FIN 645 Team Chester Performance/ Assessment Report

Team Chester Performance/ Assessment Report Instruction
The hypothetical audience for these reports is the CEO and board of directors of your Capsim Company.
The reports should summarize the company's goals, strategies, and financial performance for the periods
indicated below.
The CEO and board of directors, who will evaluate your performance critically, have indicated that they
want honest reporting, even if the information is negative (the SEC is actively looking for companies to
sue for fraudulent disclosure and other acts of corporate misbehavior). Your decisions and supporting
rationale should be consistent with the objective of maximizing shareholder wealth, as defined in our
course discussions.
Performance/Assessment Report I
Team Chester will complete two Performance/Assessment reports during the simulation. The first report
will cover your performance assessment for "real" years 1-2. Don't forget that you are competing
against other teams in the markets for sensors. The report should Explain briefly your general business strategy Summarize your R&D, Marketing, Production, and Finance strategies and decisions, Assess your company's actual performance in the simulation against your pro forma
expectations for the years addressed, and Summarize your financial performance in terms of the measures included in the simulation, and
calculations of WACC and value-based measures such as EVA and MVA. Your report should present your analysis in reader-friendly format, with appropriate tables and a logical
organization. In instances where you recognize significant deviations from your expected results, your
report and subsequent decisions should reflect changes in your strategies and explain the reasons for
such changes. You do not need to submit copies of your pro formas or your actual results, since those
will be available from the Capsim web site.
The above requirements result in a paper not exceeding 8 single-spaced pages in length, including
tables and the appendices for Report I. The format should fully communicate your assessment and
strategy changes to the CEO and the board without the necessity for follow up questions. Round Analysis Round Analysis for Year 2019 Round 2 - F88911.
Each Team can earn a maximum of 5 stars. Stars represent an overall performance evaluation, much like the stars in the Morningstar ratings.
One star is issued for each of the following: Contribution margin over 30% Zero emergency loan For total units across entire product line: satisfy at least 95% of demand for their products and can not carry more than 90 days of inventory. Increase in stock price over last year Profit greater than zero Company Profit Margin Emer
Loan Inventory Stock
Price Total Grand Andrews 4 7 Baldwin 5 8 Chester 3 6 Digby 4 8 Erie 5 9 Ferris 4 8 Hello Chester Team! For Round 2 you earned a total of
PROFITS : You earned one star because your profits were $ 1,568,794. Profits are
listed on page 1 of the Foundation FastTrack . Losses are usually the result of
insufficient margin caused by a high cost structure and too low prices. Profit can
also suffer from excessive expenditures in selling and advertising, heavy interest
payments on debt, and losses on liquidation (scrapping) of inventory when retiring
a product line.
ANALYSIS - Congratulations! You turned a nice profit for the year. Company Profit Margin Emer
Loan Inventory Stock
Price Total Grand CONTRIBUTION MARGIN: You earned one star because your corporate
contribution margin is 30.3%. Contribution margin is defined as:
Sales - (Direct Labor + Direct Materials + Inventory Carry)
Sales
It is reported on Page 1 of the Foundation FastTrack as an aggregate average of
each team's product portfolio. A good benchmark for contribution margin is 30%. A
product-by-product margin computation is available on the Income Statement
portion of your company's annual reports.
ANALYSIS - You have good margins. You are getting good returns on your sales. EMERGENCY LOANS: You earned one star, because you avoided an emergency
loan. Emergency loans are listed on Page 1 of the Foundation FastTrack. The
simulation gives you every benefit of a doubt, but if you are out of cash at the end
of the year, "Big Al" arrives to give you just enough cash to bail you out -- at a 7.5
percentage point premium, of course. In the real world we often refer to emergency
loans as "a liquidity crisis", "Chapter 11", or simply "Bankruptcy."
ANALYSIS - You have good cash management.
