$1,200,000
$230,000
$25,000
$38,000
$500,000
$780,000

* New rates stated on the draft contract for 2013.
** Rates are projected for 2013 and do not include Other Costs.
2012
Number of magazines in circulation
Subscription
Newsstand
Total number of magazines in circulation
Number of pages per magazine Number of pages printed in one year

Projected
2014

2013

2015

1,540,942
457,008

1,571,761
466,148

1,556,043
461,487

1,540,483
456,872

1,997,950

2,037,909

2,017,530

1,997,355

55

55

55

55

109,887,250

112,084,995

110,964,150

109,854,525

Note:
1. All equipment purchased would have an estimated useful life of 20 years, after which the salvage value will be $50,000. Amortization is calculated using the straight-line method over the estimated useful life of the related asset.

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Appendix 5
Internal Memorandum
Regarding Deir Trail Incorporated
To: Lauren McCormick
From: Cathy Kareva
Re: Deir Trail Proposal Review
Objective: The information below contains the contract details for Deir Trail. In light of the costs associated with this contract, I would like to further discuss the operational implications. Contract Price

Production Volume
(Number of Copies)
Number of Pages per Copy
Printing Costs

Average Postage and
Distribution Cost per Copy
Contractor Compensation

Expenses for the Business
Shows

Contract Duration
Paper Grade Required

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Deir Trail will pay EmRen a fixed contract price of
$1,600,000 per year, including the price for the magazines and the business shows.
50,000 to 60,000, depending on the subscription rate.
35
Vary. Comparative analysis should be completed on in-house printers and Pentagon to determine the impact on printing costs.
$1.50
$260,000 per year in total. Two contractors who specialize in the tourism industry would need to be hired to prepare the magazine content and to communicate with Deir Trail.
One-time purchase of promotional materials of
$420,000 in 2013 (useful life is 10 years, salvage value will be nil); ongoing administrative and marketing costs of $250,000 per year from 2013 to 2015.
2013 to 2015
A

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Appendix 6
Business Event
To: Cathy Kareva
From: Avanthi Jayaran, co-sponsor
Subject: June 26 Sponsorship Event
Hello Cathy,
It is anticipated that 900 to 1,100 people will attend the June 26 event. The ticket price and estimated costs are as follows:
Ticket Price

$20 per person
(includes a copy of the magazine)

Costs Include:
Advertising
Venue
Food, drinks and staff
Guest speaker
Packaging and gifts
Other fixed costs
Incentive payment to the lead events coordinator
Variable cost per magazine

$15,000
$90,000
$25,000
$12,000
$4,500
$2,000
$5,000
$6.75 per copy

Sponsorship Details:
As discussed, EmRen will collect 100% of the ticket sales revenue, and the following costs will be reimbursed at 100% to EmRen: advertising, venue, food, drinks and staff.
The payment for the guest speaker will be reimbursed at 50%, and all other fixed costs will be reimbursed at 75%. However, EmRen will not be reimbursed at all for the incentive payment for the lead events coordinator and the variable cost for magazines.
Let me know if you have any questions.

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May 2013 Case Examination
General Comments on Performance
EmRen Publishing Inc. (EPI)
Case Background and Required Element
The May 2013 Case Examination focuses on a private company, EmRen Publishing
Incorporated (EmRen), a magazine company that publishes both consumer and business magazines across Canada in the areas of fashion, health, beauty and professional industries. The co-presidents, Emma Scott and Lauren McCormick, are the founders of EmRen.
In January 2013, Scott and McCormick met with the Board of Directors in order to address concerns about emerging digital media, the company’s declining net income and their desire to see the pre-tax profit margin return to 10% or greater by 2015.
The following alternatives were identified for consideration:
1. Acquire LDMedia Incorporated (LDMedia). LDMedia has unique information technology platforms that are extremely user-friendly and allow advertisers to customize advertising space.
2. Handle printing in-house instead of renewing the printing contract with the current printer, Pentagon Printing Incorporated (Pentagon).
3. Accept a three-year magazine publishing contract offered by Deir Trail, a highend tourism company.
As Ethan Vu, CMA, EmRen’s accounting manager, develop an integrated report addressing the alternatives discussed at the Board meeting as well as any other organizational issues and concerns requiring attention. Include details of your analysis, supported recommendations, an implementation plan and a financial forecast. In undertaking this task, you will need to take into consideration your background knowledge of the company as well as the additional information provided above.

General Approach and Expectations
Throughout Year 1 of the SLP, candidates have been taught to apply the Steps for
Approaching Business and Corporate Strategy. They have completed several practice case exams using these Steps, have received written feedback on their performance, and have revisited the approach many times during their Interactive Sessions. As a result, expectations related to candidates’ general approach and performance are high.
The following comments on performance highlight how each attribute aligns to the
Steps for Approaching Business and Corporate Strategy.

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1. QUALITATIVE ANALYSIS AND STRATEGY FORMULATION
1a) Situational Analysis – Quality of Qualitative Analysis:
This attribute aligns with Step 2 of the Steps for Approaching Business and Corporate
Strategy. This is the step that builds the foundation for all other analyses in order to facilitate the decision-making process in developing business strategy.
Better responses provided a comprehensive current situational analysis (i.e. identification of the mission, the major targets, any relevant constraints, major stakeholder preferences, key success factors, and SWOT points), with a clear delineation of the external industry KSFs from the internal KSFs, and many relevant
SWOT points applicable to the alternatives being evaluated.
Average responses provided most elements within the current situational analysis; however, they generally had some minor weaknesses such as limited depth of analysis or miscategorization of internal and external SWOT points.
Weak responses provided limited analysis and/or provided irrelevant points (e.g. restating Backgrounder points, stating specific pros/cons related to specific alternatives, listing specific alternatives within the identification of the external environment).
1b) Issue Analysis and Integration:
This attribute aligns with Step 4 of the Steps for Approaching Business and Corporate
Strategy. Integration demonstrates the ability to use relevant facts in order to develop a cogent argument for or against an alternative.
Better responses provided many integrative linkages between alternatives and the current situational analysis. There was an effective use of many elements within the current situation rather than reliance on only a few specific points for each alternative.
Additionally, the pre-tax profit margin target was integrated throughout the analyses.
Average responses provided some integration between alternatives and situational analysis points, whereas weaker responses provided few deliberate clear integration linkages within the analysis and rarely connected to the pre-tax profit margin target.
1c) Implementation/Action Plan – Overall Quality:
This attribute aligns with Step 7 of the Steps for Approaching Business and Corporate
Strategy. The implementation plan clearly articulates both the strategic and operational tasks that are required to execute the recommendations, includes plans to address risk exposure previously indicated in the analysis of the recommended alternative(s) (i.e. mitigation of cons) and any related operational issues.
Better responses separated strategic implementation tasks from operational implementation tasks in the action plan. As well, all tasks were supported with the following: CMA Canada

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1.
2.
3.
4.

What must be accomplished;
Who will be responsible for the task;
When the task will start and finish; and
The costs associated with the task, whether directly related to the alternative, or additional incidental costs specific to the task.

Additionally, better responses provided specific plans to mitigate major cons related to the recommended alternatives.
Average and weaker responses provided an implementation plan with limited depth and generally did not address risks associated with the recommendations.
2. APPLICATION OF QUANTITATIVE TOOLS
2a) Financial and Performance Analysis of EmRen:
This attribute aligns with Step 2 of the Steps for Approaching Business and Corporate
Strategy. The current financial assessment evaluates both the external (e.g. benchmarking) and internal (e.g. ratios, horizontal/vertical analysis) financial environments for the current state.
Better responses provided more meaningful interpretation of the most relevant ratios over a three- or four-year trend, provided some vertical and horizontal analysis to assess/interpret internal efficiency, quantified the pre-tax target, and benchmarked
EmRen’s advertising and circulation revenue performance against industry averages supported by relevant interpretation.
Average responses evaluated relevant ratios for three to four years and provided some interpretation. Weaker responses did not include the most current year within the current financial assessment, provided vague interpretation, or emphasized irrelevant ratios.
2b) Quantitative Decision Analysis of Strategic Alternatives:
This attribute aligns with Step 4 of the Steps for Approaching Business and Corporate
Strategy. This step includes quantitative analysis for the three major alternatives. The type of analysis required is determined by two factors:
1. The decision criteria (e.g. pre-tax profit margin target);
2. The type of alternative (e.g. capital investment, acquisition, profitability).
Summary of the Alternatives and Appropriate Analysis:
LDMedia Alternative
• Profitability analysis to test the pre-tax profit margin for EmRen by 2015.
• NPV analysis to assess the investment in assets.

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In-house Printing Alternative
• Profitability analysis to test the pre-tax profit margin for EmRen by 2015.
• NPV analysis to assess the investment in assets.
Deir Trail Alternative
• Profitability analysis to test the pre-tax profit margin for EmRen by 2015.
• Sensitivity analysis in order to evaluate the profitability of the fixed revenue contract with different production volumes; or, to evaluate the profitability between this alternative and printing in-house versus outsourced printing.
Better responses considered the decision criteria (10% pre-tax profit margin) throughout the analyses of the alternatives and appropriately applied sensitivity analysis within the
Deir Trail alternative. Additionally, present value tools were applied where appropriate.
Average responses considered the pre-tax profit margin targets for some of the alternatives, considered sensitivity, and attempted to evaluate investments in assets.
Weaker responses did not assess pre-tax profit margin; instead, they focused solely on
NPV analysis, which was not overly relevant for some of the alternatives. For example, applying a net present value to the Deir Trail alternative is not overly relevant because the implication that a capital investment is being made for “promotional material” is ambiguous, as the asset is listed in a category labelled “Expenses for Business Shows.”
2c) Other Quantitative Tools:
This attribute aligns with steps 5 and 8 of the Steps for Approaching Business and
Corporate Strategy. These steps include developing forecasts for the final recommendations, assessing feasibility of alternatives (i.e. assessing the financing required versus financing available), and other analysis requested by EmRen, specifically the breakeven analysis related to the business event.
Pro Forma/Financial Forecast
A pro forma income statement or financial forecast demonstrating the pre-tax profit margin for at least 3 years to 2015 should be provided. The forecast should include:
1. EmRen’s operations, including operational changes noted in case facts related to the 5.5% increase in revenues for specific revenue streams, 2% increase in expenses, and accounting for the lawsuit;
2. The recommended alternatives;
3. Any other operational changes required in light of the recommendations.
Financing
Financing required and available for each alternative and the recommendations as a whole should be assessed. The uniqueness of the recommendation (i.e. online versus traditional print) is inherent in the financing decision because both LDMedia and In-

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house Printing cannot be simultaneously financed, requiring a refocusing of EmRen based on the outcome.
Co-sponsored Business Event
A break-even analysis for the co-sponsored business event should be provided, per a direct request from management.
Better responses evaluated financing capability for each alternative and for the final recommendations, and provided a pro forma income statement for three years in order to demonstrate the achievement of the pre-tax profit margin target. The forecast included EmRen’s operating changes and recommendations. Better responses also calculated the breakeven outcome for the co-sponsored business event.
Average responses evaluated financing for the final recommendations and attempted to provide a financial forecast; however, the forecast usually did not include all of the recommendations and/or operational changes and/or demonstrate the pre-tax profit margin target. Average responses considered the breakeven request through the method of trial and error as opposed to the expected cost-volume-profit (CVP) methodology. Weaker responses did not provide a forecast or analyze financing; or, the analysis had major errors (e.g. identifying retained earnings as a source of financing). As well, weaker responses did not attempt to assess the business event beyond the estimated net income of the event.
3. APPLICATION OF QUALITATIVE FUNCTIONAL CONCEPTS
This component aligns with steps 4, 5 and 7 of the Steps for Approaching Business and
Corporate Strategy. These steps include analysis of minor issues within the analysis of alternatives (e.g. using a current issue or risk as a pro or a con within the analyses of the alternatives), or analysis done separately (e.g. within the discussion of operational issues or the implementation plan). In Step 4 there is the use of external and internal risks and issues developed to support arguments being made; these are an integral part of the overall recommendations when the outstanding operational issue is resolved. The resolutions form an essential part of the overall implementation plan; the implementation plan, when executed, substantially supports the recommended strategic changes.
3a) Strategic Management, Risk Management, Governance, Environmental and
Ethical Issues:
Better responses used many internal and external risks (i.e. weaknesses and threats) within the analysis of the alternatives, and provided resolutions related to operational issues or mitigation strategies for internal and external risks in order to implement the recommended alternative(s) and other outstanding issues requiring attention.

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Average responses considered two to three internal and external risks (i.e. weaknesses and threats) within the analysis of the alternatives, and attempted to analyze and provide resolutions for operational issues or mitigation strategies for two to three internal and external risks in order to implement the recommended alternative(s) and resolve other outstanding issues requiring attention.
Weaker responses generally did not consider internal and external risks within the analysis of the alternatives, or did not provide any analysis or resolutions for minor issues. 3b) Performance Management, Performance Measurement, Financial
Management and Financial Accounting Issues:
Better responses used performance and financial management issues within the analysis of the alternatives, and provided analysis and resolutions for operational and implementation issues. The minor alternative to co-sponsor a business event was also qualitatively evaluated.
Average responses considered one or two relevant performance and financial management issues within the analysis of the alternatives, and attempted to analyze and provide one to two resolutions for operational issues or implementation issues.
Weaker responses generally did not consider relevant performance or financial management issues within the analysis of the alternatives, or provided limited or no analysis or resolutions for minor issues.
4. APPLICATION OF A SYSTEMATIC APPROACH FOR ISSUE ANALYSIS
4a) Issue Identification and Prioritization:
This attribute aligns with Step 3 of the Steps for Approaching Business and Corporate
Strategy. This step includes identification and prioritization of the main issues, the strategic alternatives for addressing those issues, and the major operational issues.
Better responses analyzed the major and minor alternatives (i.e. LDMedia, In-house
Printing, Deir Trail) and the Co-sponsored Business Event, and analyzed five or more minor issues.
Average responses analyzed the major alternatives (LDMedia, In-house Printing, Deir
Trail), the Co-Sponsored Business Event, and at least three minor issues.
Weaker responses did not analyze all the major alternatives or the minor alternative, or analyzed few minor issues.

