Capsim Quiz
Finance - max stock issue ($000)
- $ value of new shares your board has authorized for sale to the public this year - you can issue up to 20% of outstanding shares each year (you cannot exceed this limit)
AP Lag (days)
- AP lag period in days - 30 days means you on avg wait 30 days b4 you pay your vendors - the longer you delay, the more likely that vendors will withhold parts deliveries - is also on production page
Finance - AR Lag (days)
- AR lag period in days - 30 days means that on avg you allow customers 30 days before you expect payment - more generous terms produce higher demand - is also on marketing page
Production - AP lag
- Accounts Payable lag period in days. "30 days" means that, on average, you wait 30 days before you pay your vendors. The longer the delay, the more likely it is that vendors will withhold parts deliveries. - also on the finance page - determines the size of the adjustment - the longer you make your supplier wait for the payment, the greater the adjustment will become
R&D revision date
- after repositioning your product by changing the mtbf, size and performance the revision date is when your product will be produced and sold at the adjusted amounts - age at revision will be cut in half which can be seen in the age profile
Production - buy/sell capacity
- amount of capacity you wish to buy or sell in thousands - decisions to buy are positive numbers - number repr number of units for delivery on december 31 of this year and new capcaity will be available the next year - selling capacity = entered as negative and capacity is sold on january 1 of this year - TIP: to retire a product but still have inventory on hand you think you can sell, keep 1 unit of capacity and sell the rest BC if you sell all capacity, the inventory will be liquidated at 50% of its value - selling capacity happens right away and changes 1st shift capacity for this year - adding capacity takes 1 year to add
Production - investment ($000)
- amount of investment in new plant and equipment - negative numbers appear when the plant is sold but it is actually cash being paid to you for the sale - capital expenditures are limited to the amount of money raised by issuing stock and bonds, plus last year's excess working capital, minus any dividend you pay this year - if total spending on capacity and automation is more than you can raise,, then plan and equipment decisions will be in red -> if you enter these anyway the simulation will scale them back for you whihc is probs not what you want - company receives 65% of original purchase price when you sell capacity
Finance - issue long term debt
- amount of long term debt (bonds) you wish to issue this year (amount you wish to borrow) - transaction takes place jan 1 - bonds are issued at the long term interest rate and you cannot enter more than the max issue this year
Finance - retire long term debt ($000)
- amount of long term debt (bonds) you wish to retire (repay) early - transactions take place on jan 1 - bonds are purchased at closing price - oldest bond is retired first - TIP: no special action is required to retire a bond due this year; it is reclassified as current debt on dec 31 and become due like all other current debt on jan 1 of next year - if you try and retire the bond, you retire the bond at the current closing price bc transaction takes place jan 1 of this year
Finance - due this year
- amount of money you owe your bank on jan 1 of this year
Finance - dividend / share
- amount of money you plan to give to shareholders this year as an annual dividend - entering $1 means you will give each shareholder $1 for each share they hold -> 2 million shares outstanding, you pay $2
Finance - issue stock ($000)
- amount of money you would like to raise this year by selling common stock to the public - are limited to the max stock issue: sheet will let you enter a higher number but above amounts are ignored
Finance - retire stock ($000)
- amount you wish to spend to purchase outstanding common stock from shareholders - are limited by max stock retire: will let you enter a number higher but amount over the limit will be ignored - retiring stock or bonds is usually ONLY done when the company has RE left over at the end of the year
Finance - proforma
- are essentially if-then statements: if your decisions come true then this is what everything will look like at the end of the year - balance sheet, income statement, cash flow statement and ratios
Finance - borrow ($000)
- bankers will loan current debt up to about 75% of AR (on last year's balance sheet) and 50% of this year's inventory - they estimate this year's inventory by examining last year's income statement - bankers assume worst case a company will have 3-4 months of inventory and will loan up to 50% of that amount --> is about 15% of combined value of last year's total direct labor and total direct material which are on income statment - BC industry is growing, banker increases borrowing limit by 20% to provide room for expansion in inventory and AR
R&D cost
- based on how long the project will take the company to complete
Finance - outstanding bonds Current Yield
- bond's yield = bond rate * 100 / closing price
Marketing - revenue
- by changing sales forecast revenue projects increase - is equal to sales forecast minus variable costs and marketing expenses
