Running head: GROUPONS INC CASE ANALYSIS 1

Groupon Inc Case Analysis

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Overview

We begin our study of financial accounting theory by considering the present value

model. This model provides the utmost in relevant information to financial statement users.

In this context, we define relevant information as information about the firm’s future

economic prospects that is, its dividends, cash flows, and profitability. Our concern is with

the conditions under which relevant financial statements will also be reliable, where reliable

information faithfully represents the firm’s financial position and results of operations. We

will also explore the conditions under which market values of assets and liabilities can serve

as indirect measures of present value. This will be the case under ideal conditions (to be

defined later). If conditions are not ideal (which is usually the case), fundamental problems

are created for asset valuation and income measurement.

Uncertainty lurks beneath the surface of every business decision, and it comes from all

directions. They don't know how long the pandemic will last, where the economy will go, or

what influence it will have on their markets. Forecasting has become more difficult, and

financial models developed before to COVID are no longer relevant. To change swiftly and

make the best decisions, leaders rely on their instincts and judgment. Having an interim

executive or business counselor on hand can assist CEOs in brainstorming new ideas, acting

as a sounding board, and strategizing a successful strategy.

Chapter 4

However, generating several sources of revenue entails more than just selling diverse

things; it also frequently entails marketing across multiple platforms, to various clients, or

generating passive income. A variety of revenue sources that could be introduced to your

product line include the following:

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1. YouTube videos focusing on how to use your items or your brand and workers are a

good idea.

2. Tools that are required in order to use your main product are examples of

complementary items.

3. Consulting services that appeal directly to your product's users.

Installation and maintenance services that make your product easier to use.

Chapter 5

Every good business owner understands that the company will have good and bad

times. To get through the tough times, smart business owners hunt for enough finance,

secured in the appropriate method at the right time. This entails precisely assessing your

demands as a startup and having your finger on the pulse of what's to come as you expand.

Your financial needs won't simply be internal, like paying for overhead; they'll alter as you

develop new goods, reach out to new customers, and grow your company.

Customer loyalty is one of the most critical characteristics of a successful business. It

will be much easier to maintain your firm in times of economic crisis if you develop a brand

that is worthy of devotion. Even if your consumers are unable to buy with you as frequently

or as extensively as they formerly did, they will make every effort not to abandon you. Use

that loyalty in a variety of ways:

Now is the time to thank your customers for their loyalty. Implement a loyalty

program; reward them for spreading the word about your firm; and emphasize the importance

of each individual to your business. Make it unique. Use social media to reach out to your

target demographic. Create opportunities for people to regard your brand as genuine.
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Authenticity is a decision factor for 90 percent of customers when it comes to the companies

they support.

Chapter 7

In terms of strategy, customer service frequently takes a back seat. You might

imagine that customers want to stay loyal, especially if you've put in the effort to create

strong customer relationships, market efficiently, and engage with them on social media.

Those aspects can be used as a foundation, but be careful not to let them down. Quickly

respond to any inquiries or concerns. Never dismiss a consumer who contacts you. If your

consumers only have negative things to say about your company, do everything you can to

set things right. It costs significantly more to have a disappointed ex-customer distribute their

horror story than it does to develop their next product in-house. Integrating an amazing

customer support system into your website is one of the finest ways to do this. If you can't

always have a support worker on hand, utilize a well-designed chatbot that knows when to

call in a real person. When you get emails, send acknowledgement messages and always

follow up on any correspondence.

Chapter 8

The final step in establishing a small firm that will weather any economic storm is to

produce something truly unique. Pay attention to comments, market gaps, and other signs as

you expand your customer base to see what's lacking; if you have a product with a lot of

competition, consider what aspects might help you truly stand out. Produce a unique brand

identity in addition to a unique product - harmonize your messaging, images, social media

presence, and all other components to create something that stands out from the competition,

draws attention, and develops a personal connection with your audience through each and

every aspect.
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Chapter 10

Groupon invested great amounts of money 2010 in Europe and Asia to grow in the

international market in addition to expanding its market in the US. It expended $5.8 million.

$196.6 million and $821 million in the years 2009, 2010, and 2011 respectively (Wheelen,

Hunger, Hoffman, & Bamford, 2015, 11-12). These activities had a great impact in the

financials of Groupon. The positive side of these investments is the increase of revenue from

312.9 million in 2010 to 1.6 billion in 2011. International markets composed 36% of revenue

in 2010 and 60.6% in 2011 (Wheelen, Hunger, Hoffman, & Bamford, 2015, 11-8). The

increase of revenue is due to the new customers it acquired in their market expansion, but not

necessarily form individual customer revenue which in March 31, 2011 was $72.41 and

which decreased by .88% in 2012 (Wheelen, Hunger, Hoffman, & Bamford, 2015, 11- 1). By

2012 Groupon had gained 21.5 million new customers having now a total of 36.8 million

active customers (Wheelen, Hunger, Hoffman, & Bamford, 2015, 11-13).

This massive increase of new customer came with a negative side. The expansion

investments brought to the company more losses than the previous years. In the horizontal

analysis of Groupon, operational cost have caused the company to be more in the negative

than in previous years as shown in Exhibit 1. From 2008 to 2009 we can see how the

marketing cost increased 3000%, and from there it has continue to increase by 5,650% in

2010 and 164.47 % in 2011 by. In November 2011, the company went public and the

company became under scrutiny. In the first quarter of 2012, Groupon had cut its marketing

due to the incredible loses it had created in the previous years. It´s expenses were cut by 49%

and its revenue increased by 89% the first quarter of 2012 indicating that they are going to be

more financially responsible to its stakeholders.

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Groupon had to redo its numbers and in March 30,2012, due to complains of non-GAAP

measures benefiting the company not the shareholders (Wheelen, Hunger, Hoffman, &

Bamford, 2015, 11- 14). These new numbers showed than in the last quarter of 2011 revenue

was less than 50% of what they showed ($644,728,000 vs. $295,523,000) and marketing

expenses were 11% higher ($208,209,000 vs. $230,085,000) leaving great concerns for

investors regarding the financial controls of the company.

Chapter 11

The current ratio in the years of 2010 and 2011 were of 1.03 and 1.78 respectively

showing an increase of 72.82%. This show an improvement in the ability of the company to

pay its debts in the short-term. We don't have information about what was the industry

current ratio at the time and since they were the first company in venture into this type of

business plan we may not have a precise ratio to compare it with, but if compare to today´s

industry current ratio of 3.30 (Macroaxis, 2017), Groupon is performing below market

expectations.

Leverage Ratio

Groupon´s debt ratio for 2010 in .98 and for 2011 is of .60 (before audit) showing a

decrease of dependability on debt. This show that in the year 2011 60% of the assets of

Groupon were financed by debt compared to 98% the previous year. This means that
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Groupon can financed 40% of its assets lowering its risk of financial crisis by being able to

pay its long-term debts.

Conclusion

Analysing the ratios and the financial performance of Groupon, the company needs to

find ways to lower its expenses, increase revenue per customer, and have better financial

reporting by using GAAP measures. If Groupon doesn't solve these issues, shareholders and

possible investors will look at upcoming companies that will have better reporting and better

ratios than Groupon. As shown in the case the competition is increasing and bigger

companies are copying the Groupon's business model in addition to upcoming new

companies bringing cheaper products and services. Groupon succeeded in times of recession

where people wanted to spend less and coupons became handy, therefore is crucial that as the

recession is no longer in place that people see Groupon as a people oriented company that is

financially responsible and that put not only its clients first, but also its investors.
GROUPONS INC CASE ANALYSIS 8

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