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4b) Analysis of Issues and Alternatives:
This attribute aligns with steps 2, 4 and 5 of the Steps for Approaching Business and
Corporate Strategy. This step includes analyses of the alternatives, which encompass both the quantitative and qualitative analysis.
Qualitative analyses that generate greater value are those which connect alternatives to the current situational analysis or the current state to the organization. These include the main decision measures related to the mission/vision, the main targets, any relevant constraints, KSFs that can be leveraged, stakeholder preferences, and both existing and new SWOT. Other qualitative analysis that provides some value would be related to the specific alternatives, or relevant and accurate case facts, which add limited or nominal value to the persuasiveness of the argument.
Quantitative analysis includes the most significant results from the analysis of an alternative, which by default would be the result that allows the clear comparison of the alternatives’ outcomes to the main decision metric, namely the pre-tax profit margin target. Other quantitative results other than this are subordinate and of less value.
Major Alternatives
LDMedia
Since EmRen already has some, but not enough, online presence, this alternative allows EmRen the option to accelerate its position into the digital media marketplace.
Some qualitative factors:
• LDMedia has the web development resources that EmRen requires, which would address the current issue related to the expertise at EmRen.
• Is supported by Board members—McCormick and Woodsworth.
• LDMedia’s ability to accelerate EmRen’s presence online would: o Close the gap between EmRen’s capabilities and external KSFs, such as the ability to provide relevant and timely content through up-to-date integrated IT; o Be seen as a more socially responsible venue for delivering magazine content as less paper and ink are consumed and disposed of; o Capitalize on the increasing demand for online content by consumers, and the increasing demand from advertisers for access to online media and unique and customizable formats; o Avoid the ongoing fluctuations in raw materials pricing, and rising print and postal costs; o Provide an ability to quickly address changing consumer preferences; o Provide advertisers with a venue less restrictive than paper to reach consumers. • Downside considerations include the following: o Integration of LDMedia into EmRen could further aggravate an existing morale problem and employee concern over job security.

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Quantitative impacts:
• Testing the pre-tax profit margin target of 10%.
• Assessing the capital investment.
• Assessing the ability to finance the transaction.
In-House Printing
EmRen currently outsources the printing of its magazines; the option to bring this process in-house will reduce the costs to print.
Qualitative impacts:
• The inclusion of printing in-house could conceivably require a revision to the mission, as EmRen currently does not provide that portion of the value chain.
• One Board member and senior manager are supportive of this option as a means to minimize exposure to a single supplier.
• Moving the printing process in-house would result in: o Eliminating the dependence on a single supplier for printing; o Eliminating the inventory and security issues at Pentagon that EmRen is currently exposed to; o Eliminating the requirement of a fixed contract with rising costs.
• Downside considerations include the following: o Demand for print is falling; o Advertisers see print as too restrictive to their needs; o EmRen’s competition has already transitioned into digital media.
Quantitative impacts:
• Testing the pre-tax profit margin target of 10%.
• Assessing the capital investment.
• Assessing the ability to finance the transaction.
Deir Trail
This alternative is a business opportunity that diverges from EmRen’s normal focus by including the Travel genre in its portfolio. The analysis is predominantly a profitabilityfocused assessment with a longer-term view toward access to the high-end clientele that Deir Trail serves and the potential to acquire them as both subscribers and possibly advertisers. Qualitative impacts:
• Engaging in this contract could be a problem, given the high turnover that currently persists within the events group.
• The contract represents a good means to access the high-end clientele that is currently underserved.
• The potential of acquiring Deir Trail’s client database would provide EmRen with a rich resource to market product to both subscribers and advertisers.

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This relationship could help the business division to become more elevated as a targeted source for advertisers, thus improving its standing within EmRen and promoting more balance between EmRen’s consumer and business divisions.

Quantitative impacts:
• Testing the pre-tax profit margin target of 10%.
• Applying sensitivity analysis in order to: i) determine profitability at various levels of copies; and ii) determine the profitability based on the source of printing (i.e. in-house versus Pentagon).
• Assessing the ability to finance the transaction.
Better responses provided excellent breadth, depth and balance of analysis in order to assess both the major qualitative and quantitative impacts for the alternatives. As well, they used a global view within qualitative analysis (e.g. considered the mission, targets, preferences, key success factors, strengths, weaknesses, opportunities and threats), and considered the pre-tax profit margin target within each alternative, thereby demonstrating objectivity.
Average responses provided some depth of qualitative and quantitative analysis for most of the alternatives; however, the global view was generally weaker (e.g. all elements of the current situation were not incorporated into the analyses).
Weaker responses provided limited qualitative analysis and limited quantitative analysis.
Many weaker responses did not quantitatively analyze all of the alternatives.
Minor Alternative
Co-sponsored Business Event
Qualitative impacts:
The current event experience can be leveraged as a reason to undertake the business, just as the high turnover in the events group might be a reason not to engage in this contract. For the most part, the qualitative discussion points are specific to the alternative and integrate the results of the quantitative analysis.
Quantitative impacts:
• The quantitative result of the analysis for the breakeven point.
• Expected net income.
Better and average responses provided some qualitative and quantitative analysis for this minor alternative.
Weak responses did not evaluate this minor alternative.

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4c) Relevancy: Use of Case Facts and Assumptions:
This attribute aligns with steps 2, 3, 4, 5, 7 and 8 of the Steps for Approaching Business and Corporate Strategy.
Better responses provided a clear understanding of the current situation and used this information throughout the analyses (e.g. assessed the impact on the 2015 target within the analysis of each alternative). The proper inputs and assumptions were used throughout the decision-making process, and the proper tools were applied in order to analyze the issues and alternatives to generate conclusions.
Average responses used a sufficient amount of qualitative and quantitative case facts in order to address the issues. They included adequate analysis for the major alternatives and some analysis for the minor issues. Some relevant, but immaterial, inputs may have been misstated or overlooked.
Weaker responses generally failed to recognize the important target or apply the proper analytical tools within the analyses (e.g. incorporating quantitative inputs), and often did not identify or integrate the current situation within the analyses of alternatives or current issues.
5. RECOMMENDATIONS AND CONCLUSIONS (JUDGMENT/LEADERSHIP)
This attribute aligns with steps 2, 4 and 5 of the Steps for Approaching Business and
Corporate Strategy. These steps support robust recommendations (i.e. recommendations that are well articulated, well supported, logical and feasible).
Better responses provide definitive recommendations for the alternatives accepted and for the alternatives rejected. The recommendations are supported both qualitatively and quantitatively, and the main decision criteria were effectively addressed (e.g. alignment to the mission, the targets, any relevant constraints, stakeholder preferences, KSFs and financial capacity).
Better and average responses provided sufficient qualitative and quantitative support for meeting the pre-tax profit margin target and demonstrating financing ability.
Weaker reports were not well supported. For example, the pre-tax profit margin target was not considered, important qualitative points were not considered, or the recommendations were not shown to be financially feasible.

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6. PROFESSIONALISM AND COMMUNICATION
6a) Report Format and Organization:
This attribute aligns with Step 10 of the Steps for Approaching Business and Corporate
Strategy.
Better responses provided a professional report with the proper format and organization. Average reports provided an adequate format; however, some weaknesses were generally present, for example:
• Headings and subheadings were not used effectively;
• Weak organization (e.g. complex financial information was not kept in the appendices); • Poor sequence (e.g. recommendations for minor issues or implementation plan provided before the recommendations for the major alternatives);
• Executive summary, introduction or conclusion contained weaknesses.
Weaker reports omitted some components (e.g. executive summary, introduction, conclusion) or contained many other formatting problems (e.g. organization, sequence, ineffective headings).
6b) Professional Tone, Tact, Language, Style and Flow:
This attribute aligns with Step 10 of the Steps for Approaching Business and Corporate
Strategy.
Better reports demonstrated good use of language and grammar, and good overall style and flow. The report was easy to read, and financial results were effortlessly conveyed with minimal guidance in the appendices.
Average reports demonstrated an adequate use of language; however, they generally contained some weaknesses, such as:
• Clarity problems (e.g. analysis points were not always clear and concise; instances of weak grammar/sentence structure);
• Problems with flow (e.g. not effectively integrating the financial information seamlessly into the flow of the narrative);
• Audit trails (e.g. the source of quantitative inputs was not always clear in the calculations within the financial analyses).
Weak reports had many problems with language and grammar as well as an array of other weaknesses (e.g. clarity, flow, audit trails).

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Steps for Approaching Business and Corporate Strategy
Note: For the Case Examination and assignments that prepare candidates for the
Case Examination (the Development Phase), steps 6 and 9 do not apply; for the Board Report and assignments that prepare candidates for the Board
Report (the Application Phase), all 10 steps apply (see Appendix A).
This document provides an overview of the case writing approach. Candidates should review the GR Hotels storyboard video (accessible from the Professional Programs website Home Page) and the related materials. Please also review the General
Assessment Guide, Business Report Guidelines, and Format Specifications available in the Reference Material section of the Professional Programs website.
1. Overview
Quickly read through the case material to develop an understanding of the following:
a)
b)
c)
d)

Organization on which the case is based;
Industry in which it operates;
Major issues and specific opportunities/alternatives that need to be addressed;
Information included in the exhibits (e.g. quantitative data, organizational charts, etc.); e) Role that you are required to assume;
f) Actions that you are required to perform; and
g) Audience of your report (e.g. senior management, board of directors).
2. Situational Analysis1
Read through the case in detail and begin developing a situational analysis. As you read, you may categorize and document the information directly in the response.
Alternatively, you may find it helpful to highlight or make notes on key information first, then categorize and document the information in the response. For example, you may use a system such as code letters and words in the margins to categorize the information (e.g. S for strength, KSF for key success factor, TX for tax rate, MI for major issue, O for external opportunity, etc.). Within the situational analysis, be sure to do the following:
a) Identify the stated or implied mission and vision.
b) Identify the strategic goals of the organization that need to be achieved and/or targets that need to be met.

1

For more details, please refer to the document Situational Analysis Tools available in the Reference
Material section of the website.

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c) Determine whether there are any constraints (capacity, people, skills, financial, regulations, etc.) that require consideration in achieving the goals and/or targets.
Constraints are limitations that cannot be exceeded, such as a debt-to-equity ratio imposed by a bank, other bank covenants, capacity limits, etc.
d) Determine the key stakeholders’ preferences.
e) Identify the organizational and industry-related key success factors (KSFs) that must be maintained or enhanced in any suggested recommendations.
f) Include an assessment of the organization’s current financial situation.
g) Scan the organization’s internal and external environments, and identify the strengths, weaknesses, general opportunities, and threats (SWOT). Identify any
SWOT points related to the current financial situation. Some tools that will help in identifying SWOT points include Porter’s Five Forces and PESTEL, as well as analyses of ratios, trends, profitability, target customers, target markets, variances, etc.
For the Case Examination and assignments that prepare candidates for the Case
Examination, if the case material provides a high-level SWOT, it is not necessary to repeat or audit these points in the report. Focus on identifying new SWOT points and the results of the financial assessment. Candidates are expected to use case facts only, and the situational analysis (e.g. SWOT, PESTEL tool) should be limited to the case facts.
For the Board Report and assignments that prepare candidates for the Board
Report, the SWOT is not provided in the case. Candidates are expected to perform external research and identify SWOT points based on both the case facts and the external research.
3. Identification and Prioritization of Issues and Alternatives
a) Identify the major strategic issues that need to be addressed (e.g. overall strategic direction, specific business opportunities that should be considered, critical weaknesses and threats that must be eliminated or mitigated if the organization is going to be successful) and list them in order of importance.
b) Identify and prioritize the alternatives.
Note: In some cases, there will be both strategic and minor alternatives, and candidates are expected to properly identify and prioritize them. Some of the criteria that could be used to prioritize the alternatives are:
1. Monetary value of the alternative;
2. Risk of the alternative; and
3. Impact of the alternative (e.g. how many divisions and/or departments of the organization will be involved in implementing the alternative).

