In this final assessment, you are required to demonstrate to a board of directors the viability of your business. This report needs to be based on the full completed 6 quarters. Note, the board of directors has not seen the business plan presented to the venture capitalists. This final assessment consists of two components 1) A 20-slide powerpoint presentation – the kind of presentation that would be given at board level. Details of suggested content is attached. 2) An accompanying 1,500 word (max) script in the form a "board pitch" – a written transcript of the verbal presentation that would be given to accompany each of the slides. Once you have completed the powerpoint slides, save each powerpoint slide as a JPEG, and copy each one onto a separate page of a word document. Then, place the text accompanying each particular slide on that page, below the slide. It is advisable to have one powerpoint slide and its associated narrative per sheet of A4. This final word document must be submitted via turnitin. It is not necessary to submit the actual powerpoint document. Assignments will not be accepted in any other format. The Report to the Board should include the following components: A. Review your financial and market performance during the second year B. Highlight the key features from the business plan which was presented to the venture capitalists (lecturer) (note, this must be updated with feedback highlighted and incorporated) 1. Marketing strategy 2. Sales Channel strategy 3. Human Resource strategy 4. Manufacturing strategy 5. Financial strategy 6. Ethical and Social Implications C. Assess your business strategy and performance during the second year 1. Compare actions taken the against business plan 2. Discuss departures from the business plan, justification, and outcome 3. Review significant events that affected the company and/or market D. Assess your current situation and the market (What are your firm's strengths and Weaknesses) E. Summarise how you have prepared your firm to compete in the future. F. What were the lessons learned. For example The report to the board shows that…. Please write your text under the slide to which it relates, like this… Total 1500words – You need to write it in language that reflects how you would speak to a board in front of them in a presentation. Please do not write it in any other format i.e. Essay or Report. 1. Cover page – script around 10 words 2. Contents – script around 40 words. 3. Overview – script around 85 words – overall company's performance 4. Financial performance – script around 85 words 5. Market performance – script around 85 words 6. Marketing strategy – script around 85 words 7. Sales Channel strategy – script around 85 words 8. Human Resource strategy – script around 85 words 9. Manufacturing strategy – script around 85 words 10. Financial strategy – script around 85 words 11. Ethical and social Implications – script around 85 words 12. Compare actions taken the against business plan – script around 85 words 13. Discuss departures from the business plan, justification, and outcome– script around 85 words 14. Review significant events that affected the company and/or market – script around 85 words 15. What are your firm's strengths and Weaknesses – script around 85 words 16. What are your firm's strengths and Weaknesses – script around 85 words 17. Summarise how you have prepared your firm to compete in the future. – script around 85 words 18. What were the lessons learned – script around 85 words - How did you benefit from participating in the simulation – 40words - Are there any lessons that you can take into the business world – 45words 19. Q&A – script around 85 words -How close was your Q5/Q6 forecast to your actual results? -What is the biggest risk to your business? -What is your Debt : Equity plan going forward? -What type of CEO are you? 20. Reference list (must do in-text reference and reference list – Harvard style) Followings are the relative data and my opinion. The Report to the Board should include the following components: 1. Overview - overview Trustearn computers performance Cumulative industry results for quarter: 6 Minimum Maximum Average Trustearn Computers Cumulative Total Performance 0.130 109.414 33.073 109.414 Cumulative Financial Performance 2.977 77.044 35.064 77.044 Cumulative Market Performance 0.149 0.410 0.242 0.410 Cumulative Marketing Effectiveness 0.761 0.796 0.778 0.769 Cumulative Investment in Future 2.302 5.720 4.564 2.302 Cumulative Wealth 0.319 2.151 0.934 2.151 Cumulative Human Resource Management 0.718 0.843 0.779 0.843 Cumulative Asset Management 0.713 2.141 1.330 1.385 Cumulative Manufacturing Productivity 0.454 0.913 0.743 0.779 Cumulative Financial Risk 0.777 1.000 0.925 1.000 Cumulative Total Performance = Cumulative Financial Performance * Cumulative Market Performance * Cumulative Marketing Effectiveness * Cumulative Investment in Future * Cumulative Wealth * Cumulative Human Resource Management * Cumulative Asset Management * Cumulative Manufacturing Productivity * Cumulative Financial Risk = 77.044 * 0.410 * 0.769 * 2.302 * 2.151 * 0.843 * 1.385 * 0.779 * 1.000 = 109.414 Cumulative Financial Performance: 77.044 Cumulative Market Performance: 0.410 Cumulative Marketing Effectiveness: 0.769 Cumulative Investment in Future: 2.302 Cumulative Wealth: 2.151 Cumulative Human Resource Management: 0.843 Cumulative Asset Management: 1.385 Cumulative Manufacturing Productivity: 0.779 Cumulative Financial Risk: 1.000 Cumulative Financial Performance Cumulative Financial Performance = ( Financial Performance Q3 + Financial Performance Q4 + Financial Performance Q5 + Financial Performance Q6 ) / 4 = ( 31.10 + 83.53 + 126.83 + 66.72 ) / 4 = 77.04 Financial Performance Q3: 31.10 Financial Performance Q4: 83.53 Financial Performance Q5: 126.83 Financial Performance Q6: 66.72 Cumulative Market Performance Cumulative Market Performance = ( Market Performance Q3 + Market Performance Q4 + Market Performance Q5 + Market Performance Q6 ) / 4 = ( 0.42 + 0.44 + 0.45 + 0.34 ) / 4 = 0.41 Market Performance Q3: 0.42 Market Performance Q4: 0.44 Market Performance Q5: 0.45 Market Performance Q6: 0.34 Cumulative Marketing Effectiveness Cumulative Marketing Effectiveness = ( Marketing Effectiveness Q3 + Marketing Effectiveness Q4 + Marketing Effectiveness Q5 + Marketing Effectiveness Q6 ) / 4 = ( 0.70 + 0.75 + 0.81 + 0.82 ) / 4 = 0.77 Marketing Effectiveness Q3: 0.70 Marketing Effectiveness Q4: 0.75 Marketing Effectiveness Q5: 0.81 Marketing Effectiveness Q6: 0.82 Cumulative Investment in Future Cumulative Investment in Future = Investment in Future Q6 = 2.30 Investment in Future Q6: 2.30 Cumulative Wealth Cumulative Wealth = Wealth Q6 = 2.15 Wealth Q6: 2.15 Cumulative Human Resource Management Cumulative Human Resource Management = ( Human Resource Management Q3 + Human Resource Management Q4 + Human Resource Management Q5 + Human Resource Management Q6 ) / 4 = ( 0.75 + 0.85 + 0.88 + 0.89 ) / 4 = 0.84 Human Resource Management Q3: 0.75 Human Resource Management Q4: 0.85 Human Resource Management Q5: 0.88 Human Resource Management Q6: 0.89 Cumulative Asset Management Cumulative Asset Management = ( Asset Management Q3 + Asset Management Q4 + Asset Management Q5 + Asset Management Q6 ) / 4 = ( 1.45 + 1.40 + 1.51 + 1.18 ) / 4 = 1.39 Asset Management Q3: 1.45 Asset Management Q4: 1.40 Asset Management Q5: 1.51 Asset Management Q6: 1.18 Cumulative Manufacturing Productivity Cumulative Manufacturing Productivity = ( Manufacturing Productivity Q3 + Manufacturing Productivity Q4 + Manufacturing Productivity Q5 + Manufacturing Productivity Q6 ) / 4 = ( 0.68 + 1.00 + 0.86 + 0.58 ) / 4 = 0.78 Manufacturing Productivity Q3: 0.68 Manufacturing Productivity Q4: 1.00 Manufacturing Productivity Q5: 0.86 Manufacturing Productivity Q6: 0.58 Cumulative Financial Risk Cumulative Financial Risk = ( Financial Risk Q3 + Financial Risk Q4 + Financial Risk Q5 + Financial Risk Q6 ) / 4 = ( 1.00 + 1.00 + 1.00 + 1.00 ) / 4 = 1.00 Financial Risk Q3: 1.00 Financial Risk Q4: 1.00 Financial Risk Q5: 1.00 Financial Risk Q6: 1.00 A. Review your financial and market performance during the second year - focus on quarter 5 and 6 but the presentation needs to include all quarters Industry results for quarter: 6 Minimum Maximum Average Trustearn Computers Total Performance 0.709 79.158 44.819 55.371 Financial Performance 7.294 72.152 48.571 66.720 Market Performance 0.140 0.335 0.242 0.335 Marketing Effectiveness 0.803 0.890 0.833 0.823 Investment in Future 2.302 5.720 4.564 2.302 Wealth 0.319 2.151 0.934 2.151 Human Resource Management 0.787 0.894 0.846 0.892 Asset Management 1.069 3.372 1.806 1.181 Manufacturing Productivity 0.567 0.858 0.679 0.578 Financial Risk 0.858 1.000 0.972 1.000 Total Performance The Total Business Performance indicator is a quantitative measure of the executive team's ability to effectively manage the resources of the firm. It considers both the historical performance of the firm as well as how well the firm is positioned to compete in the future. As such, it measures the action potential of the firm. The index employs what is called a balanced scorecard to measure the executive team's performance. The most important measure