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Please see the file titled ‘Finance Homework’.
ASSIGNMENT DETAILS
In this assignment develop a best and worst case scenario.
You need to balance two risks — the risk of missed sales because of stock outs, and the risk of building too much inventory. In your worst case, competition is fierce and you end up carrying lots of inventory. In your best case, you sell everything but one unit on each product.
The spread between these two positions represents a policy decision. In the worst case, you have lots of Inventory and little Cash. In the best case, you have the opposite, lots of Cash and little Inventory.
If you add the Balance Sheet’s Cash and Inventory together, you get a sense for your reserves. A small reserve exposes you to both risks. But a big reserve in itself earns you nothing, not even bank interest. Therefore, you want to keep the reserve as small as possible. With a perfect forecast, your reserve could be tiny. The better your forecasting, the smaller the reserve you require.
These can be used to develop a best/worse case set of scenarios.
QUESTIONS THAT NEED TO BE ANSWERED
You are now prepared to set several important policies. Using the attached Annual Report for the Baldwin Company, answer the following 5 questions:
1. Record Cash and Inventory from your worst case. How much do they total?
2. Record your best and worst case numbers for Sales. What is the spread between them? For example, in your worst case, total sales might be $120M. In the best, $150M. The spread is $150M – $120M = $30M. Another way to look at this would be in months of sales. $30M/$120M = .25 years or 3 months. Your policy, then, is to carry sufficient reserves to survive a three month build up of inventory.
3. How much does this spread cost you? Idle cash could be used to pay down debt or improve plant. Inventory carry costs eat into profits. Estimate the cost of the spread as follows. Add together Cash and Inventory. Multiply this by your current short-term debt rate. Add the Inventory Carry Cost from your worst case. Record the result.
4. Suppose you narrowed the spread from say 3 months to 1 month. This would save you the cost of carrying large working capital reserves, but if you were wrong on the downside, you would run out of cash and take an emergency loan. What policy, expressed as months, would you set for your company’s reserves?
5. Suppose you narrow your spread and then stock out. What is the opportunity cost of one month of missed sales? (Remember, your fixed costs were already covered by the sales you did make. Therefore, an additional month of sales would only incur the cost of goods. No marketing, R&D, or depreciation expense are felt because those have already been paid for by the units you did sell. Even the Interest payments have been made.) For example, if your sales were $120M, in one month you sell $10M. If a months material and labor costs are $7M, you missed contributing $3M to Net Margin. This would be taxed in the simulation at 35%, so your opportunity cost is a missed $2M in profit.
Annual Report
Annual Report Baldwin C57912 Round: 3Dec. 31, 2016
Balance Sheet
DEFINITIONS:
Common Size: The common size
column simply represents each item as a
percentage of total assets for that year.
Cash: Your end-of-year cash position.
Accounts Receivable: Reflects the lag
between delivery and payment of your
products. Inventories: The current
value of your inventory across all products. A
zero indicates your company stocked out.
Unmet demand would, of course, fall to your
competitors. Plant & Equipment: The
current value of your plant. Accum
Deprec: The total accumulated
depreciation from your plant. Accts
Payable: What the company currently
owes suppliers for materials and services.
Current Debt: The debt the company
is obligated to pay during the next year of
operations. It includes emergency loans used
to keep your company solvent should you run
out of cash during the year. Long
Term Debt: The company’s
long term debt is in the form of bonds, and this
represents the total value of your bonds.
Common Stock: The amount of
capital invested by shareholders in the
company. Retained Earnings:
The profits that the company chose to keep
instead of paying to shareholders as dividends.
ASSETS 2016
Common
Size
2015
Cash $17,277 18.3% $15,155
Account Receivable $6,623 7.0% $7,895
Inventory $22,100 23.4% $16,033
Total Current Assets $46,000 48.8% $39,083
Plant & Equipment $103,600 110.0% $113,800
Accumulated Depreciation ($55,253) -58.6% ($53,107)
Total Fixed Assets $48,347 51.2% $60,693
Total Assets $94,346 100.0% $99,777
LIABILITIES & OWNER’S
EQUITY
Accounts Payable $5,040 5.3% $4,093
Current Debt $0 0.0% $5,635
Long Term Debt $37,250 39.5% $37,250
Total Liabilities $42,290 44.8% $46,978
Common Stock $27,660 29.3% $25,660
Retained Earnings $24,397 25.9% $27,140
Total Equity $52,057 55.2% $52,800
Total Liab. & O. Equity $94,346 100.0% $99,777
Cash Flow Statement
The Cash Flow Statement examines what happened in the Cash
Account during the year. Cash injections appear as positive numbers and
cash withdrawals as negative numbers. The Cash Flow Statement is an
excellent tool for diagnosing emergency loans. When negative cash flows
exceed positives, you are forced to seek emergency funding. For example,
if sales are bad and you find yourself carrying an abundance of excess
inventory, the report would show the increase in inventory as a huge
negative cash flow. Too much unexpected inventory could outstrip your
inflows, exhaust your starting cash and force you to beg for money to keep
your company afloat.