To diagnose your emergency loan, examine your Cash Flow statement. It represents
the net flow of money into and out of your checking account. A positive number
indicates an inflow, a negative number an outflow. For example, find the
"Inventory" line. If your inventory position increased compared to last year, you
had to pay for the additional inventory, and that resulted in a cash outflow. On the
other hand, if you sold all of your old inventory, that represented a cash inflow. INVENTORY: You earned no stars for your year-end inventory position. The ideal
year-end inventory position is one unit in each product line. In that case you would
know that every potential sale was made, and that inventory carrying cost was
minimized. This is the goal of "Just In Time" inventory systems. In the simulation,
however, you cannot adjust production during the year to meet demand. Therefore,
you must balance the risk of losing sales to competitors because of stock outs
against the cost of carrying additional inventory should your demand exceed your
expectations. At some point inventories become excessive. A good benchmark
would be, "inventory levels should not exceed 60 days (two months) of Sales." For
example, if your product's sales are $12 million, inventories should not exceed $2
million.
To earn a star of your inventory management, each product must satisfy two Company Profit Margin Emer
Loan Inventory Stock
Price Total Grand conditions:
1. Teams must satisfy at least 95% of the demand they generate across the
entire product line. Actual Total Industry Unit Sales/Potential Industry Unit
Sales >= 95%.(on a per team basis) 2. Teams cannot carry more than 90 days of inventory defined as Total Unit
Inventory/Total Units Sold<=25%. ANALYSIS -CHECK FOR STOCK OUTS. You may have under-produced and
turned away customers. Examine the ACTUAL VS. POTENTIAL graphs for each
segment analysis in the simulation reports. This will indicate how badly your stock
out hurt you.
ANALYSIS -CHECK FOR EXCESSIVE INVENTORY LEVELS. On the
Production Analysis (page 4), compare "Units Sold" with "Units in Inventory".
Inventory should be less than 1/6th of unit sales. Inventory consumes cash, drags
down your performance measures, and in extreme cases drives emergency loans.
Inventory carry overheads chew into profits. Typical problems include:
1. Overly optimistic sales forecasts. Previous year customer demands (and
segment growth rates) are listed for each market segment pages. Compare your
sales forecast figures against segment demand. Were sales expectations
unrealistic? For example, if the segment demand ceiling was 3 million units,
and there are six teams with products in the segment, a "fair share" starting
point is 500 thousand units per team. If you have a better than average product,
your sales will be higher. Below average products produce below average
demand. But unless your product is dramatically better or worse than the other
products in the segment, you demand will be somewhere between 50% and
150% of average. This is discussed further in the help files on the website under
"How do we develop a unit sales forecast?" 2. Sometimes teams confuse the relationship between sales forecasts,
production schedule, and production capacity.
o Sales Forecasts only affect proformas. They are a tool - not a
management "decision." When you enter a forecast, you force the software
to use your number to drive the Income Statement. When the simulation is
processed on the web site, actual sales depend upon the actions of your
competitors. Company Profit Margin Emer
Loan Inventory Stock
Price Total Grand o Production Schedule (on the Production spreadsheet of the student
software) is the actual production for the year. This is added to the starting
inventory. Production occurs in monthly increments. o Production Capacity is the size of the factory. If the Capacity is 500
thousand, you can produce up to one million units by running 100%
overtime. All units produced above 500 thousand will be affected by timeand-a-half overtime charges. You buy or sell capacity, or simply leave it idle
and unused. STOCK PRICE: You earned no stars because your stock price fell last year by $1.21. Stock price is affected by performance, asset base, debt, dividend policy, and
number of shares outstanding. In a year of aggressive investment in plant expansion
and automation, you would expect that the necessary debt load would cause some
uneasiness on the part of shareholders. But, if the stock price dips more than
$15.00, it may be a warning sign of too much debt. The stock price can also suffer
in profitable years. For example, liquidation of plant brings in cash, but makes
shareholders wonder about the long term competitive ramifications. Paying
dividends in excess of profits, or obtaining a Big Al emergency loan, will have a
negative effect on stock price.
ANALYSIS - Your shareholders may riot at your annual meeting!