is the team's financial performance, and thus its ability to create wealth for the investors. However, the focus on current profits has caused many executives to stress the present at the expense of the future. The long-term viability of the firm requires that the executive team be good at managing not only the firm's profitability, but also its marketing activities, production operations, human resources, cash, and financial resources. The management team must also invest in the future. These expenses might depress the current financial performance, but are vital to creating new products, markets, and manufacturing capabilities. In short, top managers must be good at managing all aspects of the firm. The balanced scorecard puts this perspective into practice. It focuses attention on multiple performance measures, and thus multiple decision areas. None can be ignored or downplayed. The best managers will be strong in all areas measured. The Total Business Performance measure is computed by multiplying several indicators of business performance. This model underscores the importance of all measures. This is because any strength or weakness will have multiple effects on the final outcome, the Action Potential of the Firm. The following is a summary of the measure of the firm's Total Business Performance and its key performance indicators. The computational details follow. Note that a negative score in any of these indicators will result in a Total Performance of "0". Primary segment: Mercedes Secondary segment: Workhorse Total Performance = Financial Performance * Market Performance * Marketing Effectiveness * Investment in Future * Wealth * Human Resource Management * Asset Management * Manufacturing Productivity * Financial Risk = 66.720 * 0.335 * 0.823 * 2.302 * 2.151 * 0.892 * 1.181 * 0.578 * 1.000 = 55.371 Financial Performance: 66.720 Market Performance: 0.335 Marketing Effectiveness: 0.823 Investment in Future: 2.302 Wealth: 2.151 Human Resource Management: 0.892 Asset Management: 1.181 Manufacturing Productivity: 0.578 Financial Risk: 1.000 Financial Performance measures how well the executive team has been able to create profits for its shareholders. A positive number is always desired and the larger the better. It is computed in three steps. First, the net profit from operations is computed by taking the operating profit shown in the income statement and adding back investments in the future that are expensed in the current quarter. It measures how well the managers are able to create revenue from the current quarter's marketing, sales and manufacturing activities. Note that the income statement includes expenditures for R&D. However, this money is spent to create future business opportunities. Thus, these expenses are added back to the operating profit so that the financial performance measure is entirely focused on current quarter revenues and expenses. Second, the total number of shares of stock is computed by adding all forms of equity investment. If an emergency loan has been taken out, shares of stock will automatically be issued to the loan shark and they become a permanent part of the equity financing. Third, the net profit from current operations is divided by the number of shares of stock issued to determine the net profit from current operations per share of stock. Financial Performance = Net Profit from Current Operations / Total Shares Issued = 5,362,918 / 80,380 = 66.72 Net Profit from Current Operations = Operating Profit + Investments in Firm's Future = 5,302,918 + 60,000 = 5,362,918 Operating Profit = Gross Profit - Total Expenses = 12,215,177 - 6,912,259 = 5,302,918 Gross Profit: 12,215,177 Total Expenses: 6,912,259 Investments in Firm's Future = Cost to Open New Sales Offices and Web Centers + R&D Investment in New Brand Features and New brands = 0 + 60,000 = 60,000 Cost to Open New Sales Offices and Web Centers: 0 R&D Investment in New Brand Features and New brands: 60,000 Total Shares Issued = Number of Shares Issued to Executive Team + Number of Shares Issued to Venture Capitalists + Number of Shares Issued to Loan Shark = 40,000 + 40,000 + 380 = 80,380 Number of Shares Issued to Executive Team: 40,000 Number of Shares Issued to Venture Capitalists: 40,000 Number of Shares Issued to Loan Shark: 380 Market Performance is a measure of how well the managers are able to create demand in their primary and secondary segments. The firm's market share in two target segments is used to measure this demand creation ability. The market share score is adjusted downwards if there were any stock-outs. This penalty for stock-outs is to underscore two points. First, unnecessary resources have been spent to generate more demand than can be satisfied. Second, ill will has been created by having potential customers become frustrated when they do not find the products that they have been persuaded to buy. The score ranges from 0 to 1.0 and will depend upon the number of competitors. If there are 3 firms, a good score would be greater than 0.5. If there are 8 teams, a good score would be greater than 0.35. Market Performance = Average Market Share in Targeted Segments / 100 * Percent of Demand Actually Served / 100 = 34 / 100 * 100 / 100 = 0.34 Average Market Share in Targeted Segments = ( Market Share in Primary Segment + Market Share in Secondary Segment ) / 2 = ( 29 + 38 ) / 2 = 34 Market Share in Primary Segment: 29 Market Share in Secondary Segment: 38 Percent of Demand Actually Served = ( ( Total Net Demand - Number of Stock-outs ) / Total Net Demand ) * 100 = ( ( 6,220 - 0 ) / 6,220 ) * 100 = 100 Total Net Demand: 6,220 Number of Stock-outs: 0 Marketing Effectiveness is a measure of how well the managers have been able to satisfy the needs of the customers as measured by the quality of their brands and ads. Customer perceptions of the firm's brands and ads in its primary and secondary segments are used to measure customer satisfaction. The two scores are then averaged to obtain the indicator for marketing effectiveness. The score ranges from 0 to 1.0. A good score would be greater than 0.8 Marketing Effectiveness = ( Average Brand Judgment / 100 + Average Ad Judgment / 100 ) / 2 = ( 79 / 100 + 86 / 100 ) / 2 = 0.82 Average Brand Judgment = ( Highest Brand Judgment in Primary Segment + Highest Brand Judgment in Secondary Segment ) / 2 = ( 77 + 80 ) / 2 = 79 Highest Brand Judgment in Primary Segment: 77 Highest Brand Judgment in Secondary Segment: 80 Average Ad Judgment = ( Highest Ad Judgment in Primary Segment + Highest Ad Judgment in Secondary Segment ) / 2 = ( 87 + 85 ) / 2 = 86 Highest Ad Judgment in Primary Segment: 87 Highest Ad Judgment in Secondary Segment: 85 Investment in Future reflects the willingness of the executive team to spend current revenues on future business opportunities. They are necessary but risky. In the short-term, these expenditures can cause large negative profits on the income statement. As a result, the retained earnings may become highly negative, thus indicating that a substantial portion of the stockholder's investment has disappeared into the operations of the firm. In the long-term, these investments are absolutely necessary if the firm is to be competitive. Thus, there is a need to balance the loss of stockholder's equity against investments which could create even greater returns for the investors in the future. The score is always greater or equal to 1.0 and a good score would be greater than 3.0. Investment in Future = ( Cumulative Expenses that Benefit Firm's Future / Cumulative Net Revenues ) * 10 + 1 = ( 8,016,253 / 61,592,300 ) * 10 + 1 = 2.30 Cumulative Expenses that Benefit Firm's Future = Cumulative Cost to Open New Sales Offices and Web Centers + Cumulative R&D Investment in New Brand Features and New brands + Cumulative R&D Licenses + Cumulative Depreciation = 1,540,000 + 6,038,753 + 0 + 437,500 = 8,016,253 Cumulative Cost to Open New Sales Offices and Web Centers: 1,540,000 Cumulative R&D Investment in New Brand Features and New brands: 6,038,753 Cumulative R&D Licenses: 0 Cumulative Depreciation: 437,500 Cumulative Net Revenues = Cumulative Sales Revenue - Cumulative Rebates = 62,300,350 - 708,050 = 61,592,300 Cumulative Sales Revenue: 62,300,350 Cumulative Rebates: 708,050 Wealth is a measure of how well the executive team has been able to add wealth to the initial investments of the stockholders. During the start-up phase of the company, it is expected that the initial stockholders' investments will be used to create new brands and conduct R&D on new brand features. Expenses can exceed revenues leading to losses and retained earnings figures that are negative. To compute the creation of wealth measure, the net equity of the firm is first computed by adding the retained earnings to the total of the investments from all of the stockholders. The retained earnings figure is the sum of all profits from the inception of the firm. As noted above, the retained earnings will be negative in the early quarters as the firm invests money to start up and grow the business. Next, the net equity is divided by the total of all equity investments to obtain a ratio of wealth creation. A value of zero or less indicates bankruptcy. A value greater than