Project 4

Project 4: Simulation as a Tool for Strategic Decision Making—Part 2

Introduction

The Global strategy for your team is Global Strategy: Niche Cost Leader

Global Niche Cost leader concentrate primarily on the low-tech segment across two or three countries. Competitive advantage is gained by keeping R&D costs, production costs, and raw materials costs to a minimum, enabling the company to compete on the basis of price. Prices are below average. Regional and product branding and sales efforts are below average. Automation levels are increased to improve margins.

Vision statement: Reliable products for low technology customers across the globe; our brands offer value.to interpret the results as a consequence of the team’s decisions. Step 2: Decide on a Global Strategy

Starting from scratch, your team will make decisions about how to run your client’s company, which designs, manufactures, and sells genetic testing devices—this time by following a global strategy. As you pivot to a global strategy, you will examine the elements of target market selection to ensure you choose a strategy that is suitable for MediCorp. Also review the blueprint for international expansion laid out in the article, “Going International.”

The local strategy for your team is Local Strategy: Niche Cost Leader

Your team will need the strategy to guide its decisions for MediCorp. Review all eight strategies in Capsim (see attachment) before making a team decision.

Step 5: Evaluate Your Contribution to the Team

When you have completed all four rounds, write a post of 200 words or less in your group discussion area explaining the decisions in which you were involved, the logic behind those choices, and how those decisions contributed to the team’s strategy and results.

Step 6: Analyze Your Team’s Decisions and Results

Hello, Please use the attached template and prepare an eight- to ten-page analysis for me by the end of the week. Type your answers directly in the template. You have now finished working with your team on implementing a global strategy for MediCorp. At this point you will transition into an individual role of an analyst for MCS. Each person on the team will do his or her own analysis of results without any consultation with other team members or with students on other teams.

Submit an analysis of Rounds 1 through 4 of the simulation by answering the questions provided in the Project 4 Analysis Questions template (see below). Link to the Learning Topic from MBA 620 in Question #6 can be found  here (see below). Your report should be eight to ten pages (approximately 250 to 300 words per question), double spaced, excluding cover page. Any tables, graphs, and figures should be included in the body of your answers. Your report should have one-inch margins and be double spaced in 12-point Times New Roman font. In-text citations and references should abide by APA format. Do not delete the questions as you complete the template.

The next step provides recommended delivery dates and file-naming protocols for Project 4 deliverables.

Step 9: Submit Your Work

Take note of the recommended delivery dates and file-naming protocols in the following table:

Deliverable	Submission instructions
Individual contribution	Lastname_firstname_individualcontribution.docx
Project 4 analysis questions	lastname_firstname_Project4_Analysis.docx

Individual Analysis (for US and China)

Project 4 Analysis Directions: Write your answers below each question. Please do not delete the questions.

1. What strategy were you implementing? What type of product (speed, accuracy, service life, and price) did you design in Round 1? Explain how your settings for speed, accuracy, service life, and price in Round 1 were driven by the chosen strategy.

2. How did you create a sales forecast in each round? Explain. For Round 1 only, how did you use the sales forecast for capacity planning?

3. What was the level of automation in your plant? Why? Discuss the role of contribution margins, if any, in your decisions regarding automation.

4. Are you running a second shift? Why or why not? Did you have inventory issues in any round? Explain.

5. Which country (or countries) and customer segment (or segments) were you targeting with your product and why? Describe any two marketing decisions that you implemented over the four rounds to enable your desired targeting. If you introduced a region kit, describe how that affected your sales.

6. Remembering what you have learned in MBA 620 and by referencing the financial accounting ratios (link to Learning topic from MBA 620), calculate the net profit margin ratio at the end of Round 4. What does this ratio tell you about the profit being generated?

7. Examining the balance sheet at the end of each round calculate the current ratio for each. Has the current ratio increased or decrease from round to round? Explain the major cause of the changes from round to round. Also, calculate the working capital for each round. Has your company had sufficient working capital in each round? If not, why not?”

8. Adequate cash flow is required for a company to support operations, invest in the future, pay down long-term debt and reward shareholders with dividends. Analyzing the Statement of Cash Flow for each round identify the change in cash flow from the previous round and identify the major cause of this change.

9. At the end of Round 4, how aware are consumers of your product in each country? How accessible is your product to the consumers in each country? How did your awareness and accessibility change from Round 3 to Round 4, and did that have any impact on your sales?

10. Did your team’s decisions in Rounds 1-4 always align with the chosen strategy? If you found yourself deviating from your strategy, explain why. In hindsight, what decisions would you have made differently? Explain.

Link to the Learning Topic from MBA 620 in Question #6 can be found  here

Using Financial Ratios for Analysis

One way of putting financial data into a comparative context is known as financial ratio analysis. From a financial accounting standpoint, ratio analysis enables external constituencies to evaluate the performance of a firm with respect to other firms in that particular industry. This is sometimes referred to as comparative ratio analysis. From a managerial accounting standpoint, ratio analysis can assist a management team in identifying areas that might be of concern. The management team can track the performance on these ratios across time to determine whether the indicators are improving or declining. This is referred to as trend ratio analysis. There are literally scores of financial ratios that can be calculated to evaluate a firm’s performance. They have a variety of purposes:

· Financial ratios enable external constituencies to evaluate the performance of a firm with respect to other firms in a particular industry.

· Ratio analysis can help a management team identify areas that might be of concern.