Production - 2nd shift production %
- complement refers to workforce size ; at full complement you have no overtime and you have enough workers to complete the production schedule BUT some workers might be on 2nd shift -> if under complement, some 1st shift workers must work overtime - for new products intro'd this year, 2nd shift considers the time that your product will be in the market EX: product emerges in December, you have 1 month OR 1/12 annual capacity available for production -> 2nd shift production will be 100% - it IS possible to not be able to complete your production schedule if are so short handed you cannot fill the complement in your first shit especially if some lines are overtime and others are partial or no overtime - Rules: all lines on 1st shift are staffed, then second shift are added and then as a last resort, 1st shift are assigned overtime to supplement 2nd shif tto full complement - workers on 2nd shift are paid time and a half for labor
Marketing - Price
- customer expects prices to fall within a reasonable range and fall each year - EX) $15 low end and $40 in highe end - for this year's expected price ranges, visit the segment pages under "Last Year's Reports" - penalty for pricing product above the range: every dollar above the price range will lose 20% demand for your product ; at $5 above the price range, demand will fall to zero
december customer survey score (define/formula)
- customer survey drives demand each month = top product in segment's score/sum of all scores
R&D revision date
- date the project will complete - until this date, the project is produced with the old specifications - any existing inventory at that time is reworked to the new specifications at no additional cost - TIP: a new project cannot begin until the old project finishes - all projects begin on January 1 - projects that finish in december are better than projects that finish in january because the december revision date will allow you to begin a new project almost immediately while the january revision date will force you to wait until the next round
Production - labor cost/unit
- esitmated labor cost to product each unit, including 2nd shift/overtime production costs
Marketing - benchmark prediction
- estimates unit sales assuming your product competes with a standardized, mediocre playing field - it does NOT use your actual competitors products - is useful for experimenting with price, promo and sales budgets - is useless for forecasting - can be increased by lowering the price and increasing the promotion and sales budgets - is not accurate but if project increases it does indicate that the decision would typically result in selling more units - has no knowledge of what your competitors are doing in your simulation
Finance - outstanding bonds Face Amount
- face amount or principal of the bonds - amount is repaid when the bond matures - until that year you pay an annual interest rate or "coupon" equal to the interest rate in the series number times the face amount - bonds are sold as 10 year notes, which are not due until 10 years from the point you issued them
Production - margin potential
- finding the max amount of profit you can generate from one unit of a product - useful to make a decision about whether to go into production or not = max price - min unit costs
grading formula for the simulation
- formula = (Your CapSim score * 10) + 40)/100 = percentage - capsim score starts with a rank in each financial metric category - each category ranks has points associated with it ( 1st = 6 pts, 2nd = 5pts) - take points associated with category and multiply by our weighting to compute the Capsim score
How to Update Final Decisions
- go to file and click update official decisions to save your decisions to the website
R&D industry conditions report
- has the drift rate for each market segment in table 1 to help plan R&D decisions - drift rates are how fast each market segment is moving across the perceptual map
Production
- how to schedule production for your products and how to buy/sell assets in the simulation - review production analysis before making decisions - great place to look at what competitors are doing too - scheduling is in the thousands - how much production you can schedule for a product depends on capacity
Production - 1st shift capacity
- if capacity is 1200 -> you can product 1.2 million units on first shift this year at a rate of 100 thousand units per month - can produce up to 1x this rated capacity by using 2nd shift or asking 1st shift to work overtime - can schedule up to double first shift capacity for each product; workers on second shift are paid time and a half for labor
Finance - cash position
- if negative then will result in a higher interest emergency loan being issued to bring your cash account back up to 0
Marketing - sales budget
- in thousands - drives accessibility which examines "how easy it is for customers in the segment to interact with my company during and after the sale?" - it measures distribution channels, sales force, shelf space, order entry systems, customer support, etc - the easier it is to interact with your company the more likely a company will choose your product - 60% accessibility rating means 60% of customer find it easy to work with you and 40% don't - accessibility is a segment issue; products within the esgment are assigned the segment's accessibility - products in the rough cuts are prorated - diminishing returns apply - accessibility decays over time