zero and less than one indicates the executive team is relying upon the initial stockholder's investments to pay day-to-day expenses plus invest in the future. A value greater than one indicates the firm is adding wealth to the stockholders. Wealth = Net Equity / Total Stockholders Equity = 17,205,833 / 8,000,000 = 2.15 Net Equity = Retained Earnings + Common Stock = 9,205,833 + 8,000,000 = 17,205,833 Retained Earnings: 9,205,833 Common Stock: 8,000,000 Total Stockholders Equity = Common Stock = 8,000,000 = 8,000,000 Common Stock: 8,000,000 Human Resource Management is a measure of how well the executive team is able to recruit the best employees, satisfy their needs, and motivate them to excel. Sales force productivity and factory worker productivity are averaged together to obtain a single score. High performance is only possible if the firm's compensation packages are competitive and in tune with what is important to employees over time. The scores range from zero to 1.00 and a good score would be greater than 0.80. Human Resource Management = ( Sales Force Productivity / 100 + Factory Worker Productivity / 100 ) / 2 = ( 83 / 100 + 95 / 100 ) / 2 = 0.89 Sales Force Productivity: 83 Factory Worker Productivity: 95 Asset Management is a measure of the executive team's ability to use the firm's assets to create sales revenue. Asset management is measured by computing the asset turnover of the firm. Effective managers are able to use the assets to create sales which are two or three times the value of the assets. Thus, a very good score would be 3.0 Asset Management = Asset Turnover * Penalty for Excess Inventory = 1.20 * 0.99 = 1.18 Asset Turnover = Net Revenues / Total Assets = 20,620,000 / 17,205,833 = 1.20 Net Revenues = Sales Revenue - Rebates + Interest Income = 20,620,000 - 0 + 0 = 20,620,000 Sales Revenue: 20,620,000 Rebates: 0 Interest Income: 0 Total Assets: 17,205,833 Penalty for Excess Inventory = 1 - Ending Inventory / Production = 1 - 90 / 6,235 = 0.99 Ending Inventory: 90 Production: 6,235 Manufacturing Productivity measures of productivity focuses on how much of the operating capacity is actually used in production versus that portion lost to excess capacity. Excess capacity costs occur when the factory is scheduled to produce more inventory than is needed to meet demand or stock the warehouse. Good forecasting and production scheduling will reduce penalties for excess capacity. The score ranges from 0.0 to 1.0. A very good score would be 0.80. Manufacturing Productivity = ( Percent of Operating Capacity Used in Production / 100 ) = ( 58 / 100 ) = 0.58 Percent of Operating Capacity Used in Production: 58 Financial Risk measures the executive team's ability to manage debt as a financial resource. The financial risk indicator is based upon the degree to which debt is part of the capital of the firm. As debt increases relative to the total capital, then the financial risk associated with the company increases. Conversely, as the proportion of equity in the total capital increases, then the perceived financial risk in the firm decreases. To compute financial risk, the proportion of equity is obtained by computing the amount of equity in the firm and dividing it by the amount of capital invested in the firm from all sources. Specifically, the amount of equity is equal to the sum of common stock plus retained earnings. The amount of capital is equal to the sum of debt plus common stock plus retained earnings. As the ratio of equity to capital decreases (meaning more debt), then financial risk increases. A value of 1.00 would indicate there is no debt and, therefore, no perceived financial risk. It is important to realize that financial managers do not want to totally discourage debt. The optimum capital structure will vary by firm depending on its tax situation, overall risk, asset base, and financial slack. Some debt may be desirable in order to help the firm take advantage of value enhancing business opportunities (i.e., opportunities that earn more than the company's weighted average cost of capital). In order to mitigate or downplay the effect of low amounts of debt in the capital structure, the value for the share of equity in the company is raised to a power of 0.5 (square root). Thus, if debt represented 20% of the capital structure, then the Financial risk indicator would be 0.89 (0.80 ^ 0.5). If debt were 50% of the capital structure, the Financial Risk indicator would be 0.71. A Financial Risk indicator below 0.80 (more than 36% debt) would be considered unfavorable. Financial Risk = ( Total Equity / Total Capital ) ^ 0.5 = ( 17,205,833 / 17,205,833 ) ^ 0.5 = 1.00 Total Equity = Common Stock + Retained Earnings = 8,000,000 + 9,205,833 = 17,205,833 Common Stock: 8,000,000 Retained Earnings: 9,205,833 Total Capital = Common Stock + Retained Earnings + Debt = 8,000,000 + 9,205,833 + 0 = 17,205,833 Common Stock: 8,000,000 Retained Earnings: 9,205,833 Debt: 0 Industry results for quarter: 5 Minimum Maximum Average Trustearn Computers Total Performance 0.312 265.387 63.402 265.387 Financial Performance 6.126 126.826 49.717 126.826 Market Performance 0.135 0.450 0.242 0.450 Marketing Effectiveness 0.793 0.823 0.805 0.808 Investment in Future 2.901 7.558 5.908 2.901 Wealth 0.248 1.753 0.710 1.753 Human Resource Management 0.731 0.877 0.807 0.877 Asset Management 0.830 2.722 1.487 1.509 Manufacturing Productivity 0.510 0.931 0.775 0.856 Financial Risk 0.725 1.000 0.891 1.000 Total Performance The Total Business Performance indicator is a quantitative measure of the executive team's ability to effectively manage the resources of the firm. It considers both the historical performance of the firm as well as how well the firm is positioned to compete in the future. As such, it measures the action potential of the firm. The index employs what is called a balanced scorecard to measure the executive team's performance. The most important measure is the team's financial performance, and thus its ability to create wealth for the investors. However, the focus on current profits has caused many executives to stress the present at the expense of the future. The long-term viability of the firm requires that the executive team be good at managing not only the firm's profitability, but also its marketing activities, production operations, human resources, cash, and financial resources. The management team must also invest in the future. These expenses might depress the current financial performance, but are vital to creating new products, markets, and manufacturing capabilities. In short, top managers must be good at managing all aspects of the firm. The balanced scorecard puts this perspective into practice. It focuses attention on multiple performance measures, and thus multiple decision areas. None can be ignored or downplayed. The best managers will be strong in all areas measured. The Total Business Performance measure is computed by multiplying several indicators of business performance. This model underscores the importance of all measures. This is because any strength or weakness will have multiple effects on the final outcome, the Action Potential of the Firm. The following is a summary of the measure of the firm's Total Business Performance and its key performance indicators. The computational details follow. Note that a negative score in any of these indicators will result in a Total Performance of "0". Primary segment: Workhorse Secondary segment: Traveler Total Performance = Financial Performance * Market Performance * Marketing Effectiveness * Investment in Future * Wealth * Human Resource Management * Asset Management * Manufacturing Productivity * Financial Risk = 126.826 * 0.450 * 0.808 * 2.901 * 1.753 * 0.877 * 1.509 * 0.856 * 1.000 = 265.387 Financial Performance: 126.826 Market Performance: 0.450 Marketing Effectiveness: 0.808 Investment in Future: 2.901 Wealth: 1.753 Human Resource Management: 0.877 Asset Management: 1.509 Manufacturing Productivity: 0.856 Financial Risk: 1.000 Financial Performance measures how well the executive team has been able to create profits for its shareholders. A positive number is always desired and the larger the better. It is computed in three steps. First, the net profit from operations is computed by taking the operating profit shown in the income statement and adding back investments in the future that are expensed in the current quarter. It measures how well the managers are able to create revenue from the current quarter's marketing, sales and manufacturing activities. Note that the income statement includes expenditures for R&D. However, this money is spent to create future business opportunities. Thus, these expenses are added back to the operating profit so that the financial performance measure is entirely focused on current quarter revenues and expenses. Second, the total number of shares of stock is computed by adding all forms of equity investment. If an emergency loan has been taken out, shares of stock will automatically be issued to the loan shark and they become a permanent part of the equity financing. Third, the net profit from current operations is divided by the number of shares of stock issued to determine the net profit from current