National Academies Press: OpenBook

A Risk-Characterization Framework for Decision-Making at the Food and Drug Administration (2011)

Chapter: 5 case study of a strategic-investment decision, 5 case study of a strategic-investment decision.

This chapter describes a case study that uses the committee’s framework to characterize the public-health consequences associated with two medical devices under current and enhanced postmarket-surveillance programs. The decision of whether to implement the enhanced postmarket-surveillance system is an example of a strategic-investment decision. The case study was selected because it is relevant to a scenario provided to the committee by the Food and Drug Administration (FDA) and there was relevant expertise on the committee. The data used were gleaned from publicly available Web sites or publications or were provided by FDA. The committee did not conduct exhaustive literature searches or reviews, and all information is illustrative. The case study simply provides an illustration of how the committee’s framework might be used for a strategic-investment decision.


The FDA Center for Devices and Radiological Health regulates an estimated 220,000 devices, reviews around 3,500-4,000 new products each year, and monitors some 1,000 product recalls each year. Items as varied as tongue depressors, tubing, and pacemakers are under the purview of this FDA center. At the approval stage, medical devices are labeled as Class I, II, or III on the basis of the control needed to ensure the safety and effectiveness of the devices; Class III products are life-supporting and life-sustaining devices. For recalls, the order of severity is reversed. Class I recalls involve dangerous or defective products that predictably could cause serious health problems or death, such as a defective artificial heart valve; Class II recalls involve products that could cause temporary health problems; and Class III recalls involve products that are

unlikely to cause any adverse health effect. In 2009, FDA reported that there were 160 Class I recalls, over 500 Class II recalls, and 172 Class III recalls (FDA 2010a). Not all the recalled products were in clinical use, so the recalls may have prevented additional future exposures.

Many recalls of implanted medical devices are based partly on postmarket surveillance data. A universal, one-size-fits-all system for medical-device reporting and postmarket surveillance has not yet reached the level of success that FDA would like. The existing FDA medical-device reporting systems—Manufacturer and User Facility Device Experience (MAUDE) and Medical Device Reporting (MDR)—contain a great deal of information that cannot be reliably analyzed, and the agency is studying new approaches to postmarket surveillance under the Sentinel Initiative.

Under MDR requirements, manufacturers of medical devices are required to report deaths and serious injuries caused by malfunctions of medical devices to FDA. User facilities are required to report serious injuries associated with medical devices to their manufacturers and to report deaths to both the manufacturers and FDA (FDA 2009a). Data from 1991 through 1996 are in the MDR database, and data from various sources from 1991 to the present are in the MAUDE database (manufacturer and user-facility reports since 1996 are included in MAUDE) (FDA 2010b). Although the systems include useful information on the number and types of adverse events associated with medical devices, they do not include clear information on the number of people who use the devices, and that makes it difficult to estimate the rate of such adverse events and therefore difficult to detect changes in the rate.

Medical-device registries have some appeal, but it is probably not possible to implement them for all medical implants that are in general clinical use. There is a device registry in place for ventricular assist devices (VADs): INTERMACS® (Interagency Registry for Mechanically Assisted Circulatory Support) is a national registry for patients who are receiving mechanical circulatory-support device therapy to treat advanced heart failure. This registry was devised as a joint effort of the National Heart, Lung, and Blood Institute, the Centers for Medicare and Medicaid Services, and FDA and was formed to analyze clinical outcomes, device durability, adverse-event rates, and costs. Analysis of the data collected is expected to facilitate improved patient evaluation and management and aid in better device design and development. Registry results are also expected to influence future research and system design and facilitate appropriate regulation of VAD implants. About 85% of all VAD implants are enrolled in the registry (D.C. Naftel, University of Alabama at Birmingham, personal. commun., March 7, 2011).


This case study focuses on medical implants that make direct contact with tissues other than the skin. They constitute a pool of about 20,000 medical im-

plants designed for various periods of use (months to years) and are manufactured by domestic and foreign companies. A paracorporeal infusion pump is defined as a medical implant for this study, and transdermal patches worn on the skin are not. The rationale for a focus on medical implants is partly the postmarket-surveillance scenario identified by FDA (see Appendix C ) and partly the fact that patient compliance does not have to be considered as a factor in estimating the effects (the patient is by definition compliant with a medical implant because it can be modified only with surgery).

The strategic-investment decision considered here is whether FDA keeps the reporting system as it is or invests in enhanced postmarket surveillance of two specific medical devices—artificial knees and VADs. The former is an established technology that is used extensively across the country and has a long history of clinical use in a large patient population. The latter is an emerging technology in limited use and, as noted above, the subject of a comprehensive registry (INTERMACS).

There are many ways that an enhanced postmarket-surveillance system could be designed, but the goal should be to find types and patterns of unexpected adverse events. Such patterns may point to problems in design, implantation processes, clinical interventions, or manufacturing variances; early detection of such problems should lead to improvements. The information gathered in a postmarket-surveillance system would be of value not only to FDA but to the medical-device industry and to individual patients. FDA's New Molecular Entity Postmarketing Safety Evaluation Pilot Program to evaluate accumulated information within some specified period after a drug is approved for marketing is an example of such a reporting system (FDA 2009b). Systems currently under development include FDA’s Sentinel Initiative and MDEpiNet programs, which are intended to provide new surveillance capabilities for device-related adverse events (FDA 2011a,b). Better information on the effects of medical implants on individual patients—in particular, insights from patient social networks as noted below—could also be useful for patients and physicians engaged in shared decision-making (Charles et al. 1997).

The committee defined the enhanced surveillance system for this case study as one that would require manufacturers and hospitals—which are more able to determine the number of medical implants—to report both numbers and rates of device-related deaths and unexpected adverse effects and to report marked changes in adverse-effect rates. With modern information-technology capabilities, it may be feasible now to develop systems to flag and report effect-rate changes. The enhanced system would also include direct and indirect efforts to gain more information directly from patients by, for example, using social networks for rapid patient feedback on quality of life and health issues related to the implants. Finally, the hypothesized postmarket-surveillance system would include not only additional data collection and tracking but analysis of adverse-event data and, when appropriate, would incorporate lessons from the surveillance data into patient-selection guidelines and recommendations for postimplantation care.


This section summarizes the use of the risk attributes to characterize the public-health consequences associated with the current postmarket surveillance and the hypothetical enhanced surveillance of artificial knees and VADs. The committee estimated the values for each of the risk attributes in the current system by using scientific literature and subjective judgments based on available information (given its limitations). For the enhanced system, the values were developed on the basis of several overarching assumptions: that enhanced surveillance would lead to better understanding of the risks and the risk factors associated with each device and that action would be taken according to that information, as appropriate, to improve patient outcomes through improved patient selection and postimplantation care and follow up. The committee also assumed that better tracking of adverse events improves the ability to prevent adverse effects, to detect them if they occur, and perhaps to mitigate them. Table 5-1 summarizes the comparison.

Several challenges that are unique to evaluation of postmarket surveillance of implanted medical devices arose in this case study. First was the issue of data availability and the current state of information-tracking and reporting responsibilities. Although the most important and most useful information to have is information on rates of unexpected adverse events, those data are not collected or reported. When a person who has an implant (or more than one implant) dies, the death is reported, but the death may or may not be related to the implant. The lack of available data leads to substantial uncertainty in the estimates of the number of adverse health effects associated with the devices, as shown in Table 5-1 . Second was the difficulty of developing estimates of the effects under an enhanced postmarket-surveillance system without a detailed definition of what that system would look like. Many ways of designing such a system could be envisioned, and for this case study the committee assumed only that improved information on adverse-event rates would somehow be obtained.

Artificial Knees

Artificial knees provide increased mobility and decreased pain and are generally implanted in adult patients with relatively good health. The mortality risk due to the knee replacement is primarily in the 90-day postoperative period. In terms of quality of life, people can resume hobbies or work activities that were restricted because of pain. Moss et al. (1991) contains 1988 data on selected medical-device implants in the United States, including artificial joints and heart valves. Data are provided on type of implant, number of each implant type (such as two artificial joints), socioeconomic characteristics, and reasons for implantation. Additional information on artificial knees can be found in AAOS (2009) and Palmer and Cross (2010).

TABLE 5-1 Risk Attributes for Strategic-Investment Decision for Medical Devices

Exposed population

The committee used data from several sources to estimate the number of people who are currently living with at least one artificial knee. Because artificial knees carry perioperative risks and some continuing risks associated with living with the device, the committee considered data on the annual number of implants and on the total number of people who live with implants as relevant. Recent data indicate that about 581,000 knee replacements are performed each year (AAOS 2009). By 1988, the total number of people who had knee implants in the United States was 521,000 (Moss et al. 1991); however, no recent data were available on the total number of people living with implants. The committee assumed that artificial knees are in use for about 20 years and that some patients die of causes unrelated to the implants and some require revisions. The committee made a direct judgment that the number of people receiving or living with one or two artificial knees in a given year is about 5 million but could range from 2 million to 8 million. In the terminology of Chapter 2 , 5 million is the best estimate of the size of the exposed population, 2 million is the low estimate (defined as about equal to the 5th percentile of a probability distribution of the exposed population), and 8 million is the high estimate (defined as about equal to the 95th percentile).

For the enhanced surveillance system, the committee estimated that there would be no change in the size of the exposed population. Those who currently have knee replacements retain those implants and remain part of the population exposed to the long-term risks associated with the devices. Although new information from the enhanced system might lead to changes in guidance on patient selection for implant operations, the committee concluded that the enhanced system would be unlikely to change the aggregate numbers receiving knee replacements.

Knee-replacement recipients are mainly older adults who have mobility limitations, but they also include teenagers who have arthritis. Roughly twice as many women receive knee replacements as men (among Medicare-funded operations), according to data from Katz et al. (1996). The committee assumed that the sex ratio would not change in the enhanced surveillance system.

Mortality and Morbidity

Most deaths of knee-replacement patients occur in the 90-day postoperative period, although infections or other adverse effects can occur in the later years of living with the device. Complications that may arise after total knee-replacement surgery include blood clots, infection, patellofemoral complications, neurovascular complications, fractures around the prosthetic, loosening of the prosthetic, and excess scar tissue that can cause restriction of knee movement. Most of the adverse effects occur in no more than 1% of patients; patellofemoral complications are the most common reason for reoperation. Loosen-

ing has the highest incidence (5-10% of patients 0-15 years after initial surgery). There have been improvements in devices, and those with more recent implants may face lower risks than those living with older implants.

There are a variety of mortality estimates in the literature (see Table 5-2 for selected values), from which the committee estimated 0.5% 90-day postoperative mortality rate.

For mortality under the current system, the committee calculated estimates as follows:

Low Estimate. The low estimate is the product of 90-day postoperative mortality rate (0.5%) and the number of operations performed each year (600,000), which yields 3,000 deaths each year.

Best Estimate. The best estimate is 2 times the low estimate and includes both the 90-day postoperative deaths and an assumption that an equivalent number of device-related deaths occurs in the population living with artificial knees.

TABLE 5-2 Mortality Estimates

High Estimate. For the high estimate, the committee estimated the number of artificial-knee recipients in the United States who would die in a year and attributed all those deaths to the implants. In the general U.S. population, eight of 1,000 people die each year from any cause; older people have higher death rates, ranging from about 9 per 1,000 for people 55-64 years old to 50 per 1,000 for people 75-84 years old (NCHS 2010). Because artificial-knee recipients are typically older adults, the committee used an estimate of a 3% annual death rate in the exposed population of 5 million, for an estimated 150,000 deaths per year. The high estimate accounts for the fact that a large exposed population of 5 million who live with the devices presents the potential for a large number of people to die from some sort of implant-related complications.

Potential severe adverse effects of artificial knees include the perioperative risk of serious complications and the potential for adverse effects after implantation that may lead to the need for surgical intervention, such as patellofemoral complications, arterial thrombosis, and loosening. Mahomed et al. (2005) found the following 90-day postoperative complications associated with knee replacements among Medicare claims: 4.7% readmissions, 1.8% wound infection, 1.4% pneumonia, 1% myocardial infarction, and 0.5% pulmonary embolism. In a 7-year study of 39,286 primary total knee arthroplasties, Paxton et al. (2010) found that 1.7% were revised by the date of the study, 0.7% were revised because of infection, and 0.3% were revised because of instability.

On the basis of that information, the committee’s low estimate of the number of severe adverse health effects is 2.5% of the 600,000 implants per year (that is, about half the rate of readmissions among Medicare claims). The best estimate of 80,000 severe adverse effects is based on an assumption that about 5% of all patients who receive an implant in a year will have one of the severe complications identified by Mahomed et al. and about 1% of those living with an artificial knee will experience a severe adverse effect associated with that implant. Each of the potential severe adverse effects described generally occurs in less than 1% of the exposed population except loosening, which is expected to occur in 5-10% of patients from 0-15 years after surgery. The high estimate is that such effects would occur in 2% of the exposed population combined with the 5% of the population who receive an implant and suffer a severe complication.

For less severe effects , the committee assumed that the effects would include nerve injury and less serious infections that could be treated with antibiotics. The best estimate is 25% of the exposed population of 5 million, the low estimate is 20% of the exposed population, and the high estimate is 30% of the exposed population.

The committee did not attempt to estimate the number of patients who experience adverse health effects important enough to affect their quality of life but not important enough to require medical attention or otherwise meet the definition of “less severe adverse effects.” Although some such effects may occur, estimating them is exceptionally difficult in this case because knee replace-

ments are associated with increases in quality of life, such as greater mobility and less pain; this greatly confounds any attempt to monitor or estimate adverse effects on quality of life that do not require some medical attention.

As described above, the hypothetical enhanced postmarket-surveillance approach defined for this case study focuses on gaining better information on the number and rates of adverse events through enhanced reporting requirements and direct and indirect patient outreach. The committee also assumes that the information collected through the enhanced surveillance would enable the medical community to take actions—to improve patient-selection criteria and to develop improved monitoring and follow-up of higher-risk patients. For example, there might be guidance on getting more x-ray examinations and clinical inspections of knees in higher-risk patients before and after implantation that would allow earlier detection and correction or avoidance of current or future life-threatening problems.

Those two features lead to two effects. First, improved information on adverse-event rates will reduce the uncertainty in the annual number of those adverse events (for example, the difference between the high and low estimates shown in Table 5-1 would be smaller with the enhanced surveillance than with the current system). It is not possible, however, to specify exactly how the high and low estimates would change, only that the difference between them would be smaller. For the annual number of deaths, for example, the current estimate is that 3,000-150,000 people die each year because of an artificial-knee implant. With better information, that range might be reduced by about 85%. But the end points of the estimated range could be 4,000-26,000, 5,000-27,000, or some other range; there is no credible way to estimate the precise end points of the range. Accordingly, Table 5-1 contains a brief description of the expected reduction in the uncertainty in the numbers of deaths and other adverse effects associated with the enhanced surveillance system and an example of what a new range could be (that is, what a more accurate estimate would look like).