Marketing - your forecast
- in thousands - represents what you believe you will actually sell - if left at 0 then the proforma financial report will use the computer's unit sales forecast - TIP: important to develop a sales forecast for each month - estimate sales based upon current market conditions, then develop a best/worst case spread - worst case goes under the "benchmark prediction" and best case into "your sales forecast" -- gives you above expected sales with all of your inventory converted to cash - what you are guaranteeing you will sell this year - it is encouraged to be a little conservative with this estimate - to help with this, refer to segment pages in reports and market share report
Marketing - Promo budget
- in thousnands - promotion drives customer awareness and thus also sales - promotion drives all interactions with the customer BEFORE they begin to actively shop - awareness decays over time - you lose 1/3rd each year as customers forget the product - promotion is subject to diminishing returns
R&D pfmn = performance
- indicates how well your product performs (speed, sensitivity) - long term trends is toward higher performance - for existing products, the farther the move the longer the time and higher the cost - for new products, project length depends upon proximity to existing products - is on perceptual map
ROA
- indicator of how profitable a company is relative to its assets - ROA = net operating income (after tax but before interest expenses)/total assets - to increase: (1) make investments that increase plant utilization and productivity rather than adding new assets like additional capacity (keep capacity and production equal) (2) 5% ROA a min is usually required
Finance - long term interest rate
- interest rate you will pay on bonds issued this year - bonds are 10-year coupon notes, meaning you pay interest each year for the next 10 years and then repay principal - bond rates are driven by the prime rate and you leverage ratio (assets/equity) - higher the ratio, the more risk you present and the higher the interest rate
Production - automation rating
- is on a scale of 1 to 10 (@ 1 you rely on heavily skilled workers to build your product -> @10 robots do most of the production) - as automation increases, the labor cost per unit falls by about $1.2 per point until automation is 10 and labor cost per unit is $1.2
Production - new automation rating
- is rating of the production line next year - changes are ordered on jan 1 of this year and arrive on dec 31 - new automation rating will be available next year
Production - overtime
- is the % of 1st shift workers on overtime - 100% means every 1st shift worker is working double shift - 10% means that on avg each 1st shift workers perform 10% overtime - overtime increases turnover and drags down productivity
leverage (debt)
- key to understanding ROA and ROE - ROE includes leverage and how it is used as part of the calculation, ROA does not take take debt into consideration - using debt WILL NOT affect ROA but it COULD affect ROE - For DOA, debt is probably your friend and it may be your friend with ROE - if cost of capital (debt) is higher than ROA then this destroys value
Finance - max stock price retire ($000)
- limit set by board of directors upon stock repurchases this year - you can retire up to 5% of the outstanding shares each year BUT not more than the total equity of your company - if you retire stock, you cannot exceed this limit
common mistakes/problems in capsim
- making big investments in capacity, automation, TQM but forgetting to raise money through short term or long term debt or issuing new shares of stock - excessive inventory in the early rounds (don't assume you are going to dominate with overly optimistic sales forecasts)
R&D product name
- maximum length of 6 characters - should begin with the same letter as that of your team name
average asset turnover
- measure of the ability of a company to utilize their assets to generate sales - asset turnover = sales (revenues)/total assets
R&D age at revision
- new perceived age of the design when the product emerges from R&D - moving a product on the perceptual map affects the age BUT changing the MTBF specifications does not - when the product moves, cusotmers see the product as younger than the old design but not entirely new - they could the old agein half and behave as thought the design is younger
Finance - shares outstanding
- num of shares of common stock in hands of shareholders - reflects any issue/retire stock transactions at the start of the year
Production - inventory on hand
- number of units sitting in your warehouse at the start of the year - inventory on hand + production after adj = number of units you could sell this year
Production - production schedule
- number of units you wish to build this year in thousands - you cannot schedule more than twice your first shift capacity - TIP: remember to factor in inventory on hand when determining how much to produce for each product this year
Production - workforce complement