operations per share of stock. Financial Performance = Net Profit from Current Operations / Total Shares Issued = 10,194,247 / 80,380 = 126.83 Net Profit from Current Operations = Operating Profit + Investments in Firm's Future = 6,483,164 + 3,711,083 = 10,194,247 Operating Profit = Gross Profit - Total Expenses = 12,951,208 - 6,468,044 = 6,483,164 Gross Profit: 12,951,208 Total Expenses: 6,468,044 Investments in Firm's Future = Cost to Open New Sales Offices and Web Centers + R&D Investment in New Brand Features and New brands = 0 + 3,711,083 = 3,711,083 Cost to Open New Sales Offices and Web Centers: 0 R&D Investment in New Brand Features and New brands: 3,711,083 Total Shares Issued = Number of Shares Issued to Executive Team + Number of Shares Issued to Venture Capitalists + Number of Shares Issued to Loan Shark = 40,000 + 40,000 + 380 = 80,380 Number of Shares Issued to Executive Team: 40,000 Number of Shares Issued to Venture Capitalists: 40,000 Number of Shares Issued to Loan Shark: 380 Market Performance is a measure of how well the managers are able to create demand in their primary and secondary segments. The firm's market share in two target segments is used to measure this demand creation ability. The market share score is adjusted downwards if there were any stock-outs. This penalty for stock-outs is to underscore two points. First, unnecessary resources have been spent to generate more demand than can be satisfied. Second, ill will has been created by having potential customers become frustrated when they do not find the products that they have been persuaded to buy. The score ranges from 0 to 1.0 and will depend upon the number of competitors. If there are 3 firms, a good score would be greater than 0.5. If there are 8 teams, a good score would be greater than 0.35. Market Performance = Average Market Share in Targeted Segments / 100 * Percent of Demand Actually Served / 100 = 45 / 100 * 100 / 100 = 0.45 Average Market Share in Targeted Segments = ( Market Share in Primary Segment + Market Share in Secondary Segment ) / 2 = ( 47 + 43 ) / 2 = 45 Market Share in Primary Segment: 47 Market Share in Secondary Segment: 43 Percent of Demand Actually Served = ( ( Total Net Demand - Number of Stock-outs ) / Total Net Demand ) * 100 = ( ( 6,380 - 0 ) / 6,380 ) * 100 = 100 Total Net Demand: 6,380 Number of Stock-outs: 0 Marketing Effectiveness is a measure of how well the managers have been able to satisfy the needs of the customers as measured by the quality of their brands and ads. Customer perceptions of the firm's brands and ads in its primary and secondary segments are used to measure customer satisfaction. The two scores are then averaged to obtain the indicator for marketing effectiveness. The score ranges from 0 to 1.0. A good score would be greater than 0.8 Marketing Effectiveness = ( Average Brand Judgment / 100 + Average Ad Judgment / 100 ) / 2 = ( 80 / 100 + 82 / 100 ) / 2 = 0.81 Average Brand Judgment = ( Highest Brand Judgment in Primary Segment + Highest Brand Judgment in Secondary Segment ) / 2 = ( 80 + 79 ) / 2 = 80 Highest Brand Judgment in Primary Segment: 80 Highest Brand Judgment in Secondary Segment: 79 Average Ad Judgment = ( Highest Ad Judgment in Primary Segment + Highest Ad Judgment in Secondary Segment ) / 2 = ( 85 + 79 ) / 2 = 82 Highest Ad Judgment in Primary Segment: 85 Highest Ad Judgment in Secondary Segment: 79 Investment in Future reflects the willingness of the executive team to spend current revenues on future business opportunities. They are necessary but risky. In the short-term, these expenditures can cause large negative profits on the income statement. As a result, the retained earnings may become highly negative, thus indicating that a substantial portion of the stockholder's investment has disappeared into the operations of the firm. In the long-term, these investments are absolutely necessary if the firm is to be competitive. Thus, there is a need to balance the loss of stockholder's equity against investments which could create even greater returns for the investors in the future. The score is always greater or equal to 1.0 and a good score would be greater than 3.0. Investment in Future = ( Cumulative Expenses that Benefit Firm's Future / Cumulative Net Revenues ) * 10 + 1 = ( 7,789,586 / 40,972,300 ) * 10 + 1 = 2.90 Cumulative Expenses that Benefit Firm's Future = Cumulative Cost to Open New Sales Offices and Web Centers + Cumulative R&D Investment in New Brand Features and New brands + Cumulative R&D Licenses + Cumulative Depreciation = 1,540,000 + 5,978,753 + 0 + 270,833 = 7,789,586 Cumulative Cost to Open New Sales Offices and Web Centers: 1,540,000 Cumulative R&D Investment in New Brand Features and New brands: 5,978,753 Cumulative R&D Licenses: 0 Cumulative Depreciation: 270,833 Cumulative Net Revenues = Cumulative Sales Revenue - Cumulative Rebates = 41,680,350 - 708,050 = 40,972,300 Cumulative Sales Revenue: 41,680,350 Cumulative Rebates: 708,050 Wealth is a measure of how well the executive team has been able to add wealth to the initial investments of the stockholders. During the start-up phase of the company, it is expected that the initial stockholders' investments will be used to create new brands and conduct R&D on new brand features. Expenses can exceed revenues leading to losses and retained earnings figures that are negative. To compute the creation of wealth measure, the net equity of the firm is first computed by adding the retained earnings to the total of the investments from all of the stockholders. The retained earnings figure is the sum of all profits from the inception of the firm. As noted above, the retained earnings will be negative in the early quarters as the firm invests money to start up and grow the business. Next, the net equity is divided by the total of all equity investments to obtain a ratio of wealth creation. A value of zero or less indicates bankruptcy. A value greater than zero and less than one indicates the executive team is relying upon the initial stockholder's investments to pay day-to-day expenses plus invest in the future. A value greater than one indicates the firm is adding wealth to the stockholders. Wealth = Net Equity / Total Stockholders Equity = 14,024,082 / 8,000,000 = 1.75 Net Equity = Retained Earnings + Common Stock = 6,024,082 + 8,000,000 = 14,024,082 Retained Earnings: 6,024,082 Common Stock: 8,000,000 Total Stockholders Equity = Common Stock = 8,000,000 = 8,000,000 Common Stock: 8,000,000 Human Resource Management is a measure of how well the executive team is able to recruit the best employees, satisfy their needs, and motivate them to excel. Sales force productivity and factory worker productivity are averaged together to obtain a single score. High performance is only possible if the firm's compensation packages are competitive and in tune with what is important to employees over time. The scores range from zero to 1.00 and a good score would be greater than 0.80. Human Resource Management = ( Sales Force Productivity / 100 + Factory Worker Productivity / 100 ) / 2 = ( 82 / 100 + 93 / 100 ) / 2 = 0.88 Sales Force Productivity: 82 Factory Worker Productivity: 93 Asset Management is a measure of the executive team's ability to use the firm's assets to create sales revenue. Asset management is measured by computing the asset turnover of the firm. Effective managers are able to use the assets to create sales which are two or three times the value of the assets. Thus, a very good score would be 3.0 Asset Management = Asset Turnover * Penalty for Excess Inventory = 1.53 * 0.99 = 1.51 Asset Turnover = Net Revenues / Total Assets = 21,409,300 / 14,024,082 = 1.53 Net Revenues = Sales Revenue - Rebates + Interest Income = 21,409,300 - 0 + 0 = 21,409,300 Sales Revenue: 21,409,300 Rebates: 0 Interest Income: 0 Total Assets: 14,024,082 Penalty for Excess Inventory = 1 - Ending Inventory / Production = 1 - 75 / 6,455 = 0.99 Ending Inventory: 75 Production: 6,455 Manufacturing Productivity measures of productivity focuses on how much of the operating capacity is actually used in production versus that portion lost to excess capacity. Excess capacity costs occur when the factory is scheduled to produce more inventory than is needed to meet demand or stock the warehouse. Good forecasting and production scheduling will reduce penalties for excess capacity. The score ranges from 0.0 to 1.0. A very good score would be 0.80. Manufacturing Productivity = ( Percent of Operating Capacity Used in Production / 100 ) = ( 86 / 100 ) = 0.86 Percent of Operating Capacity Used in Production: 86 Financial Risk measures the executive team's ability to manage debt as a financial resource. The financial risk indicator is based upon the degree to which debt is part of the capital of the firm. As debt increases relative to the total capital, then the financial risk associated with the company increases. Conversely, as the proportion of equity in the total capital increases, then the perceived financial risk in the firm decreases. To compute financial risk, the proportion of equity is obtained by computing the amount of equity in the firm and dividing it by the amount of capital invested in the firm from all