Cash Flows from Operating Activities 2016 2015
NetIncome(Loss) ($2,743) ($1,246)
Depreciation $6,907 $7,587
Extraordinary gains/losses/writeoffs ($1,190) ($15)
Accounts Payable $947 ($3,212)
Inventory ($6,067) $16,324
Accounts Receivable $1,272 ($50)
Net cash from operation ($874) $19,388
Cash Flows from Investing Activities
Plant Improvements $6,630 $0
Cash Flows from Financing Activities
Dividends Paid $0 $0
Sales of Common Stock $2,000 $4,800
Purchase of Common Stock $0 $0
Cash from long term debt $0 $0
Retirement of long term debt $0 ($6,935)
Change in current debt(net) ($5,635) ($2,098)
Net Cash from financing activities ($3,635) ($4,233)
Net Change in cash position $2,121 $15,155
Closing cash position $17,277 $15,155
Annual Report Page 1
Annual Report Baldwin C57912 Round: 3Dec. 31, 2016
2016 Income Statement
(Product Name) Baker Bead Bid Bold Buddy NA NA NA 2016
Total
Common
Size
Sales $22,742 $14,507 $19,780 $11,780 $11,768 $0 $0 $0 $80,577 100.0%
Variable Costs:
Direct Labor $6,907 $5,679 $5,210 $3,418 $4,136 $0 $0 $0 $25,349 31.5%
Direct Material $7,409 $4,915 $7,578 $4,931 $5,068 $0 $0 $0 $29,902 37.1%
Inventory Carry $365 $1,628 $0 $640 $19 $0 $0 $0 $2,652 3.3%
Total Variable $14,681 $12,222 $12,788 $8,989 $9,223 $0 $0 $0 $57,903 71.9%
Contribution Margin $8,061 $2,285 $6,992 $2,790 $2,545 $0 $0 $0 $22,674 28.1%
Period Costs:
Depreciation $2,200 $2,427 $1,080 $720 $480 $0 $0 $0 $6,907 8.6%
SG&A: R&D $0 $0 $715 $0 $581 $0 $0 $0 $1,296 1.6%
Promotions $1,500 $1,000 $1,100 $1,500 $800 $0 $0 $0 $5,900 7.3%
Sales $2,000 $1,600 $1,300 $2,000 $800 $0 $0 $0 $7,700 9.6%
Admin $351 $224 $305 $182 $181 $0 $0 $0 $1,242 1.5%
Total Period $6,051 $5,250 $4,500 $4,402 $2,843 $0 $0 $0 $23,045 28.6%
Net Margin $2,011 ($2,965) $2,492 ($1,611) ($298) $0 $0 $0 ($371) -0.5%
Definitions: Sales: Unit Sales times list price. Direct Labor: Labor costs incurred to produce the
product that was sold. Inventory Carry Cost: the cost unsold goods in inventory. Depreciation:
Calculated on straight-line. 15-year depreciation of plant value. R&D Costs: R&D department
expenditures for each product. Admin: Administration overhead is estimated at 1.5% of sales.
Promotions: The promotion budget for each product. Sales: The sales force budget for each
product. Other: Chargs not included in other categories such as Fees, Write offs, and TQM. The fees
include money paid to investment bankers and brokerage firms to issue new stocks or bonds plus consulting
fees your instructor might assess. Write-offs include the loss you might experience when you sell capacity or
liquidate inventory as the result of eliminating a production line. If the amount appears as a negative amount,
then you actually made money on the liquidation of capacity or inventory. EBIT: Earnings Before Interest
and Taxes. Short Term Interest: Interest expense based on last year”s current debt, including short term
debt, long term notes that have become due, and emergency loans, Long Term Interest: Interest paid on
outstanding bonds. Taxes: Income tax based upon a 35% tax rate. Profit Sharing: Profits shared
with employees under the labor contract. Net Profit: EBIT minus interest, taxes, and profit sharing.