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4. Analyses of Alternatives
Analyze each alternative both quantitatively and qualitatively, identify the pros and cons, and consider both internal and external factors (i.e. demonstrate appropriate depth and breadth, and provide a balanced analysis). Minor alternatives, if any, should be analyzed similarly to the strategic alternatives but may demonstrate less depth and breadth. Demonstrate integrative thinking by considering the cause-andeffect relationships among the various factors, issues and alternatives. Within the analyses, be sure to do the following:
Note: Requirements of external research apply only to the Board Report and assignments that prepare candidates for the Board Report.
a) Perform any external research that may be required.
b) Deal with ambiguous or uncertain information by making reasonable assumptions based on case facts and/or on external research, applying decision analysis under uncertainty concepts and tools, or performing sensitivity analysis.
Clearly state and, if necessary, justify all assumptions made.
c) In the quantitative analyses, apply appropriate tools and concepts to analyze the relevant information (e.g. profitability analysis, net present value, return on investment, sensitivity analysis, etc.). Depending on the goals, constraints and/or other factors, the quantitative tools and concepts used may be different among cases and even alternatives. Interpret the results of the calculations in the body of the report.
d) In the qualitative analyses, provide a balanced discussion of the pros and cons of each alternative using case facts and/or information obtained from the external research, and the results of the quantitative analyses. Identify any key risks associated with each alternative.
e) Demonstrate integrative thinking: in the qualitative analyses (usually in the pros and cons), consider and utilize the points made in the situational analysis (e.g. mission and vision, goals/targets, constraints, stakeholders' preferences, KSFs,
SWOT, including the SWOT points provided in the appendix of the case material but not repeated in the report, if applicable). For example, discuss how the alternative uses the strengths, takes advantage of the opportunities, mitigates or eliminates the weaknesses and threats, and meets the imposed constraints; consider each alternative from the points of view of the various stakeholders, and how it aligns with the organization’s mission, vision, goals and/or strategic direction; as well, consider the effects of one alternative on another, or on other issues. CMA Canada

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5. Recommendations
This step provides the rationale for the “Why.”
a) Rank each alternative in terms of important decision criteria (e.g. goals/targets, constraints, key stakeholders’ preferences, KSFs, profitability, how easily the cons and key risks can be resolved, etc.). Consider whether the alternative sufficiently addresses the major strategic issues, is aligned with the organization’s overriding objective, is a good fit with the internal and external environments, and makes good economic sense.
b) Clearly state your recommendation(s) for resolving the major strategic issues.
Briefly support your choice of alternative(s) based on the most important criteria; ensure that your recommendations collectively form a cohesive package that:
i) meets the goals/targets, and ii) does not breach the constraints and is feasible and viable. Provide proof in the report that the necessary aggregate resources (e.g. physical capacity, financing, human resources, IT, etc.) either are available or can be readily acquired. 6. Mission: Revisit and/or Revise
Note: This step applies only to the Board Report and assignments that prepare candidates for the Board Report.
Revisit the mission and, if necessary, revise it in light of the changes you are recommending. If no changes are required, then clearly indicate that the recommendations align with the current mission statement.
7. Implementation Plan
This step provides the explanation for the “How.”
Create a plan for implementing the recommended strategies. In developing the implementation plan, be sure to do the following:
a) Identify and analyze the implementation issues, such as those concerning change management, acquiring the required resources (financial and human), and resolving the cons previously identified in Step 4 for the recommended alternatives. Make clear and actionable recommendations pertaining to the implementation issues.

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b) Identify and analyze the minor issues (operational, functional or business issues,
e.g. ethical, internal control, accounting issues, etc.). Discuss how solving these issues can affect the implementation of the recommended strategies and/or how they affect other minor issues and weaknesses. Make clear and actionable recommendations pertaining to the minor issues.
c) Provide an action plan to implement the recommended strategies that clearly defines each action, who is responsible, the critical due dates and the resources required. For the Board Report and assignments that prepare candidates for the Board
Report, candidates may use a tool such as a strategy map to present a visual representation of the cause-and-effect relationships among the components of the organization’s strategy. The strategy map tool helps translate strategy into action and mitigate risk. Note that it is not necessary to include a copy of the strategy map in the final report.
8. Financial Forecast
Prepare an appropriate financial forecast (e.g. pro forma financial statements, projected net income, projected return on investment, projected cash flow, etc.), taking into consideration the financial implications of the recommendations made and stating all assumptions. Outline in the body of the report the expected future financial outcomes as a result of implementing the recommendations.
Most of the calculations for this step should already have been completed in addressing steps 4, 5 and 7.
9. Performance Measures
Note: This step applies only to the Board Report and assignments that prepare candidates for the Board Report.
Define the measures of performance to be used to help determine if the recommended strategies have been successful. Identify the control measures that need to be in place to deal with significant variances (e.g. create a Balanced
Scorecard). Any tool used needs to be explained in the body of the report. A
Balanced Scorecard presented in an appendix is not useful to the audience without proper interpretation.

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10. Written Report2
Present your answer in a professional manner using a formal report format consisting of the following components in the following order:
i) cover page (or a memorandum format), ii) executive summary, iii) table of contents (not required for the Case Examination), iv) introduction,
v) body of the report, vi) conclusion, vii) appendices/exhibits, and viii) footnotes/bibliography (not required for the Case Examination).
Follow the given format specifications and present the contents of the report in a well-written manner that reflects an appropriate tone for the audience of the report.
Present the quantitative analyses in appendices, exhibits or tables, and reference them in the body of the report. Provide labels and audit trails for all calculations.
Provide the details of the situational analysis (e.g. SWOT, ratios, benchmarking, etc.) in appendices, and summarize the highlights of the most important factors and issues in the body of the report.

2

For more details, please refer to the documents Business Report Guidelines and Format Specifications available in the Reference Material section of the website.

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Appendix A
Distinguishing Elements for Preparing the Case Examination and the Board Report

Steps
Step 1: Overview
Step 2: Situational Analysis

Step 3: Identification and
Prioritization of Issues and Alternatives
Step 4: Analyses of
Alternatives

Case Exam and Assignments to Prepare for the Case Exam
Refer to Step 1
Refer to Step 2
• SWOT points provided in the case should not be repeated
• External research not required
Refer to Step 3

Refer to Step 4
• External research not required; only case facts should be used

Step 5: Recommendations
Step 6: Mission: Revisit and/or
Revise
Step 7: Implementation Plan

Refer to Step 5
NOT Applicable

Step 8: Financial Forecast
Step 9: Performance
Measures
Step 10: Written Report

Refer to Step 8
NOT Applicable

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Refer to Step 7

Refer to Step 10
• Table of contents not required
• References not required

Board Report and
Assignments to Prepare for the Board Report
Refer to Step 1
Refer to Step 2
• SWOT is not provided in the case • External research required
Refer to Step 3

Refer to Step 4
• External research that is relevant to the analyses should be used
Refer to Step 5
Refer to Step 6
Refer to Step 7
• Strategy map tool may be used
Refer to Step 8
Refer to Step 9
Refer to Step 10

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May 2013 Case Examination
Marker Assessment Guide
EmRen Publishing Inc. (EPI)
Markers use a scale of 0 to 10 in assessing the components, according to the following guidelines: General Assessment
AE—Above Expectations
ME—Meets Expectations
BE—Below Expectations
NA—Not Addressed

Number Scale
9, 10
6, 7, 8
1, 2, 3, 4, 5
0

Markers must mark each of the attributes globally. Judgment must be used in assessing the competencies exhibited in the candidate’s response and in assigning a mark for each attribute. Guidelines for weighting the various attributes are indicated throughout the assessment guide.
Note: In addressing any of the issues, indicating that the issue “needs to be resolved” or
“further investigated” is not credited for analyzing and resolving the issue.
1. QUALITATIVE ANALYSIS AND STRATEGY FORMULATION
a) Situational Analysis – Quality of Qualitative Analysis:
The analysis of EPI’s current situation is appropriate for the strategic alternatives and operational issues being addressed (qualitative analysis is of good quality, depth and breadth, and is relevant). It includes internal and external scans (i.e.
SWOT) and other relevant data not provided in the high-level SWOT in the
Backgrounder (i.e. EPI’s target, stakeholders’ preferences, industry KSFs, and new
SWOT points).
AE = Good quality – makes sense and includes the main relevant qualitative points.
ME = Reasonable quality – includes relevant qualitative data, but may contain some minor errors (i.e. some irrelevant data are included, some relevant data are excluded, some relevant data are categorized incorrectly).
BE = The quality of the situational analysis is not appropriate.
NA = No attempt to scan the environment or analyze the current situation.

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b) Issue Analysis and Integration:
Integration is demonstrated to a reasonable degree. The analyses of the strategic alternatives, minor issues and implementation issues use a reasonable scope of the
SWOT points provided in the Backgrounder and the data gathered in the Additional
Information related to the situational analysis (i.e. use a variety of SWOT points, not just the same points repeatedly). Examples of integrative thinking include the following (among others):
• Considering the cause and effect relationships between SWOT items and strategic alternatives.
• Considering the implications of one issue or alternative on another.
• Indicating how the recommended strategy takes advantage of strengths and opportunities while mitigating weaknesses, and/or avoiding threats.
• Considering whether the alternatives meet the goal, industry KSF, and key stakeholders’ preferences.
The specific items from the situational analysis that are being considered are specified clearly and explicitly. The points being made clearly indicate the cause and effect relationships, and are logical and consistent with case facts.
AE = Good scope and quality of integration (12 or more) clear and distinct integrative points in the analysis of the major alternatives and issues).
ME = Reasonable scope and quality of integration (6 to 11 clear and distinct integrative points in the analysis).
BE = Unacceptable scope and quality of integration (fewer than 6 integrative points). NA = No integration attempted.
c) Implementation/Action Plan – Overall Quality:
The recommended implementation/action plan:
• Identifies tasks, matches the tasks to the appropriate individuals, provides realistic timelines for completing these tasks, and considers the monetary implications (i.e. an action plan that indicates what, who, when, and costs);
• Aligns the organization’s resources to accomplish the recommended strategy;
• Overcomes the cons of the recommended strategies without causing new problems or conflicts;
• Addresses the minor issues and recommends actions to resolve the minor issues; and
• Considers organizational implications (e.g. change management (employee integration, communication), performance measures, employee morale, other operational issues, etc.).

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AE = Good implementation/action plan – includes a reasonable action plan and addresses seven or more implementation and minor issues (including overcoming cons and other implementation and/or minor issues).
ME = Reasonable implementation/action plan – includes an action plan, one other attribute (from above) and addresses 4 to 6 relevant issues (overcoming cons and other implementation and/or minor issues). Plan may have some minor problems. BE = Implementation/action plan is not reasonable (too brief, serious problems).
NA = No attempt to provide an implementation/action plan.
2. APPLICATION OF QUANTITATIVE TOOLS
a) Financial and Performance Analysis:
Appropriate methods of analysis are applied correctly in evaluating performance and financial risk of EPI (e.g. current financial assessment). Appropriate application includes correct calculation and interpretation. Appropriate methods of financial and performance analysis include: analysis of financial ratios, revenue and expense analysis, and benchmarking advertising and circulation revenues against industry averages. The ratio analysis in the current financial assessment includes relevant ratios (e.g. coverage, liquidity, activity, profitability) and/or comparative analyses (e.g. revenues and expenses). (Relevant ratios relate to the operating profit (i.e. target), whereas irrelevant ratios might relate to asset turnover).
When considering evaluation of the financial information there is a gradient through which interpretation is measured; it can be as follows:
Level of
Interpretation Provided
Interpretation
No interpretation, just the ratios calculated.
Inadequate
The ratio with an indication of whether it is increasing or decreasing, good or bad.
Basic
A “basic” plus trending with an indication of whether it is getting better or worse and what might be the cause of the change.
Better
“Better” plus potential implications resulting from the trend not being corrected or supported.
Best

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AE = More than four relevant financial ratios or comparative analyses (e.g. relevant industry benchmarks) are calculated, and interpreted appropriately.
ME = Three to four relevant financial ratios or comparative analyses (e.g. relevant industry benchmarks) are calculated, and interpreted appropriately.
BE = Financial assessment methods are not applied sufficiently or appropriately
(e.g. ratios are calculated but not interpreted).
NA = No attempt to apply a financial assessment or organizational performance method of analysis.
b) Quantitative Decision Analysis of Strategic Alternatives:
The quantitative analysis of the strategic alternatives demonstrates a reasonable understanding of relevant decision analysis concepts and tools. Appropriate concepts and tools are chosen and applied appropriately (i.e. free of major errors, reasonable quality). Any assumptions made are reasonable and relevant for the analysis of the alternative. The following are some relevant decision analysis concepts and tools that should be applied in the quantitative analyses of the strategic alternatives:
1. Targets: The pre-tax profit margin is calculated for each alternative and compared to the targets (i.e. 10% by 2015). Profitability analysis is considered in the calculation of the pre-tax profit margin, including relevant revenue/expense inputs. 2. NPV / Discounted cash flow analysis: Appropriate discounted cash flow analysis methods are applied correctly in analyzing the alternatives, such as the following:
i) Appropriate after-tax operating cash inflows and outflows for each year (noncash items and interest are not included); ii) Capital costs and other one-time cash flows; iii) Consideration of the time value of money using the target rate of return rate
(13%) over the expected life of the investment.
3. Sensitivity analysis: Sensitivity analysis is applied appropriately in the response.
i) For the Deir Trail alternative: Analyzing the alternative through the range of print volumes (i.e. 50,000, 55,000 and 60,000); analyzing the alternative with and without the printing being in-house.
AE = The pre-tax profit margin target is tested for all of the alternatives, the performance against the corporate discount rate is evaluated, and sensitivity analysis is applied.
ME = The pre-tax profit margin target is tested for the alternatives analyzed, and sensitivity analysis is applied.
BE = The attempt to apply quantitative decision analysis concepts and tools is not reasonable (i.e. one or more alternatives are not analyzed; there are several omissions of key inputs or several major errors).
NA = No attempt to apply quantitative decision analysis concepts or tools.