Second, the assumption that the enhanced postmarket-surveillance system would enable medical providers to improve patient selection, monitoring, and follow-up suggests that the overall rates and annual numbers of deaths and severe adverse effects will be reduced over time as the improvements take effect. Because artificial knees have been in use for many years, much of the potential improvement in patient selection and monitoring may have already been attained, so the committee estimated negligible change in the number of adverse effects that would occur because of the added surveillance of the implants, at least in the short term.

Personal Controllability

The primary methods by which people can eliminate or reduce their own personal risk of death or serious 90-day postoperative adverse effects are by declining to have the knee replacement and by careful selection of hospitals and

physicians with low adverse-effect rates. Medical informed consent requires that patients be informed of the risks associated with a proposed treatment or procedure, so it is reasonable to assume that they make the choice to undergo knee replacement willingly and with knowledge of the risks that they face from the surgery. Artifical knees are not a life-saving technology, so the committee assumed that all patients who receive an implant in a given year have the ability to control their risks (that is, could choose not to have the implant). Enhanced postmarket surveillance would not change that aspect of personal controllability.

For patients who already have an artificial knee, the ability to control the risks associated with that implant are substantially less. People have no ability to reduce the chances of device failure; they have limited ability to reduce the consequences of such failures through basic health maintenance and appropriate postoperative physical therapy and by seeking prompt medical attention if problems develop. However, it may be difficult for a patient to detect a problem or to associate adverse health effects with the implant when they do not directly involve the knee implant itself, such as bloodborne infections that result from a dental treatment and effects on ligaments or muscles in other parts of the body. The committee estimated that 5-10% of the problems that arise with existing implants could be managed or reduced by individual actions by the patient. The hypothesized enhanced postmarket-surveillance system is designed to provide more and better information to the patient population and to the medical community and includes an assumption of increased use of social media to reach those patient populations. The committee estimates that the resulting increase in patient awareness of the various problems that can occur and steps that they can take to minimize the problems will lead to an increase in the controllability of the effects.

Ability to Detect Adverse Health Effects

Artificial knees that have been implanted more than a few years are examined when a patient chooses to return to an orthopedist; examinations are recommended every 2-3 years. However, the patient may not detect some problems or might not see an orthopedist about a possible problem even if walking becomes more difficult. Problems with knee replacements can lead to other problems (such as in ligaments or muscles in other parts of the body) that may not be readily recognized as being linked to the knees by patients or physicians. On the basis of the required reporting data for medical implants, it appears that only the device manufacturers would have sufficient data to identify systematic or population-level adverse effects, and they rely on adverse-event reporting from the facilities. Given the relatively long chain of reporting with multiple opportunities to miss signals, the committee judged that relatively few systematic problems would be detected—perhaps 10-25%.

In the enhanced surveillance system, the ability to detect a problem would improve. The hypothesized enhanced surveillance system focuses specifically

on obtaining better, more accurate estimates of the rates of adverse events, and changes in those rates—exactly the type of information needed by institutions to detect emerging risks. The enhanced system delivers more accurate rate information that allows identification of higher-risk patient populations and improved guidance in patient selection and monitoring, all of which increases the ability to detect systematic problems. For example, risks of long-term effects, such as unexpected toxicity from device materials, might be detectable by institutions in a surveillance system that could institute enhanced monitoring of at-risk patients. The committee estimated that with enhanced surveillance systems, the ability to detect problems would increase by a factor of 2-3 and estimated that 25-75% of such problems could be detected and successfully attributed.

Ability to Mitigate Adverse Health Effects

As noted in Chapter 1 , medical devices are highly regulated FDA products. The Center for Devices and Radiological Health conducts premarket reviews and monitors the manufacturing processes and uses of its regulated products. Premarket and postmarket inspections of manufacturing facilities are conducted, and imports are reviewed to ensure compliance with FDA standards. If a systematic problem does occur with a device, institutions can (or can attempt to) examine all relevant implant patients once that problem is detected. The adverse effects can typically be mitigated for the individual patient, although such mitigation may on occasion involve a substantial medical intervention, including possible replacement of the implant. The primary challenge is to identify and examine the relevant patients—determining who has an implant that might be at risk and encouraging the person to visit an orthopedist. Some patients will have moved and be lost to follow-up; others may have changed health-care providers, and the new providers may or may not have sufficient information available to them to identify a patient as being at risk. The committee estimated that about 80% of all patients with a device with identified problems could be located and examined and have their problems corrected.

In the enhanced surveillance system, the probability that an institution can mitigate a problem is improved. Again, the improvement is likely to come from the fact that more accurate data on adverse events would lead to more accurate identification of at-risk patient groups, and more targeted outreach to those patients could occur. The committee estimated that in the enhanced surveillance system, the ability to mitigate adverse effects increases to about 90%.

Ventricular Assist Devices

VADs are medical devices implanted in patients who have advanced heart failure and are ineligible for heart transplantation. They are electromechanical systems designed to assume the work of a patient’s left ventricle, improve coronary arterial perfusion, and provide systemic blood flow to all tissues and or-

gans. They allow the generally bed-ridden patients to resume moderate activities. 1 Many advances have been made over the years with VADs, and more information can be found in Carr et al. (2010).

This medical-device class was chosen for this case study because it is an emerging technology that recently received FDA approval and the number of VAD patients is relatively small. The technology is entering clinical use in stepwise fashion with careful clinical, industrial, and federal involvement. In many respects, this novel medical technology may serve as a model for the orderly introduction of other emerging high-risk technologies and for enhancing the value of postmarket-surveillance systems for FDA decision-makers.

Exposed Population

For this case study, the committee considered only people who have advanced heart failure, who are generally not eligible for cardiac transplantation, and who may have a permanent VAD implanted. About 20,000-30,000 people may be eligible for VADs, but their use is not yet widespread, so the actual number of people exposed is much smaller than the population of potential VAD recipients. Estimates of exposure were based on data from the INTERMACS registry, the increasing use of VADs, and expert judgment. In 2010, about 3,000 people were listed in the registry as having received a VAD. The number of people living with a VAD may be higher or lower. For example, the INTERMACS registry is not complete; it is estimated that it contains data on 85% of the patients who have implants, and it may contain people who had a VAD and later received a heart transplant or died. On the basis of those data, the committee estimated that 1,000-5,000 people are living with VADs, representing the low and high estimates, respectively. The best estimate is that about 3,000 people are living with the devices. As the use of VADs increases, the number of people living with them will also increase; the data above and in the table provide a snapshot of the current status. The enhanced surveillance system is not expected to change the number of people receiving VADs.

Of the 3,000 people, about 20% are women and 80% are men (INTERMACS 2010). In the enhanced surveillance system, the committee concluded, there would not be a change in the sex ratio.

To estimate mortality attributable to VADs, the committee considered both perioperative mortality and mortality occurring while people were living with the devices. The perioperative mortality rate for this population is about 5%; of the roughly 1,050 patients who receive VADs each year, about 50 would

be expected to die (Kirklin et al. 2010). The annual mortality rate for patients who have VADs is about 10%; of about 3,000 patients who have VADs, about 300 would be expected to die each year. Using expert judgment and the data described, the committee estimated that 200-400 people will die each year in connection with use of VADs. The best estimate of the number of deaths is 300 (10% of the 3,000 people who have VADs). The committee notes that a VAD is a life-saving medical device: the mortality rate is reported to be about 80% for heart-failure patients who do not get VADs (Terracciano et al. 2010). However, for the purposes of this case study, the committee emphasizes that we are not providing an estimate of the benefit of having VAD technology available but rather are focused on the benefits of conducting enhanced postmarket surveillance of those who receive VADs.

To estimate the number of severe adverse health effects , the committee reviewed data on replacement and disabling stroke rates in VAD patients; stroke is a relatively common effect that meets the definition of severe adverse effects provided in Chapter 2 . In clinical-trial patients, 16% had a baseline history of stroke, and 46% were free from disabling stroke and reoperation 2 years after implantation of a VAD (Slaughter et al. 2009). The same trial data indicate that there is 0.13 stroke per patient-year within 2 years after receiving a continuous-flow VAD implant and a 0.22 stroke per patient-year for pulsatile-flow VAD. The trial data also showed that 10% of devices were replaced at 2 years (that is, a 5% probability per year).

Using the probabilities for disabling stroke and for replacement, the committee estimated that in the current system a median of 410 people experience severe adverse health effects annually:

150 have to have VAD replacement within a year (5% of 3,000).

260 have strokes that are debilitating after receiving a VAD (0.13 stroke per patient-year for the 2,000 patients assumed to be within 2 years of initial replacement).

Using a VAD replacement rate of 3% and a disabling stroke rate of 5%, the committee estimated the 5th percentile to be 240, and using a VAD replacement rate of 7% and a disabling stroke rate of 10%, the committee estimated the 95th percentile to be 510.

Less severe adverse health effects that could follow VAD implantation include effects that would follow hospital release, such as drive-line infection, arrhythmia, renal or hepatic effects, thrombosis, and faulty battery or connections. In the current system, the committee assumed that 50% of those living with VADs experienced such effects, or 1,500 people experiencing less severe adverse health effects each year. The 5th percentile was judged to be 1,000, and the 95th percentile was judged to be 2,500.

The committee did not estimate the number of people who might experience adverse effects on quality of life because of VADs. As suggested above, VAD implantation is used to extend and improve the quality of life of those in

advanced heart failure. Quality of life, for example, can improve from being bed-ridden to being capable of moderate exercise (Slaughter et al. 2009). Those benefits would obscure any adverse effects of the VAD that do not require medical treatment.

As described in the section on mortality and morbidity associated with artificial knees, the effects of improved postmarket surveillance of VAD patients would be to reduce the uncertainty about the rates and numbers of deaths and other adverse health effects and, if that information is acted on, potentially to reduce the number of such effects. As for artificial knees, there is no credible way to estimate the precise end points of the ranges of those numbers before implementing the surveillance program. Accordingly, Table 5-1 contains a brief description of the expected reduction in the uncertainty in the number of deaths and other adverse effects associated with the enhanced surveillance system rather than precise numbers. Because the current system of postmarket surveillance of VADs is already quite comprehensive and the patient population is small, the expected benefits of the enhanced system compared with the current system are smaller than in the case of artificial knees, for which the enhanced system is much more rigorous than the current one.

In contrast with artificial knees, VADs are life-saving medical implants used as a destination therapy for patients who have congestive heart failure and are ineligible for transplant. Those for whom the device is recommended are likely to see it as their option of last resort—the only opportunity to extend their lives and to improve their quality of life for the time that remains. Although they technically have the same option to decline surgery as do artificial-knee recipients, that is not likely to be viewed by most as a real option. No data are available on the percentage of patients who are offered a VAD and decline it; the committee estimated that less than 40% of patients in a situation where a VAD would be offered would consider it to be optional and could be considered to have the ability to control their personal risks.

For patients who already have a VAD, the ability to control the risks associated with the implant is substantially lower. People have no ability to reduce the chances of device failure, and VAD patients tend to be older and in poor health at the time of implant, further reducing their ability to exercise personal control over their VAD-related outcomes. The committee estimates that less than 5% of the problems that arise with existing implants could be managed or reduced by individual actions by the patient. Because of characteristics of the patient population, the hypothesized enhanced postmarket-surveillance system is not expected to change the personal controllability of postsurgical VAD risks.

Medical professionals follow VAD patients closely, and the goal of the INTERMACS registry is to follow all VAD patients and identify signs of potential problems. Because of that close observation of VAD patients and the use of the INTERMACS registry, the committee concluded that the ability to detect systematic occurrence of adverse effects at the institutional level in either the current system or the enhanced system would be relatively high, that is, 90% or more of potential problems with a VAD would be detected and successfully attributed.

As noted above, medical devices are highly regulated, and VADs are monitored carefully. However, VAD patients are generally in advanced heart failure and are more susceptible to surgical risks and to adverse events after implantation than are recipients of artificial knees. Although most complications of VADs do not require explant, some situations may require replacement or removal of a VAD, and that might not be possible in some cases because of the overall health of the patient. The committee assumed that in the current system there is an 80% chance that an institution will be able to mitigate any problems that are found that are directly related to the VAD. The committee assumed in the enhanced surveillance system that the probability is improved to 90% because problems may be able to be alleviated quicker with greater surveillance and quicker communication to clinicians.


Table 5-1 highlights the public-health consequences associated with two devices under the current and enhanced postmarket-surveillance systems. The differences indicate the benefits of enhanced surveillance. Specifically, the direct public-health benefits of the hypothesized enhanced postmarket-surveillance system compared with the current one are (1) a reduction in the uncertainty about the number of adverse effects attributed to the devices because of better tracking and reporting of adverse effects and their causes, (2) an increase in the ability of informed institutions to detect systemic problems that may be occurring with the devices because of the increased reporting requirements, and (3) a slight increase in the ability to mitigate adverse effects, again arising from the requirement for better reporting and tracking of problems and the assumption that the resulting improvement in understanding will lead to

identification of ways to reduce adverse outcomes. For artificial knees, the enhanced surveillance system is also expected to increase the ability of individual patients to manage and reduce their own personal risks because of increased focus on patient outreach and information-sharing.

As in all the case studies, the differences in public-health consequences between the current and enhanced surveillance is only one of several factors that would need to be considered in deciding whether to make an investment in enhanced surveillance. Other factors that might be relevant include the costs and feasibility of implementing and validating an enhanced system, the ability to use the newly acquired data from surveillance to make decisions, and the usefulness of the improved information to the patients themselves in providing better information on patient-specific risks and benefits associated with elective devices.

This case study looked at a relatively simple comparison of “invest” or “do not invest” in an enhanced postmarket-surveillance system, but it raised some additional factors that could be of interest for more complex strategic-investment decisions or other types of decisions related to medical devices. For example, if the decision were to determine which of a variety of surveillance approaches should be pursued, a similar evaluation could be conducted. Rather than characterizing only two options, however, each surveillance approach would have to be defined and evaluated separately. If the decision were to determine on which products a new enhanced surveillance system should focus (that is, a targeting decision for a strategic investment), it may be useful to consider factors beyond the direct public-health benefits of the enhanced surveillance relative to the current system. In particular, applying an enhanced surveillance system to a product for which relevant, high-fidelity data are already being collected by another organization (for example, the INTERMACS registry for VADs described above) could provide a unique opportunity to compare the findings of the new enhanced surveillance system each year with an independent established dataset. That would provide a method for continuous improvement of the FDA surveillance system.