Other ($1,090) -1.4%
EBIT $719 0.9%
Short Term Interest $0 0.0%
Long Term Interest $4,939 6.1%
Taxes ($1,477) -1.8%
Profit Sharing $0 0.0%
Net Profit ($2,743) -3.4%
Annual Report Page 2
Capsim Management Simulations, Inc.®
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Team Member Guide
1
8
Plug-Ins
21
8.1 Corporate Responsibility and Ethics 21
9
Situation Analysis 21
10
Forecasting 2
2
10.1 Basic Forecasting Method
22
10.2 Qualitative Assessment 22
10.3 Forecasts, Proformas and the
December 31 Cash Position 2
3
10.4 Worst Case / Best Case
23
11
Balanced Scorecard 23
11.1 Guiding Your Company 23
12
Six Basic Strategies 2
4
Broad Cost Leader
24
Broad Differentiation 24
Niche Cost Leader (Low Technology)
24
Niche Differentiation (High Technology) 24
Cost Leader with Product Lifecycle Focus 24
Differentiation with Product Lifecycle Focus 24
Support Tickets
If you need assistance, please
submit a support ticket.
Login at capsim.com, click
Foundation then, in the left menu,
select Help > Support;
or send an email to support@
capsim.com;
or call in the USA and Canada 877-
477-878
7
1
Introduction 1
1.1 The Industry Conditions Report 1
1.2 Management Tools 1
1.3 Company Departments 2
1.4 Inter-Department Coordination 3
1.5 Practice and Competition Rounds 3
1.6 Company Success 3
2
Industry Conditions 3
2.1 Buying Criteria 3
2.2 Buying Criteria by Segment
5
3
The Customer Survey Score 5
3.1 Buying Criteria and the Customer Survey
Score
6
3.2 Estimating the Customer Survey Score
8
3.3 Stock Outs and Seller’s Market
9
4
Managing Your Company 9
4.1 Research & Development (R&D)
1
0
4.2 Marketing
11
4.3 Production
13
4.4 Finance
15
5
The Capstone Courier
17
5.1 Front Page 17
5.2 Stock & Bond Summaries 17
5.3 Financial Statements 17
5.4 Production Analysis
17
5.5 Segment Analysis Reports
18
5.6 Market Share Report
19
5.7 Perceptual Map 19
5.8 Other Reports
19
6
Proformas and Annual Reports 19
6.1 Balance Sheet 19
6.2 Cash Flow Statement
20
6.3 Income Statement 20
7
Additional Modules 20
7.1 TQM/Sustainability 20
7.2 HR (Human Resources) 20
Team Member Guide
Management Tools
1
1 Introduction
•
•
Sensors are everywhere…
Sensors are devices that observe physical conditions. For
example, the average cell phone contains dozens of sensors
that allow it to interpret touch, spatial orientation, and
signal strength.
New sensor businesses are created every day in areas as
diverse as security, aeronautics and biomedical
engineering. You are in a business-to-business market, not a
direct-to-consumer market; the sensors your company
manufactures are incorporated into the products your
customers sell.
1.1 The Industry Conditions Report
To view the Industry Conditions Report, log into your
simulation and click the
Reports link.
1.2 Management Tools
1.2.1 The Rehearsal Tutorial
•
•
•
•
To access the Rehearsal, log in at the Capsim website and go
to the Getting Started area.
1.2.2 The Capstone Courier
The Courier displays “Last Year’s Results.” The Courier
available at the start of Round 1 displays last year’s results for
Round 0, when all companies were equal just after the
monopoly’s breakup. The Courier available at the start of
Round 2 will display the results for Round 1. As the simulation
progresses and strategies are implemented, results among
the competing companies will begin to vary.
Company Departments
2
1.3 Company Departments
•
•
•
•
1.3.1
Research & Development (R&D)
1.3.2
Marketing
1.3.3
Production
1.3.4
Finance
1.3.5 Plug-Ins
The Courier is available from two locations:
• From the Capstone Spreadsheet, click Reports in the
menu bar;
• On the website, log into your simulation and click the
Reports link.
1.2.3 The Situation Analysis
•
•
To access the Situation Analysis, log into your simulation and
go to the Getting Started area.
1.2.4 Proformas & Annual Reports
Proformas are only available from the Capstone
Spreadsheet’s Proformas menu. To access the annual reports:
• From the Capstone Spreadsheet, click Reports in the menu
bar; and
• On the website, log into your simulation then click the
Reports link.
1.2.5 The Capstone Spreadsheet
•
•
After you log into your simulation, the spreadsheet is
available from the Decisions link.
1.2.6 Just in Time Information
Team Member Guide
Buying Criteria
3
1.5.1 Decision Audits
The audit is available from two locations:
• From the Capstone Spreadsheet, click Help in the menu
bar; and
• On the website, log into your simulation then click the
Decision Audit link.
1.6 Company Success
•
•
•
2 Industry Conditions
•
•
•
•
•
The Industry Conditions Report is available from the website.
Log
into your simulation then click the Reports link.