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c) Other Quantitative Tools:
Other quantitative tools are applied appropriately in the response, such as the following: 1. Pro forma / Financial forecast – A pro forma income statement that incorporates the expected effects (i.e. with the focus of indicating the pre-tax profit margin for
2015) of the major recommendations is prepared.
2. Financing required and available – The financing required for the strategic alternatives is identified and compared to the financing available. The financing for the final recommendations is identified and validated.
3. Break-even analysis / Net income – The expected number of participants necessary to make the venture viable with only partial credit for providing outcomes in long form.
4. Valuation – Relative to reasonableness of the acquisition price of LDMedia.
The quantitative analyses listed above are reasonable (i.e. free of major errors, reasonable assumptions, overall reasonable quality). For example, in the financial forecast, omitting a non-material cost associated with a minor issue is a minor error, whereas providing expenses that do not match the level of revenue is a major error.
Any assumptions made are reasonable and relevant. Whether an unreasonable assumption is a major or minor error is a matter of judgment (i.e. how significantly the assumption affects the bottom line figures drives the assessment).
AE = Financing required and available are calculated and compared for each alternative and for the recommended strategy, a financial forecast that includes both pre-tax profit, pre-tax profit margin, and net income to 2015 is prepared, and a breakeven analysis of the co-sponsored business event is provided. ME = Financing required and available are calculated and compared for the recommended strategy, and a reasonable financial forecast for at least one year is prepared, demonstrating the pre-tax profit margin target is met in
2015. The analyses may contain relatively minor errors.
BE = The attempt to apply other quantitative analysis is not reasonable (i.e. there are several omissions of key inputs or several major errors).
NA = No attempt to provide other quantitative analysis.
3. APPLICATION OF QUALITATIVE FUNCTIONAL CONCEPTS
a) Strategic Management, Risk Management, Governance, Environmental and
Ethical Issues:
The qualitative analyses demonstrate reasonable understanding of relevant concepts pertaining to strategic management, risk management, governance, environmental and ethical issues. Relevant issues are appropriately used or resolved (i.e. used appropriately in analysis of an alternative; resolved in terms of a solution to rectify the outcome in the operational issue discussion or implementation plan). Relevant concepts and issues include, but are not limited to, the following:

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1. Value disciplines, target markets/segments, competitive business strategies –
The co-presidents feel differently about the future of EmRen, with Scott promoting internal development of online presence and McCormick seeking a faster route through acquisition; McCormick not seeing print in the company’s future is against bringing the process in-house, whereas Singh sees it as an opportunity to lower costs and eliminate some existing issues in the short run.
2. Change management, communication, organizational structure and corporate culture – Change management related to any recommendation that might affect the current morale level of employees; staff retention in the business division is weakening, the business and consumer divisions are not collaborating well with the production team; in general morale is extremely low and there is concern over job security; turnover is high in the events planning group; employees with web and publishing knowledge are becoming difficult to find.
3. Internal control and ethical issues – Missing inventory and labour disputes at supplier is causing customer service issues; inventory levels are creeping up, sales segregation of duties necessary; current client database being traded for participation in travel industry event.
4. External/environmental risks, compliance and governance, risks associated with strategic alternatives – Lawsuit with freelance writers putting relationship with a critical resource (KSF) in jeopardy; advertisers see print as restrictive; demand for print media is dropping; competition moving to digital media.
AE = Seven or more relevant concepts/issues are appropriately used or resolved.
ME = Four to six relevant concepts/issues are appropriately used or resolved.
BE = Fewer than four relevant concepts/issues are identified and appropriately used or resolved.
NA = No relevant concepts/issues are identified.
b) Performance Management, Performance Measurement, Financial Management and Financial Accounting Issues:
The qualitative analyses demonstrate reasonable understanding of relevant concepts pertaining to performance management, performance measurement, financial management and financial accounting. Relevant issues are identified and appropriately used or resolved. Relevant concepts and issues include, but are not limited to, the following:
1. Revenue and cost management – Driving the revenue stream to the industry averages for advertising and circulation sources; analysis of the co-sponsored business event, rising costs in proposed supplier contract.
2. Operations management and information systems – Engaging internal resources to improve the online effort; monitoring and controlling inventory levels to reduce working capital and move to obsolescence aged inventory that is no longer usable; retraining of staff on accounting processes; engage technical support to repair accounting system problems.

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3. Financial management – Managing the accounts receivables turnover to improve cash conversion.
4. Performance measurement – Suggestions on how to connect performance measures to corporate goals.
AE = Four or more relevant concepts/issues are appropriately used or resolved.
ME = Two to three relevant concepts/issues are appropriately used or resolved.
BE = Fewer than two relevant concepts/issues are identified and appropriately used or resolved.
NA = No relevant concepts/issues are identified.
4. APPLICATION OF A SYSTEMATIC APPROACH FOR ISSUE ANALYSIS
a) Issue Identification and Prioritization:
The main strategic alternatives, minor alternatives and a reasonable number of minor issues are identified and prioritized (i.e. the most important issues/alternatives are addressed first and analyzed in the greatest depth, important minor issues are analyzed or resolved, and less important minor issues are identified but may not be further addressed). Minor issues include current weaknesses, threats and operational issues not addressed by the recommended strategy and any issues related to implementing the recommendations. The following indicates alternatives and other important issues:
1. Major alternatives:
• LD Media
• In-house Printing
• Deir Trail Incorporated
2. Minor alternatives
• Co-Sponsored Business Event
3. Minor operational issues, such as:
• Business-consumer focus / disagreement with production
• Staff retention in business division (related to wages)
• Inventory / labour / customer service issues (Pentagon)
• Staff morale / job security
• High turnover in events planning related to training
• Employee offering of EmRen client database information (Cathy Kareva)
• EmRen controls (e.g. inventory / segregation of duty [sales])
• Reliance on a single supplier (Pentagon)
• Lawsuit effects on relationship with freelance authors
• Accounting system problems and training issues
• IT and capacity (personnel resources) / (digital – lack of presence)

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• Pentagon contract expiring (rising costs)
• Lawsuit with freelance authors – how to report
[Note: The quality of the analysis is assessed in other components and attributes.]
AE = Major and minor alternatives are appropriately prioritized and analyzed, and more than three other minor issues are addressed; co-sponsored business events to be included in the analyses.
ME = The major alternatives, the minor alternative and three other minor issues, and the prioritization of the issues is acceptable.
BE = One of the major alternatives is not analyzed, or the other minor alternative or less than three minor issues are analyzed.
NA = No alternatives or issues are addressed.
b) Analysis of Issues and Alternatives:
The analyses of the issues and alternatives are of appropriate depth and breadth, balance (pros/cons, quantitative/qualitative), and objective/free of bias. In addition, more than one perspective/a global view is considered (e.g. mission/vision, goal, stakeholders’ preferences, target, and effects of alternatives on operations).
AE = Analyses are of reasonable quality, depth and breadth, balanced and objective, and a global view is considered. More than four significant pros and three significant cons are identified for the major alternatives AND appropriate breadth and depth of analysis is provided for more than three operational and implementation issues AND appropriate breadth and depth is provided for quantitative tools.
ME = Analyses are of reasonable breadth and balance, and may have limited depth and/or some bias. Three to four significant pros and two to three significant cons are identified for the major alternatives AND all alternatives have some depth of quantitative analysis AND appropriate breadth and depth of analysis is provided for at least three operational and implementation issues.
BE = Unacceptable depth and breadth, and inappropriate balance.
NA = No issues or alternatives are analyzed.
c) Relevancy: Use of Case Facts and Assumptions:
Relevant case facts (i.e. related to the situational analysis, analysis of alternatives, quantitative analyses, and implementation plan / recommendations for issues) are appropriately used and explained in the response. As well, ambiguous and/or missing information is identified, and rational supportable assumptions are clearly stated (i.e. assumptions pertaining to ambiguities are what could be reasonably determined and are not made such that immediate positive outcomes are the result).

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AE = Most of the relevant case facts are used appropriately and ambiguities/assumptions are clearly identified.
ME = Many of the relevant case facts are used appropriately and ambiguities/assumptions are identified.
BE = Few relevant case facts or some irrelevant information is used and ambiguities/assumptions are not adequately identified.
NA = No case facts are used and no ambiguities/assumptions are identified.
5. RECOMMENDATIONS AND CONCLUSIONS
Major alternatives are measured in terms of important decision criteria (e.g. goal, constraint, significant risk). Recommendations and conclusions for the major alternatives and minor issues are feasible, realistic/logical, supported, consistent, and presented in a convincing manner. For the recommendations to be convincing, the response should demonstrate the following:
1. The recommended alternatives consider the pre-tax profit margin for 2015 for
EmRen (i.e. not just the recommended alternative(s) in isolation).
2. The recommended alternatives can be adequately financed.
3. The recommendation for the Co-Sponsored Business Event is considered.
As well, the analyses must be reasonable and free of major errors.
AE = Recommendations are feasible, realistic/logical, supported, consistent and sufficiently convincing, and address all three of the above-noted attributes.
ME = Recommendations are measured against the pre-tax profit margin target for
2015 and consider financing implications.
BE = There are major problems with the recommendations/conclusions and/or they are not convincing and/or they do not address at least two of the above attributes. NA = No recommendations or conclusions are made.
6. PROFESSIONALISM AND COMMUNICATION
a) Report Format and Organization:
The format and organization of the report are appropriate:
1. The following components of an appropriate long report format are present:
i) cover page/cover memo, ii) executive summary, iii) introduction, iv) body of the report, v) conclusion, and vi) appendices;
2. The executive summary is concise (i.e. does not exceed one page) and highlights or summarizes the strategic alternatives, major recommendations, and significant other issues that the recipient can act on;
3. The introduction provides the purpose and scope of the report;
4. The conclusion brings together the findings and draws the report to a close;
5. The appendices contain appropriate content (i.e. SWOT, quantitative analyses);

CMA Canada

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May 2013 Case Examination

6. The content of the report is organized appropriately for a business report
(i.e. uses headings and subheadings, is appropriately sequenced, and uses lists effectively where appropriate).
AE = All components are present and of appropriate quality, and the content is organized appropriately.
ME = One or two components are missing or are not appropriate, and some minor errors/problems with organization are evident.
BE = More than two components are missing or are not appropriate, and some major errors/problems with organization are evident.
NA = A response is not attempted.
b) Professional Tone, Tact, Language, Style, and Flow:
The tone, tact, language, style and flow of the response are appropriate:
1. The report reflects appropriate professional tone and tact, and addresses the appropriate audience (i.e. tact is used in any criticism of management’s suggestions, desires and goals; there are no direct references to the case or specific indications to the marker that a point made is a “link”).
2. The language used in the report is without a distracting number of deviations from business norms, jargon, or unexplained abbreviations, and has no more than a reasonable number of spelling, grammar, sentence structure, punctuation, or typographical errors, considering the four-hour time constraint and the lack of tools such as spell check.
3. The qualitative and quantitative content is expressed clearly, logically and coherently, and flows well. Repetition is used in an effective manner and is not excessive. 4. References, labels and audit trails are provided where appropriate and descriptive titles of appendices and tables are provided (i.e. the response and the contents within appendices is easy to follow).
AE = Minor problems with tone, tact, language use and content expression, the response is easy to follow and flows well, and the right audience is addressed. ME = Some problems, but they are not distracting and the response is relatively easy to follow.
BE = Major problems, distracting errors, and the response or the financial analysis is difficult to follow.
NA = A response is not attempted.

CMA Canada

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May 2013 Case Examination

May 2013 Case Examination
EmRen Publishing Incorporated
Solution Notes for Markers
SWOT Points from the Additional Information
1.

2.
3.
4.

Strengths
One of the magazines won a Readers’
Choice Award for Best Magazine of the Year, confirming that the content is great. EmRen’s staff is experienced in handling business shows and events.
Some of EmRen’s magazines have websites, and traffic is increasing.
Demand for EmRen’s print magazines is steady.

1.
2.
3.

4.
5.
6.
7.

Opportunities
1. There is growing interest and demand for digital content; advertisers want to reach a broader spectrum of customers through online advertising.
2. Readers are moving in the digital direction as they can easily find the articles that appeal to them.

1.

2.
3.
4.

CMA Canada

Weaknesses
Employees are concerned with job security. EmRen does not have the capacity and up-to-date information technology to go digital for all of the publications.
In-house website developers are still not experienced enough compared to the competitors that specialize in digital media.
EmRen’s online presence is still in its infancy. High turnover in the event planning group. EmRen has a pending lawsuit from some freelance writers, for publishing their articles without permission.
Cathy Kareva’s behaviour is against the industry practice – ethical issue.
Threats
Traditional print advertising, although successful in reaching targeted audiences, is now seen as too restrictive by advertisers.
It is difficult to solicit employees with both website development skills and magazine publishing knowledge.
The demand for print magazines may decline as digital media mature.
Many of the large publishing houses are starting to go digital.

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May 2013 Case Examination

Note: The financial analyses are provided only as a guide; these solutions represent one possible outcome. Other correct solutions are possible.

Ratio Analysis and Benchmarking
Current ratio
Quick ratio
Debt-to-equity
LT debt-to-equity
Asset turnover
Return on assets
Return on equity
Operating profit margin
Operating Revenue %
Advertising
Subscription
Newsstand
Production
Events
Total Operating Revenue

Operating Revenue %
Advertising
Circulation

CMA Canada

Liquidity
Liquidity
Leverage
Leverage
Activity
Return
Return
Profitability

2012
2.90
1.91
0.64
0.17
2.73
10%
17%
5%

2011
2.30
1.54
0.93
0.25
2.54
12%
23%
7%

2010
2.32
1.59
1.20
0.45
2.77
19%
43%
10%

2009
1.58
1.08
1.78
0.50
3.07
10%
28%
5%

52%
32%
13%
2%
2%
100%

54%
30%
12%
2%
2%
100%

53%
33%
9%
2%
3%
100%

59%
33%
5%
2%
2%
100%

52%
45%

54%
42%

53%
42%

59%
38%

Target
10%

Industry
Benchmark
73%
26%

Page 59

May 2013 Case Examination

Qualitative Analysis – Alternative #1 – Acquisition of LDMedia
Pros
1. Meets the Board’s mandate to increase pre-tax profit margin back to
10% by 2015.
2. Positive NPV.
3. Allows EmRen to fully adopt the digital format. 4. In line with stakeholder’s preference –
Lauren McCormick.
5. New subscribers can be obtained.
6. Advertising revenue will increase as advertisers have more choices (both print and online).
7. There is a solid subscriber base for
LDMedia’s current brand of websites.
8. Excellent information technology system in LDMedia.
9. LDMedia has a unique, user-friendly website that can be customized to suit the needs of advertisers.
10. LDMedia has a decentralized structure; it responds quickly to market conditions and adapts well to customer preferences. 11. Lower cost structure in LDMedia.
12. Content would be delivered in a timely and innovative manner – content availability on multiple distribution channels. Readers can access content anywhere and anytime.