Finally, the committee notes that during the development of this case study, several issues related to medical devices arose that would probably be relevant for other device-related decisions. They include the speed with which health outcomes can be improved if a problem is detected, potentially measured as time between detection and correction; sustained health benefits of a medical implant and the performance of alternatives to the implant, which would be of particular relevance if FDA were evaluating decisions that could change the availability of the implant for potential recipients; and time-dependent projections of levels of exposure and health effects, especially for new products or ones whose use is growing or shrinking.

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With the responsibility to ensure the safety of food, drugs, and other products, the U.S. Food and Drug Administration (FDA) faces decisions that may have public-health consequences every day. Often the decisions must be made quickly and on the basis of incomplete information. FDA recognized that collecting and evaluating information on the risks posed by the regulated products in a systematic manner would aid in its decision-making process. Consequently, FDA and the Department of Health and Human Services (DHHS) asked the National Research Council (NRC) to develop a conceptual model that could evaluate products or product categories that FDA regulates and provide information on the potential health consequences associated with them.

A Risk-Characterization Framework for Decision-Making at the Food and Drug Administration describes the proposed risk-characterization framework that can be used to evaluate, compare, and communicate the public-health consequences of decisions concerning a wide variety of products. The framework presented in this report is intended to complement other risk-based approaches that are in use and under development at FDA, not replace them. It provides a common language for describing potential public-health consequences of decisions, is designed to have wide applicability among all FDA centers, and draws extensively on the well-vetted risk literature to define the relevant health dimensions for decision-making at the FDA. The report illustrates the use of that framework with several case studies, and provides conclusions and recommendations.


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Book cover

Artificial Intelligence, Internet of Things, and Society 5.0 pp 93–106 Cite as

Investment Decision of Individual Investors: A State-of-the-Art Literature Review

  • Hind Dheyaa Abdulrasool   ORCID: 4 , 5 ,
  • Rafidah Othman   ORCID: 6 , 7 &
  • Khawla Radi Athab Al-Shimmery 8  
  • First Online: 09 November 2023

405 Accesses

Part of the book series: Studies in Computational Intelligence ((SCI,volume 1113))

This study reviews prior research on individual investors’ investment behaviour, compile the sample literature and suggests several avenues for further investigation. This paper followed a systematic approach to review the literature and collected the sample from the Web of Science and Scopus databases. The final sample of relevant studies included in this research comprised 156 articles. The analysis revealed that, regardless of disciplined investment, most applied theories ignored that individual investors often make mistakes when selecting their stocks and making an investment decision. Unlike institutional investors, individual investors may lack access to specific stock information, which is an impractical assumption. Hence, a more theoretical explanation is required when evaluating the individual investors’ decision affected by behaviour biases and whether this influence the stock price movement. Additionally, as it was found that the interest in exploring this topic has grown after the worldwide financial crisis of 2007, more work on investment decisions of individual investors is likely to be done during the uncertain environment of the current health crisis of Coronavirus. Our study lays the groundwork for future research on individual investors’ behavioural finance and urges policymakers and practitioners to improve relevant policies. This study encourages investors and policymakers to develop better policies to improve individual investors’ behaviour.

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Lovric, M., Kaymak, U., Spronk, J.: Modeling investor sentiment and overconfidence in an agent-based stock market. Hum. Syst. Manag. 29 , 89–101 (2010).

Balkanska, D.V.: Disposition effect and analyst forecast dispersion. Rev. Quant. Financ. Account. 50 , 837–859 (2018).

Al-Sartawi, A.: Social media disclosure of intellectual capital and firm value. Int. J. Learn. Intellect. Cap. 17 (4), 312–323 (2020)

Mushinada, V.N.C.: Are individual investors irrational or adaptive to market dynamics? J. Behav. Exp. Financ. 25 (2020).

Aspara, J., Hoffmann, A.O.I.: Cut your losses and let your profits run: how shifting feelings of personal responsibility reverses the disposition effect. J. Behav. Exp. Financ. 8 , 18–24 (2015).

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Faculty of Management, Universiti Teknologi Malaysia, 81310, Johor Bahru, Malaysia

Hind Dheyaa Abdulrasool

Department of Business Administration, College of Administration and Economics, University of AL Qadisiyah, Al Diwaniyah, Iraq

Azman Hashim International Business School, Universiti Technology Malaysia, Kuala Lumpur, Malaysia

Rafidah Othman

College of Business Administration, University of Business and Technology, Jeddah, Saudi Arabia

Department of Financial and Banking Sciences, University of AL Qadisiyah, Al Diwaniyah, Iraq

Khawla Radi Athab Al-Shimmery

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Abdulrasool, H.D., Othman, R., Al-Shimmery, K.R.A. (2023). Investment Decision of Individual Investors: A State-of-the-Art Literature Review. In: Hannoon, A., Mahmood, A. (eds) Artificial Intelligence, Internet of Things, and Society 5.0. Studies in Computational Intelligence, vol 1113. Springer, Cham.

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Investment case study: analyzing success stories and strategies, introduction.

In the world of finance, making informed investment decisions is crucial for success. Many investors turn to case studies to gain valuable insights into investment strategies and the factors that drive successful outcomes. In this article, we will explore the concept of investment case studies, their benefits, and how they can help investors make informed decisions. Whether you are a beginner or an experienced investor, understanding investment case studies can be invaluable in navigating the complex world of finance.

Understanding Investment Case Studies

Investment case studies are in-depth analyses of real-life investment opportunities or scenarios. These studies provide a comprehensive understanding of the investment process, from initial analysis to final outcomes. By examining successful investment cases, investors can gain insights into market trends, risk management strategies, and the factors that contribute to long-term profitability.

Benefits of Investment Case Studies

1. Enhanced Decision Making: Investment case studies offer real-world examples that investors can learn from. By studying successful investment cases, investors can refine their decision-making process and implement strategies that have been proven to work.

2. Risk Management Insights: Investments always involve a certain level of risk. By examining case studies, investors can identify risk management strategies that have worked in the past. This allows them to minimize potential losses and increase their chances of success.

3. Market Trends Examination: Investment case studies provide insights into market trends and changing dynamics. By studying successful cases, investors can identify emerging sectors or industries and capitalize on evolving market conditions.

4. Valuable Lessons: Each investment case study offers unique lessons that investors can apply to their own strategies. These lessons can be related to industry analysis, financial modeling, or other factors that contribute to investment success.

5. Networking Opportunities: Investment case studies often involve collaboration and analysis by professionals in the field. By engaging with these studies, investors have the opportunity to connect with like-minded individuals and expand their network.

Exploring Successful Investment Cases

1. Case Study 1: The Rise of Tech Giants: This case study delves into the investment strategies that propelled companies like Apple, Google, and Amazon to become the tech giants we know today. It examines factors such as innovation, market analysis, and long-term vision.

2. Case Study 2: Real Estate Investments: This case study examines the strategies employed by successful real estate investors. It covers topics such as property analysis, financial modeling, and risk mitigation techniques.

3. Case Study 3: Sustainable Investing: This case study explores the growing field of sustainable investing. It analyzes successful companies that prioritize environmental, social, and governance factors and examines their financial performance over time.

4. Case Study 4: Portfolio Diversification: This case study focuses on the importance of diversifying an investment portfolio. It examines successful portfolios that combine various asset classes and explores the risk-reward trade-off.

5. Case Study 5: International Investments: This case study delves into the strategies and considerations involved in international investments. It explores factors such as currency risk, geopolitical analysis, and cultural differences.

Investment Case Study Table: Key Information at a Glance

Frequently asked questions (faqs).

1. How can investment case studies benefit novice investors?

2. Are investment case studies applicable to different industries?

3. How do investment case studies help in risk management?

4. Can investment case studies provide insights into emerging markets?

5. Are there any drawbacks to relying solely on investment case studies?

6. Can investment case studies help with financial planning?

7. How can investors use investment case studies to make informed decisions?

Conclusion: Taking Action based on Case Studies

In conclusion, investment case studies serve as valuable resources for investors looking to enhance their decision-making process, manage risk, and capitalize on market trends. By exploring successful investment cases and leveraging the lessons learned, investors can improve their strategies and increase their chances of successful outcomes. Whether it’s analyzing the rise of tech giants or delving into sustainable investing, investment case studies offer practical insights that can drive financial success.

Information presented in this article is for informational purposes only and does not constitute financial or investment advice. As with any investment, it is important to conduct thorough research and consult with a qualified professional before making any decisions. The examples provided are for illustrative purposes only and may not represent actual investment opportunities.

Investment decision making using FGP: a case study

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Investment Case Study: Learning From Examples

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What’s an investment case study? Are there case studies out there that can help you understand failed investments?

An investment case study can help you understand what went wrong with certain investments. Sometimes, investments fail despite all your research. Other times, a failed investment is predictable.

Read these investment case study examples and what they can teach you about certain investments.

What Is an Investment Case Study ?

When choosing investments, it’s as important to avoid overhyped companies on the brink of failure as it is to choose bargain stocks. Graham shows four case studies of companies that had astronomical stock prices but showed clear warning signs of their impending demise. Moreover, to detect their weak conditions, you wouldn’t have needed to understand their intricate workings—you could have used the basic financial metrics we’ve covered already. To see these metrics in action, you can examine an investment case study.

Then, in his commentary, Zweig adds modern examples of each archetype.

The four archetypes shown are:

  • A giant company with signs of poor operating performance
  • An empire-building conglomerate that grows unwisely through acquisition
  • An acquisition where a small company absorbs a giant
  • A company with little substance riding a speculative wave

Investment Case Study Archetype 1: A Poorly Operating Giant

This is one example of an investment case study that shows how a large company can fail.

Penn Central

In 1970, the nation’s largest railroad company Penn Central filed for bankruptcy. This was shocking to the finance world, but Graham argues its demise could have been predicted well in advance :

  • The company had not paid income taxes for 11 years, yet it was regularly reporting earnings. How would this have been possible?
  • The standard interest coverage ratio (the ratio of earnings to interest charges) for railroads was 5:1 before taxes. In 1967 and 1968, Penn Central showed a ratio of just 1.9.
  • It was operationally inefficient. Railroad expenses made up 47.5% of its income in 1968, compared to 35.2% for a more efficient competitor.
  • Its accounting was fishy, with strange transactions that didn’t make much sense. Graham declines to go into detail.

Graham argues that anyone paying attention to the simple fundamentals of the business could have noticed that Penn Central was in deep trouble. At that time, they should have pulled their stock and bonds out of the company and exchanged them for more robust competitors.

Investment Case Study Archetype 2: An Empire-Builder that Falters

This is another example of an investment case study where an empire collapses. Note how it’s different from the above.


Ling-Temco-Vought was a conglomerate involved in industries as wide as aerospace, sporting goods, and pharmaceuticals. 

(Shortform note: The conglomerate began with a young entrepreneur James Ling, who took his electrical contracting business public in 1955. From that point he began a blistering pace of acquisitions in a staggering array of industries. Taking advantage of low interest rates in the 1960s, Ling-Temco-Vought raised huge sums of debt to fund acquisitions. The strategy was relatively simple—as long as an acquired company’s earnings could cover the interest on debt used to acquire the company, the acquisition was profitable.)

The nominal growth in the company was staggering —revenue began at $7 million in 1958, grew twenty-fold within 2 years to $143 million, then grew again twenty-fold again to $2.8 billion by 1968.

Yet warning signs appeared through this steady rise :

  • The acquisitions required debt, which ballooned to $1.5 billion by 1969. This was a near-record amount across all companies in history (Shortform note: On the financial tables shown, its assets to liabilities ratio generally remained between 1.0 and 2.0.)
  • Its ratio of earnings to interest didn’t pass the conservative benchmark of 5.
  • Its market price in 1967 was a remarkable 22 times net tangible assets.

In 1969, at its peak in sales, Ling-Temco-Vought reported a loss of $70 million (it had earned $124 million before taxes and interest, but interest charges were $122 million, swallowing up nearly all the profits; additional taxes and special items caused further losses). 

Over the next few years, the stock price fell from its peak by over 95%. 

(Shortform note: Graham doesn’t comment on the company’s fundamental business issues. It appears Ling-Temco-Vought suffered from:

  • A general market downturn in 1970
  • Investors’ realization that its acquired companies weren’t growing any faster as part of the conglomerate than before they were acquired, thus weakening the conglomeration strategy
  • Antitrust concerns of conglomerates)

Archetype 3: A Tiny Company Swallows a Giant

This third investment case study shows what can go wrong when a large company takes over a smaller one.

NVF and Sharon Steel

In 1968, NVF, a company with $31 million in sales, acquired a company seven times its size : Sharon Steel Corp, a company with $219 million in sales.

To fund this acquisition, NVF issued $102 million of bonds with stock warrants attached. Warning signs then appeared:

  • Its financial reporting showed incomprehensible entries relating to debt expenses, cost of investment in Sharon Steel, and fair market value of warrants. The overall effect was to disguise the severity of the debt and of the dilution from the stock warrants.
  • The newly issued bonds soon traded at a steep discount (42 cents on the dollar), suggesting the market had deep concerns about its financial position.
  • In 1969 Sharon Steel adjusted its calculations for pension costs and lowered depreciation rates, thus artificially boosting earnings by $1 per share.

(Shortform note: Graham doesn’t discuss the stock performance of NVF, but Sharon Steel began defaulting on debt in 1985 and filed for bankruptcy in 1987. The chairman of NVF, Victor Posner, was a famed “corporate raider” and pioneer of leveraged buyout and hostile takeover strategies.)

Archetype 4: An Illusory Company Riding a Speculative Wave

Finally, this last type of investment case study shows how stocks can damage company value.

In 1999, Internet retailer eToys went public at a valuation of $7.8 billion. It was a tiny company with sales of just $30 million and assets of $31 million; in comparison, Toys “R” Us was worth $2 billion less at $5.6 billion, with 70-fold more revenue ($2.1 billion) and total assets of $8 billion.

How did this make any sense? eToys showed an astounding growth rate of 4,261% in the past year. However, as Graham has cautioned us, smaller companies are able to grow at astounding rates that they cannot sustain (a 42-fold growth in revenue suggests eToys had just $700,000 in revenue the previous year). 

Even worse, while it showed revenue of $30 million, eToys suffered a loss of an equal size, at $31 million—it was losing a dollar for every dollar it brought in.

In 2001, eToys filed for bankruptcy, and its stock fell from $86 per share to zero.

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case study on investment decision

Investment Banking Case Study Examples – A Guide

If you are preparing for an investment banking interview, you’ll probably need to conquer a case study interview. because case studies are a very crucial component in the investment banking hiring process. particularly if you have never completed a case study before, that will be very challenging for you to get into the investment banking field. this article has covered everything you need to know about investment banking and potential investment banking case studies. there are also tips and practice investment banking case study questions with examples of how to resolve them..

Investment Banking Case Study Examples (1)

What is Investment Banking?