2.1
Buying Criteria
1.4 Inter-Department Coordination
1.4.1 R&D and Marketing
1.4.2 R&D and Production
1.4.3 Marketing and Production
1.4.4 Marketing and Finance
1.4.5 Finance and Production
1.4.6 Finance and All Departments
1.5 Practice and Competition Rounds
Don’t confuse the Rehearsal Tutorial with the Practice
Rounds! During the Rehearsal Tutorial, you are shown how to
make decisions in a scripted environment. During the
Practice Rounds, you can experiment with your decisions in a
competitive environment.
Buying Criteria
4
2.1.5 Market Segment Positions on the
Perceptual Map
2.1.1 Price
2.1.2 Age
2.1.3 MTBF (Mean Time Before Failure)
or Reliability
2.1.4 Positioning
The Perceptual Map
Figure 2.1 The Perceptual Map Used in the
Simulation: The Perceptual Map plots product
size and performance characteristics.
Figure 2.2 Beginning Segment Positions: At
the beginning of the simulation, segment
positions are clustered in the upper left
portion of the perceptual map.
Figure 2.3 Segment Positions at the End
of Year 4: The overlap between the seg-
ments decreases because the Low End
and Traditional segments move at
slower speeds.
Figure 2.4 Segment Positions at the End of
Year 8: The segments have moved to the
lower right; very little overlap remains.
Example! See your Industry Conditions Report for exact segment locations.
A product with a
performance of 8
and a size of 12 is
positioned here
Team Member Guide
Buying Criteria by Segment
5
In the simulation, there are zero customers interested in
products positioned outside of the dashed circles.
2.2 Buying Criteria by Segment
Positioning and price criteria change every year. Age and
MTBF criteria always remain the same.
•
•
•
•
•
•
•
•
3 The Customer Survey Score
Drift rates are published in the Industry Conditions Report.
Perceptual Maps Can Be Used for Many
Types of Products…
Perceptual Maps can be used to plot any two product
characteristics. For example, cereal manufacturers could plot
nutrition and taste. The dots in the figure below represent
sales of breakfast cereals based on ratings of taste and
nutrition. There are few sales in the lower left corner–not
many consumers want products that have poor taste and
poor nutrition.
As they review product sales, marketers would notice three
distinct clusters. The cluster to the upper left indicates a
group of customers that is more interested in nutrition than
taste. The cluster to the lower right indicates a group that is
more interested in taste than nutrition. The cluster to the
upper right indicates a group that wants both good taste and
good nutrition.
The clusters, or market segments, could then be named
“Taste,” “Nutrition” and “Taste/Nutrition.” The simulation uses
a similar positioning method to name its market segments.
Buying Criteria and the Customer Survey Score
6
3.1.1 Positioning Score
Rough Cut Circle
Fine Cut Circle
Ideal Spot
Segment Movement
Customer survey scores are calculated 12 times a year. The
December customer survey scores are reported in the
Capstone Courier’s Segment Analysis pages.
3.1 Buying Criteria and the Customer
Survey Score
The Industry Conditions Report and the Courier’s Market
Segment Analysis pages break down each segment’s criteria
in order of importance.
Your customers want perfection, but it is impractical to
have “perfect” products. In many cases you will have to
settle for “great” products, but the better the products, the
higher the costs. Your task is to give customers great
products while still making a profit. Your competitors face
the same dilemma.
Figure 3.1 Positioning Scores: The outer edge of the orange rough cut measures
4.0 units from the center of the circle; the edge of the green fine cut measures
2.5 units from the center. Segment ideal spots are represented by the black dots.
The example on the left displays a positioning score for a segment that prefers
products with slower performance and larger size. The example on the right
displays a score for a segment that demands cutting edge products with high
performance and small size. The orange areas represent the segment rough cuts,
where scores rapidly decrease towards zero.
Example!
See your Industry Conditions Report for exact information.
Team Member Guide
Buying Criteria and the Customer Survey Score
7
Positioning Rough Cut
Sensors that are about to enter the rough cut can be revised
by Research & Development (see “4.1.1 Changing
Performance, Size and MTBF”).
The location of each segment’s rough cut and fine cut circles
as of December 31 of the previous year appears on page 11 of
the Courier.
Positioning Fine Cut
Participants often ask, “Why are some ideal spots ahead of
the segment centers?” The segments are moving. From a
customer’s perspective, if they buy a product at the ideal
spot, it will still be a cutting edge product when it wears out.
For contrast, if they buy a product at the trailing edge, it will
not be inside the segment when it wears out.
3.1.2 Price Score
Figure 3.3 Mean Time Before Failure
(MTBF) Score: As MTBF increases the
score increases. Customers are
indifferent to MTBFs above the
segment range.
