Northwestern Memorial Hospital is well known for being a teaching hospital. Over the years they have expanded with new facilities where they can offer new services such as diagnostic or therapeutic services (Stewart & Brown, 2014). They consistently set goals for the hospital, encouraging them to grow and continue to receive high performance ratings. Even with all of their success, they had problems with their courses. Northwestern Memorial Hospital completed an internal audit that revealed that their educational courses were very repetitive (Stewart & Brown, 2014). This resulted in the hospital creating the Academy, which correlated the learning programs with the business goals and strategy (Stewart & Brown, 2014). They are now able to offer over 200 courses with many different programs as well as management training for higher level employees (Stewart & Brown, 2014). This is very beneficial because continuous education can increase employee productivity as well as diminish the need to hire newly educated employees. Another benefit from having the educational programs in the hospital is that many students will end up being hired by the hospital, which was the case with the first class to graduate from the Nuclear Medicine program (Stewart & Brown, 2014).  The issue faced by Northwestern Memorial Hospital was that they had a very redundant educational program, even though they are known for being one of the top teaching hospitals (Stewart & Brown, 2014). This is a problem because they are not using their resources as effectively as possible. They are paying people to teach the same courses with minor differences, when they could be teaching one large class and creating an opportunity for other courses to enter the programs. For example, instead of teaching the same six Body Mechanics class, they could teach one conjoined class in order to free up a room and an instructor for another class such as a CPR class (Stewart & Brown, 2014). The redundancies proved easy to solve with the creation of the Academy. This was created “to establish standardized training policies and solutions, link the education programs closely to the organization’s business strategy, provide staff easy access to learning, and utilize the most efficient technologies” (Stewart & Brown, 2014, p. 373).  At Northwestern Memorial Hospital, there were a number of critical thinking elements. Critical thinking is aimed at achieving the best possible outcomes in any situation, in order to achieve this, it involves gathering information. For example, conducting the audit and the discovery of unnecessary redundancies within the hospital’s education offerings and being able to develop the Academy to provide standardized training policies and solutions. Being able to utilize efficient technologies is also another element of critical thinking and decision making.  The Academy provides an online catalog and registration system for all the hospital’s education programs, with over 200 cour ...

1. Northwestern Memorial Hospital is well known for being a
teaching hospital. Over the years they have expanded with new
facilities where they can offer new services such as diagnostic
or therapeutic services (Stewart & Brown, 2014). They
consistently set goals for the hospital, encouraging them to
grow and continue to receive high performance ratings. Even
with all of their success, they had problems with their courses.
Northwestern Memorial Hospital completed an internal audit
that revealed that their educational courses were very repetitive
(Stewart & Brown, 2014). This resulted in the hospital creating
the Academy, which correlated the learning programs with the
business goals and strategy (Stewart & Brown, 2014). They are
now able to offer over 200 courses with many different
programs as well as management training for higher level
employees (Stewart & Brown, 2014). This is very beneficial
because continuous education can increase employee
productivity as well as diminish the need to hire newly educated
employees. Another benefit from having the educational
programs in the hospital is that many students will end up being
hired by the hospital, which was the case with the first class to
graduate from the Nuclear Medicine program (Stewart & Brown,
2014). The issue faced by Northwestern Memorial Hospital
was that they had a very redundant educational program, even
though they are known for being one of the top teaching
hospitals (Stewart & Brown, 2014). This is a problem because
they are not using their resources as effectively as possible.
They are paying people to teach the same courses with minor
differences, when they could be teaching one large class and
creating an opportunity for other courses to enter the programs.
For example, instead of teaching the same six Body Mechanics
class, they could teach one conjoined class in order to free up a
room and an instructor for another class such as a CPR class
(Stewart & Brown, 2014). The redundancies proved easy to
solve with the creation of the Academy. This was created “to
establish standardized training policies and solutions, link the

2. education programs closely to the organization’s business
strategy, provide staff easy access to learning, and utilize the
most efficient technologies” (Stewart & Brown, 2014, p. 373).
At Northwestern Memorial Hospital, there were a number
of critical thinking elements. Critical thinking is aimed at
achieving the best possible outcomes in any situation, in order
to achieve this, it involves gathering information. For example,
conducting the audit and the discovery of unnecessary
redundancies within the hospital’s education offerings and
being able to develop the Academy to provide standardized
training policies and solutions. Being able to utilize efficient
technologies is also another element of critical thinking and
decision making. The Academy provides an online catalog and
registration system for all the hospital’s education programs,
with over 200 courses (Stewart & Brown, 2014). They were able
to develop three schools to offer onsite programs that are open
to both employees and community members alike. Having a
school of Nuclear Medicine was very productive for them
because the first class graduated in 2003, which brought more
skills to the area they were lacking in (Stewart & Brown, 2014).
Northwestern Memorial Hospital was able to identify the
inconsistencies and create a solution to the problems. They were
also able to understand the links between ideas and determine
the importance and relevance of these ideas; hence the hiring of
students to eliminate the hospitals vacancies for the first time in
five years. This also led to the elimination of staff overtime
resulting in massive cost savings of about $800,000 (Stewart &
Brown, 2014). The outcome of the initial problem was very
productive. They were very successful at reducing the
redundancies and actually created a fantastic program. This was
a positive change for Northwestern Memorial Hospital and
helped them maintain their status as being one of the top
teaching schools. They were not only able to reduce the training
and procedural problems, but they also reduced the costs. The
savings from the agency usage and staff overtime could easily
be used for another expansion project, new technology and