sources. Specifically, the amount of equity is equal to the sum of common stock plus retained earnings. The amount of capital is equal to the sum of debt plus common stock plus retained earnings. As the ratio of equity to capital decreases (meaning more debt), then financial risk increases. A value of 1.00 would indicate there is no debt and, therefore, no perceived financial risk. It is important to realize that financial managers do not want to totally discourage debt. The optimum capital structure will vary by firm depending on its tax situation, overall risk, asset base, and financial slack. Some debt may be desirable in order to help the firm take advantage of value enhancing business opportunities (i.e., opportunities that earn more than the company's weighted average cost of capital). In order to mitigate or downplay the effect of low amounts of debt in the capital structure, the value for the share of equity in the company is raised to a power of 0.5 (square root). Thus, if debt represented 20% of the capital structure, then the Financial risk indicator would be 0.89 (0.80 ^ 0.5). If debt were 50% of the capital structure, the Financial Risk indicator would be 0.71. A Financial Risk indicator below 0.80 (more than 36% debt) would be considered unfavorable. Financial Risk = ( Total Equity / Total Capital ) ^ 0.5 = ( 14,024,082 / 14,024,082 ) ^ 0.5 = 1.00 Total Equity = Common Stock + Retained Earnings = 8,000,000 + 6,024,082 = 14,024,082 Common Stock: 8,000,000 Retained Earnings: 6,024,082 Total Capital = Common Stock + Retained Earnings + Debt = 8,000,000 + 6,024,082 + 0 = 14,024,082 Common Stock: 8,000,000 Retained Earnings: 6,024,082 Debt: 0 Cumulative industry results for quarter: 6 Minimum Maximum Average Trustearn Computers Cumulative Total Performance 0.130 109.414 33.073 109.414 Cumulative Financial Performance 2.977 77.044 35.064 77.044 Cumulative Market Performance 0.149 0.410 0.242 0.410 Cumulative Marketing Effectiveness 0.761 0.796 0.778 0.769 Cumulative Investment in Future 2.302 5.720 4.564 2.302 Cumulative Wealth 0.319 2.151 0.934 2.151 Cumulative Human Resource Management 0.718 0.843 0.779 0.843 Cumulative Asset Management 0.713 2.141 1.330 1.385 Cumulative Manufacturing Productivity 0.454 0.913 0.743 0.779 Cumulative Financial Risk 0.777 1.000 0.925 1.000 Total Performance The Total Business Performance indicator is a quantitative measure of the executive team's ability to effectively manage the resources of the firm. It considers both the historical performance of the firm as well as how well the firm is positioned to compete in the future. As such, it measures the action potential of the firm. The index employs what is called a balanced scorecard to measure the executive team's performance. The most important measure is the team's financial performance, and thus its ability to create wealth for the investors. However, the focus on current profits has caused many executives to stress the present at the expense of the future. The long-term viability of the firm requires that the executive team be good at managing not only the firm's profitability, but also its marketing activities, production operations, human resources, cash, and financial resources. The management team must also invest in the future. These expenses might depress the current financial performance, but are vital to creating new products, markets, and manufacturing capabilities. In short, top managers must be good at managing all aspects of the firm. The balanced scorecard puts this perspective into practice. It focuses attention on multiple performance measures, and thus multiple decision areas. None can be ignored or downplayed. The best managers will be strong in all areas measured. The Total Business Performance measure is computed by multiplying several indicators of business performance. This model underscores the importance of all measures. This is because any strength or weakness will have multiple effects on the final outcome, the Action Potential of the Firm. The following is a summary of the measure of the firm's Total Business Performance and its key performance indicators. The computational details follow. Note that a negative score in any of these indicators will result in a Total Performance of "0". Primary segment: Mercedes Secondary segment: Workhorse Total Performance = Financial Performance * Market Performance * Marketing Effectiveness * Investment in Future * Wealth * Human Resource Management * Asset Management * Manufacturing Productivity * Financial Risk Cumulative Total Performance = Cumulative Financial Performance * Cumulative Market Performance * Cumulative Marketing Effectiveness * Cumulative Investment in Future * Cumulative Wealth * Cumulative Human Resource Management * Cumulative Asset Management * Cumulative Manufacturing Productivity * Cumulative Financial Risk = 77.044 * 0.410 * 0.769 * 2.302 * 2.151 * 0.843 * 1.385 * 0.779 * 1.000 = 109.414 Cumulative Financial Performance: 77.044 Cumulative Market Performance: 0.410 Cumulative Marketing Effectiveness: 0.769 Cumulative Investment in Future: 2.302 Cumulative Wealth: 2.151 Cumulative Human Resource Management: 0.843 Cumulative Asset Management: 1.385 Cumulative Manufacturing Productivity: 0.779 Cumulative Financial Risk: 1.000 Financial Performance measures how well the executive team has been able to create profits for its shareholders. A positive number is always desired and the larger the better. It is computed in three steps. First, the net profit from operations is computed by taking the operating profit shown in the income statement and adding back investments in the future that are expensed in the current quarter. It measures how well the managers are able to create revenue from the current quarter's marketing, sales and manufacturing activities. Note that the income statement includes expenditures for R&D. However, this money is spent to create future business opportunities. Thus, these expenses are added back to the operating profit so that the financial performance measure is entirely focused on current quarter revenues and expenses. Second, the total number of shares of stock is computed by adding all forms of equity investment. If an emergency loan has been taken out, shares of stock will automatically be issued to the loan shark and they become a permanent part of the equity financing. Third, the net profit from current operations is divided by the number of shares of stock issued to determine the net profit from current operations per share of stock. Financial Performance = Net Profit from Current Operations / Total Shares Issued = 5,362,918 / 80,380 = 66.72 Net Profit from Current Operations = Operating Profit + Investments in Firm's Future = 5,302,918 + 60,000 = 5,362,918 Operating Profit = Gross Profit - Total Expenses = 12,215,177 - 6,912,259 = 5,302,918 Gross Profit: 12,215,177 Total Expenses: 6,912,259 Investments in Firm's Future = Cost to Open New Sales Offices and Web Centers + R&D Investment in New Brand Features and New brands = 0 + 60,000 = 60,000 Cost to Open New Sales Offices and Web Centers: 0 R&D Investment in New Brand Features and New brands: 60,000 Total Shares Issued = Number of Shares Issued to Executive Team + Number of Shares Issued to Venture Capitalists + Number of Shares Issued to Loan Shark = 40,000 + 40,000 + 380 = 80,380 Number of Shares Issued to Executive Team: 40,000 Number of Shares Issued to Venture Capitalists: 40,000 Number of Shares Issued to Loan Shark: 380 Cumulative Financial Performance Cumulative Financial Performance = ( Financial Performance Q3 + Financial Performance Q4 + Financial Performance Q5 + Financial Performance Q6 ) / 4 = ( 31.10 + 83.53 + 126.83 + 66.72 ) / 4 = 77.04 Financial Performance Q3: 31.10 Financial Performance Q4: 83.53 Financial Performance Q5: 126.83 Financial Performance Q6: 66.72 Market Performance is a measure of how well the managers are able to create demand in their primary and secondary segments. The firm's market share in two target segments is used to measure this demand creation ability. The market share score is adjusted downwards if there were any stock-outs. This penalty for stock-outs is to underscore two points. First, unnecessary resources have been spent to generate more demand than can be satisfied. Second, ill will has been created by having potential customers become frustrated when they do not find the products that they have been persuaded to buy. The score ranges from 0 to 1.0 and will depend upon the number of competitors. If there are 3 firms, a good score would be greater than 0.5. If there are 8 teams, a good score would be greater than 0.35. Market Performance = Average Market Share in Targeted Segments / 100 * Percent of Demand Actually Served / 100 = 34 / 100 * 100 / 100 = 0.34 Average Market Share in Targeted Segments = ( Market Share in Primary Segment + Market Share in Secondary Segment ) / 2 = ( 29 + 38 ) / 2 = 34 Market Share in Primary Segment: 29 Market Share in Secondary Segment: 38 Percent of Demand Actually Served = ( ( Total Net Demand - Number of Stock-outs ) / Total Net Demand ) * 100 = ( ( 6,220 - 0 ) / 6,220 ) * 100 = 100 Total Net Demand: 6,220 Number of Stock-outs: 0 Cumulative Market Performance Cumulative