Investment banks are financial firms that perform a variety of tasks, including underwriting, assisting companies with the issuance of stock and debt securities through initial public offerings or fixed-priced offerings enabling mergers and acquisitions on both the buy side and sell side of the deal, corporate restructuring and many other tasks. 

To efficiently complete these significant deals, a firm turns into an investment banker when it requires finance services. With some of the best benefits in the businesses, it is an extremely competitive industry.

How Does Investment Banking Work?

Investment banking offers services and serves as the middleman between businesses and investors and focuses mostly on shares and stock exchanges. 

Investment banking services help big businesses and organizations in developing a successful investment strategy that includes accurate financial instrument valuation.

When a company conducts an IPO or initial public offering, an investment bank purchases the majority of the shares immediately on the firm’s behalf.

The investment bank, which is now serving as a stand-in for the company then sells these shares on the market. The investment bank improves the company’s revenue in this way while also making sure that all governing rules are observed.

The investment bank makes money by marking up the initial price of shares when selling them to investors, helping the organization in making the most profit possible from this activity.

If a circumstance in the market emerges where the stock becomes overpriced, the investment bank also runs the risk of losing money by selling the stock at a lower price. 

An organization should assess its requirements and carefully consider all of its possibilities before seeking guidance from an investor banker. Before the company visits an investment bank, there are a few crucial considerations including the amount of capital being raised and the level of market competition. When the business has clarity in these areas, it can enlist the assistance of investment bankers to find new businesses to invest in.

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Benefits of Investment Banking

Investment banking assists big businesses in a variety of ways to make crucial financial decisions and make sure they maximize revenues. That’s the reason, Investment banks are a prevalent financial institution among these businesses and even governments.

Here Are Some of the Advantages of Investment Banking:

  • Investment banks effectively manage their client and provide them with the information they require regarding the advantage and disadvantages of investing their money in other businesses or organizations.
  • These banks serve as a bridge between the company and the investor, ensuring a rise in financial capital by helping in major financial transactions like mergers and acquisitions.
  • It conducts an in-depth analysis of the deal and project that will be undertaken by its customer to ensure that the client’s money is invested safely and helps to reduce the risks involved with the mentioned deal or project.

What is Investment Banking Case Study?

You must have solved case studies during your investment banking training. 

Analyzing a business condition is done in case studies during investment banking interviews.

You would be provided with all the necessary data and have adequate time to examine broad case studies. There you would be asked for your opinion on business-related issues.

Your Task Includes,

  • Make the necessary deduction.
  • Investigate the matter, which is typically a client’s business.
  • Give suggestions for resolving the current issue along with an explanation.

Investment banking case studies are frequently used to evaluate a job candidate’s potential performance in real circumstances, where your interviewers would give you a problem and ask for a detailed recommendation.

By presenting them with a hypothetical scenario similar to those experiences while working in the field, your job is simply to analyze the scenario and give them justified reasons. 

Case studies are typically presented at the end of the application process, most frequently at the final interview or during the assessment center.

The majority of questions in investment banking case studies revolve around acquisition, capital raising, or business growth.

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What Are the Types of Case Studies?

Take home investment banking case study.

  • You will probably receive the case in advance so you have more time to work on it before the assessment day.
  • In the case of take-home case studies, you are given a few days to work on them, complete your analysis, and showcase your recommendation to the bankers over a 30-45 minutes presentation.
  • It involves a much deeper analysis including merger/LBO modeling, company procedures, and valuation.

On the Spot or Blind Investment Banking Case Study

  • On the day of your assessment center, the case can be presented to you blindly with little time for preparation.
  • These are given to you on the day of your interview and within an hour or two you are supposed to present it on the spot. 
  • The time split for this process would usually be 45-60 minutes of preparation, 10 minutes of presentation followed by a round of question and answer.
  • It would not involve such deep study.
  • Some case studies on investment banking may occasionally be given as a group task, where the employer will use this as an opportunity to examine the candidate’s analytical skills and teamwork qualities.

Why You Should Prepare for Investment Banking Case Study?

The theory behind these case studies is that because the qualification for various professions varies, bankers don’t trust the conventional method of interviewing applicants.

Case studies are preferred by banking recruiters as a better way to evaluate applicants because they show how you should perform in the workplace. 

You don’t need to worry about whether your response is right or wrong in this situation because the interviewer is more interested in how the candidate thinks and how well they can use logic and analysis to come up with an innovative answer to the challenge at that time.

Investment banking case study writers aim to inspire applicants to come up with their ideas and apply critical thinking.

Candidates for these positions must have a variety of skills, but problem-solving ability is one of the most important. 

Recruiters are interested in learning how you would approach difficult circumstances and use your intelligence, education, and professional experience to handle them successfully.

Additionally, candidates get an amazing chance to practice their other abilities including presentation, communication, and interpersonal skills.

These factors make case studies significantly more important than the other methods of evaluating applicants in the investment banking hiring process.

How to Prepare for Case Studies Before Assessment Day?

  • Read as much deal news as you can while preparing and going through the daily market and business news in popular publications.
  • Discover the many valuation methods, how they are calculated, and how they are evaluated then try out your calculations after watching YouTube videos or reading information on valuation methods.
  • You must prepare a structure using PowerPoint and Excel consistently, especially for modeling and valuation-based case studies.
  • Also, improve your familiarity with software like Microsoft Excel so that you can use spreadsheets effectively.
  • You should practice the kinds of questions you might get during your presentation. 
  • Real case study interview questions used by banks might not be available to you.
  • But, knowing that you need to practice, consider contacting a colleague or friend, or mentor you know who has gone through case study rounds for the types of questions they were asked.

How to Solve It and Perform Well During Assessment Day?

  • To solve the case study, take an organized strategy.
  • Before making a conclusion or deciding how to solve the problem, carefully analyze the case and the questions.
  • Professionally prepare Excel and PowerPoint while modeling case studies.
  • Every assentation you make should be supported by solid logical arguments, and the first few points should address that case’s most important issues.
  • Even if is not necessary, it would be advantageous to have a specialized understanding of the industry being studied.
  • Do not beat around the bush as you have limited time and hence be precise as you speak.

Investment Banking Case Study Examples and Answers

The decision-making case and the financial modeling case are two main types of case studies used in investment banking assessments.

Modeling – Investment Banking Case Study

Modeling case studies are typically take-home tasks that require you to perform straightforward valuation and financial modeling.

So rather than being a case study, it is more of a modeling exam.

The investment banker gives an overview of creating models as well as developing a variety of methods for an in-depth and useful understanding of the subject.

The modeling case study will either use a simpler merger or leveraged buyout model or a free cash flow to the business valuation. 

To assess whether the firms are overvalued or undervalued, you would be asked to examine their valuation multiples.

In most cases, you will be given a few days to finish your analysis. Then on the day of the interview, you must spend 30-45 minutes presenting your case to the bankers. 

Because you will have more time to work on it, the analysis will be considerably more in-depth than in a client case or decision-making case study.

Evaluating Strategic Alternative: Case Study 1 

To maximize shareholder value, a magazine publisher is deciding whether to sell, grow organically or make tiny “tuck-in” acquisitions. It is looking for an investment bank to assist it with its alternatives and has asked for a presentation from your company.

Given Materials: 

They would provide you with a firm summary with financial statements and five-year forecasts, a ten-page market analysis with main competitors, minor acquisition candidates, and recent transactions.

  • First, go through everything to get a sense of the industry, where it’s going, and how much this firm is worth in comparison.
  • Complete a quick assessment using publicly available rivals and prior transactions and a DCF.
  • Evaluate the figures provided by the value, the company’s potential for organic growth, and the availability of suitable targets for acquisition.

Decide what to do, in most cases it is advisable to say “Sell” unless the industry is expanding rapidly (Above 10% annually) the company is completely undervalued, or these are acquisition candidates that will increase revenue or profit by at least 20-30%.

After you have come to a decision, you must prepare your presentation and decide what to tell the bankers.

If you are analyzing scenarios like this during a 30-minute presentation, choose 10 slides with 3-4 important themes each and attempt to spend 3-4 minutes on each slide.

If you choose to write “Sell the company”, consider the following steps in preparing a presentation:

  • List the three main reasons for recommending selling
  • Overview of the industry- Is it expanding? Falling off? Or Being Inactive?
  • Position of the company in the industry? Leader or Second level position? Or is it strong or weak?
  • What would organic growth look like in five to ten years? How much larger or more valuable would the company be?
  • Prospective tuck-in acquisition candidates
  • Why organic growth and acquisition are not the answers.
  • Why selling now will generate the most shareholder value
  • Show prior transactions and public comparable valuations
  • Display the DCF output and the sensitivity chart valuation
  • Summary- State again that the best course of action is to sell your company right away and that neither organic development nor the acquisition of smaller firms would increase your company’s valuation in five to ten years.

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Decision Making- Investment Banking Case Study

Case studies that include decision-making are more common than case studies that involve modeling.

In this kind of case study, the applicant is required to decide for their client and offer advice.

The client case study can center on locating financial sources or determining whether or not a proposed merger should go forward.

At the interview, you should be prepared for these questions. Because you will have a set amount of time in which to examine and present the case. You will be given a total of 45-60 minutes to prepare and beforehand 10 minutes presentation with a Q&A round.

case study on investment decision

Case Study 1

A customer owns her company fully and wants to release some liquidity while keeping a stake in it (Worth £400 million) what suggestions would you provide the client to get the best possible price?

Given Materials:

A corporate overview and details about the company’s performance over the last three years are provided.

Examine all financial information thoroughly and forecast the company’s organic development.

Consider the breakdown of the present valuation if you are provided with the relevant facts.

Think about the client’s industry and the expected trends for that market.

  • How does the valuation stack up against others in the field?
  • Is the current valuation backed up by reliable industry forecasts?
  • Given the slow development of the industry, would it be wise to give up more equity?
  • Is it expected that this industry will keep growing?

Consider present customer portfolios, projects, etc., while deciding whether any actions could be performed to boost the company’s value.

Think about suggestions for the client’s negotiation strategy:

  • How much equity should they be prepared to give up?
  • What number should the client choose as their actual reserve price, in your opinion?

Case Study 2

A publicly traded firm contacts you in the hope to raise money. Analysts’ expectations were met by recent profits and the latest financial report, but the company’s market values are lowest throughout the year. The management of the company has developed a project that it hopes would significantly boost EBIDTA and is looking to raise funding for it. What should the business do to raise the required capital?

Given material:

A summary of the business and its financial statements will be provided to you to prepare for this question.

You must think about whether the organization should raise debt or stock.

Think about the market capitalization, share count, and share price:

  • How would the company be affected in this environment if it issued fresh shares?
  • In terms of dilution of ownership, would equity financing be an appropriate option?
  • How would the effect currently differ from what it would be if the share price were back to normal?

Then examine the provided financial statements:

  • Would increasing debt be a better course of action if they are actually under management’s predictions?
  • How much they could possibly raise?
  • What potential problems could a debt increase bring about?
  • How could the cost of interest be reduced?

Prepare your presentation by organizing your ideas clearly and go through your questions and thought process to get at your recommendation.

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Potential Acquisition: Case Study 3 

A software company is considering a large acquisition. It has chosen the company it wishes to acquire and has contacted a number of investment banks to obtain their thoughts on the transaction and how much they should pay. Based on these presentation, it will choose an advisor and decide what to do.

Two page summaries of the buyers and seller, each containing financial data as well as statistics and multiples for similar organization.

With a recommendation on whether to move forward with the acquisition and if so, how much to pay for the target, create five minute presentation.

For the very first, you should consider this two question to solve this,

  • Should they purchase that target business?
  • What price should they want for the target business?

For an example,

Let’s assume that the comparable companies are trading at EBITDA multiples that range from 4 to 8 times, with the median at 6 times and the 75th percentile at 7 times, respectively. You choose the 25th to 75th percentile range of 5x-7x and apply it to the target company’s $10 million EBITDA since the target company’s profit margins and revenue growth are comparable.

Therefore, the purchase price should range between $50 million and $70 million.

If you have access to a computer, you can also design a DSF, but if you are short of time, keep it straightforward and use multiples.

To answer the question “Should they buy?” take note of the following:

  • Will the buyer be able to purchase the seller with enough cash, debt, or stock issuances?
  • Will the vendor increase the buyer’s revenue and profit?
  • Will the buyer benefit from new consumers, new goods, new markets, or other kinds of benefits as a result of the seller’s acquisition?

After concluding these, you can complete your presentation.

Investment Banking Case Study: FAQs

Q. what is an investment banking case study in short terms.

By presenting candidates with a hypothetical scenario that is comparable to those they might face on the job, investment banking case studies are frequently used to evaluate how the candidate would function in real circumstances.

Q. Which skills are tested in investment banking case study interviews?

Candidates’ analytical and financial skills as well as problem-solving, presentation skills, critical thinking, and interpersonal skills are tested during investment banking interviews.

Q. Is there any way to practice investment banking case studies?

There are various tools, financial modeling online courses, and investment banking textbooks accessible to practice investment banking case studies. Additionally, there are certain career services offered at universities and institutions that provide investment banking programs with case studies.

Investment Banking Case Study: Conclusion

The opportunities to demonstrate your abilities and expertise to investment bankers are provided by investment banking case studies, which are a crucial component of an interview process. 

We have covered some of the investment banking case study examples that will help you in preparation for an investment banking interview.

No doubt it is a very competitive yet tough field to break into but we hope, through this article you achieve the success ladder in the investment banking industry.

case study on investment decision

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case study on investment decision

ESG | The Report

What is an Investment Case Study and Why Do You Need One

case study on investment decision

The more time you have to grow your money, the better chance of a successful outcome. Investing starts with saving and planning for what you want out of life: a retirement fund, a child’s education, or just enough money to buy that dream house someday. It helps if you know how the markets work and it means deciding how much risk is right for you and then taking action:

  • investing in stocks and bonds
  • through mutual funds
  • Investing on your own
  • buying real estate
  • starting a business
  • putting money into gold or other precious metals
  • managing your cash flow by using savings accounts
  • certificates of deposit (CDs)

The one thing every investor needs: an investment case study

What not to do with your investments.

  • The 8 main components of an investment case study  

What are ESG considerations?

  • How investment case studies for ESG investments are different

How do I achieve this?

How to determine the return on investment for esg investments, what is a discount rate and how it can be used in an investment case study, how a ratio analysis is used in an investment case study.

  • Why it’s important to invest in ESG considerations alongside other investments
  • Why it’s important to have a diverse portfolio

How to reduce risk by diversifying your portfolio

How can valuing metrics be used to reduce risk in a portfolio, what is a discounted cash flow and how it can be used as a valuation metric, what is free cash flow and how can it be used as a valuation metric, how esg considerations are financially valuable, what factors you should consider when investing, how do you do a private equity case study, how each of these categories differ, what kind of return do you get on private equity investments, what you should consider before investing in private equity, what is a real estate case study and why do you need one, what factors you should consider when investing in real estate, what kind of return do you get on real estate investments, how do you write a case study solution, what is a problem-solving case study, caveats and disclaimers.