3. machinery, or implementing another new program and acquiring
all necessary items. They were already able to open a “2 million
square foot healthcare facility” in 1999 (Stewart & Brown,
2014, p. 373), but they would be able to expand upon that or
implement any renovations necessary.Chapter 9 Question 1:
What is the strategy pursued by NMH? Can it be easily
classified as differentiation or cost reduction? As internal or
external labor orientation? The interesting thing about the
way the NMH trains, recruits, and retains the staff at their
hospital does blur a few lines when it comes to HR strategy.
Our text states, “Organizations pursuing a differentiation
strategy are less concerned with controlling costs than with
gaining a competitive advantage by offering superior service or
products” (Stewart & Brown, 2014, p. 383). Differentiation
strategy is a business-level strategy that seeks to produce goods
and services that are in some manner superior to what is
produced by competitors (Stewart & Brown, 2014, p. 48). NMH
keeps recruiting costs down because of their direct access to
students in their training programs, but at the same time is able
to recruit individuals that give them a competitive advantage
because of superior service through well trained recruits.
NMH prides itself on being a world class facility and one
of the best teaching hospitals to date. NMH can also be
classified as having internal labor orientation. Internal labor
orientation is a human resource perspective that emphasizes
hiring workers early in their careers and retaining those workers
for long periods of time (Stewart & Brown, 2014, p. 57). “NMH
hired many of the students, eliminating all hospital vacancies”
(Stewart & Brown, 2014, p.373). That is a successful internal
labor orientation success story.Chapter 9 Question 2: Describe
the various ways NMH is delivering training and other related
learning opportunities to its employees? In 2002 the Learning
Academy was founded. It manages all management
development, clinical and other functional education; enables
the creation of new training and certificate programs while
building outside workforce development partnerships. The

4. Academy established standardized training policies, and
solutions and as of today utilizes online catalog and registration
system for all of the hospital’s education programs. The
Academy hosts skill development sessions; where managers and
employees learn how to work on scheduling strategies, personal
development planning and interviewing techniques. There
are over 200 courses ranging from communications, project
management, information services, and budgeting to an array of
healthcare specialties (Stewart & Brown, 2014). They also
delivered 55,000 hours of training to 21,000 employees with a
91% satisfaction rate as well as delivering 3000 hours of
management training to higher level staff (Stewart & Brown,
2014). There is also the “Lunch and Learn”, where staff can
learn flexible scheduling strategies, personal development
planning, and interview techniques (Stewart & Brown,
2014).Chapter 9 Question 3: What benefits did NMH gain by
developing the Academy and its associated schools? NMH
has ensured access to numerous local community professionals
that may be seeking employment. They have greatly enhanced
their ability to properly train professionals who want to
transition to different disciplines within the organization. They
have also strengthened their team by providing world class
education to current employees. Through innovation, they have
cemented a legacy and standard for how to train, recruit and
retain top level professionals. Chapter 9 Question 4: If the
NMH School of Nuclear Medicine cost the organization
$200,000, what was the return on investment for this particular
Academy program? If the cost to open the School of Nuclear
Medicine was $200,000 and the resulting cost saving was
$800,000, the net gain is $600,000 or a 300% return on
investment. However, it is not clear that the case study truly
outlined the $800,000 as the return on the School of Nuclear
Medicine. Instead, the savings came from their ability to
eliminate staff overtime and agency usage.Resources:Stewart,
G. L., & Brown, K. G. (2014). Human resource management:
Linking strategy to practice (3rd ed.). New York, NY: Wiley

5. Likely Case ScenarioABC Firm Financial DataConsolidated
Statements of Operations (USD in millions, except per share
amounts)Fiscal years ending September 28, 2016, September 27,
2017, and September 25, 2018Forecast of Unique Factors2016
Actual2017 Actual2018 Actual2016 to
2017 % Change2017 to 2018 % ChangeAvg. % Change2019
Forecast2020 Forecast2021 Forecast2016
Actual2017 Actual2018 Actual2019
Forecast2020 Forecast2021 ForecastSales$ 14,194$
15,389$ 15,7248.42%2.18%5.30%$ 16,667$ 17,667$
18,551Domestic Sales, as % of Total
Sales96.7%96.9%97.1%97.3%97.5%97.7%Cost of goods sold
and occupancy
costs9,1509,97310,3138.99%3.41%6.20%10,95211,63112,353In
ternational Sales, as % of Total
Sales3.3%3.1%2.9%2.7%2.5%2.3% Gross
profit5,0445,4165,4117.38%-0.09%3.64%5,7156,0366,198Total
Sales100.0%100.0%100.0%100.0%100.0%100.0%Selling,
general, and adminisrative
expenses4,0324,4724,47710.91%0.11%5.51%4,4324,5214,611Pr
e-opening expenses6767640.00%-4.48%-2.24%646565Prepared
Foods &
Bakery19.2%19.0%18.9%19.5%20.1%20.7%Relocation, store
closure, and lease termination costs11161345.45%-
18.75%13.35%1197Other
Perishables47.6%47.5%47.6%46.8%46.0%45.2%
Operating income934861857-7.82%-0.46%-
4.14%1,2081,4411,515 Total Perishable Sales
66.8%66.5%66.5%66.3%66.1%65.9%Interest expense--
(41)(41)(41)(41)Non-perishable
Sales33.2%33.5%33.5%33.7%33.9%34.1%Investment and other