Market Performance = ( Market Performance Q3 + Market Performance Q4 + Market Performance Q5 + Market Performance Q6 ) / 4 = ( 0.42 + 0.44 + 0.45 + 0.34 ) / 4 = 0.41 Market Performance Q3: 0.42 Market Performance Q4: 0.44 Market Performance Q5: 0.45 Market Performance Q6: 0.34 Highlight the key features from the business plan which was presented to the venture capitalists (lecturer) (note, this must be updated with feedback highlighted and incorporated) 1. Marketing strategy I try to keep higher brand judgment with low price and good quality. (relevant theories reference please) Our brand judgement is TE 80, TE II 80 in the workhorse ( The highest is 81) Golden TE 77, Golden TE II 76 in Mercedes ( The highest is 92) Golden 77, Golden II 79 in Traveler ( The highest is 81) Also, I try to keep 100 price judgment TE 100, TE II 96 in the workhorse Golden TE 98, Golden TE II 95 in the Mercedes Golden 100, Golden II 95 in the Traveler Brand Profitability TE Golden TE II Golden II. GoldenTE. Sales Revenue 4,115,800 2,473,800 3,508,400 2,957,500 8,353,800 - Rebates 0 0 0 0 0 - Cost of Goods Sold 2,015,501 885,948 1,624,140 1,029,993 2,902,509 = Gross Margin 2,100,299 1,587,852 1,884,260 1,927,507 5,451,291 Brand Design 60,000 60,000 60,000 60,000 60,000 + Ad Design 30,000 30,000 30,000 30,000 30,000 + Brand Advertising 20,159 30,790 20,159 30,790 28,368 = Brand Expenses 110,159 120,790 110,159 120,790 118,368 Brand Profit 1,990,140 1,467,062 1,774,101 1,806,717 5,332,923 Profit per Unit 1,257 1,838 1,416 1,985 2,905 % from Sales Revenue 48 59 51 61 64 Tactical Plan Quarter 1 Quarter 2 Quarter 3 Quarter 4 Quarter 5 Quarter 6 Segments Targeted Workhorse Traveler Workhorse Traveler Workhorse Traveler Workhorse Mercedes Workhorse Mercedes Traveler Workhorse Mercedes Number of New Brands 2 2 0 3 5 1 Names of New Brands TE Golden TE computer Golden computer None TE computer II Golden II GoldenTE TE Golden TE II Golden II. GoldenTE. Golden TE II Brands for Sale & Price None TE computer (3500) Golden computer (4000) TE computer (2500) Golden computer (3000) TE computer (2550) Golden computer (3050) TE computer II (2700) Golden II (3200) GoldenTE (4500) TE (2600) Golden (3100) TE II (2800) Golden II. (3250) GoldenTE. (4550) TE (2550) Golden (3000) TE II (2700) Golden II. (3150) GoldenTE. (4350) Golden TE II (4450) Average Selling Price 0 3,673 2,675 3,233 3,356 3,315 Brand Feature R&D Projects None None None Office upgrade 32" wide screen (desktop) Long-life (laptop) None Brand Feature R&D Expense 0 0 0 1,847,670 3,411,083 0 Advertising Budget 0 76,500 82,995 280,266 280,266 559,998 Web Marketing Budget 0 0 0 0 0 0 Sales Offices Opened Shanghai-APAC Chicago-NORAM Paris-EMEA Sao Paulo-LATAM None None Sales Office Expense 260,000 380,000 600,000 590,000 490,000 490,000 Web Centers Opened Chicago-NORAM None None None None None Web Center Expense 200,000 200,000 0 0 0 0 Number of Office Sales People 0 6 14 36 58 140 Unit Demand per Office Sales Person 0 70 122 144 110 44 Number of Web Sales People 0 0 0 0 0 0 Unit Demand per Web Sales Person 0 0 0 0 0 0 Projected Demand 0 419 1,703 5,185 6,380 6,220 Revenue from Unwanted Inventory 0 0 0 0 0 0 Projected Revenue 0 1,539,000 4,556,000 14,176,050 21,409,300 20,619,999 Cost of Goods Sold 0 589,441 2,169,105 5,817,536 8,458,092 8,404,823 Factory Worker Compensation 0 22,600 25,185 30,730 32,385 33,927 Average Sales Person Compensation 0 38,921 42,417 50,218 52,433 53,976 Sales Force Salaries 0 58,382 148,460 451,962 760,283 1,889,144 Cost to Hire and Lay Off Sales People 0 47,100 65,570 209,864 209,864 952,878 Total Sales Force Expense 0 105,482 214,030 661,826 970,147 2,842,022 Addition to Fixed Capacity 25 25 25 50 50 0 Investment in Fixed Capacity 600,000 600,000 600,000 1,100,000 1,100,000 0 Available Fixed Capacity 0 1,625 3,250 4,875 8,125 11,375 Starting Inventory 0 0 50 30 0 75 Unwanted Inventory 0 0 0 0 0 0 Production Volume 0 469 1,683 4,355 6,455 6,235 Available Inventory 0 469 1,733 4,385 6,455 6,310 Ending Inventory 0 50 30 0 75 90 Lost Sales 0 0 0 800 0 0 Average Unit Production Cost 0.00 1,404.89 1,269.97 1,327.17 1,325.17 1,352.24 Total Production Cost 0 658,894 2,137,356 5,779,831 8,553,977 8,431,238 % Lost Capacity Due to Employee Morale 30 27 25 10 7 5 Operating Capacity to Satisfy Production Volume 0 641 2,238 4,859 6,943 6,562 Total R&D Cost 120,000 120,000 0 2,027,670 3,711,083 60,000 Conventional Bank Loans 0 0 0 0 0 0 Emergency Loan 0 38,049 0 0 0 0 Total Debt Level 0 38,049 0 0 0 0 Equity Investment 2,000,000 3,000,000 4,000,000 8,000,000 8,000,000 8,000,000 Total Assets 1,420,000 1,244,454 3,080,348 10,134,183 14,024,082 17,205,833 I spent a lot of money on advertising in order to inform our brand to customer ( advertising effect reference please) World Market Media Cost TE Golden GoldenTE TE computer II Golden II Golden TE II Business Newspapers 23,000 General Business Magazine 16,000 Computer Magazines 5,000 General News Magazines 8,000 Leading Trade Journals 7,500 New Venture Magazines 9,000 Sports Magazines 24,500 Executive Business Mags 29,000 Science & Technology 15,000 Daily Newspaper 9,000 Leisure & Entertainment 18,000 Advertising Expenses 74,275 44,350 71,374 74,275 44,350 71,374 Total Advertising Expenses: 379,998 Marketing Effectiveness is a measure of how well the managers have been able to satisfy the needs of the customers as measured by the quality of their brands and ads. Customer perceptions of the firm's brands and ads in its primary and secondary segments are used to measure customer satisfaction. The two scores are then averaged to obtain the indicator for marketing effectiveness. The score ranges from 0 to 1.0. A good score would be greater than 0.8 Marketing Effectiveness = ( Average Brand Judgment / 100 + Average Ad Judgment / 100 ) / 2 Cumulative Marketing Effectiveness Cumulative Marketing Effectiveness = ( Marketing Effectiveness Q3 + Marketing Effectiveness Q4 + Marketing Effectiveness Q5 + Marketing Effectiveness Q6 ) / 4 = ( 0.70 + 0.75 + 0.81 + 0.82 ) / 4 = 0.77 Marketing Effectiveness Q3: 0.70 Marketing Effectiveness Q4: 0.75 Marketing Effectiveness Q5: 0.81 Marketing Effectiveness Q6: 0.82 2. Sales Channel strategy I just focuse on office channel Chicago-noram, Sao Paulo – latam, paris- Emea, Shanghai –apac. Because (here you must reference please, find relevant reasons why I did not open web center, I do not have reasons I just want to save web center expenses) I opened first Shanghai, second Chicago, third paris, last sao Paulo This is because shanghai is not the largest market size but cheapest and releatively large market size. After that I opened based on consider market size Also, I try to hire a lot of sales people in order to increase units demanded per sales person. However, it failed because units demanded per sales person decreased from 110 to 44.43, also I paid a lot of sales force compensation. Last Quarter Number of Sales People Units Demanded per Sales Person Total Demand Sales Offices 58 110.00 6,380 Web Center 0 0.00 0 Total 58 6,380 This Quarter Number of Sales People Units Demanded per Sales Person Total Demand Sales Offices 140 7,000 Web Center 0 0 Total 140 7,000 Last Quarter Number of Sales People Units Demanded per Sales Person Total Demand Sales Offices 140 44.43 6,220 Web Center 0 0.00 0 Total 140 6,220 World Market City Annual Salary Total Sales People Support Workhorse Mercedes Traveler Quarterly Training Costs 3,000 2,000 4,000 3,000 Chicago-NORAM 53,976 Sao Paulo-LATAM 53,976 Paris-EMEA 53,976 Shanghai-APAC 53,976 Total number of sales people in the prior quarter 58 Total number of sales people in the current quarter 140 Net change in number of sales people in region 82 Cost to hire new sales people 952,878 Cost to lay off sales people 0 Cost to employ sales people for the quarter 2,309,144 Total sales force budget: 3,262,022 Channel Profitability World Market Sales Offices Web Center Sales Revenue 20,620,000 0 - Rebates 0 0 - Cost of Goods Sold 8,404,823 0 = Gross Margin 12,215,177 0 Sales Office Leases 490,000 0 + Sales Force Expenses 3,262,022 0 + Web Marketing Expenses 0 0 = Channel Expenses 3,752,022 0 Channel Profit 8,463,155 0 % from Sales Revenue 41 0 3. Human Resource strategy Please do base on followings - good employee morale -> higher productivity -> more sales. - I try to give the highest vacation because long vacation has positive effects on emploees' productivity. Also, give high salary and health benefits. I means I try to focuse on employees' welfare. ( do reference ) - This is data you must analysis and explain specific data in order to explain our company's Human resource strategy. Industry Sales Force Compensation – quarter 6 Company Salary Health Benefits Vacation Pension Total Yearly Cost Productivity Trustearn Computers 35,000 Comprehensive coverage 11,550 5 weeks 5,326 6% 2,100 53,976 83.3% Prestige Computers 30,500 Comprehensive coverage 10,065 2 weeks 1,694 8% 2,440 44,699 80.2% TrendSetters 35,000 Full coverage 7,700 1 week 907 6% 2,100 45,707 77.0% Pikainen Tech, Inc. 32,119 Comprehensive coverage 10,599 2 weeks 1,784 6% 1,927 46,429 80.2% Computerland 39,000 Comprehensive coverage 12,870 3 weeks 3,383 8% 3,120 58,373 83.6% Average for all electronics firms 