CMA Canada

1.
2.
3.
4.
5.
6.
7.

Cons
EmRen does not have enough capability and experience managing the online digital business.
Against stakeholder’s preference –
Emma Scott.
Employees are concerned with job security and the acquisition will worsen the situation.
LDMedia has a decentralized structure with no segregation of duties, which is a different culture from EmRen.
LDMedia used to have negative press on information confidentiality.
Billing and administrative functions are prone to errors in LDMedia.
EmRen has the option to build websites in-house.

Page 60

May 2013 Case Examination

Quantitative Analysis – Alternative #1 – Acquisition of LDMedia
(dollar amounts in ’000s)
2012
Revenue
Advertising – banner
Advertising – microsite/web video
Incremental advertising revenue
Total

$5,950
1,329

7,279

Expenses

2013
5.5%
$6,277
1,402
600
8,279

Projected
2014
5.5%
$6,622
1,479
800
8,902

2%

2%

Salaries, wages and benefits

2,824

2,474

2,523

Commissions
Information and communications
Programming and production
Content
Rent
General and administrative
Marketing and promotion
Amortization
Other miscellaneous
Office rearrangement
Relocation expense and fees
Total

364
45
1,507
450
400
143
249
238
26


6,246

414
46
1,537
459
200
146
254
335
27
230
180
6,301

445
47
1,568
468

149
259
335
27


5,821

CMA Canada

2015
5.5%
$6,987 Case fact; assume it increases 5.5% year-over-year.
1,561 Case fact; assume it increases 5.5% year-over-year.
1,000 Case fact.
9,547
2%
Decreases by $350,000 in 2013, and increases 2%
2,574 year-over-year after 2013.
Paid at 5% of the total of LDMedia’s advertising
477 revenue and incremental advertising revenue.
48
1,599
478
– 50% rent for 2013 (relocated by end of June 2013).
152
264
335 (3,500-150)/10=335
28
– Case fact.
– Case fact.
5,954

Page 61

May 2013 Case Examination

Income before taxes
Income taxes (30%)
Net income
Add back amortization

1,978
593
1,385
335

3,080
924
2,156
335

3,593
1,078
2,515
335

Net Cash Flow

$1,720

$2,491

$2,850

PV @ 13%
Initial investment

$ 5,448
(5,000)

3-year NPV @ 13%

$

35%

38%

Pre-tax profit margin (LDMedia)

CMA Canada

1,033
310
723

448
24%

Page 62

May 2013 Case Examination

EmRen Pro Forma (if LDMedia is recommended)
(dollar amounts in ’000s)
2012

Projected
2014
5%
$20,652

Revenue
Advertising

$18,732

2013
5%
$19,669

Subscription

11,557

11,788

11,670

4,570
598
560




4,661
598
560
6,277
1,402
600

4,615
598
560
6,622
1,479
800

Total Revenue

$36,017

$45,556

$46,997

$48,512

Expenses
Salaries, wages and benefits
Commissions
Printing
Postage and distribution
Content
Rent
General and administrative
Marketing and promotion
Amortization

$12,349
937
12,088
2,997
1,627
2,200
578
974
251

2%
$15,070
1,397
13,450
3,149
2,119
2,400
735
1,247
586

2%
$15,371
1,478
13,316
3,211
2,161
2,200
750
1,272
586

2%
$15,679
1,562
13,183
3,274
2,204
2,200
765
1,298
586

Newsstand
Production
Events
Advertising – banner
Advertising – microsite/web video
Incremental advertising revenue

CMA Canada

2015
5%
$21,685 Case fact; assume it increases 5% year-over-year.
$7.5 per copy; refer to the circulation volume in
11,554 Appendix 4.
$10 per copy; refer to the circulation volume in
4,569 Appendix 4.
598 Case fact, assume unchanged.
560 Case fact, assume unchanged.
6,987
1,561
1,000

Page 63

May 2013 Case Examination

Information and communications
Programming and production
Office rearrangement
Relocation costs and fees
Interest
Other miscellaneous

Income before taxes
Income taxes (30%)
Net Income
Pre-tax profit margin

CMA Canada





110

34,111

46
1,537
230
180
350
27
42,523

47
1,568


350
27
42,337

48
1,599


350 110+(3,000*8%=240)
28
42,774

1,906
572

3,033
910

4,660
1,398

5,738
1,721

$ 1,334

$ 2,123

$ 3,262

$ 4,016

5%

7%

10%

12% Test target.

Page 64

May 2013 Case Examination

Qualitative Analysis – Alternative #2 – In-house Printing
1.
2.
3.
4.

5.
6.
7.
8.
9.

Pros
Meets the Board’s mandate to increase pre-tax profit margin back to
10% by 2015.
Positive NPV.
In line with stakeholder’s preference –
Jinah Moon.
EmRen will have both grade A and grade B papers available, which will enable it to pursue the Deir Trail contract. Gives EmRen access to the lowest printing price.
The office building has a great security system, and the working conditions are excellent. Improves direct quality control and avoids the current issues with
Pentagon.
Located in the same office building; communication and turnaround time will be improved.
The lease term is favorable, and the office space could be used for possible expansion in the future.

CMA Canada

1.
2.
3.

4.
5.

6.

Cons
Against stakeholder’s preference –
Lauren McCormick.
Additional relocation cost and other expenses. The demand for print magazines may decline as digital media mature;
EmRen may need to outsource the printing service again once the volume is not high enough.
EmRen has no experience managing printing; the inexperienced team may harm the quality of service.
The commodity prices are subject to fluctuations, and EmRen’s printing cost would not be fixed as with
Pentagon.
Printing is not EmRen’s core business and is not in line with EmRen’s mission/vision. Page 65

May 2013 Case Examination

Quantitative Analysis – Alternative #2 – In-house Printing
Grade B Paper
(dollar amounts in ’000s)
Cost savings1

2013
$3,363

Projected
2014
$3,329

2015
$3,296

Incremental Expenses
Salaries, wages and benefits
Rent
Amortization
Total incremental expenses

780
500
58
1,338

780
500
58
1,338

780
500
58 (1,200-50)/20
1,338

Total savings
Taxes @ 30%
Net savings
Add back amortization

2,025
608
1,418
58

1,991
597
1,394
58

1,958
587
1,371
58

$1,475

$1,451

$1,428

Net Cash Flow
PV @ 13%
Initial investment on equipment
Relocation expense
Training expense
System set-up

$ 3,432
$(1,200)
(230)
(25)
(38)
(1,493)

3-year NPV @ 13%
1

$ 1,939

Assume for printing in-house that the average cost per page remains unchanged for the next three years.

CMA Canada

Page 66

May 2013 Case Examination

EmRen Pro Forma (if in-house printing is recommended)
(dollar amounts in ’000s)

$18,732

2013
5%
$19,669

Projected
2014
5%
$20,652

2015
5%
$21,685

Subscription

11,557

11,788

11,670

11,554

Newsstand
Production
Events

4,570
598
560

4,661
598
560

4,615
598
560

4,569
598
560

$36,017

$37,276

$38,095

$38,965

$12,349
937
12,088
2,997
1,627
2,200
578
974
251



110
34,111

2%
$13,376
983
10,088
3,149
1,660
2,700
590
993
309
(230)
(25)
(38)
112
33,666

2%
$13,643
1,033
9,987
3,211
1,693
2,700
601
1,013
309



114
34,304

2%
$13,916
1,084
9,887
3,274
1,727
2,700
613
1,034
309



117
34,660

2012
Revenue
Advertising

Total Revenue
Expenses
Salaries, wages and benefits
Commissions
Printing
Postage and distribution
Content
Rent
General and administrative
Marketing and promotion
Amortization
Relocation expense
Training expense
System set-up
Interest

CMA Canada

Case fact; assume it increases 5% year-over-year.
$7.5 per copy; refer to the circulation volume in
Appendix 4.
$10 per copy; refer to the circulation volume in
Appendix 4.
Case fact; assume unchanged.
Case fact; assume unchanged.

Page 67

May 2013 Case Examination

Income before taxes
Income taxes (30%)
Net Income
Pre-tax profit margin

CMA Canada

1,906
572

3,610
1,083

3,791
1,137

4,305
1,291

$ 1,334

$ 2,527

$ 2,654

$ 3,013

5%

10%

10%

11%

Test target.

Page 68

May 2013 Case Examination

Qualitative Analysis – Alternative #3 – Deir Trail Contract
1.
2.
3.
4.

5.

Pros
Can help EmRen reach the high-end consumer markets.
In line with stakeholders’ preference –
Lauren McCormick, Derek
Woodsworth and Cathy Kareva.
Joint marketing effort will allow EmRen to capitalize on the expertise of Deir
Trail’s marketing department.
Deir Trail has a distribution list of industry professionals that can be advantageous for the business publication at EmRen.
Deir Trail holds a number of events in
Toronto and, as a partner, EmRen will be able to attend to expand its network of professionals.

CMA Canada

Cons
1. No long-term commitment from Deir
Trail beyond the 3-year contract.
2. High turnover in EmRen’s event planning group would be a barrier for this contract.
3. If EmRen renews the printing contract with Pentagon, depending on the volume, EmRen may have a negative
NPV, because the cost for grade A paper is high.

Page 69

May 2013 Case Examination

Quantitative Analysis – Alternative #3 – Deir Trail Contract
In-house
Scenario #1: 50,000 copies
(dollar amounts in ’000s)
Incremental revenue
Incremental Expenses
Printing
Postage and distribution
Contractor compensation
Administrative and marketing
Amortization
Total incremental expenses

Projected
2013
2014
2015
$1,600 $1,600 $1,600

560
75
260
250
42
1,187

560
75
260
250
42
1,187

560
75
260
250
42
1,187

413
124
289
42

413
124
289
42

413
124
289
42

Net Cash Flow

$ 331

$ 331

$ 331

PV @ 13%
One-time promotional material

$ 782
(420)

3-year NPV @ 13%
Pre-tax profit margin

$ 362
26%

26%

26%

Incremental income
Taxes @ 30%
Net incremental income
Add back amortization

CMA Canada

Page 70

May 2013 Case Examination

In-house
Scenario #2: 55,000 copies
(dollar amounts in ’000s)
Incremental revenue
Incremental Expenses
Printing
Postage and distribution
Contractor compensation
Administrative and marketing
Amortization
Total incremental expenses

2013
$1,600

Projected
2014
2015
$1,600 $1,600

616
83
260
250
42
1,251

616
83
260
250
42
1,251

616
83
260
250
42
1,251

350
105
245
42

350
105
245
42

350
105
245
42

Net Cash Flow

$ 287

$ 287

$ 287

PV @ 13%
One-time promotional material

$ 677
(420)

3-year NPV @ 13%
Pre-tax profit margin

$ 257
22%

22%

22%

Incremental income
Taxes @ 30%
Net incremental income
Add back amortization

CMA Canada

Page 71

May 2013 Case Examination

In-house
Scenario #3: 60,000 copies
(dollar amounts in ’000s)
Incremental revenue
Incremental Expenses
Printing
Postage and distribution
Contractor compensation
Administrative and marketing
Amortization
Total incremental expenses

2013
$1,600

Projected
2014
2015
$1,600 $1,600

651
90
260
250
42
1,293

651
90
260
250
42
1,293

651
90
260
250
42
1,293

307
92
215
42

307
92
215
42

307
92
215
42

Net Cash Flow

$ 257

$ 257

$ 257

PV @ 13%
One-time promotional material

$ 607
(420)

3-year NPV @ 13%
Pre-tax profit margin

$ 187
19%

19%

19%

Incremental income
Taxes @ 30%
Net incremental income
Add back amortization

CMA Canada

Page 72

May 2013 Case Examination

In-house
Contract price
No. of copies
No. of pages per copy
No. of pages in total
Average printing cost per page
Average postage and distribution per copy
Contractor compensation
One-time promotional material
Administrative and marketing

CMA Canada

$1,600,000 $1,600,000 $1,600,000
50,000
55,000
60,000
35
35
35
1,750,000
1,925,000
2,100,000
$0.32
$0.32
$0.31
$1.50
$1.50
$1.50
$260,000
$260,000
$260,000
$420,000
$420,000
$420,000
$250,000
$250,000
$250,000

Page 73

May 2013 Case Examination

Pentagon
Scenario #1: 50,000 copies
(dollar amounts in ’000s)
Incremental revenue
Incremental Expenses
Printing
Postage and distribution
Contractor compensation
Administrative and marketing
Amortization
Total incremental expenses

2013
$1,600

Projected
2014
2015
$1,600 $1,600

665
75
260
250
42
1,292

665
75
260
250
42
1,292

665
75
260
250
42
1,292

308
92
216
42

308
92
216
42

308
92
216
42

Net Cash Flow

$ 258

$ 258

$ 258

PV @ 13%
One-time promotional material

$ 608
(420)

3-year NPV @ 13%
Pre-tax profit margin

$ 188
19%

19%

19%

Incremental income
Taxes @ 30%
Net incremental income
Add back amortization

CMA Canada

Page 74

May 2013 Case Examination

Pentagon
Scenario #2: 55,000 copies
(dollar amounts in ’000s)
Incremental revenue
Incremental Expenses
Printing
Postage and distribution
Contractor compensation
Administrative and marketing
Amortization
Total incremental expenses