6. income12171141.67%-35.29%3.19%11.311.712.0Total
Sales100.0%100.0%100.0%100.0%100.0%100.0%
Income before income taxes946878827-7.19%-5.81%-
6.50%1,1781,4121,486Provision for income taxes367342320-
6.81%-6.43%-6.62%301283266Advertising Expenses (USD in
millions)$ 63$ 89$ 96$ 100.8$ 105.8$ 111.1 Net
income$ 579$ 536$ 507-7.43%-5.41%-6.42%$ 878$
1,129$ 1,220Basic earnings per share$ 1.57$ 1.49$ 1.55-
5.10%4.03%-0.53%$ 1.61$ 1.68$ 1.74Average square
footage per store-37,62837,62837,62837,62837,628Weighted
average shares outstanding367.8358.5326.1-2.53%-9.04%-
5.78%306.5288.1270.9Average employees per store-
190190190190190Diluted earnings per share$ 1.56$ 1.48$
1.55-5.13%4.73%-0.20%$ 1.62$ 1.70$ 1.78Average revenue
per square foot$ 990.00$ 970.00$ 915.00$ 915.00$
915.00$ 915.00Weighted average shares outstanding, diluted
basis370.5360.8326.9-2.62%-9.40%-
6.01%307.3288.8271.5Number of
Stores399431456487521557Divideds declared per common
share$ 0.48$ 0.52$ 0.548.33%3.85%6.09%$ 0.57$ 0.61$
0.64Assumptions:Revenue increases will be relative to increase
in number of stores. Between 2014-2016 the number of stores
increased by an average of 6.9% due to the company's plan to
open more stores under the '365' banner. We will assume that
the number of stores will continue to increase at that pace for
the next 3 years.As of 2016, ABC Firm was producing $915 of
revenue per gross square foot of store space. Knowing that each
store averages 37,628 square feet of space, I will apply the same
revenue rate for additional new stores, keeping in mind that the
historical data means the sales are expected to grow 4.5% in
2017 and 5% in 2018 and 2019, due to the addition of new
stores.Assume a 0.11% decrease in operating expenses in 2017,
per the company's continued plan to reduce operating expenses
by $300 million by the end of 2017. Assume a 3% increase in
operating expenses for the remaining two forecasted years, as
new stores will add to the costs.ABC Firm employed 87,000

7. employees as of 09/25/2016. Due to the addition of new stores,
I am going to assume a 6.9% increase in staff in 2017, 2018 &
2019.Assume a 5% increase in advertising cost YOY, as
management has expressed advertising would remain a focus in
the coming years.In 2015, ABC Firm announced a new capital
allocation strategy, which included a 5-year $500 million
revolving credit facility. Therefore, the interest expense is
assumed to have the same run rate for 2017-2019.At the end of
2016, ABC Firm announced that they created 5 new positions
within the upper management leadership team, including a
global vice president in Culinary & Hospitality services.
Therefore, there is an assumed increase of 3% in the revenue
generated from the prepared foods and bakery segments of the
stores.Assume relocation, store closures and lease termination
costs continue to drop since the sub-leasing of unused property
has been actively pursued by management.
Best Case ScenarioABC Firm Financial Data - Best Case
ScenarioConsolidated Statements of Operations (USD in
millions, except per share amounts)Fiscal years ending
September 28, 2016, September 27, 2017, and September 25,
2018Forecast of Unique Factors2016 Actual2017
Actual2018 Actual2016 to 2017 % Change2017 to
2018 % ChangeAvg. % Change2019 Forecast2020
Forecast2021 Forecast2016 Actual2017
Actual2018 Actual2019 Forecast2020
Forecast2021 ForecastSales$ 14,194$ 15,389$
15,7248.42%2.18%5.30%$ 17,139$ 18,682$
20,363Domestic Sales, as % of Total
Sales96.7%96.9%97.1%97.3%97.5%97.7%Cost of goods sold
and occupancy
costs9,1509,97310,3138.99%3.41%6.20%10,95211,63112,353In
ternational Sales, as % of Total
Sales3.3%3.1%2.9%2.7%2.5%2.3% Gross
profit5,0445,4165,4117.38%-0.09%3.64%5,8316,3096,826Total
Sales100.0%100.0%100.0%100.0%100.0%100.0%Selling,
general, and adminisrative

8. expenses4,0324,4724,47710.91%0.11%5.51%4,4324,6544,887Pr
e-opening expenses6767640.00%-4.48%-2.24%687378Prepared
Foods &
Bakery19.2%19.0%18.9%19.8%20.8%21.9%Relocation, store
closure, and lease termination costs11161345.45%-
18.75%13.35%1197Other
Perishables47.6%47.5%47.6%46.8%46.0%45.2%
Operating income934861857-7.82%-0.46%-
4.14%1,3201,5731,854 Total Perishable Sales
66.8%66.5%66.5%66.6%66.8%67.1%Interest expense--
(41)(41)(41)(41)Non-perishable
Sales33.2%33.5%33.5%33.4%33.2%32.9%Investment and other
income12171141.67%-35.29%3.19%11.311.712.0Total
Sales100.0%100.0%100.0%100.0%100.0%100.0%
Income before income taxes946878827-7.19%-5.81%-
6.50%1,2901,5441,825Provision for income taxes367342320-
6.81%-6.43%-6.62%301283266Advertising Expenses (USD in
millions)$ 63$ 89$ 96$ 96.0$ 96.0$ 96.0 Net
income$ 579$ 536$ 507-7.43%-5.41%-6.42%$ 989$
1,261$ 1,559Basic earnings per share$ 1.57$ 1.49$ 1.55-
5.10%4.03%-0.53%$ 1.61$ 1.68$ 1.74Average square
footage per store-37,62837,62837,62837,62837,628Weighted
average shares outstanding367.8358.5326.1-2.53%-9.04%-
5.78%306.5288.1270.9Average employees per store-
190190190190190Diluted earnings per share$ 1.56$ 1.48$
1.55-5.13%4.73%-0.20%$ 1.62$ 1.70$ 1.78Average revenue
per square foot$ 990.00$ 970.00$ 915.00$ 942.45$
970.72$ 999.85Weighted average shares outstanding, diluted
basis370.5360.8326.9-2.62%-9.40%-
6.01%307.3288.8271.5Number of
Stores399431456487521557Divideds declared per common
share$ 0.48$ 0.52$ 0.548.33%3.85%6.09%$ 0.57$ 0.61$
0.64Assumptions: Best Case ScenarioRevenue increases will be
relative to increase in number of stores. Between 2014-2016
the number of stores increased by an average of 6.9% due to the
company's plan to open more stores under the '365' banner. We