Figure 3.2 Classic Price/Demand
Curve (Green Bow): As price drops
demand (price score) rises. Scores
drop above and below the price range
(orange lines).
Price ranges for Round 0 (the year prior to Round 1) are
published in the Industry Conditions Report and the Segment
Analysis pages
of the Capstone Courier.
Price Rough Cut
Price Fine Cut
3.1.3 MTBF Score
MTBF Rough Cut
Estimating the Customer Survey Score
8
3.2.1 Base Scores
•
•
•
•
You can use the age and positioning charts in your
Industry Conditions Report to estimate average points for
those criteria.
3.2.2 Accounts Receivable
MTBF Fine Cut
3.1.4 Age Score
Age preferences for each segment are published in the
Industry Conditions Report and the Segment Analysis pages
of the Capstone Courier.
3.2 Estimating the Customer Survey Score
Figure 3.4 Age Scores: The example on the left displays an age score for a
segment that prefers products that have an age of one year. The example on the
right displays a score for a segment that prefers products that are two years old.
Example!
See your Industry Conditions Report for exact information.
Team Member Guide
Stock Outs and Seller’s Market
9
Consider the question, “What happens to price if every
competitor has just enough capacity to meet demand from
its customers?”
4 Managing Your Company
Your simulation might also include additional modules
and plug-ins. Your simulation Dashboard will notify you if
these decisions are scheduled.
3.2.3
Awareness and Accessibility
If the TQM/Sustainability module is enabled, some initiatives
can increase the customer survey score (see “7.1 TQM/
Sustainability”).
3.3 Stock Outs and Seller’s Market
The Market Share Report of the Capstone Courier (page 10)
can help you diagnose stock outs and their impacts.
•
•
•
Research & Development (R&D)
10
Reliability (MTBF) Costs
Material costs displayed in the spreadsheet and reports are
the combined positioning and reliability (MTBF) costs.
Inventing Sensors
4.1 Research & Development (R&D)
•
•
•
•
•
•
•
4.1.1 Changing Performance, Size and MTB
F
Positioning Costs Figure 4.1 Approximate Material Positioning Costs: Material costs
are driven by two factors, reliability (MTBF) and positioning.
Positioning costs vary depending on the product’s location on the
Perceptual Map. Products placed at the trailing edge of the seg-
ments have a positioning cost of approximately $1.00; products
placed on the arc of the leading edge have a positioning cost of
approximately $10.00. Products placed on the arc halfway between
the trailing and leading edges have a positioning material cost of
approximately $5.50.
While the segments will drift apart, and the distance between the
leading and trailing edges will increase, the positioning cost range
will not change. The leading edge will always be approximately
$10.00, the trailing edge will always be approximately $1.00 and
the midpoint will always be approximately $5.50.
$1
0.
00
$1
.0
0
$5
.5
0
Team Member Guide
Marketing
11
Changing MTBF alone will not affect a product’s age.
Log into the Capstone Spreadsheet and click the Decisions
menu. Select Research & Development. To change a product’s
performance, enter a number in the New Pfmn cell; to change
its size, enter a number in the New Size cell. To change the
reliability rating, enter a number in the MTBF cell. As you vary
the specifications, observe the effect upon the revision date,
project cost, material cost and age.
The Rehearsal Tutorial’s R&D Tactics show you how to run the
department. Log in at the Capsim website and go to Getting
Started for information about the Rehearsal.
4.2 Marketing
4.2.1 Pricing Sensors
All new products require capacity and automation, which
should be purchased by the Production Department in the
year prior to the product’s revision (release) date. If you don’t
buy the assembly line the year prior to its introduction, you
cannot manufacture your new product!
4.1.2 Project Management
If the project length takes more than a year, the revision date
will be reported in the next Capstone Courier. However, the
new performance, size and MTBF will not appear; old product
attributes are reported prior to project completion.
4.1.3 A Sensor’s Age
Marketing
12
Sales
Sales budgets are less effective when products are not
completely positioned in the fine cut circle, when prices rise
above segment guidelines or when MTBFs fall below segment
guidelines.
4.2.2 Promotion and Sales Budgets
Promotion
The Courier’s Segment Analysis reports (pages 5-9)
publish awareness.
Figure 4.2 Promotion Budget: Increases in promotion budgets
have diminishing returns. The first $1,500,000 buys 36% aware-
ness; spending another $1,500,000 (for a total of $3,000,000)
buys just under 50%. The second $1,500,000 buys less than
14% more awareness.
Figure 4.3 Sales Budget: For budgets above $3,000,000, the dotted red line indicates there
are no additional returns for companies that have only one product in a segment and the
dashed red line indicates returns for companies with two or more products in a segment.