2013
$1,600

Projected
2014
2015
$1,600 $1,600

732
83
260
250
42
1,366

732
83
260
250
42
1,366

732
83
260
250
42
1,366

234
70
164
42

234
70
164
42

234
70
164
42

Net Cash Flow

$ 206

$ 206

$ 206

PV @ 13%
One-time promotional material

$ 486
(420)

3-year NPV @ 13%
Pre-tax profit margin

$ 66
15%

15%

15%

Incremental income
Taxes @ 30%
Net incremental income
Add back amortization

CMA Canada

Page 75

May 2013 Case Examination

Pentagon
Scenario #3: 60,000 copies
(dollar amounts in ’000s)
Incremental revenue
Incremental Expenses
Printing
Postage and distribution
Contractor compensation
Administrative and marketing
Amortization
Total incremental expenses

2013
$1,600

Projected
2014
2015
$1,600 $1,600

777
90
260
250
42
1,419

777
90
260
250
42
1,419

777
90
260
250
42
1,419

181
54
127
42

181
54
127
42

181
54
127
42

Net Cash Flow

$ 169

$ 169

$ 169

PV @ 13%
One-time promotional material

$ 398
(420)

3-year NPV @ 13%
Pre-tax profit margin

$ (22)
11%

11%

11%

Incremental income
Taxes @ 30%
Net incremental income
Add back amortization

CMA Canada

Page 76

May 2013 Case Examination

Pentagon
Contract price
No. of copies
No. of pages per copy
No. of pages in total
Average printing cost per page
Average postage and distribution per copy
Contractor compensation
One-time promotional material
Administrative and marketing

CMA Canada

$1,600,000 $1,600,000 $1,600,000
50,000
55,000
60,000
35
35
35
1,750,000
1,925,000
2,100,000
$0.38
$0.38
$0.37
$1.50
$1.50
$1.50
$260,000
$260,000
$260,000
$420,000
$420,000
$420,000
$250,000
$250,000
$250,000

Page 77

May 2013 Case Examination

Quantitative Analysis – Co-Sponsored Business Event
Break-even Analysis

Revenue per ticket

Total
$20

100%

Costs:
Advertising
Venue
Food, drinks and staff
Guest speaker
Packaging and gifts
Other fixed costs
The lead events co-ordinator

$15,000
90,000
25,000
12,000
4,500
2,000
5,000

0%
0%
0%
50%
25%
25%
100%

EmRen
$20

$




6,000
1,125
500
5,000

Total Fixed Costs
Variable cost per magazine
Break-even (no. of attendees)
Break-even (revenue in $)

CMA Canada

$12,625
$6.75

100%

$6.75
953
$19,057

Page 78

May 2013 Case Examination

Sample Response
Successful Attempt #1
EmRen Publishing Incorporated Strategic and Operational Assessments and Recommendations
To: EmRen board of directors
From: Ethan Vu, CMA, Accounting Manager
Date: May 8, 2013

Comment [MAY13 CE-1]: Suitable memo format.

Executive summary
EmRen operates in an intensely competitive magazine publishing industry. It is facing declined net income, experiencing AIS intergration issues, and dealing with issue at its Pentagon supplier

Comment [MAY13 CE-2]: Avoid use of undefined acronyms.

site. Readers now want content to be available anywhere and at any time.

Alternatives analyzed

Comment [MAY13 CE-3]: Listing presents the alternatives succinctly; however, the narrative could be provided to introduce the material.

Alternative #1 - LDMedian Incorporated
Alternative #2 - Printing IN-House
Alternative #3 - Deir Trail Incorporated
Alternative #4 - Co-sponsor business event

Recommendations
Acquisition of LDMedia is recommended
- meet pre-tax profit margin
- align with mission statement
- align with McCormick preference

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- will provide digital content for the customer, part of the sucess factor'
- positive NPV
It is recommended that EmRen pursue the Deir Trial business
- meet pre-tax profit margin
- expand business magazine potential
- additioal exposure to high end customers

It is recommneded that EmRn proceed with acquisition of LDMedia, and take on the magazine business from Deir Trail. These alternatives will allow EmRen to realize 10% pre-tax profit in
2013 & 2014, and 11% pre-tax profit in 2015, therefore meet and exceed the 10% target by 2015.

These investment will yeild positive NPV with a 13% rate of return, and sufficient financing are availalbe to pursue the ventures. Printing in-house is also feasible, however insufficient financing is available to pursue all.
Comment [MAY13 CE-4]: Overall, the Executive Summary provides the alternatives evaluated and the final recommendations with expected outcomes against the main goal. It could also provide a briefing on operational recommendations to support the main recommendations.

CMA Canada

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Introduction
EmRen operates in an intensely competitive magazine publishing industry. It is facing declined net income, experiencing AIS intergration issues, and dealing with issue at its Pentagon supplier site. Readers now want content to be available anywhere and at any time.

Comment [MAY13 CE-5]: Good purpose statement.

The purpose of the following report is to assess the strategic and operational issues facing
EmRen. Specificially, the report will contain an assessment of the current situation, identificatio of the major issues, analysis of alternatives addressing the major issues, recommended course of actions, and implementation plan.

Comment [MAY13 CE-6]: Good scope provided.

Current Situation
Mission & Vision

Comment [MAY13 CE-7]: Current mission and vision noted to establish a starting point for the report.

Our vision is to create a unique brand of magazines for our CAnadian readers.

At EmRen, our mission is to be the first choice of Canadian readers, both consumers and industry professionsla, for expert advice in the areas of fashion, health, beauty and professional industry. Uncompromising with respect to our high standards of excellence, we strive to inform, educate and enteratin our readers with a vast selection of magazines.

Goals/Targets

Comment [MAY13 CE-8]: Main target measurable identified.

- pre-tax profit margin of 10% or greater by 2015

CMA Canada

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Constraints
- discount rate of 13%
- expense increase at rate of 2%
- bank loan of 3 million, payable over 15 years with 8% interest rate\
- advertising revenue to increase by 5% per year

Comment [MAY13 CE-9]: Not clear how this would be a constraint.

- no change to productoin and event revenue
- expenses are expected to increase annually at 2%

Stakeholders preference
Scott

Comment [MAY13 CE-10]: A large collection of detail related to Scott making it difficult to discern what connectable preference she might have to any one of the alternatives.

- create a brand of magazines focused on topics that matter most to women
- believes that reader still prefer hard copy magazines

Providing this type of information, though useful, might be better presented in a hierarchy of sorts, beginning with what major alternatives are preferred or not, followed by major operational items if any, and then the generalizations. In this way the recipients can immediately identify the most significant information as that which is delivered first.

- Need to ensure grade A paper is available
- concerned about LDMedia acquisition's impact to employees
- should consider building websites for all in-house magazines, rather than via LDMedia
- prefer to to focuson providing creative content and utilizing resources within the company

Comment [MAY13 CE-11]:
Scott prefers to develop technology internally. - demand for traditional magazine is still steady, even with digital media.
- have read market report forcasting decline for demand in print magazine

McCormick

Comment [MAY13 CE-12]:
McCormick’s preferences noted.

-believes EmRen should operate in an upscale location and be in close proximity to its clients
- EmRen can benefit from online version of existing magazines
- LDMedian could give EmRen a foothold in the digital median sector

CMA Canada

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- Used LDMedia capabilities to develop online versions of EmRen magazines, could increase subscriber base and advertising revenue
- concerned about security of the customer information, with LDMedian used to have negative press on information confidentiality breaches
- concerned with durability of the in-house printing proposal, given the move to digital in-house printing will need to purchase equipment, hire additional employees, provide training
-no experience in managing printing
-concern over quality of services due to experience level
-entagon can also provide grade A paper

woodsworth

Comment [MAY13 CE-13]:
Woodsworth’s preferences noted.

- need to find ways to increase revenue or reduce cost
- need the capability LDMedia has
- Deir Trail is an excellent opportunity to reach a different set of readers

Singh

Comment [MAY13 CE-14]: Singh’s preference noted.

- bring printing in-house will benefit EmRen in the long term

Deacon

Comment [MAY13 CE-15]:
Non-specific detail related to Deacon.

- don't have capacity and up-to-date info technology
- online presence is still in infancy

CMA Canada

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Moon

Comment [MAY13 CE-16]: Moon’s support for Board member noted.

- believes its' time to take control of the printing and distribution services
- in-house printing would give access to lowest printing price and max control of quality
- Will be able to provide grade A paper
- easy to find staff, skill set required is not high
- could use space for other expansion in the future
- hard to find good office space with good price in downtown

Kareva

Comment [MAY13 CE-17]: Kareva’s support for Board member noted.

- Deir Trail will increase EmRen's exposure to high end clients
- Would have access to Deir Trail's distribution list which could benefit business division

KSF


awareness of business and industry trends



reputation of literary excellence



content reflect current and up-to-date industry trends



advertising



circulation



digital and paper media



large number of magazine selections

Comment [MAY13 CE-19]: Variety noted as an external KSF.



diverse network of high quality freelance writers



optimum location on the sales rack

Comment [MAY13 CE-20]:
Established relationships with freelance authors noted as external
KSF.

operational efficiency

Comment [MAY13 CE-21]: Location on racks also noted as external KSF for hardcopy.



CMA Canada

Comment [MAY13 CE-18]: Timely and relevant content noted as external
KSF.

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Financial ratios

Comment [MAY13 CE-22]: To provide more effective interpretations of the ratio analysis, some high-level guidelines to follow include:

Appendix 1 contains the relevant ratios discussed below.

Coverage ratio
EmRen's leverage ratio has declined YoY. EmRen has low debt load, and has the ability to take on additional debt if required for expansion.

Liquidity ratio
EmRen's current ratio is above 2, and quick ratio is above 1, therefore has good liquidity, able to meet short term obligations. Good cash flow.

1. Only the ratio – inadequate assessment. 2. The ratio with an indication of whether it is just good or bad – weak to basic interpretation.
3. “Basic interpretations” plus trending with an indication of whether it is getting better or worse – this is a better interpretation. 4. “Better interpretations” plus either insights into what might be causing the ratio to be as it is or potential implications resulting from trend not being corrected – these are the best interpretations. Comment [MAY13 CE-23]: Brief description of the trend direction – description of current state position; interpretation of the ratio includes some thought related to future ability to take on debt.
Comment [MAY13 CE-24]:
Description of ratio position. Note: This could be easily viewed on the chart, so adds little value.

Activity ratios
EmRen's inventory level has increased significantly, 45 days (2012), 47 days (2011), 42 days
(2010), 33 days (2009). At curren rate, if continue to increase will impact liquidity of EmRen.
EmRen needs to review inventory acquisition process and determine means to reduce.

EmRen's AR collection days has increased by over 50% from 2009 to 2011. At current 33 days,

Subtle interpretation of position as
“good” with ability to meet short-term obligations. Better interpretations would provide some thought into why the ratio is where it is.
Comment [MAY13 CE-25]: This statement is not clear. Inventory turns are measured in days; inventory levels would still be in dollars. Assuming this is turns, the interpretation would be helpful for the recipients to then possibly redirect focus on the inventory turns to assess whether it is because of volume accumulation or consumption slowdown, and then act accordingly. EmRen is paying off its suppliers much faster at 17 days than receiving cash from its customer.
EmRen needs to review AR policy, establish penalty for late payment and align AR and AP.

Profitability ratios
EmRen 's net income has declined YoY at 3.7% in 2012, at , this is due to both lower gross margin (17%) and operating profit (5.6%). Lower gross margin is a result of increased salaries

CMA Canada

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Comment [MAY13 CE-26]: Useful information for recipients; however, the nature of the business seems to dictate the rate at which payment occurs.
Considering the supply chain, if the AR were related to larger buyers there may be some opportunity; if the buyers are individual subscribers this task could be cost prohibitive.

May 2013 Case Examination

and wages (16% increase), as well as content cost (7% increase). Operating profit margin declined due to significant increase in both General/Admin and Marketing expenses, at 24% and
25% respectively. In 2012, the G&A and Marketing expense growth has slowed down slightly to 12% and 15% respectively, however still exceeded the 10% revenue growth.

Benchmark
Comparing to the industry average, EmRen's advertising revenue is at 52% of the overall, much lower than the 73% of industry average. In comparison, EmRen's circulation revenue accounts for 45% of the total revenue, much higher than the 26% industry average. EmRen should focus on increasing its advertising revenue.

Growth rate
2010 - 2011, overall expense growth rate of8% exceeded that of overall revenue growth of 4%.
Within the revenue categories, positive growth came from newsstand, production, and advertising. Whereas events revenue dropped sharply by 32% from 2010 to 2011. In 2012, the expense and revenue growth rate is more aligned at 10% and 11% respectively, with content expense growth declined, and subscription revenue increased by 16%. Event revenue continued to decline by 14% in 2012. EmRen should consider if it should outsource the event planning business. CMA Canada

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Comment [MAY13 CE-27]: Good overall review of the elements that affect the operating profit margin. The conclusion, however, falls short of integrating this into the actual decision metric, i.e. pre-tax profit margin of 10% which would have refocused the recipients’ attention onto more prevalent issues.
Comment [MAY13 CE-28]:
Interpretation is weak. It only provides point estimate comparisons without providing some thought about why the difference exists or how it might be altered. For example, EmRen is mostly print, so their advertising revenues would be much less, given the trend of advertisers moving rapidly into the online digital media venue.