9. will assume that the number of stores will continue to increase
at that pace for the next 3 years - Best case scenario: The rate of
the stores will increase as expected, but the revenue per square
foot would have a more consistent impact.As of 2016, ABC
Firm was producing $915 of revenue per gross square foot of
store space. Knowing that each store averages 37,628 square
feet of space, the best case scenario would see the revenue rate
increase by 3% per square foot per store, including all new
stores.Assume a 0.11% decrease in operating expenses in 2017,
per the company's continued plan to reduce operating expenses
by $300 million by the end of 2017. Best case scenario - the
operating expenses increase by only 3% for the remaining two
forecasted years.ABC Firm employed 87,000 employees as of
09/25/2016. Due to the addition of new stores, I am going to
assume a 6.7% increase in staff in 2017, 2018 & 2019.Assume a
5% increase in advertising cost YOY, as management has
expressed advertising would remain a focus in the coming years.
Best case scenario - the advertising cost remains constant for
2017-2019.In 2015, ABC Firm announced a new capital
allocation strategy, which included a 5-year $500 million
revolving credit facility. Therefore, the interest expense is
assumed to have the same run rate for 2017-2019.At the end of
2016, ABC Firm announced that they created 5 new positions
within the upper management leadership team, including a
global vice president in Culinary & Hospitality services.
Therefore, there is an assumed increase of 5% in the revenue
generated from the prepared foods and bakery segments of the
stores.Assume relocation, store closures and lease termination
costs continue to drop since the sub-leasing of unused property
has been actively pursued by management.
Worst Case ScenarioABC Firm Financial Data - Worst Case
ScenarioConsolidated Statements of Operations (USD in
millions, except per share amounts)Fiscal years ending
September 28, 2016, September 27, 2017, and September 25,
2018Forecast of Unique Factors2016 Actual2017
Actual2018 Actual2016 to 2017 % Change2017 to

10. 2018 % ChangeAvg. % Change2019 Forecast2020
Forecast2021 Forecast2016 Actual2017
Actual2018 Actual2019 Forecast2020
Forecast2021 ForecastSales$ 14,194$ 15,389$
15,7248.42%2.18%5.30%$ 15,881$ 16,040$
16,200Domestic Sales, as % of Total
Sales96.7%96.9%97.1%97.3%97.5%97.7%Cost of goods sold
and occupancy
costs9,1509,97310,3138.99%3.41%6.20%10,82911,37011,939In
ternational Sales, as % of Total
Sales3.3%3.1%2.9%2.7%2.5%2.3% Gross
profit5,0445,4165,4117.38%-0.09%3.64%5,0534,6704,262Total
Sales100.0%100.0%100.0%100.0%100.0%100.0%Selling,
general, and adminisrative
expenses4,0324,4724,47710.91%0.11%5.51%4,4324,5654,702Pr
e-opening expenses6767640.00%-4.48%-2.24%666666Prepared
Foods &
Bakery19.2%19.0%18.9%18.9%18.9%18.9%Relocation, store
closure, and lease termination costs11161345.45%-
18.75%13.35%1197Other
Perishables47.6%47.5%47.6%47.6%47.6%47.6%
Operating income934861857-7.82%-0.46%-4.14%54330(514)
Total Perishable Sales
66.8%66.5%66.5%66.5%66.5%66.5%Interest expense--
(41)(42)(43)(45)Non-perishable
Sales33.2%33.5%33.5%33.5%33.5%33.5%Investment and other
income12171141.67%-35.29%3.19%11.311.712.0Total
Sales100.0%100.0%100.0%100.0%100.0%100.0%
Income before income taxes946878827-7.19%-5.81%-
6.50%513(2)(546)Provision for income taxes367342320-6.81%-
6.43%-6.62%301283266Advertising Expenses (USD in
millions)$ 63$ 89$ 96$ 105.6$ 116.2$ 127.8 Net
income$ 579$ 536$ 507-7.43%-5.41%-6.42%$ 212$
(285)$ (812)Basic earnings per share$ 1.57$ 1.49$ 1.55-
5.10%4.03%-0.53%$ 1.49$ 1.43$ 1.37Average square
footage per store-37,62837,62837,62837,62837,628Weighted

11. average shares outstanding367.8358.5326.1-2.53%-9.04%-
5.78%306.5288.1270.9Average employees per store-
190190190190190Diluted earnings per share$ 1.56$ 1.48$
1.55-5.13%4.73%-0.20%$ 1.49$ 1.43$ 1.37Average revenue
per square foot$ 990.00$ 970.00$ 915.00$ 878.40$
843.26$ 809.53Weighted average shares outstanding, diluted
basis370.5360.8326.9-2.62%-9.40%-
6.01%307.3288.8271.5Number of
Stores399431456472488506Divideds declared per common
share$ 0.48$ 0.52$ 0.548.33%3.85%6.09%$ 0.56$ 0.58$
0.60Assumptions: Worst Case ScenarioRevenue increases will
be relative to increase in number of stores. Between 2014-2016
the number of stores increased by an average of 6.9% due to the
company's plan to open more stores under the '365' banner. We
will assume that the number of stores will continue to increase
at that pace for the next 3 years - Worst case scenario: The rate
of the stores will not increase as expected, averaging only 3.5%
instead.As of 2016, ABC Firm was producing $915 of revenue
per gross square foot of store space. Knowing that each store
averages 37,628 square feet of space, the worst case scenario
would see the revenue rate decrease to less than $900 per square
foot per store.Assume a 0.11% decrease in operating expenses
in 2017, per the company's continued plan to reduce operating
expenses by a run rate of $300 million by the end of 2017.
Worst case scenario - the operating expenses would not
continue to decrease beyond 2017 and would instead increase by
an average 3% due to the addition of new stores.ABC Firm
employed 87,000 employees as of 09/25/2016. Due to the
addition of new stores, I am going to assume a 3.5% increase in
staff in 2017, 2018 & 2019, since in the worst cast scenario new
stores only opened at a rate of 3.5%.Assume a 5% increase in
advertising cost YOY, as management has expressed advertising
would remain a focus in the coming years. Worst case scenario -
the advertising costs increases 10% instead of the anticipated
5% over the next three years.In 2015, ABC Firm announced a
new capital allocation strategy, which included a 5-year $500