Increases in sales budgets have diminishing returns. The first $2,000,000 buys 22% acces-
sibility. For companies with two or more products in a segment, spending $4,000,000 buys
just under 35%. The second $2,000,000 buys less than 13% additional accessibility.
Team Member Guide
Production
13
The remaining cells display the financial impacts of your
decisions:
• Gross Revenue Forecast (Price multiplied by either the
Computer Prediction or, if entered, Your Sales Forecast.)
• Variable Costs (Labor, Material and Inventory Carrying
costs subtracted from the Gross Revenue Forecast.)
• Contribution Margin Forecast (Gross Revenue minus
variable costs.)
• Less Promotion and Sales (Contribution Margin Forecast
minus the product’s Promotion Budget and Sales Budget.)
The Rehearsal Tutorial’s Marketing Tactics show you how to
run
the department. Log in at the Capsim website and go to
Getting Started for information about the Rehearsal.
4.3 Production
4.3.1 Capacity
The Courier’s Segment Analysis reports (pages 5-9)
publish accessibility.
Awareness and Accessibility
4.2.3 Sales Forecasting
Log into the Capstone Spreadsheet and click the Decisions
menu. Select Marketing. Use this area to determine each
product’s Price, Promotion Budget, Sales Budget and Sales
Forecast. What’s the difference between the Computer
Prediction and Your Sales Forecast? The Computer Prediction
cannot consider what your competitors are actually doing. It
does not know. Instead, it assumes each of your competitors
will offer one mediocre product (with a customer survey
score of 20) in each segment. It benchmarks how your
product would do against this mediocre playing field.
The Computer Prediction, expressed as units demanded,
changes as you make decisions about your product.
You use the Computer Prediction to evaluate the impact your
decisions will have upon your product’s appeal. For example,
you can estimate the impact a price change will have upon
demand. The Your Sales Forecast column overrides the
Computer Prediction with your own prediction (see “10
Forecasting”). Until you provide a sales forecast, the
computer uses its mediocre Computer Prediction to predict
your proforma financial statements. Always override the
Computer Prediction with your own forecast.
Production
14
Changing Automation
When you buy automation, you might want to determine the
return on investment (ROI). On your income statement, find
last year’s labor cost for the product you are automating.
Your labor cost savings will be approximately 10% for each
new point of automation. Multiply the savings by the number
of rounds remaining in your simulation then divide it by the
total cost of the automation.
If your plant is highly utilized your ROI will be higher than if
your plant is only partially utilized (if your plant is under-
utilized you might consider selling excess capacity).
Clearly, the greater the ROI, the better the investment.
Log into the Capstone Spreadsheet and click the Decisions
menu. Select Production. Use this area to enter for each
product:
• A Production Schedule
• Increases in first shift capacity (Put a positive number in
Buy/Sell Capacity.)
• Decreases in first shift capacity (Put a negative number in
Buy/Sell Capacity.)
• Changes in automation level (Enter a number in New
Automation Rating.)
The Rehearsal Tutorial’s Production Tactics show you how to
run the department. Log in at the Capsim website and go to
Getting Started for information about the Rehearsal.
The dollar value limit of capacity and automation purchases
is largely determined by the maximum amount of capital that
can be raised through stock and bond issues plus excess
working capital (see “4.4 Finance”).
4.3.2 Discontinuing A Sensor
4.3.3 Automation
Labor costs increase each year because of the Annual Raise in
labor’s contract.
Figure 4.4 Time Required to Move a Sensor on the Perceptual Map
1.0 Unit at Automation Levels 1 Through 10
Team Member Guide
Finance
15
As a general rule, companies fund short term assets like
accounts receivable and inventory with current debt offered
by banks.
4.4.2 Bonds
As a general rule, bond issues are used to fund long term
investments in capacity and automation.
4.4 Finance
•
•
•
•
Finance can print the worst case and best case proformas,
then compare them to next year’s annual reports.
4.4.1 Current Debt
Finance
16
•
•
4.4.4 Emergency Loans
Emergency loans are often encountered when last year’s
sales forecasts were higher than actual sales or when the
Finance Department fails to raise funds needed for
expenditures like capacity and automation purchases.
When Bonds Are Retired Early
When Bonds Come Due
Bond Ratings
4.4.3 Stock
As a general rule, stock issues are used to fund long term
investments in capacity and automation.
Team Member Guide
Production Analysis
17
4.4.5 Credit Policy
Log into the Capstone Spreadsheet and click the Decisions
menu. Select Finance. Use this area to raise money:
• Current Debt (These are one year loans.)
• Long Term Debt (These are 10 year bonds.)