Before we begin, let’s clear up a common misconception: an investment case study is not like a business case study. A business case study analyzes the feasibility of opening a new branch for Starbucks or choosing between leasing and buying software; an investment case study helps you decide how much money to invest and where.

If your employer offers a 401(k) or RRSP plan, you might already have a case study that tells you how much they will match if you contribute. Don’t stop there: investigate your options for other types of accounts and the various investment vehicles available, such as stocks, bonds, mutual funds, real estate, precious metals, and so on.

You cannot put all your eggs in one basket, whether you invest through a financial advisor or make decisions on your own. Putting all your money into a single stock is a risk that could cost you everything if the company goes under. By diversifying your investments, you can minimize exposure to losses from financial shifts and other circumstances outside of your control. You need to consider what risks are involved, how each investment will grow (or not), and what the best time is to buy. So let’s build your investment case study!

The 8 main components of an investment case study

The main components of an investment case study include:

  • What kind of investments are you buying? Stocks, bonds, mutual funds, real estate?
  • How much money are you investing?
  • How often are you making these investments?
  • Why are you choosing this vendor or broker?
  • What do they offer that is special or unique compared to other companies in the same market?
  • How much money are you investing in each investment type, and how often are you investing it?
  • What kind of return do you expect? Is this realistic?
  • Who is your target audience/market/audience demographic, and what makes the company or product unique to them?

ESG stands for environmental, social, and governance. These criteria deal with a company’s impact on the environment, its treatment of customers and employees, and how it performs as a business. It is important to invest in companies that care about these factors because they may be more profitable than other companies that do not.

ESG investing is a more sustainable and profitable way of investing. ESG Investing leads to lower client-specified risk and higher client-specified return. The money that an investor has invested into an ESG strategy will be more diversified than the average portfolio of investments, which allows for better performance.

An ESG investment case study is different because it needs to include a method for achieving environmental and social impact alongside an analysis of the returns on investment. This includes both financial and non-financial risk. Understanding how a company has achieved its goals is key to understanding the investment’s worthiness.

Why does this matter? Because your investments should be sustainable. This means you need to support companies that are making investments on behalf of the future, rather than just focusing on profit in the present.

To achieve ESG investment, it is important to review reports or case studies that are written by third parties. This makes the process more transparent and will guarantee that you are investing in companies that have gone through a vetting process designed to reduce risk. These third-party organizations are engaged with an entire industry of investors who all want to invest in sustainable companies , so they are all on the same page.

Making this decision is important because it will ensure that you are not only investing your money but investing your values as well. It does not matter whether you are rich or poor; everyone has the capacity to make a difference through their investments by ensuring they are invested responsibly.

A good way to determine the return on investment for ESG  is through a ratio analysis and determining an appropriate discount rate. You can also compare it against other alternatives, such as investing in a firm without considering their impact on the environment. There are several methods available.

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A discount rate is the interest rate that a company uses to account for the time value of money. The higher the discount rate, the more you’ll prefer a project with a sure payoff over one with an uncertain return. When evaluating projects, you need to choose an appropriate discount rate.

Ratio analysis helps by evaluating the return on investment through ratios such as return on assets and earnings per share. This may help you determine which projects will yield the most valuable returns.

Why it's important to invest in ESG considerations alongside other investments

ESG criteria are not just about doing good, they’re also about monetary value. If you invest only in companies that do well for the environment, then your portfolio will decrease in value. You need to diversify your portfolio by investing in companies that care both about the environment and profits. By investing in a variety of companies, you can reduce risk. If one company fails, then the others will pick up the slack and your portfolio won’t be affected as much.

Why it's important to have a diverse portfolio

A diverse portfolio reduces risk because if one asset performs poorly, then another may perform better. You will experience less volatility. If one asset performs well, then you won’t experience as large of a boost because the other assets may not have performed so well.

There are several ways to reduce risk when it comes to investing in a diverse portfolio. One way is to take advantage of certain types of investments, such as bonds. Another way is to compare the risk to your current portfolio and determine if there are any new investments that have similar levels of risk. Finally, you can also reduce risk by using a variety of different valuation metrics. This will allow you to see which companies are performing well independently while providing insight into why they’re doing well.

case study on investment decision

Valuation metrics allow you to determine which companies are profitable and why they’re profitable. You can then use this information for the future. For example, if you learn that Company X is undervalued, then you may consider investing in it because of its profitability. Other examples of valuation metrics include discounted cash flow and free cash flow.

A discounted cash flow takes into account the time value of money by applying a discount rate to future projected earnings, sales, and so on. This helps you figure out what the actual value of a company is. You can compare this to its current price to see if it’s overvalued or undervalued by using other metrics, such as free cash flow.

A free cash flow is the amount of cash a company has available after it pays for capital expenditures and any other cash expenses. It’s used in valuation metrics because it adds to (or subtracts from) the value of your company by showing how much money you can invest in future projects.

You can choose to invest in companies that are socially responsible. These may have better returns than companies that are not, all else being equal. You can also choose to invest in companies that are environmentally friendly. If you do this, then you will be investing in the future because the environment is something we need to care about if we want our planet to continue existing.

There are many different things you can consider when choosing investments. Remember to look at the costs of fees, commissions, and transaction costs before making any decisions because they may affect your ROI. Also, make sure to invest in companies that you know will maintain or increase their value. You also want to avoid companies that are significantly over- or undervalued because the price may not be stable.

Private equity is when an investor buys a company that is not public. The investor then takes on the responsibility of making decisions about how the company will operate in the future.

There are three main categories to look at when it comes to private equity: Leveraged Buyouts, Venture Capital, and Growth Equity. Leveraged buyouts take place when investors purchase a controlling stake in a company by borrowing money for the purchase. Venture Capital deals with investing in new innovative companies. Growth Equity deals with investing in existing companies that are looking to expand their business into other sectors.

Leveraged buyouts involve purchasing shares of stock using borrowed money for the transaction. This means that if the company doesn’t make enough to pay back the money borrowed, then you risk losing your investment. Venture Capital deals with investing in new innovative companies that may or may not be successful. Growth Equity deals with investing in existing companies that are looking to expand their business into other sectors.

Private equity investments are not liquid. This means that you cannot obtain the money at any time, and it can take months or years to sell your shares after purchasing them. This is because private equity deals happen between institutions, so they may have long negotiations before making a purchase. You should aim to obtain returns of 10-30% per year when investing in private equity.

When it comes to private equity, there are many factors that need to be considered before investing your money. These include the expected return on investment, how much control over the company you will have, and the reputation of the firm or person that is offering these investments.

A real estate case study is an analysis of the fair value of a property and how it has performed in the past. It also includes consideration for any changes that might happen to the market, such as interest rates or prices for similar properties. This kind of case study is important because it helps determine how much a property is worth and if you can expect to see a high return on your investment.

Real estate case studies take into consideration many different factors, including the cost of maintenance, expenses over time, the amount of rent the property can get, the market value of comparable properties, and how to account for depreciation. You want to make sure that you are getting a good deal when investing in real estate because real estate is not liquid, meaning it could take months or even years to sell your property after purchasing it.

Real estate investments are long-term investments because it can take months or years to sell a property if you need to cash out. This means that any money made from the investment needs to be reinvested into another property that will hopefully increase in value. You can expect returns of 7-13% annually when investing in real estate.

The first step is to compile all of the company’s financial data. The second step is to analyze that data, looking for trends that might be cause for concern or signs of opportunity. Brainstorm likely causes and possible solutions to those problems, then rank them by their potential benefit. Finally, create a plan detailing how you would implement your strategy if the client agreed with it.

Problem-solving case studies are created as a way to solve problems. A case study can guide you through the steps required for problem-solving and may include information on the situation, the goal, and potential solutions. Case studies will often involve asking questions about a situation and then looking at alternative approaches for problem-solving.

In conclusion, formulate a clear thesis about how it is important to be conservative when investing, and why you shouldn’t put all your eggs in one basket. Also explain the importance of having a diverse portfolio, which means splitting your money between stocks, bonds, etc., as well as reducing risk by buying shares from companies that are stable with good reputations. Remember that a case study isn’t a “problem” to be solved, but rather a story from which you can learn.

We have covered many topics in this article and want to be clear that any reference to, or mention of integration framework, financial services, brief introduction, investment decisions, examples, feel free, support, management, integration, create, framework, data, community, example, implementation, services, success, enable, access, process, project, research, solutions, partnership, integrate, systems, knowledge, resources, report, industry, customers, institutions, service, development, communication, course, reports, investors, world, health, frameworks, develop, involved, operations, profit, debt, identity, processes, creation, risks, the component in the context of this article is purely for informational purposes and not to be misconstrued with investment advice or personal opinion. Thank you for reading, We hope that you found this article useful in your quest to understand ESG.

Read on, read on…

  • The Comprehensive Guide to Equity Research


Research & Curation

Dean Emerick is a curator on sustainability issues with ESG The Report, an online resource for SMEs and Investment professionals focusing on ESG principles. Their primary goal is to help middle-market companies automate Impact Reporting with ESG Software. Leveraging the power of AI, machine learning, and AWS to transition to a sustainable business model. Serving clients in the United States, Canada, UK, Europe, and the global community. If you want to get started, don’t forget to Get the Checklist! ✅

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Portfolio Management: Making Decisions about Your Investments

To be successful, an investor needs to do more than just buy some stocks or other assets and then ignore them. Instead, experts suggest, individuals should either take an active role by monitoring their investments or let a professional do it for them. … Read More

case study on investment decision

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“Believe me, it’s not glamorous when it’s midnight on a school night and you’re still up worrying about stocks and other securities and second-guessing yourself,” says Patrick Goldin, the 17-year-old general partner of the Alain Value Fund LP, an investment fund that is made up of several different stocks. Goldin’s hedge fund uses advanced investment strategies to try to get high returns for investors. Pooling together money from multiple sources gives him the ability to make bigger buys, while the investors let Goldin make the decisions about where to put the funds. “To actively manage your investments, you have to train yourself mentally and understand your psychology. You have to realize that sometimes there will be inefficiencies or you will make the wrong move, but if you constantly work at improving yourself, you can be successful.”

Goldin, a home-schooled high school senior from Greensboro, N.C., says his mother introduced him to the stock market when he was in the seventh grade. In early 2007, Goldin launched his fund, lining up family and friends as investors. “I was inspired to find out more about the companies that made the products I used, and owning shares of their stock seemed like a good idea,” he says. “I started to monitor their financial performance and from there it just sort of flowed. I progressed slowly, studying the market and reading books — and gradually increased my analysis and investing. I learned from my mistakes.” Some of Goldin’s early investments included Lockheed Martin, Starbucks and Wal-Mart.

‘Not Everyone Is an Expert at This’

Managing an investment portfolio , or a collection of varied investments, is serious business, involving investment mix and policy, matching investments to objectives and balancing risk and performance. For professional portfolio managers, a key concern involves matching an individual’s risk tolerance with investment performance in a way that achieves the investor ’s monetary goals, according to Boris Khazin, investment oversight officer with TD Ameritrade. “Generally, if you’re seeking more performance, there’s going to be more risk,” notes Khazin. “But hedging and other strategies [to decrease] risk mean that the ratio of risk to performance is not necessarily a direct one.”

Not everyone is an expert at this, he adds. “An individual investor who [also] holds down a full-time job may not know what to look at.”

Khazin says that media investment personalities like CNBC’s Jim Cramer suggest that investors spend an hour a week on each of their investments. “So someone who’s got a portfolio of 50 or 60 stocks would not have much time for anything else,” he notes. “A professional portfolio manager , though, maintains full-time analysis as part of his or her job.”

Goldin’s portfolio is made of securities “where the downside is very limited and the upside potential is substantial, creating a very attractive risk/reward proposition,” according to his website.

His investment outlook is centered on a value-oriented philosophy. Value-oriented investors are looking for companies that they think are trading for less than they are really worth. So a company that has a stock price of, say $1.00 a share, but owns land that’s worth $2.00 a share, might be attractive to a value-oriented investor. I look at “smaller companies that are in a situation where an event or other catalyst may drive the realization of value,” says Goldin. Realization of value is a fancy way of saying that market watchers hope the stock price rises above its current level to one that reflects the true value of the company’s underlying assets , or worth. “I’m not really growth-driven, so I’d tend to keep away from an initial public offering of a company like Facebook. There’s no real margin of safety when you’re talking about pricing that’s equal to 100 times earnings [a high earnings per share ratio that is more risky]. Instead, a share price that’s equal to 25 or 30 times earnings makes more sense from a safety point of view.”

Wearing Many Hats as Fund Manager

When it comes to managing an investment portfolio, “you shouldn’t feel rushed,” counsels Rosella Bannister, a consultant with Jump$tart Coalition for Personal Financial Literacy, a nonprofit organization based in Washington, D.C., that supports financial education efforts. “Do your research, but also check your research sources to determine if they are reliable.”

Bannister says she doesn’t believe in “market timing,” or quickly jumping in and out of stocks as a way to capture short-term stock price movements. “I don’t think it pays to try to catch every up and down of the market,” she says. “Instead, invest in something you know about because then you may have a better idea of what products or services will win out in the marketplace.”

The Alain Value Fund has been averaging a gain of about 10% a year, according to Goldin, who notes that the fund isn’t open to the general public. “I find running the fund is a great learning tool, even though there’s a lot of pressure and it keeps me really busy wearing many hats as fund manager,” he adds.

But Goldin admits he’s doing a “precarious balancing act,” juggling schoolwork, fund management and outside activities like soccer. “At times it gets to be very tough, but I have to maintain a balance,” he says. “I guess the solution is intensive time management. Home schooling helps me to accomplish this since I’ve got the flexibility to shift courses around, and I’ve got opportunities that might not be available in a conventional high school setting. It’s not easy by a long shot, but I enjoy the puzzle solving” that’s involved in portfolio management.

Related Links

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Conversation Starters

How did Patrick Goldin build his investment expertise?

What is a value-oriented philosophy and what is realization of value?

Describe some different investment strategies a portfolio manager might take.