12. million revolving credit facility. Therefore, the interest expense
is assumed to have the same run rate for 2017-2019. Worst case
scenario - the interest rate increases in 2017, 2018 and 2019 by
3%.At the end of 2016, ABC Firm announced that they created
5 new positions within the upper management leadership team,
including a global vice president in Culinary & Hospitality
services. Therefore, in the worst case scenario, there is no
increase in the revenue generated from the prepared foods and
bakery segments of the stores, vs. the total sales.Assume
relocation, store closures and lease termination costs continue
to drop since the sub-leasing of unused property has been
actively pursued by management.
Likely Case ScenarioABC Firm Financial DataConsolidated
Statements of Operations (USD in millions, except per share
amounts)Fiscal years ending September 28, 2016, September 27,
2017, and September 25, 2018Forecast of Unique Factors2016
Actual2017 Actual2018 Actual2016 to
2017 % Change2017 to 2018 % ChangeAvg. % Change2019
Forecast2020 Forecast2021 Forecast2016
Actual2017 Actual2018 Actual2019
Forecast2020 Forecast2021 ForecastSales$ 14,194$
15,389$ 15,7248.42%2.18%5.30%$ 16,667$ 17,667$
18,551Domestic Sales, as % of Total
Sales96.7%96.9%97.1%97.3%97.5%97.7%Cost of goods sold
and occupancy
costs9,1509,97310,3138.99%3.41%6.20%10,95211,63112,353In
ternational Sales, as % of Total
Sales3.3%3.1%2.9%2.7%2.5%2.3% Gross
profit5,0445,4165,4117.38%-0.09%3.64%5,7156,0366,198Total
Sales100.0%100.0%100.0%100.0%100.0%100.0%Selling,
general, and adminisrative
expenses4,0324,4724,47710.91%0.11%5.51%4,4324,5214,611Pr
e-opening expenses6767640.00%-4.48%-2.24%646565Prepared
Foods &
Bakery19.2%19.0%18.9%19.5%20.1%20.7%Relocation, store

13. closure, and lease termination costs11161345.45%-
18.75%13.35%1197Other
Perishables47.6%47.5%47.6%46.8%46.0%45.2%
Operating income934861857-7.82%-0.46%-
4.14%1,2081,4411,515 Total Perishable Sales
66.8%66.5%66.5%66.3%66.1%65.9%Interest expense--
(41)(41)(41)(41)Non-perishable
Sales33.2%33.5%33.5%33.7%33.9%34.1%Investment and other
income12171141.67%-35.29%3.19%11.311.712.0Total
Sales100.0%100.0%100.0%100.0%100.0%100.0%
Income before income taxes946878827-7.19%-5.81%-
6.50%1,1781,4121,486Provision for income taxes367342320-
6.81%-6.43%-6.62%301283266Advertising Expenses (USD in
millions)$ 63$ 89$ 96$ 100.8$ 105.8$ 111.1 Net
income$ 579$ 536$ 507-7.43%-5.41%-6.42%$ 878$
1,129$ 1,220Basic earnings per share$ 1.57$ 1.49$ 1.55-
5.10%4.03%-0.53%$ 1.61$ 1.68$ 1.74Average square
footage per store-37,62837,62837,62837,62837,628Weighted
average shares outstanding367.8358.5326.1-2.53%-9.04%-
5.78%306.5288.1270.9Average employees per store-
190190190190190Diluted earnings per share$ 1.56$ 1.48$
1.55-5.13%4.73%-0.20%$ 1.62$ 1.70$ 1.78Average revenue
per square foot$ 990.00$ 970.00$ 915.00$ 915.00$
915.00$ 915.00Weighted average shares outstanding, diluted
basis370.5360.8326.9-2.62%-9.40%-
6.01%307.3288.8271.5Number of
Stores399431456487521557Divideds declared per common
share$ 0.48$ 0.52$ 0.548.33%3.85%6.09%$ 0.57$ 0.61$
0.64Assumptions:Revenue increases will be relative to increase
in number of stores. Between 2014-2016 the number of stores
increased by an average of 6.9% due to the company's plan to
open more stores under the '365' banner. We will assume that
the number of stores will continue to increase at that pace for
the next 3 years.As of 2016, ABC Firm was producing $915 of
revenue per gross square foot of store space. Knowing that each
store averages 37,628 square feet of space, I will apply the same

14. revenue rate for additional new stores, keeping in mind that the
historical data means the sales are expected to grow 4.5% in
2017 and 5% in 2018 and 2019, due to the addition of new
stores.Assume a 0.11% decrease in operating expenses in 2017,
per the company's continued plan to reduce operating expenses
by $300 million by the end of 2017. Assume a 3% increase in
operating expenses for the remaining two forecasted years, as
new stores will add to the costs.ABC Firm employed 87,000
employees as of 09/25/2016. Due to the addition of new stores,
I am going to assume a 6.9% increase in staff in 2017, 2018 &
2019.Assume a 5% increase in advertising cost YOY, as
management has expressed advertising would remain a focus in
the coming years.In 2015, ABC Firm announced a new capital
allocation strategy, which included a 5-year $500 million
revolving credit facility. Therefore, the interest expense is
assumed to have the same run rate for 2017-2019.At the end of
2016, ABC Firm announced that they created 5 new positions
within the upper management leadership team, including a
global vice president in Culinary & Hospitality services.
Therefore, there is an assumed increase of 3% in the revenue
generated from the prepared foods and bakery segments of the
stores.Assume relocation, store closures and lease termination
costs continue to drop since the sub-leasing of unused property
has been actively pursued by management.
Best Case ScenarioABC Firm Financial Data - Best Case
ScenarioConsolidated Statements of Operations (USD in
millions, except per share amounts)Fiscal years ending
September 28, 2016, September 27, 2017, and September 25,
2018Forecast of Unique Factors2016 Actual2017
Actual2018 Actual2016 to 2017 % Change2017 to
2018 % ChangeAvg. % Change2019 Forecast2020
Forecast2021 Forecast2016 Actual2017
Actual2018 Actual2019 Forecast2020
Forecast2021 ForecastSales$ 14,194$ 15,389$
15,7248.42%2.18%5.30%$ 17,139$ 18,682$
20,363Domestic Sales, as % of Total