Comment [MAY13 CE-29]: There is some discussion related to the growth in revenues and costs related to specific divisions, as well as some interesting observations related to events group revenues that would be well received if indicating further investigations into the events group market. Making a recommendation to outsource without analysis might be pre-emptive and seen as bias, especially considering the one major alternative, Deir Trail, and major operational option of the co-sponsored business event on the docket.

May 2013 Case Examination

SWOT
Appendix 2 outlines the additional SWOTs. EmRen must consider online content given readers are moving to the digital formats. EmRen also needs to determine contract expiration with

This point also highlights the use of a functional concept to develop a cogent argument for this alternative.

Alternative analysis

Link to weakness
Comment [MAY13 CE-33]: A valid point, but again not the reason to acquire, as this only becomes influential if a move into this market occurs. Alternative #1 - LDMedian Incorporated
Pros

Comment [MAY13 CE-34]: Valid pro, integrating the alternative with existing environmental opportunity – growth in demand for customization by advertisers. LDMedian is interested in selling the company



Comment [MAY13 CE-31]: A valid point, but not an influential reason to acquire. Comment [MAY13 CE-32]: Valid pro, integrating the alternative with
EmRen’s current weakness.

Pentagon.



Comment [MAY13 CE-30]: SWOT comments appear in the appendix noted. LDMedia's platform is user-friendly, allow advertisers to customize, whereas EmRen currently lack capacity and up-to-date info to go digitial, as well EmRen's online presence is still in infancy



LDMedia's competitors do not offer same customzation and flexibility



advertiser eager to use online advertising, will improve advertising revenue, as traditional

Link to opportunity
Comment [MAY13 CE-35]: Valid pro, integrating the alternative with existing environmental threat – industry beginning to see print copy as too restrictive. This point also highlights the use of a functional concept to develop a cogent argument for this alternative (external risk). printing advertising is now seen as being too restrctive


Link to threat

McCormick believes that using LDMedia capabilities to develop online versions of EmRen

Comment [MAY13 CE-36]: Valid pro, integrating the alternative with existing stakeholder preferences.
Link to preference

magazines, could increase subscriber base and advertising revenue


will provide the necessary media capabilty which is becoming part of the key success factor in this business



Comment [MAY13 CE-38]: Valid pro, integrating the alternative with an industry KSF.
Link to KSF

with digital media, it would be much easier for content tio reflect current and up-to-date industry trends



Comment [MAY13 CE-37]:
Repeated point to second bullet.

Given website development skills combined with magazine publising knowledge is difficult to find, LDMedia has the staff with the necessary skills sets and knowlege

Comment [MAY13 CE-39]: Valid pro, integrating the alternative with existing environmental threat – difficulty to find resources with both publishing and web knowledge.
This point also highlights the use of a functional concept to develop a cogent argument for this alternative (external risk). Link to threat

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readers wants contents to be available anywhere anytime, given this EmRen needs to have digital media capability in order to remain the first choice for the readers as per mission

Comment [MAY13 CE-40]: Valid pro; however, the connection to the mission is already established because
EmRen has already established magazines online.
Comment [MAY13 CE-41]: Valid pro, integrating the alternative with existing environmental opportunity – growth in demand for online access.
Link to opportunity

statement


consumers spending more time online



Pre-tax profit margin over 10%, meet target for 2015 (appendix 3 - pre-tax profit margin)



NPV positve for investment (appendix 3 - NPV)



Financing sufficient for investment (appendix 3 - excess (shortage)

Comment [MAY13 CE-42]:
Valid pro and link to the goal/target; calculations shown in Appendix 3 line item – pre-tax profit margin.
Link to goal
Comment [MAY13 CE-43]: Valid pro, though this does not drive the overall decision.
Comment [MAY13 CE-44]: Valid pro. Financing established for this alternative. Cons

Comment [MAY13 CE-45]: Why this is a con would make this point more influential. •

LDMedia billing and admin functions prone to errors



LDMedia's decentralized structure is not aligned with EmRen's functional structure



Scott is concerned about LDMedia acquisition's impact to employees



Rumours about layoffs at EmRen



McCormick is concerned about security of the customer information, with LDMedian used to

Comment [MAY13 CE-46]: Noting why this is an issue for EmRen would make this point more of a concern,
i.e. could further degrade the morale currently within EmRen which is suffering with high turnover in certain areas of the business.
Comment [MAY13 CE-47]: This point notes Scott’s concern but does not relate it to the existing problem with turnover. Scott would rather consider building websites for all in-house magazines, rather than via

Comment [MAY13 CE-48]: This is a current issue within EmRen, but it is not connected to either the LDMedia organizational structure that differs from EmRen or the concern that Scott has over what will happen when trying to integrate the two structures.

LDMedia

Comment [MAY13 CE-49]:
Valid con.

have negative press on information confidentiality breaches




Scott prefers to to focuson providing creative content and utilizing resources within the company Comment [MAY13 CE-50]: Valid pro, integrating the alternative with existing stakeholder preferences.
Link to preference
Comment [MAY13 CE-51]: Redundant point to previous one noted.
Comment [MAY13 CE-52]: Overall assessment of analysis:
• Good depth provided, valid pros and cons with demonstrated integration to current state. Reasonably well balanced, with both quantitative points and qualitative analysis included. Good use of both internal and external perspective. No bias evident – strong issues, both pro and con provided.
• Some repeated/redundant or vague points, but not distracting.

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Alternative #2 - Printing IN-House
Comment [MAY13 CE-53]: Valid point made, but not an influencing issue. Pros


Available space in EmRen's office building, will be sufficient for needs



Moon believes its' time to take control of the printing and distribution services



Office building was upgraded and secured with alarms and motion sensors, working

Comment [MAY13 CE-54]:
Valid pro; identification of senior management support for existing stakeholder preferences.
Comment [MAY13 CE-55]:
Valid point. If the security issue with
Pentagon (current weakness) had been identified here, this would be awarded an integrative link to the weakness. environment is excellent


Moon: in-house printing would give access to lowest printing price and max control of quality, given costs have increased for paper, printing and postage

Comment [MAY13 CE-56]:
Valid pro, but does not integrate the alternative with the ongoing threat because EmRen will continue to be exposed to the cost of printing and postage whether it does the printing or the printing is outsourced.



Pentagon has increased price on new draft contract



Will be able to provide grade A paper



Scott - demand for traditional magazine is still steady, even with digital media.



Scott - believes that reader still prefer hard copy magazines

This point also highlights the use of a functional concept to develop a cogent argument for this alternative.
Link to weakness



Moon - easy to find staff, skill set required is not high

Comment [MAY13 CE-58]: Not a relevant issue.



Moon - could use space for other expansion in the future



Moon - hard to find good office space with good price in downtown



pre-tax profit margin exceed 10% target (appendix 4- pre-tax profit margin)

Comment [MAY13 CE-61]: Valid point – but not an influencer in the decision. •

NPV positive at 13% return (appendix 4 - NPV)



sufficient financing available for investment (appendix 4 - Financing excess (shortage))

Comment [MAY13 CE-62]: Not a relevant issue to the decision to print in-house. Comment [MAY13 CE-57]: Valid pro, integrating the alternative with
EmRen’s current weakness –
Pentagon is increasing the next contract. Comment [MAY13 CE-59]:
Valid pro.
Comment [MAY13 CE-60]: Valid pro, integrating the alternative with existing stakeholder preferences.
Repetition

Comment [MAY13 CE-63]: Valid point related to the space, but not an issue to consider in a decision on where to print.
Comment [MAY13 CE-64]:
Valid pro and link to the goal/target; calculations shown in Appendix 3 line item – pre-tax profit margin.
Repetition to goal
Comment [MAY13 CE-65]: Valid pro, though this does not drive the overall decision.
Comment [MAY13 CE-66]: Valid pro. Financing established for this alternative. CMA Canada

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May 2013 Case Examination

Cons


McCormick - concerned with durability of the proposal, given the move to digital



McCormick - will need to purchase equipment, hire additional employees, provide training



Scott - have read market report forcasting decline for demand in print magazine



McCormick - no experience in managing printing



McCormick - concern over quality of services due to experience level



McCormick - Pentagon can also provide grade A paper

Comment [MAY13 CE-67]: The statement is not clear on the main underlying issue. Had it been stated that the “durability” referred to the decline in demand of print media, a connection to the threat could be established. Comment [MAY13 CE-68]: Not relevant cons; this would be part of the project proposal costs assumed to be analyzed in the financial evaluation.
Comment [MAY13 CE-69]: Valid con, integrating the alternative with existing environmental threat – demand for print media declining.
This point also highlights the use of a functional concept to develop a cogent argument for this alternative (external risk). Link to threat
Comment [MAY13 CE-70]:
Valid con.
Comment [MAY13 CE-71]:
Valid con.
Comment [MAY13 CE-72]: Not a relevant issue to this decision.
Comment [MAY13 CE-73]: Overall assessment of analysis:
Good depth provided; valid pros and cons with demonstrated integration to current state. Reasonably well balanced, though many more pros than cons; both quantitative points and qualitative analysis included. Good use of both internal and external perspective. No significant bias evident
– strong issues, both pro and con provided. Some irrelevant points, but not distracting. CMA Canada

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Alternative #3 - Deir Trail Incorporated
Pros


Comment [MAY13 CE-74]:
Valid pro.

Deir Trail has high end clients who are willing to pay for content that reflects their current interest Comment [MAY13 CE-75]:
Not relevant to the decision to contract with Deir Trail.
Comment [MAY13 CE-76]:
Valid pro.



Do not require digital version of the magazine

Comment [MAY13 CE-77]:
Valid pro.



EmRen could increase exposure to the wealthies people



Kareva - Would have access to Deir Trail's distribution list which could benefit business

Comment [MAY13 CE-78]:
Valid pro and link to the goal/target; calculations shown in Appendix 3 line item – pre-tax profit margin.
Repetition to goal
Comment [MAY13 CE-79]: Valid pro, though this does not drive the overall decision.

division


pre-tax profit margin exceed 10% target (appendix 5- pre-tax profit margin)



NPV positive at 13% return (appendix 5 - NPV)



sufficient financing available for investment (appendix 4 - Financing excess (shortage))

Comment [MAY13 CE-80]: Valid pro. Financing established for this alternative. Cons


Need to participate in four business shows, EmRen has experienced rising cost with event planning activities



High turnover in event planning group



New hires are not good at budgeting and tracking costs



Will require grade A paper



costs have increased for paper, printing and postage



production team may not perceive Deir Trail magazine as priority, running into same issue as

Comment [MAY13 CE-82]:
• Valid con, integrating the alternative with EmRen’s current weakness – high turnover in events planning group.
• This point also highlights the use of a functional concept to develop a cogent argument for this alternative.
Link to weakness
Comment [MAY13 CE-83]:
Valid con.
Comment [MAY13 CE-84]:
Not relevant.
Comment [MAY13 CE-85]: Valid point, though volume is not significant.
Comment [MAY13 CE-86]:
Valid con.

the business division

CMA Canada

Comment [MAY13 CE-81]:
• Valid con, integrating the alternative with existing environmental threat – increase in resources required to organize special events.
• This point also highlights the use of a functional concept to develop a cogent argument for this alternative (external risk). Link to threat

Page 91

Comment [MAY13 CE-87]: Overall assessment of analysis:
• Good depth provided, valid pros and cons with demonstrated integration to current state. Reasonably well balanced, with both quantitative points and qualitative analysis included. Good use of both internal and external perspective. No bias evident – strong issues both pro and con provided.
• Some irrelevant points but not distracting. May 2013 Case Examination

Alternative #4 - Co-sponsor business event pros •

share best practice with one of the most experienced vendors



could resultin increased subscription

Comment [MAY13 CE-88]: Valid point; though not the primary reason for involvement – this is more of a corollary benefit.



emphasize company's position as a leader in business magazine sector

Comment [MAY13 CE-89]:
Valid pro; as this is the reason for involvement. Comment [MAY13 CE-90]:
Valid point.

cons


High turnover in event planning group



New hires are not good at budgeting and tracking costs



event cost is rising at EmRn

This point also highlights the use of a functional concept to develop cogent argument for this alternative.



would require over 1200 attendees to breakeven

Repetition to weakness

Comment [MAY13 CE-91]: Valid con, integrating the alternative with
EmRen’s current weakness – high turnover in events planning group.

Comment [MAY13 CE-92]:
Not clear why this is a point for this alternative. Comment [MAY13 CE-93]: Rising for all events planning organizations.
Repetition
Comment [MAY13 CE-94]:
Inclusion of a quantifiable result must be properly referenced so that its source can be identified and the result validated. CMA Canada

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May 2013 Case Examination

Recommendations

Comment [MAY13 CE-95]:
Summary recommendations are well grounded. Acquisition of LDMedia is recommended

Sound indications of key elements of
“what makes recommendations compelling” (i.e. Step 5 in the “Steps for Approaching Business and
Corporate Strategy.”)

- meet pre-tax profit margin
- align with mission statement
- align with McCormick preference
- will provide digital content for the customer, part of the sucess factor'
- positive NPV

It is not recommended that EmRen pursue bringing the printing in-house, due to lack of fiancing to pursue all alternatives (appendix 7 - financing excess (shortage). even thought this alternative has the following advantages.
- meet pre-tax profit margin
- address issue with supplier
- willl be able to reduce cost of the printing, achieveing operational efficiency
- investment will achieve positive NPV at 13% rate of return
- align with Moon's preference

It is recommended that EmRen pursue the Deir Trial business
- meet pre-tax profit margin
- expand business magazine potential
- additioal exposure to high end customers

It is not recommended to pursue the business event, unless the attendees will exceed 1200.

CMA Canada

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Combined net income assessment (appendix 7 - pre-tax profit margin) demonstrated that these alternatives will allow EmRen to achive the target of 10% pre-tax profit by 2015.