One comment on “ Portfolio Management: Making Decisions about Your Investments ”

Patrick Goldin and I have similar backgrounds when it comes to expertise. I was first introduced to the stock market in the seventh grade like Goldin. Except I stumbled upon the adventurous industry out of pure curiosity of “what is a stock”. Value-oriented philosophy also knows as value investment is a widely known and performed trading strategy. This strategy started to gain acknowledgment as widely respected investor Warren Buffet claimed to practice this particular strategy. The strategy is based upon a simple concept of finding stocks that are “undervalued” and investing in it. Keeping equity until the stock meets its correct value. However, unlike Goldin, I look into the potential growth and the past growth the company has undergone. I stick to my own philosophy that the most important aspect of value investing is finding stocks with room for continuous growth. A commonly used investment strategy is investing in “index funds”. These investments are mostly practiced by retirement funds and hedge funds. The low risk and steady growth/return make index funds an attractive long-term investment. After a good year of trading stocks and other forms of investments. I have learned to create my own form of investing called “Momentum Trading”. I look for small stocks that come across the big news. With news and volume these “penny stocks” soar a crazy 50 to even couple 100 percent per day. This could be known as a form of day trading; However, “Momentum Trading” focuses on making quick returns that are created from day traders “pumping” the stock up in value. By choosing to “Momentum Trade” you are free of coming across the risk of getting stuck in a pump and dump.

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Jean w. rosenthal, eamonn walsh, matt spiegel, will goetzmann, david bach, damien p. mcloughlin, fernando fernandez, gayle allard, and jaan elias.

Asset Management, Financial Regulation, Investor/Finance, Leadership & Teamwork, Macroeconomics, State & Society

In August 2011, Wilbur Ross, an American investor specializing in distressed and bankrupt companies, purchased 35% of the stock of Bank of Ireland. Even for Ross, investing in an Irish bank seemed risky. Observers wondered if the investment made sense.

Commonfund ESG

Jaan elias, sarah friedman hersh, maggie chau, logan ashcraft, and pamela jao.

Asset Management, Investor/Finance, Metrics & Data, Social Enterprise

ESG (Environmental Social and Governance) investing had become an increasingly hot topic in the financial community. Could Commonfund offer its endowment clients some investment vehicle that would satisfy ESG concerns while producing sufficient returns?

Glory, Glory Man United!

Charles euvhner, jacob thomas, k. geert rouwenhorst, and jaan elias.

Competitor/Strategy, Employee/HR, Investor/Finance, Leadership & Teamwork, Sourcing/Managing Funds

Manchester United might be the greatest English sports dynasty of all time. But valuation poses unique challenges. How much should a team's success on the pitch count toward its net worth?

Walmart de México: Investing in Renewable Energy

Jean rosenthal, k. geert rouwenhorst, isabel studer, jaan elias, and juan carlos rivera.

Investor/Finance, Operations, State & Society, Sustainability

Walmart de México y Centroamérica contracted for power from EVM's wind farm, saving energy costs and improving sustainability. What should the company's next steps be to advance its goals?

Voltaire, Casanova, and 18th-Century Lotteries

Jean rosenthal and william n. goetzmann.

Business History, State & Society

Gambling has been a part of human activity since earliest recorded history, and governments have often attempted to turn that impulse to benefit the state.  The development of lotteries in the 18th century helped to develop the study of probabilities and enabled the financial success of some of the leading figures of that era.

Alexander Hamilton and the Origin of American Finance

Andrea nagy smith, william goetzmann, and jeffrey levick.

Business History, Financial Regulation, Investor/Finance

Alexander Hamilton is said to have invented the future. At a time when the young United States of America was disorganized and bankrupt, Hamilton could see that the nation would become a powerful economy.

Kmart Bankruptcy

Jean rosenthal, heather tookes, henry s. miller, and jaan elias.

Asset Management, Financial Regulation, Investor/Finance

Less than 18 months after Kmart entered Chapter 11, the company emerged and its stocked soared. Why had the chain entered Chapter 11 in the first place and how had the bankruptcy process allowed the company to right itself?

Oil, ETFs, and Speculation

So alex roelof, k. geert rouwenhorst, and jaan elias.

Since the markets' origins, traders sought standardized wares to increase market liquidity. In the 1960s and later, they sought assets uncorrelated to traditional bonds and equities. By late 2004, commodity-based exchange-traded securities emerged.

Newhall Ranch Land Parcel

Acquired by a partnership of two closely intertwined homebuilders, Newhall Ranch was the last major tract of undeveloped land in Los Angeles County in 2003.

Brandeis and the Rose Museum

Arts Management, Asset Management, Investor/Finance, Social Enterprise, Sourcing/Managing Funds

The question of the role museums should play in university life became urgent for Brandeis in early 2009. Standard portfolios of investments had just taken a beating. Given that environment, should Brandeis sell art in order to save its other programs?

Taking EOP Private

Allison mitkowski, william goetzmann, and jaan elias.

Asset Management, Financial Regulation, Investor/Finance, Leadership & Teamwork

With 594 properties nationwide, EOP was the nation’s largest office landlord.  Despite EOP's dominance of the REIT market, analysts had historically undervalued EOP. However, Blackstone saw something in EOP that the analysts didn’t, and in November, Blackstone offered to buy EOP for $48.50 per share. What did Blackstone and Vornado see that the market didn’t?

Subprime Lending Crisis

Jaan elias and william n. goetzmann.

Asset Management, Financial Regulation, Investor/Finance, State & Society

To understand the collapse of the subprime mortgage market, we look at a failing Mortgage Backed Security (MBS) and then drill down to look at a single loan that has gone bad.

William N. Goetzmann, Jean Rosenthal, and Jaan Elias

Asset Management, Business History, Customer/Marketing, Entrepreneurship, Innovation & Design, Investor/Finance, Sourcing/Managing Funds, State & Society

The financial engineering of London's Canary Wharf was as impressive as the structural engineering. However, Brexit and the rise of fintech represented new challenges. Would financial firms leave the U.K.? Would fintech firms seek new kinds of space? How should the Canary Wharf Group respond?

The Future of Malls: Was Decline Inevitable?

Jean rosenthal, anna williams, brandon colon, robert park, william goetzmann, jessica helfand  .

Business History, Customer/Marketing, Innovation & Design, Investor/Finance

Shopping malls became the "Main Street" of US suburbs beginning in the mid-20th century. But will they persist into the 21st?

Hirtle Callaghan & Co

James quinn, jaan elias, and adam blumenthal.

Asset Management, Investor/Finance, Leadership & Teamwork

In August 2019, Stephen Vaccaro, Yale MBA ‘03, became the director of private equity at Hirtle, Callaghan & Co., LLC (HC), a leading investment management firm associated with pioneering the outsourced chief investment office (OCIO) model for college endowments, foundations, and wealthy families. Vaccaro was tasked with spearheading efforts to grow HC’s private equity (PE) market value from $1 billion to a new target of roughly $3 billion in order to contribute to the effort of generating higher long-term returns for clients. Would investment committees overseeing endowments typically in the 10s or 100s of millions embrace this shift, and, more pointedly, was this the best move for client portfolios?

The Federal Reserve Response to 9-11

Jean rosenthal, william b. english, jaan elias.

Financial Regulation, Investor/Finance, Leadership & Teamwork, State & Society

The attacks on New York City and the Pentagon in Washington, DC, on September 11, 2001, shocked the nation and the world. The attacks crippled the nerve center of the U.S. financial system. Information flow among banks, traders in multiple markets, and regulators was interrupted. Under Roger Ferguson's leadership, the Federal Reserve made a series of decisions designed to provide confidence and increase liquidity in a severely damaged financial system. In hindsight, were these the best approaches? Were there other options that could have taken place?

Suwanee Lumber Company (B)

In early 2018, Blue Wolf Capital Management received an offer to sell both its mill in Arkansas (Caddo) and its mill in Florida (Suwanee) to Conifex, an upstart Canadian lumber company. Blue Wolf hadn’t planned to put both mills up for sale yet, but was the deal too good to pass up? Blue Wolf had invested nearly $36.5 million into rehabilitating the Suwanee and Caddo mills. However, neither was fully operational yet. Did the offer price fairly value the prospects of the mills? How should Blue Wolf consider the Conifex stock? Should Blue Wolf conduct a more extensive sales process rather than settle for this somewhat unexpected offer?

Occidental Petroleum's Acquisition of Anadarko

Jaan elias, piyush kabra, jacob thomas, k. geert rouwenhorst.

Asset Management, Competitor/Strategy, Investor/Finance, Sourcing/Managing Funds

In May of 2019, Vicki Hollub, the CEO of Occidental Petroleum (Oxy), pulled off a blockbuster. Bidding against Chevron, one of the world's largest oil firms, she had managed to buy Anadarko, another oil company that was roughly the size of Oxy. Hollub believed that the combination of the two firms brought the possibility for billions of dollars in synergies, more than offsetting the cost of the acquisition. Had Hollub hurt shareholder value with Oxy's ambitious deal, or had she bolstered a mid-size oil firm and made it a major player in the petroleum industry? Why didn't investors see the tremendous synergies in which Hollub fervently believed?

Hertz Global Holdings (B): Uses of Debt and Equity 2020

In 2019, Hertz held a successful rights offering and restructured some of its debt. CEO Kathyrn Marinello and CFO Jamere Jackson were moving the company toward what seemed to be sustainable profitability, having implemented major structural and financial reforms. Analysts predicted a rosy future. Travel, particularly corporate travel, was increasing as the economy grew. With all the creativity that the company had shown in its financial arrangements, did it have any options remaining, even while under the court-led reorganization?

Prodigy Finance

Vero bourg-meyer, javier gimeno, jaan elias, florian ederer.

Competitor/Strategy, Investor/Finance, Social Enterprise, State & Society, Sustainability

Having pioneered a successful financing model for student loans, Prodigy also was considering other financial services that could make use of the company’s risk model. What new products could Prodigy offer to support its student borrowers? What strategy should guide the company’s new product development? Or should the company stick to the educational loans it pioneered and knew best?

tronc: Valuing the Future of Newspapers

Jean rosenthal, heather e. tookes, and jaan elias.

Business History, Competitor/Strategy, Investor/Finance, Leadership & Teamwork

Gannet offered Tribune Publishing an all-cash buyout offer. Tribune then made a strategic pivot: new stock listing, new name "tronc," and a goal of posting 1,000 videos/day. Should the Tribune board take the buyout opportunity? What was the right price?

Role of Hedge Funds in Institutional Portfolios: Florida Retirement System

Jaan elias, william goetzmann and lloyd baskin.

Asset Management, Financial Regulation, Investor/Finance, Metrics & Data, State & Society

The Florida Retirement System, one of the country’s largest state pensions, had been slow to embrace hedge funds, but by 2015, they had 7% of their assets in the category. How should they manage their program?

Social Security 1935

Jean rosenthal, william n. goetzmann, and jaan elias.

Business History, Financial Regulation, Innovation & Design, Investor/Finance, State & Society

Frances Perkins, Franklin Roosevelt's Secretary of Labor, shaped the Social Security Act of 1935, changing America’s pension landscape. What might she have done differently?

Ant Financial: Flourishing Farmer Loans at MYbank

Jingyue xu, jean rosenthal, k. sudhir, hua song, xia zhang, yuanfang song, xiaoxi liu, and jaan elias.

Competitor/Strategy, Customer/Marketing, Entrepreneurship, Innovation & Design, Investor/Finance, Leadership & Teamwork, Operations, State & Society

In 2015 Ant Financial's MYbank (an offshoot of Jack Ma’s Alibaba company) created the Flourishing Farmer Loan program, an all-internet banking service for China's rural areas. Could MYbank use financial technology to create a program with competitive costs and risk management?

Low-Carbon Investing: Commonfund & GPSU

Jaan elias, william goetzmann, and k. geert rouwenhorst.

Asset Management, Ethics & Religion, Investor/Finance, Social Enterprise, State & Society, Sustainability

In August of 2014, the movement to divest fossil fuel investments from endowment portfolios was sweeping campuses across the United States, including Gifford Pinchot State University (GPSU). How should GPSU and its investment partner Commonfund react?

360 State Street: Real Options

Andrea nagy smith and mathew spiegel.

Asset Management, Investor/Finance, Metrics & Data, Sourcing/Managing Funds

360 State Street proved successful, but what could Bruce Becker construct on the 6,000-square-foot vacant lot at the southwest corner of the project? Under what set of circumstances and at what time would it be most advantageous to proceed? Or should he build anything at all?


Jean rosenthal and olav sorensen.

When Jeffrey Aronson and Mark Gallogly founded Centerbridge, they hoped to grow the firm, but not to a point that it would lose its culture. Having added an office in London, could the firm add more locations and maintain its collegial character?

George Hudson and the 1840s Railway Mania

Andrea nagy smith, james chanos, and james spellman.

Business History, Financial Regulation, Investor/Finance, Metrics & Data

Railways were one of the original disruptive technologies: they transformed England from an island of slow, agricultural villages into a fast, urban, industrialized nation.  George Hudson was the central figure in the mania for railroad shares in England. After the share value crashed, some analysts blamed Hudson, others pointed to irrational investors and still others maintained the crash was due to macroeconomic factors.

Demosthenes and Athenian Finance

Andrea nagy smith and william goetzmann.

Business History, Financial Regulation, Law & Contracts

Demosthenes' Oration 35, "Against Lacritus," contains the only surviving maritime loan contract from the fourth century B.C., proving that the ancient Greeks had devised a commercial code to link the economic lives of people from all over the Greek world.   Athenians and non-Athenians alike came to the port of Piraeus to trade freely.

South Sea Bubble

Frank newman and william goetzmann.

Business History, Financial Regulation

The story of the South Sea Company and its seemingly absurd stock price levels always enters into conversations about modern valuation bubbles.  Because of its modern application, discerning what was at the root of the world's first stock market crash merits considerable attention. What about the South Sea Company and the political, economic and social context in which it operated led to its stunning collapse?

Jean W. Rosenthal, Jaan Elias, William N. Goetzmann, Stanley Garstka, and Jacob Thomas

Asset Management, Healthcare, Investor/Finance, Sourcing/Managing Funds, State & Society

A centerpiece of the 2007 contract negotiations between the UAW and GM - and later with Chrysler and Ford - was establishing a Voluntary Employee Beneficiary Association (VEBA) to provide for retiree healthcare costs. The implications were substantial.

Northern Pulp: A Private Equity Firm Resurrects a Troubled Paper Company

Heather tookes, peter schott, francesco bova, jaan elias and andrea nagy smith.

Investor/Finance, Macroeconomics, State & Society, Sustainability

In 2008, the lumber industry was in a severe recession, yet Blue Wolf Capital Management was considering investment in a paper mill in Nova Scotia. How should they proceed?

Lahey Clinic: North Shore Expansion

Jaan elias, andrea r. nagy, jessica p. strauss, and william n. goetzmann.

Asset Management, Financial Regulation, Healthcare, Investor/Finance

In early 2007 the Lahey Clinic in Massachusetts believed that expansion of its North Shore facility was not only a smart strategy but also a business necessity.  The two years of turmoil in the Massachusetts health care market prompted observers to question Lahey's 2007 decisions. Did the expansion strategy still make sense?