- number of workers in workforce; there are 2 shifts - as you add workers, 1st shift is completely filled and then 2nd shift - if not have enough workers -> complement this year is less than needed (to not have overtime) complement -> 1st shift works overtime to complete work schedule - overtime drags down productivity and icnreases turnover BUT may have falling complement next year so prefer to work overtime now instead of hiring workers now only to separate them the next year - 2nd shift/overtime = 50% more per hour than 1st shift - simulation schedules 2nd shift as a last resort - you never need more workers than the needed complement - can only be changed in HR module
R&D size
- on perceptual map - indicates physical dimensions of the product - long term trend to smaller products - for existing products, the farther the move the longer the time and higher the cost - for new products, project length depends upon proximity to existing products
ROS (return on sales)
- operating profit margin - use to evaluate operational efficiency - it does not take into consideration interest expenses or taxes which means it could be highly leveraged with lots of debts taken out to invest in automation with no penalty with this metric - ROS = net income (before interest and taxes)/sales - Net Income = total sales - interest, taxes, depreciation and any other expenses - Net Income = taxable income - income taxes
Finance - interest rate
- paid on current debt you borrow this year
R&D mtbf - mean time before failure
- predicts reliability - similar to improving the design - increasing MTBF increases the material cost and makes the product more appealing - indicates the average number of hours your product will operate before it fails - higher reliability implies higher material costs to build you product
ROE
- references the number of shares outstanding + RE - to increase ROE do the following: high turnover (sales), cheaper leverage (borrow money at a lower interest rates early in the game), more leverage (use more debt by issuing new bonds rather than equity), lower taxes (not much to do with this), wider margins on sales (higher contr margins on each product sold)
Marketing - gross revenue
- revenue forecast for each product - price * unit sales - assumes inventory will be available to meet demand - if your "sales forecast" is zero -> the calculation uses the computers "benchmark prediction"
capsim decision spreadsheets
- sales forecasts in marketing only affect proforma financial statement which is helpful only if sales forecasts are accurate - production schedule is actual production and should reflect sales forecast - left over inventory - first shift capacity is the size of your factor (can double capacity w a 2nd shift but it costs 150% of 1st shift)
perceptual map chart
- shows how we track evolving customer demands in the industry - each solid circle represents a market segment of customers with similar preferences - customers expect your products to be positioned within these solid circles - every year the market segments are drifting down and to the right across the perceptual map as customer demands evolve - changing performance/size will reposition the product
R&D New Product - to do
- start by researching where you want to invent a new product by studying the market segment pages - when product is first created it does not age BUT will need some production equipment (buy capacity and automation) then may need to increase borrowing to finance the additional investment then go to finance and
Finance - price/share
- stock price as of yesterday's close - stock will be issued or retired at this price
cumulative profit
- the amount of total profit team accumulates over 8 rounds of competition - everyone starts with ~ 4 million in cumulative profit - every team should try to hit $25 million cumulative profit at a minimum to ensure you hit one of the safety nets
average stock price
- the average (mean) of stock price over each round - highest overall wins category - factors: 1. BV (equity/shares outstanding) ; equity = CS + RE 2. EPS (net profit/shares of stock outstanding) 3. Last 2 Yrs Div Paid (Want div > EPS)
Finance - outstanding bonds serial number
- the num that indicates the bond issue - 1st 3 digits are the interest rate - "S" stands for series - last 2 digits are the year th ebond is due
Finance - EPS
- this years projected EPS, defined as proforma profits/common shares outstanding
R&D project costs
- total cost of the project in thousands of dollars - most you can spend in any year is $1 - if the project costs more than $1 million, $1 million will be spent this year plus the remaining balance in future years
Finance - total investments ($000)
- total investment in plant and equip brought from production spreadsheet
Finance - sales of plant and equip
- total of plant and equip from production sheet
Finance - max issue this year
- upper limit on bonds (long term debt) that you can issue this year - bondholders examine fixed assets and your leverage (assets/equity ratio) to determine a funding limit - generally, bondholders are interested in funding plant and equip - they fund up to 80% of last year's fixed assets - as leverage increases, they become concerned and typically refuse additional funding as leverage exceeds 4
Production - material cost/unit