15. Sales96.7%96.9%97.1%97.3%97.5%97.7%Cost of goods sold
and occupancy
costs9,1509,97310,3138.99%3.41%6.20%10,95211,63112,353In
ternational Sales, as % of Total
Sales3.3%3.1%2.9%2.7%2.5%2.3% Gross
profit5,0445,4165,4117.38%-0.09%3.64%5,8316,3096,826Total
Sales100.0%100.0%100.0%100.0%100.0%100.0%Selling,
general, and adminisrative
expenses4,0324,4724,47710.91%0.11%5.51%4,4324,6544,887Pr
e-opening expenses6767640.00%-4.48%-2.24%687378Prepared
Foods &
Bakery19.2%19.0%18.9%19.8%20.8%21.9%Relocation, store
closure, and lease termination costs11161345.45%-
18.75%13.35%1197Other
Perishables47.6%47.5%47.6%46.8%46.0%45.2%
Operating income934861857-7.82%-0.46%-
4.14%1,3201,5731,854 Total Perishable Sales
66.8%66.5%66.5%66.6%66.8%67.1%Interest expense--
(41)(41)(41)(41)Non-perishable
Sales33.2%33.5%33.5%33.4%33.2%32.9%Investment and other
income12171141.67%-35.29%3.19%11.311.712.0Total
Sales100.0%100.0%100.0%100.0%100.0%100.0%
Income before income taxes946878827-7.19%-5.81%-
6.50%1,2901,5441,825Provision for income taxes367342320-
6.81%-6.43%-6.62%301283266Advertising Expenses (USD in
millions)$ 63$ 89$ 96$ 96.0$ 96.0$ 96.0 Net
income$ 579$ 536$ 507-7.43%-5.41%-6.42%$ 989$
1,261$ 1,559Basic earnings per share$ 1.57$ 1.49$ 1.55-
5.10%4.03%-0.53%$ 1.61$ 1.68$ 1.74Average square
footage per store-37,62837,62837,62837,62837,628Weighted
average shares outstanding367.8358.5326.1-2.53%-9.04%-
5.78%306.5288.1270.9Average employees per store-
190190190190190Diluted earnings per share$ 1.56$ 1.48$
1.55-5.13%4.73%-0.20%$ 1.62$ 1.70$ 1.78Average revenue
per square foot$ 990.00$ 970.00$ 915.00$ 942.45$
970.72$ 999.85Weighted average shares outstanding, diluted

16. basis370.5360.8326.9-2.62%-9.40%-
6.01%307.3288.8271.5Number of
Stores399431456487521557Divideds declared per common
share$ 0.48$ 0.52$ 0.548.33%3.85%6.09%$ 0.57$ 0.61$
0.64Assumptions: Best Case ScenarioRevenue increases will be
relative to increase in number of stores. Between 2014-2016
the number of stores increased by an average of 6.9% due to the
company's plan to open more stores under the '365' banner. We
will assume that the number of stores will continue to increase
at that pace for the next 3 years - Best case scenario: The rate of
the stores will increase as expected, but the revenue per square
foot would have a more consistent impact.As of 2016, ABC
Firm was producing $915 of revenue per gross square foot of
store space. Knowing that each store averages 37,628 square
feet of space, the best case scenario would see the revenue rate
increase by 3% per square foot per store, including all new
stores.Assume a 0.11% decrease in operating expenses in 2017,
per the company's continued plan to reduce operating expenses
by $300 million by the end of 2017. Best case scenario - the
operating expenses increase by only 3% for the remaining two
forecasted years.ABC Firm employed 87,000 employees as of
09/25/2016. Due to the addition of new stores, I am going to
assume a 6.7% increase in staff in 2017, 2018 & 2019.Assume a
5% increase in advertising cost YOY, as management has
expressed advertising would remain a focus in the coming years.
Best case scenario - the advertising cost remains constant for
2017-2019.In 2015, ABC Firm announced a new capital
allocation strategy, which included a 5-year $500 million
revolving credit facility. Therefore, the interest expense is
assumed to have the same run rate for 2017-2019.At the end of
2016, ABC Firm announced that they created 5 new positions
within the upper management leadership team, including a
global vice president in Culinary & Hospitality services.
Therefore, there is an assumed increase of 5% in the revenue
generated from the prepared foods and bakery segments of the
stores.Assume relocation, store closures and lease termination

17. costs continue to drop since the sub-leasing of unused property
has been actively pursued by management.
Worst Case ScenarioABC Firm Financial Data - Worst Case
ScenarioConsolidated Statements of Operations (USD in
millions, except per share amounts)Fiscal years ending
September 28, 2016, September 27, 2017, and September 25,
2018Forecast of Unique Factors2016 Actual2017
Actual2018 Actual2016 to 2017 % Change2017 to
2018 % ChangeAvg. % Change2019 Forecast2020
Forecast2021 Forecast2016 Actual2017
Actual2018 Actual2019 Forecast2020
Forecast2021 ForecastSales$ 14,194$ 15,389$
15,7248.42%2.18%5.30%$ 15,881$ 16,040$
16,200Domestic Sales, as % of Total
Sales96.7%96.9%97.1%97.3%97.5%97.7%Cost of goods sold
and occupancy
costs9,1509,97310,3138.99%3.41%6.20%10,82911,37011,939In
ternational Sales, as % of Total
Sales3.3%3.1%2.9%2.7%2.5%2.3% Gross
profit5,0445,4165,4117.38%-0.09%3.64%5,0534,6704,262Total
Sales100.0%100.0%100.0%100.0%100.0%100.0%Selling,
general, and adminisrative
expenses4,0324,4724,47710.91%0.11%5.51%4,4324,5654,702Pr
e-opening expenses6767640.00%-4.48%-2.24%666666Prepared
Foods &
Bakery19.2%19.0%18.9%18.9%18.9%18.9%Relocation, store
closure, and lease termination costs11161345.45%-
18.75%13.35%1197Other
Perishables47.6%47.5%47.6%47.6%47.6%47.6%
Operating income934861857-7.82%-0.46%-4.14%54330(514)
Total Perishable Sales
66.8%66.5%66.5%66.5%66.5%66.5%Interest expense--
(41)(42)(43)(45)Non-perishable
Sales33.2%33.5%33.5%33.5%33.5%33.5%Investment and other
income12171141.67%-35.29%3.19%11.311.712.0Total
Sales100.0%100.0%100.0%100.0%100.0%100.0%