Implementation plan

Comment [MAY13 CE-96]: The use of structure through main and subheadings would facilitate the delivery of the complex content normally provided within the context of an implementation plan.

LDMedia Acquisition

Strategic Implementation – relates to the alternatives’ tasks to be executed;
Operational Implementation – relates to the tasks related to the resolution of supporting operational issues.

Owner:Scott
- Immediately: draft and deliver communication to EmRen staff regarding new business acquisitions, focus on intention to grow the business, and provide assurance that there will be no layoff. - Immediately start acquisition discussion with LDMedia, engage legal counsel on the discussion
- Upon signing of contract: commuinicate acquisition to press, draw on EmRen's hisotry of

Within these major subheadings would be another subordinated subheading level that would provide guidance as to the tasks and sub-tasks associated with each task item.
Comment [MAY13 CE-97]:
Strategic implementation:
LDMedia
Who/when/what – provided for five sub-tasks. positive information security to reduce risk of LDMedia's past history.
- Establish strick information security policy to ensure when LDMedia comes on board, there will be less risk
- Immediately identify and communicate intention to keep on staff the technical staff who are

Comment [MAY13 CE-98]:
Mitigation of con related to LD Media confidentiality issues.

value to the business, to prevent departure

Comment [MAY13 CE-99]:
Mitigation of con related to LD Media job security/turnover issues.

Continute to out-source printing to Pentagon

Comment [MAY13 CE-100]:
Operational implementation: Pentagon
Contract

Owner: Jinah Moon
- Immedaitely: finalize contract with Pentagon for the next three years

CMA Canada

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May 2013 Case Examination

Deir Trail Magazine business

Comment [MAY13 CE-101]:
Strategic implementation: LDMedia

Owner: Kareva

Who/when/what – provided for four sub-tasks. - Immediately - initiate contract discussion, engage legal consuel
- Immediate - communicate to Pentagon on new magazine requirements, obtain quotes and costing. - Within next 4 weeks - provide additional training to event planning staff, communicate new business coming onboard, raise employee morale
- within next 4 weeks - establish new budgeting and cost tracking system for the event planning area. Freelance writer law suite

Comment [MAY13 CE-102]:
Operational implementation

Owner: Vu

Partial credit for provision of resolution.
Ideally, would address both the current and balance portions of the reporting elements and the relationship management issue that may persist post settlement. Do not want the root cause of the suit to arise again.

- assess ASPE standard for recording the current portion and long term portion of the anticipated settlement from law suite - asap, to be completed within 1 week
- expense current portion, and accru long term portion - immdiately

Kareva sharing subscriber databased

Comment [MAY13 CE-103]:
Operational implementation

Owner: McCormick to action immediately

Partial credit for provision of resolution.
Ideally, would address both the current issue with Kareva and any potential of future occurrences through design/development of a code of conduct that could be applied globally across the organization.

- advise Kareva it is against industry practice to share database unless contract has been accepted
- review policy within EmRen, reinformce with senior management team accepted practice.

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May 2013 Case Examination

Address disagreement betwen business division and production team

Comment [MAY13 CE-104]:
Operational implementation

Co-owners: Manon/Kareva/Arnold (start immediately, expect 4 weeks to reach agreement)

Full resolution credit for addressing the tension among the three operating divisions. - establish SLA (service level agreement) between production team, business division, and consumer division
- SLA will be measured and monitored, and will form part of the performance metric, and will impact performance results for all affected areas

Mitigate risk due to Pentagon labour dispute

Comment [MAY13 CE-105]:
Operational implementation

Owner: Moon

Partial credit for resolution due to the limited scope provided for the solution.
Costs would be incurred that might make the solution prohibitive unless balanced against the potential loss – both of which would be speculative.

- require Pentagon to increase level of security at the plant, with 24 hr security guard presence, added security monitoring camera, effective immediately
- secure backup warehouse/distribution supplier to handle existing inventory at Pentagon incase of stoppage due to dispute (to be completed within 2 weeks)

Address staffing retention issues at Business division

Comment [MAY13 CE-106]:
Operational implementation

Owner: Kareva

Full resolution credit for addressing the issue within the business division.

- assess wage level across EmRen based on skills and accountabilities (within next 2 weeks)
- propose to Scott and McCormick to standardize wages across EmRen based on skills and responsibilties, upon completion of item above (2 weeks)

CMA Canada

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May 2013 Case Examination

Issue with system integration, reporting inaccuracy

Comment [MAY13 CE-107]:
Operational implementation

Owner: Vu

Partial credit for resolution – a plan for both system problems and training should be provided.

- immediately: arrange and provide training required for the staff to use the new system
- 3 week: hire consultant to conduct detail assessment of integration issues, and reporting accuracy issues. Consultant has 3 weeks to complete assessment and come back with recommendation for resolution

Conclusions
It is recommneded that EmRn proceed with acquisition of LDMedia, and take on the magazine business from Deir Trail. These alternatives will allow EmRen to realize 10% pre-tax profit in
2013 & 2014, and 11% pre-tax profit in 2015, therefore meet and exceed the 10% target by 2015.

These investment will yeild positive NPV with a 13% rate of return, and sufficient financing are availalbe to pursue the ventures. Printing in-house is also feasible, however insufficient financing is available to pursue all.

CMA Canada

Page 97

Comment [MAY13 CE-108]:
Conclusion briefly summarizes the recommendations and outcomes with some supporting details to close off the report. May 2013 Case Examination

Appendix 1 - Financial ratios

Coverage ratio
Leverage (total debt/total asset)

2012
0.39

2011
0.48

2010
0.54

2009
0.64

Liquidity ratio current ratio quick ratio

2.90
1.91

2.3
1.5

2.3
1.6

1.6
1.1

Activity ratios days in sale of inventory days to collect AR days to pay AP

45.25
33.24
16.90

47
38
24

42
34
19

33
20

Profitability ratios
%gross margin
%operating profit
%net income
ROE

17%
5.6%
3.7%
16.6%

19%
7%
5%
0.23

22%
11%
7%
0.43

18%
5%
3%

2012
0.52
0.45

54%
42%

53%
42%

59%
38%

Revenue by segment advertising revenue to total circulation revenue to total

CMA Canada

industry avg
73%
26%

COGS

29998

purchases

30287

Provided:
• Several ratios over 4 years: main decision metric included;
• Benchmarking;
• Revenue/expense trends;
• Revenue and expense by division.
Interpretation in body of report – comments included there.

Page 98

May 2013 Case Examination

Growth rate from 2010 - 2011 overall revenue growth overall expense growth

2010 - 2011

Revenue growth by category advertising subscription newsstand production events 2010-2011

Expense growth by category salaries/wages content general and admin marketing and promo

2010-2011

CMA Canada

4%
8%

2011-2012
10%
11%

5%
-3%
35%
12%
-32%

2011-2012
6%
16%
20%
-12%
-14%

16%
7%
24%
25%

2011-2012
11%
-11%
12%
15%

Page 99

May 2013 Case Examination

Appendix 2 - SWOT

A valid strength.

A valid strength.

strength websites traffiic is increasing developers have the knowledge to create online content revenue growth improved in 2012 subscription revenue growth increased by 16% from 2011-2012 content expense declined by 11% even with increased revenue
Available space in EmRen's office building, will be sufficient for needs
Office building was upgraded and secured with alarms and motion sensors

This is financial assessment; including this in this context creates redundancy in the discussion. Why this is a strength is not clear.

+
+
-

weakness lack capacity and up-to-date info to go digitial'

Not a relevant strength in this situation.

+

Relevant weakness/issue.

rising c ost and issues with Pentagon
Pentagon does not have grade A paper

Similarly, unless this was a direct result of some marketing initiative (not in case facts), this would be externally driven.

Point is not clear on what "up-to-date info" refers to.
Relevant weakness to being online.

online presence is still in infancy developers are not experienced as other companies

Revenue growth would not be in EmRen's control – rather in this context it would be an external factor.

+
-

Relevant weakness/issue.

Supporting point for previous point.

-

EmRen is being sued by a group of freelance writers for $1 million

+

Kareva has agreed to share customer database info with Deir Trail, regardless of contract acceptance

+

LDMedia billing and admin functions prone to errors

Pentagon is external, and its issues are out of EmRen's control.
This is a Pentagon issue; would require EmRen to seek an alternate source or have Pentagon source Grade A paper.

-

LDMedia's decentralized structure is not aligned with EmRen's functional structure

Relevant weakness/issue. Rumours about layoffs at EmRen
Pentagon has increased price on new draft contract
High turnover in event planning group
New hires are not good at budgeting and tracking costs

CMA Canada

-

Specific to an alternative – this is not in EmRen's control.
Specific to an alternative – this is not in EmRen's control.

+
Relevant weakness/issue.
Issue related to previous point.

+

Relevant weakness/issue – EmRen is subject to the pricing of the contract and can control acceptance or rejection of contract.

-

Page 100

May 2013 Case Examination

opportunity

Relevant external opportunity.

advertiser eager to use online advertising

+
Relevant external opportunity.

readers want content to be available anywhere anytime

-

consumers spending more time online

+

technology must be up-to-date and integrative to deliver online content

-

This would be a case fact. A requirement to be online – not an opportunity per se.

readers going digital

A case fact, specific to an alternative.

LDMedian is interested in selling the company
Niche toursim high-end customers, Deir Trail

-

A case fact, specific to an alternative.

LDMedia's platform is user-friendly, allow advertisers to customize
LDMedia's competitors do not offer same customzation and flexibility

Incomplete sentence – not clear, other than to identify an alternative.

-

Deir Trail's travel package

-

threat
Backgrounder point restated. traditional printing advertising is now seen as being too restrctive costs have increased for paper, printing and postage website development skills combined with magazine publising knowledge is difficult to find

+
+

CMA Canada

Point is not clear on what the opportunity is.
A case fact, specific to an alternative – not a systemic opportunity where the overlaying of an alternative allows the main company to take advantage of an underlying demand that is available to all competitors.
A case fact, specific to an alternative – not a systemic opportunity where the overlaying of an alternative allows the main company to take advantage of an underlying demand that is available to all competitors.

Relevant external threat.
Relevant external threat.

Page 101

May 2013 Case Examination

appendix 3 - LDMedia Incorporated actual ($000s)
EmRen reveneu saving; duplicated job functions ad revenue total revenue
Total expense
Less:
rent amortizatoin Add increase in comission new amortizatoin total expense
Pre-tax profit
Pre-tax profit margin
30% tax after tax net income

2012

7,279

-6,246

forecast forecast forecast
2013
2014
2015
600
350
7,679
8,629

200

200

8,102
8,302
-6,498

-6,628

408
238

416
238

424
238

-20

-21

-22

-485
-6,230

-485
-6,350

-485
-6,473

2,399
27.81%
-720
1,680

1,951
23.51%
-585
1,366

485
2,165

485
1,851

485
2,077

0.88

0.78

0.69

-2872.0

1449.6

This is an ongoing savings and should be carried through.

8,547
8,747

-6,371

Goals/Targets
- pre-tax profit margin of 10% or greater by 2015

1439.4

- discount rate of 13%
- expense increase at rate of 2%
- bank loan of 3 million, payable over 15 years with 8% interest rate\
- advertising revenue to increase by 5% per year
- no change to productoin and event revenue
- expenses are expected to increase annually at 2%

2,274
26.00%…...

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...Use these links to rapidly review the document TABLE OF CONTENTS Index to Consolidated financial statements Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 20-F (Mark One) o REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended 30 June 2013 OR o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR o SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 001-35627 MANCHESTER UNITED plc (Exact name of Registrant as specified in its charter) Not Applicable (Translation of Company's name into English) Cayman Islands (Jurisdiction of incorporation or organization) Sir Matt Busby Way, Old Trafford, Manchester, England, M16 0RA (Address of principal executive offices) Edward Woodward Executive Vice Chairman Sir Matt Busby Way, Old Trafford, Manchester, England, M16 0RA Telephone No. 011 44 (0) 161 868 8000 E-mail: ir@manutd.co.uk (Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person) Securities registered or to be registered pursuant to Section 12(b) of the Act. Title of each class Class A ordinary shares, par value $0.0005 per share Name of each exchange on which registered New York Stock......

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Holidays 2013

...Regular Holidays for 2013 are as follows: |   |   | New Year’s Day | January 1 (Tuesday) | Maundy Thursday | March 28 | Good Friday | March 29 | raw ng Kagitingan | April 9 (Tuesday) | Labor Day | May 1 (Wednesday) | Independence Day | June 12 (Wednesday) | National Heroes Day | August 26 (Last Monday of August) | Bonifacio Day | November 30 (Saturday) | Christmas Day | December 25 (Wednesday) | Rizal Day | December 30 (Monday) |   |   |   |   | Special (non-working) Days |   |   | Black Saturday | March 30 | Ninoy Aquino Day | August 21 (Wednesday) | All Saints Day | November 1 (Friday) |   |   |   |   | Additional special (non-working) days |   |   | December 24 (Tuesday) |   | December 31 (Tuesday) |   |   |   |   |   | Special Holiday (for all schools) |   |   | EDSA Revolution Anniversary | February 25 (Monday) |   The proclamations declaring national holidays for the observance of Eid’l Fitr and Eidul Adha shall hereafter be issued after the approximate dates of the Islamic holidays have been determined in accordance with the Islamic calendar (Hijra) or the lunar calendar, or upon Islamic astronomical calculations, whichever is possible or convenient, the proclamation read. The National Commission on Muslim Filipinos (NCMF) shall inform the Office of the President on which day the holiday shall fall. The proclamation, signed by the President August 16, shall take effect immediately and the Department of Labor......

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