- when simulation runs the actual material costs vary by month as the segment drift across perceptual map and products emerge from R&D w new positions and MTBF (reliability) specifications - generally is driven by position on perceptual map and MTBF specificaitoin - smaller the size, higher the performance, higher the reliability then the more expensive the materials
Finance - outstanding bonds, 2015 close
- yesterday's closing price on this bond - if you retire (repay early) th ebond, every $100 of face value, you pay this amount
6 Basic Strategies
1. Broad Coast Leader 2. Broad Differentiator 3. Niche Cost Leader (Low Technology) 4. Niche Differentiator (High Technology) 5. Cost Leader w/ Product Lifecycle Focus 6. Differentiator w/ Product Lifecycle Focus
Production - production after adjustments; there are 4 constants
1. capacity: cannot build more than 2x your 1st shift capacity bc there are only 2 shifts 2. complement: if you do not have enough workers, then you may not be able to produce the production schedule even after working 100% overtime 3. AP: lag policy from mkting spreadsheet; as you extend payables policy, vendors increasingly withold parts delivieries, making it impossible to meet production schedule 4. time in mkt: new products are constrained by time in the market. for example, if a product is introduced in october -> you could only product is for 3 months - TIP: it is ok to produce more units that you are forecasting; number of units produced should repr the best case scenario; an extra 1-2 months of sales is reasonable - is what you will actually produce based on production schedule - inventory on hand + production after adj = MAX number of units you can sell for a product this year
Production - forms of production equipment
1. capacity: determines quantity - buy more capacity when there is a high 2nd shift % to keep up with growing demand 2. automation - higher automation, lower labor cost - takes 1 year to add more capacity or automation to a product line
Finance - 3 ways to borrow money
1. issue stock - increases available cash but also dilutes stock price 2. borrow current debt - will be repaid next year but has a lower interest rate than long term debt 3. issue long term debt - increases your available cash but your company will have to pay an interest expense for this loan moving forward
R&D includes what areas:
1. to reposition a product
Marketing - variable costs
= (material cost + labor cost + inventory carry costs) * unit sales - if your "sales forecast" is zero -> calculation uses the "benchmark prediction" calculated by the computer - the calculation uses the material cost and labor cost it finds in the production worksheet and assumes there is no leftover inventory to carry -
Production - contribution margin
= (price - variable costs) / price = (price - unit cost - inventory carry cost) / price - is the % of price that is left over after covering variable costs; from this you pay for the remaining fixed expenses that eventually produce a profit - inventory carring cost = 0 because they are ambiguous rn -> (price - unit cost)/price - TIP: keep contribution margin >30%. from contribution margin you must cover marketing expenses, R&D costs, interest payments, HR overheads, etc
Marketing - less promo/sales
= contribution margin - promo - sales budgets
Marketing - contribution margin
= gross revenue forecast - variable costs
Production - total unit cost
= labor plus material cost
market capitalization (is an ending value in capsim)
= total dollar value of all of a company's outstanding shares of stock - 2,000,000 shares of stock with a stock trading at $50 each means a market cap of $100 million
Traditional Mkt Segment
Age: 47% Price: 23% Position: 21% MTBF: 9% Growth Rate: 9.2% Age: 2 MTBF: 14,000 - 19,000 Start = Round 0 Price Starts btwn: 20 - 30 ; Dec by .50 Perf Starts @ 5 Size Starts @ 15
Production - max investment
Capital expenditures are limited to the amount of money that can be raised through Stock and Bond issues plus excess working capital, (i.e., the sum of your max stock issue, max bond issue, and working capital minus 90 days of sales, less any dividend that is paid.)
schedule production
Estimate a best case for demand for each product this year Display the Production worksheet Observe existing inventory Schedule production to meet best case demand less existing inventory Save the decisions
modify plant and equip
Estimate peak demand for each product for this year and next year Examine unit costs and margins Display the Production worksheet Increase or decrease capacity as required Increase automation as required Observe the net cost of the investment Display the Finance worksheet Fund the investment with a mix of stock issues, bond issues, and depreciation Save the decisions
raise money and pay debt
Examine the proforma Income Statement Examine the proforma Balance Sheet Display the Finance worksheet Issue or repurchase stock as required Issue or repay bonds as required Issue short term debt as required Issue a dividend as required Save the decisions
Marketing process overall
In summary, to market your product you would do the following: Research the competitive environment in the Courier. Display the Marketing worksheet. Enter decisions for Price, Promotion and Sales Budgets. Observe the decision impact upon the benchmark forecast. Develop a worst case estimate for demand. Enter your worst case estimate for in the sales forecast. Save the decisions.