18. Income before income taxes946878827-7.19%-5.81%-
6.50%513(2)(546)Provision for income taxes367342320-6.81%-
6.43%-6.62%301283266Advertising Expenses (USD in
millions)$ 63$ 89$ 96$ 105.6$ 116.2$ 127.8 Net
income$ 579$ 536$ 507-7.43%-5.41%-6.42%$ 212$
(285)$ (812)Basic earnings per share$ 1.57$ 1.49$ 1.55-
5.10%4.03%-0.53%$ 1.49$ 1.43$ 1.37Average square
footage per store-37,62837,62837,62837,62837,628Weighted
average shares outstanding367.8358.5326.1-2.53%-9.04%-
5.78%306.5288.1270.9Average employees per store-
190190190190190Diluted earnings per share$ 1.56$ 1.48$
1.55-5.13%4.73%-0.20%$ 1.49$ 1.43$ 1.37Average revenue
per square foot$ 990.00$ 970.00$ 915.00$ 878.40$
843.26$ 809.53Weighted average shares outstanding, diluted
basis370.5360.8326.9-2.62%-9.40%-
6.01%307.3288.8271.5Number of
Stores399431456472488506Divideds declared per common
share$ 0.48$ 0.52$ 0.548.33%3.85%6.09%$ 0.56$ 0.58$
0.60Assumptions: Worst Case ScenarioRevenue increases will
be relative to increase in number of stores. Between 2014-2016
the number of stores increased by an average of 6.9% due to the
company's plan to open more stores under the '365' banner. We
will assume that the number of stores will continue to increase
at that pace for the next 3 years - Worst case scenario: The rate
of the stores will not increase as expected, averaging only 3.5%
instead.As of 2016, ABC Firm was producing $915 of revenue
per gross square foot of store space. Knowing that each store
averages 37,628 square feet of space, the worst case scenario
would see the revenue rate decrease to less than $900 per square
foot per store.Assume a 0.11% decrease in operating expenses
in 2017, per the company's continued plan to reduce operating
expenses by a run rate of $300 million by the end of 2017.
Worst case scenario - the operating expenses would not
continue to decrease beyond 2017 and would instead increase by
an average 3% due to the addition of new stores.ABC Firm
employed 87,000 employees as of 09/25/2016. Due to the

19. addition of new stores, I am going to assume a 3.5% increase in
staff in 2017, 2018 & 2019, since in the worst cast scenario new
stores only opened at a rate of 3.5%.Assume a 5% increase in
advertising cost YOY, as management has expressed advertising
would remain a focus in the coming years. Worst case scenario -
the advertising costs increases 10% instead of the anticipated
5% over the next three years.In 2015, ABC Firm announced a
new capital allocation strategy, which included a 5-year $500
million revolving credit facility. Therefore, the interest expense
is assumed to have the same run rate for 2017-2019. Worst case
scenario - the interest rate increases in 2017, 2018 and 2019 by
3%.At the end of 2016, ABC Firm announced that they created
5 new positions within the upper management leadership team,
including a global vice president in Culinary & Hospitality
services. Therefore, in the worst case scenario, there is no
increase in the revenue generated from the prepared foods and
bakery segments of the stores, vs. the total sales.Assume
relocation, store closures and lease termination costs continue
to drop since the sub-leasing of unused property has been
actively pursued by management.
Milestone Three: Starbucks Corporation 1
2
Milestone Three: Starbucks Corporation
Milestone Three
ABC firm Corporation

20. Daniel Winn
Southern New Hampshire University
Projections
Likely Performance
All ABC firm Annual 10K reports include the company’s future
operational goals in addition to projections for the following
fiscal year. The company consistently provides reasonable and
relatively accurate financial and performance growth
projections (Team, 2016). From the FY17 annual report, the
company predicted approximately 10% revenue growth (ABC
firm, 2017a). With that in mind, revenue growth of 10%
annually was used to predict the company’s likely performance
across the next three years. This growth ratio was used in
combination with steady cost and tax ratios
Projections for the company based on the predictions of
10% revenue growth are very positive. Despite consistent
increases in operating costs as well as taxes, the company’s net
revenue continues to grow. In year+1, the company will achieve
net earnings of 3390.9M USD, followed by 3729.8M in year+2
and 4102.9M in year+3. These factors all represent 13.77% of
their respective year net revenue totals of 24624.5M, 27087M,
and 29795.7M. Net earnings equaling 13.77% of net revenue
represents the average vertical analysis ratio from the last three
fiscal years.
As mentioned, operating expenses will also continue to