Carry Trade ETF

K. geert rouwenhorst, jean w. rosenthal, and jaan elias.

Innovation & Design, Investor/Finance, Macroeconomics, Sourcing/Managing Funds

In 2006 Deutsche Bank (DB) brought a new product to market – an exchange traded fund (ETF) based on the carry trade, a strategy of buying and selling currency futures. The offering received the William F. Sharpe Indexing Achievement Award for “Most Innovative Index Fund or ETF” at the 2006 Sharpe Awards. These awards are presented annually by and Information Management Network for innovative advances in the indexing industry. The carry trade ETF shared the award with another DB/PowerShares offering, a Commodity Index Tracking Fund. Jim Wiandt, publisher of, said, "These innovators are shaping the course of the index industry, creating new tools and providing new insights for the benefit of all investors." What was it that made this financial innovation successful?

William Goetzmann and Jaan Elias

Asset Management, Business History

Hawara is the site of the massive pyramid of Amenemhat III, a XII Dynasty [Middle Kingdom, 1204 – 1604 B.C.E.] pharaoh.  The Hawara Labyrinth and Pyramid Complex present a wealth of information about the Middle Kingdom.  Among its treasures are papyri covering property rights and transfers of ownership.

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The Private Equity Case Study: The Ultimate Guide

If you're new here, please click here to get my FREE 57-page investment banking recruiting guide - plus, get weekly updates so that you can break into investment banking . Thanks for visiting!

Private Equity Case Study

The private equity case study is an especially intimidating part of the private equity recruitment process .

You’ll get a “case study” in virtually any private equity interview process , whether you’re interviewing at the mega-funds (Blackstone, KKR, Apollo, etc.), middle-market funds , or smaller, startup funds.

The difference is that each one gives you a different type of case study, which means you need to prepare differently:

What Should You Expect in a Private Equity Case Study?

There are three different types of “case studies”:

  • Type #1: A “ paper LBO ,” calculated with pen-and-paper or in your head, in which you build a simple leveraged buyout model and use round numbers to guesstimate the IRR.
  • Type #2: A 1-3-hour timed LBO modeling test , either on-site or via Zoom and email. This is a pure speed test , so proficiency in the key Excel shortcuts and practice with many modeling tests are essential.
  • Type #3: A “take-home” LBO model and presentation, in which you might have a few days up to a week to pick a company, research it, build a model, and make a recommendation for or against an acquisition of the company.

We will focus on the “take-home” private equity case study here because the other types already have their own articles/tutorials or will have them soon.

If you’re interviewing within the fast-paced, on-cycle recruiting process with large funds in the U.S. , you should expect timed LBO modeling tests (type #2).

If the firm interviews dozens of candidates in a single weekend, there’s no time to give everyone open-ended case studies and assess them.

You might also get time-pressured LBO modeling tests in early rounds in other financial centers, such as London .

The open-ended case studies – type #3 – are more common at smaller funds, in off-cycle recruiting, and outside the U.S.

Although you have more time to complete them, they’re significantly more difficult because they require critical thinking skills and outside research.

One common misconception is that you “need” to build a complex model for these case studies.

But that is not true at all because they’re judging you mostly on your investment thesis , your presentation, and your ability to answer questions afterward.

No one cares if your LBO model has 200 rows, 500 rows, or 5,000 rows – they care about how well you make the case for or against the company.

This open-ended private equity case study is often the final step between the interview and the job offer, so it is critically important.

The Private Equity Case Study, in Parts

This is another technical tutorial, so I’ve embedded the corresponding YouTube video below:

Table of Contents:

  • 4:32: Part 1: Typical Case Study Prompt
  • 6:07: Part 2: Suggested Time Split for a 1-Week Case Study
  • 8:01: Part 3: Screening and Selecting a Company
  • 14:16: Part 4: Gathering Data and Doing Industry Research
  • 22:51: Part 5: Building a Simple But Effective Model
  • 26:32: Part 6: Drafting an Investment Recommendation

Files & Resources:

  • Case Study Prompt (PDF)
  • Private Equity Case Study Slides (PDF)
  • – Highlighted 10-K (PDF)
  • – Investor Presentation (PDF)
  • – Excel Model (XL)
  • – Investment Recommendation Presentation (PDF)

We’re going to use in this example, which is one of the many case studies in our Advanced Financial Modeling course:


Advanced Financial Modeling

Learn more complex "on the job" investment banking models and complete private equity, hedge fund, and credit case studies to win buy-side job offers.

The full course includes a detailed, step-by-step walkthrough rather than this summary, an additional advanced LBO model, and other complex case studies for investment banking, hedge funds, and credit.

Part 1: Typical Private Equity Case Study Prompt

In some cases, they’ll give you a company to analyze, but in others, you’ll have to screen for companies yourself and pick one.

It’s easier if they give you the company and the supporting documents like the Information Memorandum , but you’ll also have less time to complete the case study.

The prompt here is very open-ended: “We like these types of deals and companies, so pick one and present it to us.”

The instructions are helpful in one way: they tell us explicitly not to build a full 3-statement model and to focus on the market and strategy rather than an “extremely complex model.”

They also hint very strongly that the model must include sensitivities and/or scenarios:

Private Equity Case Study Prompt

Part 2: Suggested Time Split for a 1-Week Private Equity Case Study

You have 7 days to complete this case study, which may seem like a lot of time.

But the problem is that you probably don’t have 8-12 hours per day to work on this.

You’re likely working or studying full-time, which means you might have 2-3 hours per day at most.

So, I would suggest the following schedule:

  • Day #1: Read the document, understand the PE firm’s strategy, and pick a company to analyze.
  • Days #2 – 3: Gather data on the company’s industry, its financial statements, its revenue/expense drivers, etc.
  • Days #4 – 6: Build a simple LBO model (<= 300 rows), ideally using an existing template to save time.
  • Day #7: Outline and draft your presentation, let the numbers drive your decisions, and support them with the qualitative factors.

If the presentation is shorter (e.g., 5 slides rather than 15) or longer, you could tweak this schedule as needed.

But regardless of the presentation length, you should spend MORE time on the research, data gathering, and presentation than on the LBO model itself.

Part 3: Screening and Selecting a Company

The criteria are simple and straightforward here: “The firm aims to find undervalued companies with stagnant or declining core businesses that can be acquired at reasonable valuation multiples and then turn them around via restructuring, divestitures, and add-on acquisitions.”

The industry could be consumer, media/telecom, or software, with an ideal Purchase Enterprise Value of $500 million to $1 billion (sometimes up to $2 billion).

Reading between the lines, I would add a few criteria:

  • Consistent FCF Generation and 10-20%+ FCF Yields: Strategies such as turnarounds and add-on acquisitions all require cash flow. If the company doesn’t generate much Free Cash Flow , it will have to issue Debt to fund these strategies, which is risky because it makes the deal very dependent on the exit multiple.
  • Relatively Lower EBITDA Multiples: If the company has a “stagnant or declining” core business, you don’t want to pay 20x EBITDA for it. An ideal range might be 5-10x, but 10-15x could be OK if there are good growth opportunities. The IRR math also gets tougher at high EBITDA multiples because the maximum Debt in most deals is 5-6x.
  • Clean Financial Statements and Enough Detail for Revenue and Expense Projections: You don’t want companies with 2-page-long Cash Flow Statements or Balance Sheets with 100 line items; you can’t spare the time required to simplify and consolidate these statements. And you need some detail on the revenue and expenses because forecasting revenue as a simple percentage growth rate is a bad idea in this context.

We used this process to screen for companies here:

  • Step 1: Do a high-level screen of companies in these 3 sectors based on industry, Equity Value or Enterprise Value, and geography.
  • Step 2: Quickly review the list of ~200 companies to narrow the sector.
  • Step 3: After picking a specific sector, narrow the choices to the top few companies and pick one of them.

In software , many of the companies traded at very high multiples (30x+ EBITDA), and others had negative EBITDA , so we dropped this sector.

In consumer/retail , the companies had more reasonable multiples (5-10x), but most also had low margins and weak FCF generation.

And in media/telecom , quite a few companies had lower multiples, but the FCF math was challenging because many companies had high CapEx requirements (at least on the telecom side).

We eliminated companies with very high multiples, negative EBITDA, and exorbitant CapEx, which left this set:

Private Equity Case Study Company Selection

Within this set, we then eliminated companies with negative FCF, minimal information on revenue/expenses, somewhat-higher multiples, and those whose businesses were declining too much (e.g., 20-30% annual declines).

We settled on because it had a 9.4x EBITDA multiple at the time of this screen, a declining business with modest projected growth, 25-30% margins, and reasonable FCF generation with FCF yields between 10% and 15%.

If you don’t have Capital IQ for this exercise, you’ll have to rely on FinViz and use P / E multiples as a proxy for EBITDA multiples.

You can click through to each company to view the P / FCF multiples, which you can flip around to get the FCF yields.

In this case, don’t even bother looking for revenue and expense information until you have your top 2-3 candidates.

Part 4: Gathering Data and Doing Industry Research

Once you have the company, you can spend the next few days skimming through its most recent annual report and investor presentation, focusing on its financial statements and revenue/expense drivers.

With, it’s clear that the company’s “Dealer Customers” and Average Revenue per Dealer will be key drivers: - Key Drivers

The company also has significant website traffic and earns advertising revenue from that, but it’s small next to the amount it earns from charging car dealers to use its services: - Web Traffic and Monetization

It’s clear from this quick review that we’ll need some outside research to estimate these drivers, as the company’s filings and investor presentation have little.

Fortunately, it’s easy to Google the number of new and used car dealers in the U.S. and estimate the market size and share like that: - Car Dealer Market

The company’s market share has been declining , and we expect that trend to continue, but it’s not clear how rapid the decline will be.

Consumers are increasingly buying directly from other consumers, and dealers have less reason to use the company’s marketplace services than in past years.

We create an area for these key drivers, with scenarios for the most uncertain one: - Scenarios for the Market Share

You might be wondering why there’s no assumed uptick in market share since this is supposed to be a “turnaround” case study.

The short answer is that we think the company is unlikely to “turn around” its core business in this time frame, so it will have to move into new areas via bolt-on acquisitions .

For example, maybe it could acquire smaller firms that sell software and services to dealers, or it could acquire physical or online car dealerships directly.

Another option is to acquire companies that can better monetize’s large and growing web traffic – such as companies that sell auto finance leads.

As part of this process, we also need to research smaller companies to acquire, but there isn’t much to say about this part.

It comes down to running searches on Capital IQ for smaller companies in related industries and entering keywords like “auto” in the business description field.

In terms of the other financial statement drivers , many expenses here are simple percentages of revenue, but we could also link them to the employee count.

We also link the website traffic to the sales & marketing spending to capture the spending required for growth in that area.

Finally, we need to input the financial statements for the company, which is not that hard since they’re already fairly clean: - Income Statement

It might be worth consolidating a few items here, but the Income Statement and partial Cash Flow Statement are mostly fine, which means the Excel versions are close to the ones in the annual report.

Part 5: Building a Simple But Effective Model

The case study instructions state that a full 3-statement model is not necessary – but even if they had not, such a model would rarely be worthwhile.

Remember that LBO models, just like DCF models , are based on cash flow and EBITDA multiples ; the full statements add almost nothing since you can track the Cash and Debt balances separately.

In terms of model complexity, a single-sheet LBO with 200-300 rows in Excel is fine for this exercise.

You’re not going to get “extra credit” for a super-complex LBO model that takes days to understand.

The key schedules here are:

  • Transaction Assumptions – Including the purchase price, exit assumptions, scenarios, and tranches of debt. Skip the working capital adjustment unless they specifically ask for it. For more on these nuances, see our coverage of Enterprise Value vs. purchase price and cash-free debt-free deals .
  • Sources & Uses – Short and simple but required to calculate the Investor Equity.
  • Revenue, Expense, and Cash Flow Drivers – These don’t need to be super-complex; the goal is to go beyond projecting revenue as a simple percentage growth rate.
  • Income Statement and Partial Cash Flow Statement – The goal is to calculate Free Cash Flow because that drives Debt repayment and Cash generation in an LBO.
  • Add-On Acquisitions – These are part of the “turnaround strategy” in this deal, so they’re quite important.
  • Debt Schedule – This one is quite simple here because the deal is not dependent on financial engineering.
  • Returns Calculations – The IPO vs. M&A exit options add a bit of complexity.
  • Sensitivity Tables – It’s difficult to draft the investment recommendation without these.

Skip anything that makes your life harder, such as circular references in Excel (to avoid these, use the beginning Cash and Debt balances to calculate interest).

We pay special attention to the add-on acquisitions here, with support for their revenue and EBITDA contributions:

Private Equity Case Study - Add-On Acquisitions

The Debt Schedule features a Revolver, Term Loans, and Subordinated Notes:

Private Equity Case Study - Debt Schedule

The Returns Calculations are also simple; we do assume a bit of Multiple Expansion because of the company’s higher growth rate by the end:

Private Equity Case Study - Exit Multiples

Could we simplify this model even further?

I don’t think the M&A vs. IPO exit options mentioned above are necessary, and we could also drop the “Growth” vs. “Value” options for the add-on acquisitions:

Possible Case Study Simplifications

Especially if we recommend against the deal, it’s not that important to analyze which type of add-on acquisition works best.

It would be more difficult to drop the scenarios and Excel sensitivity tables , but we could restructure them a bit and fold the scenario into a sensitivity table.

All investing is probabilistic, and there’s a huge range of potential outcomes – so it’s difficult to make a serious investment recommendation without examining several outcomes.

Even if we think this deal is spectacular, we must consider cases in which it goes poorly and how we might reduce those risks.

Part 6: Drafting an Investment Recommendation

For a 15-slide recommendation, I would recommend this structure:

  • Slides 1 – 2: Recommendation for or against the deal, your criteria, and why you selected this company.
  • Slides 3 – 7: Qualitative factors that support or refute the deal (market, competition, growth opportunities, etc.). You can also explain your proposed turnaround strategy, such as the add-on acquisitions, here.
  • Slides 8 – 13: The numbers, including a summary of the LBO model, multiples vs. comps (not a detailed valuation), etc. Focus on the assumptions and the output from the sensitivity tables.
  • Slide 14: Risk factors for a positive recommendation, and the counter-factual (“what would change your mind?”) for a negative one. You can also explain the potential impact of each risk on the returns and how you could mitigate these risks.
  • Slide 15: Restate your conclusions from Slide 1 and present your best arguments here. You could also change the slide formatting or visuals to make it seem new.

“OK,” you say, “but how do you actually make an investment decision?”

The easiest method is to set criteria for the IRR or multiple of invested capital in each case and say, “Yes” if the deal achieves those numbers and “No” if it does not.

For example, maybe the targets are a 30% IRR in the Upside case, a 20% IRR in the Base case, and a 1.0x multiple in the Downside case (i.e., avoid losing money).