Production equipment overall
In summary, to modify plant and equipment for this year you would do the following: Estimate peak demand for each product for this year and next year. Examine unit costs and margins. Display the Production worksheet. Increase or decrease capacity as required. Increase automation as required. Observe the net cost of the investment. Display the Finance worksheet. Fund the investment with a mix of stock issues, bond issues, and depreciation. Save the decisions.
Finance overall summary
In summary, to raise money and pay debt you would do the following: Examine the Proforma Income Statement. Examine the Proforma Balance Sheet. Display the Finance worksheet. Issue or repurchase stock as required. Issue or repay bonds as required. Issue short term debt as required. Issue a dividend as required. Save the decisions.
R&D process overall
In summary, to reposition a product you would do the following: Research current customer buying criteria in the Courier report. Display the R&D worksheet. Adjust Performance, Size, & MTBF. Observe impacts upon age, material costs, and R&D completion dates. Save the decisions.
Performance Mkt Segment
MTBF: 43% Position: 29% Price: 19% Age: 9% Growth Rate: 19.8% Age: 1 MTBF: 22,000 - 27,000 Start = Round 0 Price Starts btwn: 25 - 35 ; Dec by .50 Perf Starts @ 9.4 Size Starts @ 16
High End Mkt Segment
Position: 43% Age: 29% MTBF: 19% Price: 9% Growth Rate: 16.2% Age: 0 MTBF: 20,000 - 25,000 Start = Round 0 Price Starts btwn: 30 - 40 ; Dec by .50 Perf Starts @ 8.9 Size Starts @ 11.1
Size Mkt Segment
Position: 43% Age: 29% MTBF: 19% Price: 9% Growth Rate: 18.3% Age: 1.5 MTBF: 16,000 - 21,000 Start = Round 0 Price Starts btwn: 25 - 35 ; Dec by .50 Perf Starts @ 4 Size Starts @ 10.6
Low End Mkt Segment
Price: 53% Age: 24% Position: 16% MTBF: 7% Growth Rate: 11.7% Age: 7 MTBF: 12,000 - 17,000 Start = Round 0 Price Starts btwn: 15 - 25 ; Dec by .50 Perf Starts @ 1.7 Size Starts @ 18.3
reposition a product
Research current customer buying criteria in the Courier Display the R&D worksheet Adjust Performance, Size, MTBF Observe impacts upon Age, material cost, and completion dates Save the decisions
market a product
Research the competitive environment in the Courier Display the Marketing worksheet Enter decisions for Price, Promotion and Sales Budgets Observe the decision impact upon the computer's forecast Develop a worst case estimate for demand Enter your worst case estimate for in the sales forecast Save the decisions
invent a new product
Research the opportunity in the segment in the Courier Select appropriate product attributes - Performance, Size, MTBF Display the R&D worksheet. Enter the product attributes Note the R&D completion date Display the Production worksheet Order capacity and automation (optionally, wait a year) Display the Finance worksheet Fund the plant with stock and bond issues Save the decisions
cost to double capacity
increasing capacity is $6 per unit with an adjustments for automtaion = first shift capacity * ($6 + ($4 * automation level))
Production - unit sales forecast
is the unit sales forecast brought forward from the marketing sheet - should represent the company's worst case scenario
R&D New Product overall summary
n summary, to invent a new product you would do the following: Research the opportunity in the segment in the Courier. Select appropriate product attributes - Performance, Size, MTBF. Display the R&D worksheet. Enter the product attributes. Note the R&D completion date. Display the Production worksheet. Order capacity and automation (optionally, wait a year). Display the Finance worksheet. Fund the plant with stock and bond issues. Save the decisions.
Production overall summary
n summary, to schedule production for your product you would do the following: Estimate a best case for demand for each product this year. Display the Production worksheet. Observe existing inventory. Schedule production to meet best case demand less existing inventory. Save the decisions.
next year's demand
total demand + growth = demand for next year growth = total demand * % increase