21. rise from 18643.5M in year+1 to 22482.2M and 24730.4M in
year+2 and year+3 respectively. These costs represent 83% of
total net revenue. As was the case with net earnings, operating
expenses equaling 83% of total net revenue was computed from
vertical analysis of the last three fiscal years. All other costs
and taxes were calculated using vertical analysis averages of the
last three years of company performance.
Operating expense will continue to rise on a rate of roughly
26% as the company focuses on growth of products and
services. Fulfillment expenses continue to rise as they correlate
with higher sales. Marketing and technology/ content will
increase by roughly 30% as the company will need higher
expenses to sustain the company focus of the business sectors
Prime and AWS. One product endeavor that will need financial
resources is the warehouse in the sky idea. This idea is derived
by drones delivering products and currently in the patent phase
of the project. This idea will take major resources for
construction, production, and meeting FAA rules. Operating
income will also continue to grow to $6,886M in 2017,
$12,304M in 2018 and $22332M in 2019.
Interest expense will need to be watched closely due to it
rising to almost $560M by the end of 2019. The company will
need to relook at the strategic plan to sustain profits enough to
cover expenses in the near future years. Net Income will
continue to be low compared to net sales. They will slowly
increase to $ 9,945M by 2019.
This growth is consistent with the company’s priorities of
accelerating comparable store sales, accelerating the power of
the digital platform, growing market share in China, and gaining
market share of at-home coffee (ABC firm, 2017a). While 10%
annual growth is excellent, it is also very reasonable and
achievable for ABC firm. The company posted a growth rate of
11.24% from FY15 to FY16 and can surely repeat those
performance metrics as it continues to grow globally and refine
its operations domestically.

22. Best Case Scenario
ABC firm’ likely case scenario is built around 10% revenue
growth projections combined with steady cost and tax ratios.
The company’s best-case scenario is built around a higher
growth rate of 13% combined with a reduction in cost ratios.
Having already achieved market dominance in the domestic
arena through a growth-model, it is possible the company could
focus its efforts on an efficiency-model and reduce costs. With
that change of focus the company could reduce its operating
costs by a few percentage points. If that happens concurrently
with a better-than-expected product roll-out into the China
market, the company would witness its best-case scenario.
In this scenario, the company would see a high operating
income rate of 22% of total net revenue. Additionally, the
company would own an unprecedented net earnings rate of
16.8% of total net revenue. These best-case scenario figures
equate to net earnings of 4242.4M for year+1, 4793.8 and 5417
for year+2 and year+3 respectively. Due to the company’s
efforts to increase operational efficiency, operating costs would
shrink equaling 80% of total net revenue. This is a decrease of
approximately 3% from the last three-year average. All told, the
company’s net earnings would nearly double from 2884.7M in
FY17 to 5417M in year+3 in this best-case scenario.
Worst Case Scenario
The company’s worst-case scenario is effectively the
opposite of its best-case scenario. Here, the company’s China
roll-out severely underperforms. The poorly planned and
executed strategy not only doesn’t see the returns anticipated,
but it actually increases operational costs. Additionally, the
company invested so much manpower and marketing effort on
its China/Asia Pacific segment that the domestic segment and
other international segments were ignored and witnessed losses.
This combination of lower-than-anticipated profits and
increased costs has a massive impact on the company’s bottom
line.

23. In this scenario the company’s poor performance achieves
only a 4% growth rate in total net revenue. Conversely,
operating cost rates increase from approximately 83% of total
net revenue annually to 86% annually. These changes decrease
the delta between net revenue and operating costs and in turn
lower the company’s net earnings. In year+1 the company sees
only 2509M in net earnings, a drop from the 2884.7M achieved
in FY17. By year+3 the company’s net takeaway is only 2712M,
still less than what the company earned in FY15. The bottom
line of this worst-case scenario leaves the company spending
nearly 90% of its annual revenue on operating expenses and
taxes, pocketing just 10.8% as net earnings.
Discussion
These projections were all impacted by assumptions, forecasting
methodology, and information gaps. The assumptions varied
slightly for each scenario, however, they were based off of ABC
firm known operational priorities to increase revenue through a
growth-model. ABC firm’ priorities are to expand in China, in
the digital environment, and in the at-home coffee subindustry.
All scenarios were based on this plan of action but modified to
account for successful or unsuccessful execution of the strategy.
The best-case scenario relied on assumptions of
outstanding growth-model profits in China combined with
increased efficiency-model cost savings internationally. The
worst-case scenario was based on an unsuccessful product roll-
out in China that reverberated negatively throughout the
business. The likely case scenario was based on the company’s
FY18 financial projections of approximately 10% annual
interest growth.
The forecasting methodology was the same for all
scenarios. As a starting point, the last three years of financial
data was analyzed through horizontal and vertical analysis.
Vertical analysis (VA) proved to be a more consistent factor of
company performance. Therefore, VA ratios were used to
generate forecasts. However, before the VA ratios could be

24. applied an annual rate of revenue growth had to be predicted.
Once the annual growth rates were generated from the
aforementioned assumptions, the VA ratios were applied. From
there the forecasts were created and projections were made.
All scenarios shared the same information gaps. These
included future company performance, China market roll-out
execution, tax considerations, and investee activity. Therefore,
several factors such as income from equity and interest expense
were held standard across all three scenarios. These projections
are appropriate because they use reasonable figures based off
the company’s actual operational priorities. Additionally, the
company efforts detailed above are consistent with the ABC
firm’ mission and corporate intent (ABC firm, 2017b). Lastly,
the best case and likely case scenarios relied on aggressive but
achievable growth projections.
The above assumptions played a foundational role in
deriving ABC firm’ projections. Any changes to the
assumptions would have a tremendous impact on the
projections. As an example, if ABC firm’ operational priority
was to refine the domestic market and reduce its presence in the
China market, the assumptions for projection generation would
change significantly. In turn, the projections would change to an
equally severe degree. However, the methodology would remain
the same and would be applied to less aggressive projected
growth rates.
References
ABC firm Fiscal 2017 Annual Report. (2017a)
ABC firm Fiscal 2017 Letter to Shareholders. (2017b).
Team, T. (2016, September 19). Let's Look at ABC firm'
Growth Strategy. Retrieved from
https://www.forbes.com/sites/greatspeculations/2016/09/19/lets-
look-at-ABC firm-growth-strategy/#67351bd63d71

25. Appendix
Figure 1 – Likely Scenario
ABC firm Fiscal 2017 Annual Report
Figure 2 – Worst Case Scenario
ABC firm Fiscal 2017 Annual Report

26. Figure 3 – Best Case Scenario
ABC firm Fiscal 2017 Annual Report