We do achieve those numbers in this deal, but the decision could go either way because the deal is highly dependent on the add-on acquisitions.

Without these acquisitions, the deal does not work; the IRR falls by 10%+ across all the scenarios and turns negative in the Downside case.

We need at least 5 good acquisition candidates matching very specific financial profiles ($100 million Purchase Enterprise Value and a 15x EBITDA purchase multiple with 10% revenue growth or 5x EBITDA with 3% growth).

The presentation includes some examples of potential matches:

Private Equity Case Study Add-On Acquisition Candidates

While these examples are better than nothing, the case is not that strong because:

  • Most of these companies are too big or too small to fit into the strategy proposed here of ~$100 million in annual acquisitions.
  • The acquisition strategy is unclear ; acquiring and integrating dealerships (even online ones) would be very, very different from acquiring software/data/media companies.
  • And since the auto software market is very niche, there’s probably not a long list of potential acquisition candidates beyond the few we found.

We end up saying, “Yes” in this recommendation, but you could easily reach the opposite conclusion because you believe the supporting data is weak.

In short: For a 1-week open-ended case study, this approach is fine, but this specific deal would probably not stand up to a more detailed on-the-job analysis.

The Private Equity Case Study: Final Thoughts

Similar to time-pressured LBO modeling tests, you can get better at the open-ended private equity case study by “putting in the reps.”

But each rep is more time-consuming, and if you have a demanding full-time job, it may be unrealistic to complete multiple practice case studies before the real thing.

Also, even with significant practice, you can’t necessarily reduce the time required to research an industry and specific companies within it.

So, it’s best to pick companies and industries you already know and have several Excel and PowerPoint templates ready to go.

If you’re targeting smaller funds that use off-cycle recruiting, the first part should be easy because you should be applying to funds that match your industry/deal/client background.

And if not, you can always make a lateral move to a bulge bracket bank and interview at the larger funds if you prefer the private equity case study in “speed test” form.

If you liked this article, you might be interested in:

  • The Growth Equity Case Study: Real-Life Example and Tutorial
  • The Full Guide to Healthcare Private Equity, from Careers to Contradictions
  • Healthcare Investment Banking: The Best Group to Check Into When Human Civilization is Collapsing?

case study on investment decision

About the Author

Brian DeChesare is the Founder of Mergers & Inquisitions and Breaking Into Wall Street . In his spare time, he enjoys lifting weights, running, traveling, obsessively watching TV shows, and defeating Sauron.

Free Exclusive Report: 57-page guide with the action plan you need to break into investment banking - how to tell your story, network, craft a winning resume, and dominate your interviews

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Investment Banking Case Studies: Preparation & Strategies for Success

Discover the key strategies and preparation techniques required for success in investment banking case studies.

Posted May 11, 2023

case study on investment decision

Table of Contents

Investment banking case studies are an essential part of the investment banking recruitment process. These studies enable investment banks to assess the ability of aspiring investment bankers to analyze complex business situations and develop innovative strategies to solve them. So, if you're preparing to enter the world of investment banking, you need to master the art of preparing for and tackling these studies.

Introduction to Investment Banking Case Studies

Investment banking case studies typically involve analyzing a real-life business situation, evaluating critical financial and operational data, and developing a comprehensive strategy to help the company achieve its goals. These case studies allow investment banks to understand the prospective banker's ability to think critically, analyze data, and develop creative solutions to complex problems.

Importance of Studying Investment Banking Case Studies

If you're looking to pursue a career in investment banking, it's essential to develop a deep understanding of investment banking case studies. Studying them will provide you with a unique perspective that can help you formulate effective strategies in your future role. A strong foundation in case studies can also enhance your problem-solving skills and equip you with the analytical tools necessary for success in the industry.

Moreover, studying investment banking case studies can also help you understand the complexities of the industry. You'll learn about the different types of financial instruments, such as stocks, bonds, and derivatives, and how they are used in various investment strategies. This knowledge can be invaluable when working with clients and making investment decisions.

Additionally, investment banking case studies can provide you with insights into the ethical considerations that arise in the industry. You'll learn about the importance of transparency, accountability, and responsible investing. This knowledge can help you navigate the ethical challenges that you may face in your career and make informed decisions that align with your values.

Types of Investment Banking Case Studies

There are two main types of investment banking case studies: financial analysis and valuation and strategic analysis. Financial analysis and valuation case studies involve assessing the company's financial statements and financial data to determine the company's worth. Strategic analysis case studies typically require analyzing the business's operations and identifying strategies that can help it grow and succeed in the market.

Another type of investment banking case study is the industry analysis case study. This type of case study involves analyzing the industry in which the company operates, including its competitors, market trends, and regulatory environment. This information can help investment bankers advise their clients on potential mergers and acquisitions, as well as other strategic decisions.

Additionally, investment bankers may also conduct due diligence case studies. These case studies involve a thorough investigation of a company's financial and operational history, as well as its legal and regulatory compliance. Due diligence case studies are often conducted when a company is considering a merger or acquisition, to ensure that there are no hidden risks or liabilities that could impact the deal.

Real-life Examples of Successful Investment Banking Case Studies

Investment banking case studies are based on real-life situations that have been solved by investment bankers. Some of the most well-known and successful investment banking case studies include the Red Bull GmbH case study and the Alibaba IPO case study. These studies demonstrate the effectiveness of investment banking strategies in real-life business situations and showcase the importance of case studies in the industry.

Another example of a successful investment banking case study is the acquisition of WhatsApp by Facebook. Investment bankers played a crucial role in facilitating the acquisition, which was valued at $19 billion. The investment bankers advised Facebook on the best approach to acquire WhatsApp and negotiated the terms of the deal. This case study highlights the importance of investment bankers in facilitating mergers and acquisitions and showcases their ability to create value for their clients.

Understanding the Preparation Process for Investment Banking Case Studies

The preparation process for investment banking case studies is critical to ensure your success. It involves identifying the objective of the case study, conducting extensive research, evaluating financial and operational data, and developing creative solutions to solve complex problems. However, it's essential to approach the case study's preparation systematically and logically to ensure your strategy is comprehensive and effective.

One important aspect of the preparation process for investment banking case studies is to practice presenting your solutions. This can be done through mock presentations with peers or mentors, or by recording yourself and reviewing your performance. Practicing your presentation skills will help you communicate your ideas clearly and confidently during the actual case study presentation. Additionally, it will help you identify any areas where you may need to improve, such as speaking too quickly or not providing enough detail. By practicing your presentation skills, you can increase your chances of success in the case study and impress potential employers.

Tips for Conducting Effective Research for Investment Banking Case Studies

Conducting effective research is a critical component of the preparation process for investment banking case studies. It allows you to gain a deep understanding of the business's operations, objectives, strengths, weaknesses, and opportunities. Some tips for conducting effective research include conducting primary and secondary research, analyzing market trends, and considering industry-specific factors that may affect the company's performance.

Another important tip for conducting effective research is to gather information from a variety of sources. This can include financial reports, industry publications, news articles, and interviews with industry experts. By gathering information from multiple sources, you can gain a more comprehensive understanding of the company and its industry.

It is also important to stay up-to-date on current events and trends that may impact the company's performance. This can include changes in government regulations, shifts in consumer behavior, or advancements in technology. By staying informed, you can better anticipate potential challenges and opportunities for the company.

Analyzing Data and Applying it to your Investment Banking Case Study

The ability to analyze data effectively is crucial in developing innovative and effective investment banking strategies. Analyzing financial and operational data can provide critical insights into the business's current position and future potential. Therefore, it's imperative to approach data analysis systematically and logically, using industry-specific benchmarks to evaluate the business's performance.

Furthermore, data analysis can also help identify potential risks and opportunities for the business. By analyzing market trends and competitor performance, investment bankers can develop strategies that capitalize on emerging opportunities and mitigate potential risks. Additionally, data analysis can also aid in identifying areas where cost-cutting measures can be implemented, leading to increased profitability for the business.

The Importance of Creativity in Developing Investment Banking Strategies

Creativity is an essential ingredient in developing effective investment banking strategies. It enables you to think outside the box and develop innovative solutions to complex problems. Therefore, it's crucial to cultivate your creativity by developing unique and original strategies that can set you apart from your competitors.

Moreover, creativity can also help you identify new opportunities and potential risks that may not be immediately apparent. By thinking creatively, you can uncover hidden value in assets and identify new markets that may have been overlooked. This can give you a competitive advantage and help you stay ahead of the curve in a constantly evolving industry.

Developing a Comprehensive Investment Banking Strategy

Developing a comprehensive investment banking strategy involves identifying the problem, conducting research, analyzing financial data, and developing a creative solution that aligns with the business's objectives. It is essential to ensure that your strategy is comprehensive, relevant, and innovative to maximize its effectiveness.

The first step in developing a comprehensive investment banking strategy is to identify the business's financial goals and objectives. This involves understanding the company's current financial situation, its strengths and weaknesses, and its long-term goals. Once you have a clear understanding of the business's financial objectives, you can begin to develop a strategy that aligns with these goals.

Another important aspect of developing a comprehensive investment banking strategy is to stay up-to-date with the latest industry trends and market conditions. This involves conducting ongoing research and analysis to identify emerging opportunities and potential risks. By staying informed about the latest developments in the industry, you can ensure that your strategy remains relevant and effective over time.

Key Components of a Successful Investment Banking Strategy

Successful investment banking strategies typically include identifying key performance indicators, conducting a competitive analysis, developing a viable financial plan, assessing potential risks, and preparing a detailed execution plan. Integrating these key components into your strategy can help ensure its effectiveness and maximize your chances of success.

In addition to these key components, it is also important to establish strong relationships with clients and maintain a deep understanding of market trends and industry developments. This can involve regularly networking with potential clients and staying up-to-date on the latest news and changes in the market. By staying informed and building strong relationships, investment bankers can better position themselves to identify and capitalize on new opportunities.

Implementing Your Strategy: Best Practices for Success

Implementing your investment banking strategy can be challenging and requires careful planning and execution. Some best practices for success include ensuring everyone on the team is aligned with the strategy, monitoring performance regularly, adjusting the strategy as needed, and developing contingency plans to mitigate potential risks. These practices can help ensure that your strategy yields the best possible results for your business.

Another important aspect of implementing your strategy is effective communication. It is crucial to communicate the strategy clearly and consistently to all stakeholders, including employees, investors, and clients. This helps to build trust and confidence in the strategy and ensures that everyone is working towards the same goals. Additionally, it is important to provide regular updates on the progress of the strategy and any changes that may occur. This helps to keep everyone informed and engaged in the process, which can lead to better outcomes.

Measuring the Success of Your Investment Banking Strategy

Measuring the success of your investment banking strategy is critical to ensuring its effectiveness. It's essential to establish key performance indicators and regularly monitor them to determine whether your strategy is yielding the expected results. This data can provide critical insights that can help you adjust your strategy and improve its effectiveness in achieving the business's goals.

Common Pitfalls to Avoid in Your Investment Banking Case Study

There are several common pitfalls that aspiring investment bankers must avoid when tackling investment banking case studies. These include failing to understand the business's objectives, relying too heavily on financial data, neglecting creativity in developing the strategy, and developing a strategy that is too generic to be effective. It's essential to avoid these pitfalls to maximize your chances of success.

Conclusion: Key Takeaways and Actionable Steps for Success

Investment banking case studies are an essential part of the recruitment process and require careful preparation and execution to ensure success. Understanding the preparation process, developing effective research techniques, analyzing data systematically, and cultivating creativity are key components of effective investment banking strategies. Integrating these components and avoiding common pitfalls can help maximize your chances of success and set you apart from the competition. By following these actionable steps, you can become a successful investment banker and achieve your professional goals.

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Case Study: How Aggressively Should a Bank Pursue AI?

  • Thomas H. Davenport
  • George Westerman

case study on investment decision

A Malaysia-based CEO weighs the risks and potential benefits of turning a traditional bank into an AI-first institution.

Siti Rahman, the CEO of Malaysia-based NVF Bank, faces a pivotal decision. Her head of AI innovation, a recent recruit from Google, has a bold plan. It requires a substantial investment but aims to transform the traditional bank into an AI-first institution, substantially reducing head count and the number of branches. The bank’s CFO worries they are chasing the next hype cycle and cautions against valuing efficiency above all else. Siti must weigh the bank’s mixed history with AI, the resistance to losing the human touch in banking services, and the risks of falling behind in technology against the need for a prudent, incremental approach to innovation.

Two experts offer advice: Noemie Ellezam-Danielo, the chief digital and AI strategy at Société Générale, and Sastry Durvasula, the chief information and client services officer at TIAA.

Siti Rahman, the CEO of Malaysia-headquartered NVF Bank, hurried through the corridors of the university’s computer engineering department. She had directed her driver to the wrong building—thinking of her usual talent-recruitment appearances in the finance department—and now she was running late. As she approached the room, she could hear her head of AI innovation, Michael Lim, who had joined NVF from Google 18 months earlier, breaking the ice with the students. “You know, NVF used to stand for Never Very Fast,” he said to a few giggles. “But the bank is crawling into the 21st century.”

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  • Thomas H. Davenport is the President’s Distinguished Professor of Information Technology and Management at Babson College, a visiting scholar at the MIT Initiative on the Digital Economy, and a senior adviser to Deloitte’s AI practice. He is a coauthor of All-in on AI: How Smart Companies Win Big with Artificial Intelligence (Harvard Business Review Press, 2023).
  • George Westerman is a senior lecturer at MIT Sloan School of Management and a coauthor of Leading Digital (HBR Press, 2014).

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Faculty of Business, Law and Arts


ACCT6004 - Finance

Unit description

Introduces key concepts, principles, tools, contemporary issues and context of finance and financial management in order to prepare students for participation in making investment, financing and dividend decisions. Students will develop their financial management toolkit by undertaking practical problems and case studies.

Unit content

Topic 1: Introduction to finance and the time value of money (TVM)

Topic 2: Applying TVM: valuation and interest rates

Topic 3: Risk and return

Topic 4: Capital investment analysis: decision criteria and cash flow estimation

Topic 5: Capital investment analysis: risk and the cost of capital

Topic 6: Capital structure and payout policies


Learning outcomes.

Unit Learning Outcomes express learning achievement in terms of what a student should know, understand and be able to do on completion of a unit. These outcomes are aligned with the graduate attributes . The unit learning outcomes and graduate attributes are also the basis of evaluating prior learning.

On completion of this unit, students should be able to:

apply time value of money techniques to the analysis of practical business finance problems and opportunities

measure risk and return, and interpret those measures in light of the risk-return trade-off and diversification

evaluate capital investments using appropriate capital budgeting techniques

compare and appraise alternative capital structures and payout policies.

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Scu online (term), prescribed learning resources.

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