• Issue Stock
As resources permit, companies can:
• Retire Stock
• Retire Bonds
• Issue a Dividend
Finance also establishes Accounts Receivable (A/R) and
Accounts Payable (A/P) policies.
The Rehearsal Tutorial’s Finance Tactics show you how to run
the department. Log in at the Capsim website and go to
Getting Started for information about the Rehearsal.
5 The Capstone Courier
The Courier is available from two locations:
• On the website, log into your simulation then click the
Reports link;
• From the Capstone Spreadsheet, click the Reports menu.
Printing the Courier can make it easier to review. From the
Excel spreadsheet, click the printer icon; from the website,
click the Print link under the Courier’s Table of Contents.
5.1 Front Page
5.2 Stock & Bond Summaries
5.3 Financial Statements
5.4 Production Analysis
Segment Analysis Reports
18
5.5.1 Accessibility, Market Share and Top
Products In Segment
•
•
•
•
•
•
•
•
•
If a revision date has yet to conclude, the Courier will report
the product’s current performance, size and MTBF. The new
coordinates and MTBF will not be revealed until after the
completion of the project.
•
•
•
Are your competitors investing in capacity and automation?
The Production Analysis reports capacity and automation
ratings for the upcoming round. The Financial Statements
survey reports the cost of plant improvements for all
companies.
5.5 Segment Analysis Reports
•
•
•
•
Are your products meeting your buyers’ expectations?
Figure 5.1 Market Segment Analysis: Segment Statistics and Buying Criteria
display in the upper-left corner of each segment analysis. Accessibility and
Market Share Actual vs. Potential Charts display to the upper right. Customer
Awareness percentages and December Customer Survey Scores display on
the lower part of the page.
Team Member Guide
Balance Sheet
19
6 Proformas and
Annual Reports
•
•
•
To access proformas, click the Proformas menu in the
Capstone Spreadsheet. To access the annual reports, click
the Reports menu in the Capstone Spreadsheet or, on the
website, log into your simulation and then click the
Reports link.
The proforma reports are only as accurate as the marketing
sales forecasts. If you enter a forecast that is unrealistically
high, the proformas will take that forecast and project
unrealistic revenue (see “10 Forecasting” for more
information).
6.1 Balance Sheet
Retained earnings are a portion of shareholders’ equity. They
are not an asset.
•
•
•
5.5.2 Awareness and the December
Customer Survey Score
Use the customer survey score as a quick comparison tool
when conducting a competitive analysis. Perfect scores
are almost impossible. Scores of 50 or above are
considered good.
5.6 Market Share Report
5.7 Perceptual Map
Are your products competitively positioned?
5.8 Other Reports
Cash Flow Statement
20
7 Additional Modules
7.1 TQM/Sustainability
7.2 HR (Human Resources)
Depreciation is an accounting principle that allows
companies to reduce the value of their fixed assets. Each year
some of the value is “used up.” Depreciation decreases the
firm’s tax liability by reducing net profits while providing a
more accurate picture of the company’s plant and
equipment value.
Depreciation is expensed, product by product, on the income
statement. Total depreciation for the period is reflected as a
gain on the cash flow statement. On the balance sheet,
accumulated depreciation is subtracted from the value of the
plant and equipment. The simulation uses a straight line
depreciation method calculated over fifteen years.
6.2 Cash Flow Statement
6.3 Income Statement
Once your decisions are final, you can print your proforma
income statement (click the printer icon). When the
simulation advances to the next year, you can compare the
results to your proforma projections.
Team Member Guide
Corporate Responsibility and Ethics
21
8.1.3 Ethical Management Can Be
Good Management
As an optional exercise, your team could consider writing a
code of ethics for your company.
8.1.4 Making Decisions
9 Situation Analysis
To access the Situation Analysis, log in at the Capsim website
and go to the Getting Started area.
A downloadable PDF version of the Situation Analysis is also
available from the Getting Started area.
8 Plug-Ins
8.1 Corporate Responsibility and Ethics
8.1.1 Compliance
8.1.2 You’re Compliant until You’re Caught
Basic Forecasting Method
22
Any new products about to come to market must have a
plant. Plant purchases are reported on the Production
Analysis (Courier, page 4).
10.2 Qualitative Assessment
•
•
•
•
10.2.1 December Customer Survey Score
10 Forecasting
Forecasts are used by the proformas to calculate financial
projections (see Chapter 6). If you enter a forecast that is
unrealistically high, the proformas will take that forecast and
project unrealistic revenue.
If you do not enter values in the Your Sales Forecast cells, the
proformas will use the Computer Prediction to project
financial results.