· The management team can track the performance of these ratios across time to determine whether the indicators are improving or declining.

· Financial ratios can be grouped into five categories: liquidity ratios, financial leverage ratios, asset management or efficiency ratios, profitability ratios, and market-value ratios.

Financial ratios can be grouped into five categories:

1. liquidity ratios

2. financial leverage ratios

3. profitability ratios

4. asset management or efficiency ratios

5. market value ratios

Because many small businesses are not publicly held and have no publicly traded stock, market ratios play no role in analyzing a small firm’s performance.

 Liquidity Ratios

Liquidity ratios provide insight into a firm’s ability to meet its short-term debt obligations. It draws information from a business’s current assets and current liabilities that are found on the balance sheet. The most commonly used liquidity ratio is the current ratio given by the formula

current assets / current liabilities.

The normal rule of thumb is that the current ratio should be greater than one if a firm is to remain solvent. The greater this ratio is above one, the greater its ability to meet short-term obligations. As with all ratios, any value needs to be placed in context. This is often done by looking at standard ratio values for the same industry.

Another ratio used to evaluate a business’s ability to meet in short-term debt obligations is the quick ratio—also known as the acid test. It is a more stringent version of the current ratio that recognizes that inventory is the least liquid of all current assets. A firm might find it impossible to immediately transfer the dollar value of inventory into cash to meet short-term obligations. Thus the quick ratio, in effect, values the inventory dollar value at zero. The quick ratio is given by the following formula:

current assets − inventory / current liabilities.

Financial Leverage Ratios

Financial leverage ratios provide information on a firm’s ability to meet its total and long-term debt obligations. It draws on information from both the balance sheet and the income statement. The first of these ratios—the debt ratio—illustrates the extent to which a business’s assets are financed with debt. The formula for the debt ratio is as follows:

total debt / total assets.

A variation on the debt ratio is the ratio of debt to the total owner’s equity (the debt-to-equity ratio). As with the other ratios, one cannot target a specific, desirable value for the debt-to-equity ratio. Median values will vary significantly across different industries. The automobile industry, which is rather capital intensive, has debt-to-equity ratios above two. Other industries, such as personal computers, may have debt-to-equity ratios under 0.5. The formula for the debt-to-equity ratio is as follows:

total debt / total owner’s equity.

One can refine this ratio by examining only the long-term portion of total debt to the owner’s equity. Comparing these two debt-to-equity ratios gives insight into the extent to which a firm is using long-term debt versus short-term debt. The formula for the long-term debt-to-owner’s equity ratio is as follows:

long-term debt / total owner’s equity.

The interest coverage ratio examines the ability of a firm to cover or meet the interest payments that are due in a designated period. The formula for the interest coverage ratio is as follows:

EBIT / total interest charges.

Profitability Ratios

The next grouping of ratios is the profitability ratios. Essentially, these ratios look at the amount of profit that is being generated by each dollar of sales (revenue). Remember, from the review of the income statement, we can identify three different measures of profit: gross profit, operating profit, and net profit. Each measure of profit can be examined with respect to the net sales of a business, and each can give us a different insight into the overall efficiency of a firm in generating profit.

The first profitability ratio examines how much gross profit is generated by each dollar of revenue and is given by the following formula:

gross profit margin = gross profit / revenue.

The next examines operating profit per dollar of sales and is calculated in the following manner:

operating profit margin = operating profit / revenue.

Lastly, the net profit margin is the one that is mostly used to evaluate the overall profitability of a business. It is determined as follows:

net profit margin = net profit / revenue.

Asset Management or Efficiency Ratios

Asset-management or efficiency ratios are designed to show how well a business is using its assets. These ratios are extremely important for management to determine its own efficiency. There are many different activity or efficiency ratios. Here we will examine just a few. The sales-to-inventory ratio computes the number of dollars of sales generated by each dollar of inventory. Firms that are able to generate greater sales volume for a given level of inventory are perceived as being more efficient. This ratio is determined as follows:

sales to inventory = sales / inventory.

There are other efficiency ratios that look at how well a business is managing its inventory. Some look at the number of days of inventory on hand; others look at the number of times inventory is turned over during the year. Both can be used to measure the overall efficiency of the inventory policy of a firm. For simplicity’s sake, these ratios will not be reviewed in this text.

The sales-to-fixed-asset ratio is another efficiency measure that looks at the number of dollars of sales generated by a business’s fixed assets. Again, one is looking for a larger value than the industry average because this would indicate that a business is more efficient in using its fixed assets. This ratio is determined as follows:

sales to fixed assets = sales / fixed assets.

Another commonly used efficiency ratio is the days-in-receivables ratio. This ratio shows the average number of days it takes to collect accounts receivables. The desired trend for this ratio is a reduction, indicating that a firm is being paid more quickly by its customers. This ratio is determined as follows:

days in receivables = accounts receivable / (sales / 365).

The 365 in the denominator represents the number of days in a year.

Financial ratios are extremely useful for small business owners who are attempting to identify trends in their own operations and see how well their business’s stand up against its competitors. As such, owners should periodically review their financial ratios to get a better understanding of the current position of their firms.

Market-Value Ratios

The last category of financial ratios are the market-value ratios. One common market-value ratio is the market-to-book ratio, given by the following equation:

Market value of equity / book value of equity.

Finally, the price-earnings (P-E) ratio is calculated as

market price per share / earnings per share.