34,412 Full coverage 8,654 2 weeks 2,087 6% 2,068 47,221 Importance of further improvements for all electronic firms 95 92 81 78 Industry Factory Worker compensation – quarter 6 Company Salary Health Benefits Vacation Pension Total Yearly Cost Productivity Trustearn Computers 22,000 Comprehensive coverage 7,260 5 weeks 3,347 6% 1,320 33,927 95.0% Prestige Computers 17,900 Comprehensive coverage 5,907 3 weeks 1,553 9% 1,611 26,971 85.5% TrendSetters 20,000 Full coverage 4,400 2 weeks 1,111 7% 1,400 26,911 80.5% Pikainen Tech, Inc. 18,959 Comprehensive coverage 6,256 3 weeks 1,645 7% 1,327 28,187 85.7% Computerland 24,000 Comprehensive coverage 7,920 3 weeks 2,082 8% 1,920 35,922 95.2% Average for all electronics firms 20,076 Full coverage 5,092 2 weeks 1,415 6% 1,269 27,852 Importance of further improvements for all electronic firms 95 92 81 78 Human Resource Management is a measure of how well the executive team is able to recruit the best employees, satisfy their needs, and motivate them to excel. Sales force productivity and factory worker productivity are averaged together to obtain a single score. High performance is only possible if the firm's compensation packages are competitive and in tune with what is important to employees over time. The scores range from zero to 1.00 and a good score would be greater than 0.80. Human Resource Management = ( Sales Force Productivity / 100 + Factory Worker Productivity / 100 ) / 2 Cumulative Human Resource Management Cumulative Human Resource Management = ( Human Resource Management Q3 + Human Resource Management Q4 + Human Resource Management Q5 + Human Resource Management Q6 ) / 4 = ( 0.75 + 0.85 + 0.88 + 0.89 ) / 4 = 0.84 Human Resource Management Q3: 0.75 Human Resource Management Q4: 0.85 Human Resource Management Q5: 0.88 Human Resource Management Q6: 0.89 4. Manufacturing strategy Fixed capacity increase 25unit every quarters but quarter 5 increase 50 unit so I did not increase quarter 6. (25-> 50-> 75-> 100 -> 125 -> 175) Operating capacity is same to increase fixed capacity. Manufacturing Productivity measures of productivity focuses on how much of the operating capacity is actually used in production versus that portion lost to excess capacity. Excess capacity costs occur when the factory is scheduled to produce more inventory than is needed to meet demand or stock the warehouse. Good forecasting and production scheduling will reduce penalties for excess capacity. The score ranges from 0.0 to 1.0. A very good score would be 0.80. Manufacturing Productivity = ( Percent of Operating Capacity Used in Production / 100 ) Cumulative Manufacturing Productivity Cumulative Manufacturing Productivity = ( Manufacturing Productivity Q3 + Manufacturing Productivity Q4 + Manufacturing Productivity Q5 + Manufacturing Productivity Q6 ) / 4 = ( 0.68 + 1.00 + 0.86 + 0.58 ) / 4 = 0.78 Manufacturing Productivity Q3: 0.68 Manufacturing Productivity Q4: 1.00 Manufacturing Productivity Q5: 0.86 Manufacturing Productivity Q6: 0.58 Inventory Position - Number of Units Brand Starting Inventory Number of Units Produced Net Demand Number of Units Sold Lost Sales Due to Stock-Outs Ending Inventory TE 15 1,310 1,310 1,310 0 15 Golden 15 806 806 806 0 15 TE II 15 1,194 1,194 1,194 0 15 Golden II. 15 902 902 902 0 15 GoldenTE. 15 1,392 1,392 1,392 0 15 Golden TE II 0 631 616 616 0 15 Total 75 6,235 6,220 6,220 0 90 Production Costs per Unit Brand Units Produced Direct Materials + Direct Labor + Total Overhead = Production Average TE 1,310 791 436 42 1,268 Golden 806 628 436 42 1,105 TE II 1,194 814 436 42 1,291 Golden II. 902 649 436 42 1,126 GoldenTE. 1,392 1,100 436 42 1,577 Golden TE II 631 1,309 436 42 1,786 Inventory Position - Cost / Unit Brand Starting Inventory Average Cost / Unit Production Average Cost / Unit Average Costs per Unit of Goods Sold Ending Inventory Average Costs / Unit TE 1,273 1,268 1,269 1,269 Golden 1,110 1,105 1,105 1,105 TE II 1,296 1,291 1,291 1,291 Golden II. 1,132 1,126 1,126 1,126 GoldenTE. 1,581 1,577 1,577 1,577 Golden TE II 0 1,786 1,786 1,786 Operating Capacity Utilization Operating Capacity Planned operating capacity 11,375 Factory workers productivity 95.0% Effective operating capacity 10,790 Effective operating capacity utilized 6,235 Effective operating capacity utilization 58% Excess Capacity Unused operating capacity 4,555 Excess operating capacity 42% Overhead costs and labor charged to excess operating capacity 2,172,901 5. Financial strategy Income Statement - All Quarters Quarter 1 Quarter 2 Quarter 3 Quarter 4 Quarter 5 Quarter 6 Gross Profit Revenues 0 1,539,000 4,556,000 14,176,050 21,409,300 20,620,000 - Rebates 0 708,050 0 0 0 0 - Cost of Goods Sold 0 589,441 2,169,105 5,817,536 8,458,092 8,404,823 = Gross Profit 0 241,509 2,386,895 8,358,514 12,951,208 12,215,177 Expenses Research and Development 120,000 120,000 0 2,027,670 3,711,083 60,000 + Advertising 0 76,500 82,995 280,266 280,266 559,998 + Sales Force Expense 0 121,482 250,030 762,826 1,140,147 3,262,022 + Sales Office and Web Center Expenses 460,000 580,000 600,000 590,000 490,000 490,000 + Marketing Research 0 15,000 15,000 15,000 15,000 15,000 + Shipping 0 20,040 61,531 131,128 177,001 173,441 + Inventory Holding Cost 0 6,945 3,770 0 9,589 12,230 + Excess Capacity Cost 0 490,137 447,723 0 524,125 2,172,901 + Depreciation 0 25,000 50,000 75,000 120,833 166,667 + Web Marketing Expenses 0 0 0 0 0 0 = Total Expenses 580,000 1,455,104 1,511,050 3,881,890 6,468,044 6,912,259 Operating Profit -580,000 -1,213,595 875,846 4,476,624 6,483,164 5,302,918 Miscellaneous Income and Expenses + Other Income 0 0 0 0 0 0 - Other Expenses 0 0 0 0 0 0 = Earnings Before Interest and Taxes -580,000 -1,213,595 875,846 4,476,624 6,483,164 5,302,918 + Interest Income 0 0 0 0 0 0 - Interest Charges 0 0 1,902 0 0 0 = Income Before Taxes -580,000 -1,213,595 873,943 4,476,624 6,483,164 5,302,918 - Loss Carry Forward 0 0 873,943 919,652 0 0 = Taxable Income 0 0 0 3,556,972 6,483,164 5,302,918 - Income Taxes 0 0 0 1,422,789 2,593,265 2,121,167 = Net Income -580,000 -1,213,595 873,943 3,053,835 3,889,898 3,181,751 Earnings per Share -29 -40 22 38 48 40 Cash Flow - All Quarters Quarter 1 Quarter 2 Quarter 3 Quarter 4 Quarter 5 Quarter 6 Beginning Cash Balance 0 820,000 1 1,317,644 7,384,183 10,199,029 Receipts and Disbursements from Operating Activities Revenues 0 1,539,000 4,556,000 14,176,050 21,409,300 20,620,000 - Rebates 0 708,050 0 0 0 0 - Production 0 658,894 2,137,356 5,779,831 8,553,977 8,431,238 - Research and Development 120,000 120,000 0 2,027,670 3,711,083 60,000 - Advertising 0 76,500 82,995 280,266 280,266 559,998 - Sales Force Expense 0 121,482 250,030 762,826 1,140,147 3,262,022 - Sales Office and Web Center Expenses 460,000 580,000 600,000 590,000 490,000 490,000 - Marketing Research 0 15,000 15,000 15,000 15,000 15,000 - Shipping 0 20,040 61,531 131,128 177,001 173,441 - Inventory Holding Cost 0 6,945 3,770 0 9,589 12,230 - Excess Capacity Cost 0 490,137 447,723 0 524,125 2,172,901 - Web Marketing Expenses 0 0 0 0 0 0 - Income Taxes 0 0 0 1,422,789 2,593,265 2,121,167 + Interest Income 0 0 0 0 0 0 - Interest Charges 0 0 1,902 0 0 0 + Other Income 0 0 0 0 0 0 - Other Expenses 0 0 0 0 0 0 = Net Operating Cash Flow -580,000 -1,258,048 955,692 3,166,540 3,914,846 3,322,002 Investing Activities Fixed Plant Capacity 600,000 600,000 600,000 1,100,000 1,100,000 0 = Total Investing Activities 600,000 600,000 600,000 1,100,000 1,100,000 0 Financing Activities Increase in Common Stock 2,000,000 1,000,000 1,000,000 4,000,000 0 0 + Borrow Conventional Loan 0 0 0 0 0 0 - Repay Conventional Loan 0 0 0 0 0 0 + Borrow Emergency Loan 0 38,049 0 0 0 0 - Repay Emergency Loan 0 0 38,049 0 0 0 - Deposit 3 Month Certificate 0 0 0 0 0 0 + Withdraw 3 Month Certificate 0 0 0 0 0 0 = Total Financing Activities 2,000,000 1,038,049 961,951 4,000,000 0 0 Cash Balance, End of Period 820,000 1 1,317,644 7,384,183 10,199,029 13,521,032 Balance Sheet - All Quarters Quarter 1 Quarter 2 Quarter 3 Quarter 4 Quarter 5 Quarter 6 Current Assets Cash 820,000 1 1,317,644 7,384,183 10,199,029 13,521,032 + 3 Month Certificate of Deposit 0 0 0 0 0 0 + Finished Goods Inventory 0 69,453 37,704 0 95,886 122,301 Long Term Assets + Net Fixed Assets 600,000 1,175,000 1,725,000 2,750,000 3,729,167 3,562,500 = Total 1,420,000 1,244,454 3,080,348 10,134,183 14,024,082 17,205,833 Debt Conventional Bank Loan 0 0 0 0 0 0 + Emergency Loan 0 38,049 0 0 0 0 Equity + Common Stock 2,000,000 3,000,000 4,000,000 8,000,000 8,000,000 8,000,000 + Retained Earnings -580,000 -1,793,595 -919,652 2,134,183 6,024,082 9,205,833 = Total 1,420,000 1,244,454 3,080,348 10,134,183 14,024,082 17,205,833 Industry Financial Ratios Ratio Trustearn Computers Lowest Highest Average Liquidity Ratios Current Liquidity Ratio N/A N/A N/A N/A Quick Liquidity Test Ratio N/A N/A N/A N/A Activity Ratios Inventory Turnover 68.72 3.54 68.72 22.66 Fixed Assets Turnover 5.79 1.69 5.79 4.22 Total Assets Turnover 1.20 1.20 3.42 2.01 Leverage Ratios Debt Ratio 0.00 0.00 26.41 5.28 Debt to Paid In Capital 0.00 0.00 35.89 7.18 Profitability Ratios Gross Profit Margin 59.24 57.53 65.87 60.57 Net Profit Margin 15.43 1.79 26.07 13.22 Return on Assets 18.49 6.14 44.39 21.85 Return on Paid