10.1 Basic Forecasting Method
The statistic boxes on the Segment Analysis reports (pages 5
– 9 of the Courier) publish last year’s Industry Unit Demand
and the Growth Rate for the upcoming year. Multiplying last
year’s demand by the growth rate then adding the result to
last year’s demand will determine this year’s demand.
Team Member Guide
Guiding Your Company
23
Log into the Capstone Spreadsheet and select Marketing
under the Decisions menu. There are two forecasts per
product. The Computer Prediction assumes your
competition has mediocre products and therefore is not
reliable. The Your Sales Forecast column allows you to enter
forecasts of your own.
11 Balanced Scorecard
•
•
•
•
11.1 Guiding Your Company
Consider whether or not the top products in the segment
can meet customer demand. On the Production Analysis,
examine the top products’ capacities. Can they
manufacture sufficient units? If not, you could have an
opportunity to exploit.
10.3 Forecasts, Proformas and the
December 31 Cash Position
•
•
The simulation charges a 12% inventory carrying cost.
•
•
10.4 Worst Case / Best Case
Broad Cost Leader
24
Mission Statement
Niche Differentiation (High Technology)
Mission Statement
Cost Leader with Product Lifecycle Focus
Mission Statement
Differentiation with Product
Lifecycle Focus
Mission Statement
The Capstone Spreadsheet projects Balanced Scorecard
results for the upcoming year (see the Proformas menu).
Scores from previous years are available on the website; log
into your simulation then click the Reports link.
12 Six Basic Strategies
Broad Cost Leader
Mission Statement
Broad Differentiation
Mission Statement
Niche Cost Leader (Low Technology)
Index
A
Accessibility 8, 9, 12, 18,
19
Accounts Payable (A/P) 15,
17
Accounts Receivable 17
Accounts Receivable (A/R)
8, 15, 17
Actual Sales 22
Age 3, 4, 8, 10, 11, 18
Annual Reports 2, 19
Automation 10, 13, 14, 15
Awareness 8, 9, 12, 18,
19
B
Balanced Scorecard 23
Balance Sheet 15, 19
Bonds 15
Book Value 16
Business Ethics 21
Buying Criteria 3, 6, 18,
19
C
Capacity 3, 13, 14, 15
Capstone Courier 1, 17
Capstone Spreadsheet 2
Cash Flow Statement 20
Computer Prediction 13,
23
Corporate Responsibility
and Ethics 21
Create a Sensor 10, 12
Current Debt 15, 16
Customer Survey Score 5,
6, 8, 18, 19
D
December Customer Survey
Score 18
Discontinue a Sensor 3, 14
Dividend 15, 16
Drift 4
E
Earnings Per Share (EPS) 16
Emergency Loans 16
F
Finance 3, 15, 16, 23
Fine Cut
MTBF 8
Positioning 7
Price 7
Forecasting 13, 22
H
Human Resources 19
I
Ideal Spot 6, 18
Income Statement 13, 15,
20
Industry Conditions Report
1, 3
Invent a Sensor 10, 12
L
Labor Cost 13, 14, 17, 18,
20, 21
Labor Negotiations 19
Long Term Debt 15
M
Marketing 2, 3, 5, 11
Market Segment Drift 4
Market Segments 3, 4, 5,
11
Market Share 18
Material Cost 10, 20
Modules 2, 19, 20
MTBF (Mean Time Before
Failure) 3, 4, 7, 8,
10, 18
N
New Sensor 10, 12
P
Perceptual Map 4, 5, 10,
14, 18
Performance
Product Attribute 10
Plug-ins 2, 19, 21
Positioning 3, 4, 7, 18
Potential Sales 18, 22
Practice Rounds 3
Price 3, 4, 7, 18
Production 2, 3, 13, 17
Productivity Index 21
Proformas 2, 19, 23
Promotion Budget 12, 18
R
Rehearsal Tutorial 1
Reliability 3, 4, 7, 8, 10,
18
Research & Development
(R&D) 2, 5, 10, 14
Rough Cut
MTBF 7
Positioning 7
Price 7
S
Sales Budget 12, 18
Sales Forecasting 13, 22
Segment Drift 4
Segments 3, 4, 5, 11
Seller’s Market 9
Situation Analysis 21
Size
Product Attribute 10
Stock 15, 16
Stock Outs 9, 22
Survey Score 5, 6, 8, 18,
19
T
Terminate a Sensor 3, 14
TQM/Sustainability 9, 20
Unforgettable Business Learning
Copyright © 2011 Capsim Management Simulations, Inc. All rights reserved.
Capsim®, Capstone®, Foundation®, and Comp-X M® are trademarks of Capsim Management Simulations, Inc.®
Printed in USA
978-1-933681-21-4
www.capsim.com