In Capital 18.49 6.14 44.39 23.32 Financial Statement Highlights Revenues 20,620,000 5,446,200 20,620,000 12,821,376 Gross Profit 12,215,177 3,587,516 12,215,177 7,670,089 Net Income 3,181,751 156,888 3,447,758 1,789,116 Financial Risk measures the executive team's ability to manage debt as a financial resource. The financial risk indicator is based upon the degree to which debt is part of the capital of the firm. As debt increases relative to the total capital, then the financial risk associated with the company increases. Conversely, as the proportion of equity in the total capital increases, then the perceived financial risk in the firm decreases. To compute financial risk, the proportion of equity is obtained by computing the amount of equity in the firm and dividing it by the amount of capital invested in the firm from all sources. Specifically, the amount of equity is equal to the sum of common stock plus retained earnings. The amount of capital is equal to the sum of debt plus common stock plus retained earnings. As the ratio of equity to capital decreases (meaning more debt), then financial risk increases. A value of 1.00 would indicate there is no debt and, therefore, no perceived financial risk. It is important to realize that financial managers do not want to totally discourage debt. The optimum capital structure will vary by firm depending on its tax situation, overall risk, asset base, and financial slack. Some debt may be desirable in order to help the firm take advantage of value enhancing business opportunities (i.e., opportunities that earn more than the company's weighted average cost of capital). In order to mitigate or downplay the effect of low amounts of debt in the capital structure, the value for the share of equity in the company is raised to a power of 0.5 (square root). Thus, if debt represented 20% of the capital structure, then the Financial risk indicator would be 0.89 (0.80 ^ 0.5). If debt were 50% of the capital structure, the Financial Risk indicator would be 0.71. A Financial Risk indicator below 0.80 (more than 36% debt) would be considered unfavorable. Financial Risk = ( Total Equity / Total Capital ) ^ 0.5 = ( 17,205,833 / 17,205,833 ) ^ 0.5 = 1.00 Total Equity = Common Stock + Retained Earnings = 8,000,000 + 9,205,833 = 17,205,833 Common Stock: 8,000,000 Retained Earnings: 9,205,833 Total Capital = Common Stock + Retained Earnings + Debt = 8,000,000 + 9,205,833 + 0 = 17,205,833 Common Stock: 8,000,000 Retained Earnings: 9,205,833 Debt: 0 Cumulative Financial Risk Cumulative Financial Risk = ( Financial Risk Q3 + Financial Risk Q4 + Financial Risk Q5 + Financial Risk Q6 ) / 4 = ( 1.00 + 1.00 + 1.00 + 1.00 ) / 4 = 1.00 Financial Risk Q3: 1.00 Financial Risk Q4: 1.00 Financial Risk Q5: 1.00 Financial Risk Q6: 1.00 6. Ethical and Social Implications C. Assess your business strategy and performance during the second year 1. Compare actions taken the against business plan Income statement Quarter 5 expect result Quarter 6 expect result Gross Profit Revenues 23,334,050 21,409,300 Revenues 23,185,000 20,620,000 - Rebates 0 0 - Rebates 0 0 - Cost of Goods Sold 9,355,005 8,458,092 - Cost of Goods Sold 9,614,337 8,404,823 Gross Profit 13,979,045 12,951,208 Gross Profit 13,570,663 12,215,177 Expenses Research and Development 3,711,083 3,711,083 Research and Development 60,000 60,000 + Advertising 280,266 280,266 + Advertising 559,998 559,998 + Sales Force Expense 1,140,147 1,140,147 + Sales Force Expense 3,262,022 3,262,022 + Sales Office and Web Center Expenses 490,000 490,000 + Sales Office and Web Center Expenses 490,000 490,000 + Marketing Research 15,000 15,000 + Marketing Research 15,000 15,000 + Shipping 192,809 177,001 + Shipping 190,633 173,441 + Inventory Holding Cost 6,514 9,589 + Inventory Holding Cost 12,475 12,230 + Excess Capacity Cost 0 524125 + Excess Capacity Cost 1,581,232 2,172,901 + Depreciation 120,833 120,833 + Depreciation 166,667 166,667 + Web Marketing Expenses 0 0 + Web Marketing Expenses 0 0 Total Expenses 5,956,653 6,468,044 Total Expenses 6,338,027 6,912,259 　 Operating Profit 8,022,392 6,483,164 Operating Profit 7,232,636 5,302,918 Miscellaneous Income and Expenses + Other Income 0 0 + Other Income 0 0 - Other Expenses 0 0 - Other Expenses 0 0 Earnings Before Interest and taxes 8,022,392 6,483,164 Earnings Before Interest and taxes 7,232,636 5,302,918 　 + Interest Income 0 0 + Interest Income 0 0 - Interest Charges 0 0 - Interest Charges 0 0 Income Before Taxes 8,022,392 6,483,164 Income Before Taxes 7,232,636 5,302,918 　 - Loss Carry Forward 0 0 - Loss Carry Forward 0 0 Taxable Income 8,022,392 6,483,164 Taxable Income 7,232,636 5,302,918 　 - Income Taxes 3,208,957 2,593,265 - Income Taxes 2,893,055 2,121,167 Net Income 4,813,435 3,889,898 Net Income 4,339,582 3,181,751 　 Earnings per Share 60 48 Earnings per Share 54 40 2. Discuss departures from the business plan, justification, and outcome 3. Review significant events that affected the company and/or market E. Assess your current situation and the market (What are your firm's strengths and Weaknesses) Strengths – Our company's strengths are that we take over about 34% market share. Market Demand Company Workhorse Mercedes Traveler Total Demand Trustearn Computers 2,509 2,005 1,706 6,220 TrendSetters 1,758 860 3 2,621 Pikainen Tech, Inc. 1,306 2,028 1,030 4,364 Computerland 946 23 699 1,668 Prestige Computers 8 2,088 1,384 3,480 Total 6,527 7,004 4,822 18,353 Market Share Company Workhorse Mercedes Traveler Total Market Share Trustearn Computers 38.44% 28.63% 35.38% 33.89% TrendSetters 26.93% 12.28% 0.06% 14.28% Pikainen Tech, Inc. 20.01% 28.95% 21.36% 23.78% Computerland 14.49% 0.33% 14.50% 9.09% Prestige Computers 0.12% 29.81% 28.70% 18.96% Strengths is market performance which is 0.410 (cumulative result) Market Performance is a measure of how well the managers are able to create demand in their primary and secondary segments. The firm's market share in two target segments is used to measure this demand creation ability. The market share score is adjusted downwards if there were any stock-outs. This penalty for stock-outs is to underscore two points. First, unnecessary resources have been spent to generate more demand than can be satisfied. Second, ill will has been created by having potential customers become frustrated when they do not find the products that they have been persuaded to buy. The score ranges from 0 to 1.0 and will depend upon the number of competitors. If there are 3 firms, a good score would be greater than 0.5. If there are 8 teams, a good score would be greater than 0.35. Strengths is Human resource management performance which is 0.843 (cumulative result) Human Resource Management is a measure of how well the executive team is able to recruit the best employees, satisfy their needs, and motivate them to excel. Sales force productivity and factory worker productivity are averaged together to obtain a single score. High performance is only possible if the firm's compensation packages are competitive and in tune with what is important to employees over time. The scores range from zero to 1.00 and a good score would be greater than 0.80. Weakness is investment in future performance which is 2.302 (cumulative result) Investment in Future reflects the willingness of the executive team to spend current revenues on future business opportunities. They are necessary but risky. In the short-term, these expenditures can cause large negative profits on the income statement. As a result, the retained earnings may become highly negative, thus indicating that a substantial portion of the stockholder's investment has disappeared into the operations of the firm. In the long-term, these investments are absolutely necessary if the firm is to be competitive. Thus, there is a need to balance the loss of stockholder's equity against investments which could create even greater returns for the investors in the future. The score is always greater or equal to 1.0 and a good score would be greater than 3.0. Weakness is Asset management performance which is 1.385 (cumulative result) Asset Management is a measure of the executive team's ability to use the firm's assets to create sales revenue. Asset management is measured by computing the asset turnover of the firm. Effective managers are able to use the assets to create sales which are two or three times the value of the assets. Thus, a very good score would be 3.0 E. Summarise how you have prepared your firm to compete in the future. F. What were the lessons learned. – F.1 How did you benfit from participating in the simulation? -F.2 Are there any lessons that you can take into the business world? Presentation to the Board, you must also address the answers to the following questions which have been raised by the venture capitalists ... Questions to Answer in Presentation How close was your Q5 / Q6 forecast to your actual results? What is the biggest risk to your business? What is your Debt:Equity plan going forward? What type of CEO are you? I think I am CEO type: People champion Focus: People and culture Measure of success: Engagement Typical traits: Personable; excellent communicator; warm with strong values; fundamental belief in people