Financial analysis(accounting)
Leviathan
SCMLive_Intro1.pptI listen, I forget.
I see, I remember.
I do, I understand.
Old Chinese Proverb
Business simulations are a form of combative training where participants pit their business skills against those of formidable opponents under the watchful eye of a training coach.
When we study one discipline at a time, we are like a bunch of blind people trying to understand what an elephant is.
Please tell me
what it is?
It’s a snake.
It’s a
tree trunk.
It’s a sheet
of rawhide.
It’s a steel
tube.
With business simulations, you can crawl all over and under the new venture to help you to see and understand the whole thing.
It is an
enterprise!
Accounting
Production
Marketing
Distribution
Finance
Human
Resources
- Joyce Russell
team work, human resources - Harry Bruce
leadership, governance - Jim Reeve
accounting, profit analysis - Sarah Gardial & Bob Woodruff
customer value - Jim Wansley
finance
- Ernie Cadotte
marketing - Ken Gilbert
production processes - Ivan Slimak
brand design, quality processes - Tom Mentzer
supply chain - Dominique Garval
business strategy
- Participants learn about all aspects of business by managing a simulated business.
- The Marketplace Live scenario follows the lifecycle of a new product and new business.
- Business decisions are introduced as they become relevant in the evolution of the company.
- Develop leadership, teamwork and interpersonal skills.
- Promote better decision making by learning to manage a totally integrated company, including the management of sales outlets, marketing , production, and human and financial resources.
- Facilitate learning of important business concepts, principles and ways of thinking.
- Develop strategic planning and execution skills within a rapidly changing environment.
- Instill a bottom line focus and the simultaneous need to deliver customer value.
- Crystallize the financial implications of business decisions and how they flow
to bottom-line performance.
- Discover how important it is to use market data and competitive signals to adjust the strategic
plan and more tightly focus business tactics. - Live and breathe performance-based management.
- Learn what it takes to start up and manage a new venture.
Build confidence through knowledge and experience.
- Teams are placed in a new venture scenario - starting up and running a new business.
- The opposition is played out
by competing teams.
opponent
Market
opponent
opponent
Business Team
Each team member assumes a tactical area of responsibility:
Marketing // Finance //Distribution
Production // Overall Leadership
- Business team receives information on current situation.
- Current situation is evaluated, strategy formulated and tactics set in place.
- Tactical decisions are fed into the Marketplace Live simulator, along with decisions of opponents.
- Results of decisions are fed back to business team.
- The business team can acquire information on what is happening
in the marketplace: - internal operations
- customer reaction to market decisions
- competitor actions
- Current situation is evaluated, strategy formulated, and tactics
set in place. - Tactical decisions are again fed into the Marketplace Live simulator.
- You and your business partners have decided to enter the international microcomputer industry.
- The microcomputer industry is in its introductory stage of the product life cycle.
- Several other international firms are entering the market at the same time.
Q1: Organize the team, name the company and contract for a survey of potential customers.
Q2: Analyze market information, establish strategic direction and set up shop (design brands and set up a sales office and/or regional web centers and build a factory).
Q4: Study end user feedback, competition, operating performance, employee morale and financial performance and make adjustments
in strategy.
Q3: Test-market brands, prices, ad copy, media campaigns, sales staffing and internet tactics. Determine production schedule for each brand.
Q5: Prepare a one-year business plan. Present business plan and financial request to venture capitalists and negotiate equity investment.
Q5 – Q8: Initiate international roll-out campaign.
End of game: Prepare report
to the Board regarding:
- Second year performance
- deviations from plan
- justification for departures
- analysis of current market
- plan for future
- The initial capitalization is $4M which is being invested by the executive team over the first 4 quarters.
- The executive team owns 100% of the company.
- Forty thousand shares of stock will be issued to the executive team in exchange for their $4M.
- The initial stock value is $100 per share
At the end of the first year of business, the executive team will have the opportunity to request up to $5M from a venture capitalist.
The venture capitalist will expect an outline of the strategic
plan for the second year in business, including:
target markets // sales channel expansion // R&D
plant expansion // quality improvements, etc.
The bank will extend a line of credit to the executive team equal to one and a half times the firm's equity position in the previous quarter.
The bank is highly risk adverse and will call in your loan in part or whole if your debt capacity declines due to unusual or extended losses.
Other financial institutions will also buy long-term notes at 2 points over conventional bank loans. The acceptable debt capacity is two times the firm’s equity position in the previous quarter.
Long-term debt is for 5 years with little possibility of the financial institution calling in the note due to short-term swings in income.
- The bank is intolerant of poor financial management.
- If a firm ends a quarter with a negative cash position, the bank will contact a loan shark by the name of Guido to obtain an emergency loan to cover the firm's checking account.
- Guido requires repayment in the next quarter
- The emergency loan interest rate is a sliding scale which begins at 10% per quarter and may go as high as 25% per quarter.
- For each $100 which Guido places in your checking account, he will take one share of stock in your firm.
- The issuing of stock to Guido causes a dilution of your stock value and your share of the company.
- A firm is technically bankrupt if its cumulative losses exceed its equity investment.
- Stated differently, the management has used up all of the equity of the firm when the negative value of the retained earnings exceeds the value of the common stock.
Strategic thinking and tactical analysis in Executive Briefings
Balanced Scorecard for last 4 quarters
Business Plan
Report to Board
How well the company is prepared for the future
Market
conditions
Marketing
strategy
Marketing
tactics
Market
assessment
Market
performance
Manufacturing
conditions
Manufacturing
strategy
Manufacturing
tactics
Manufacturing
assessment
Manufacturing
performance
Human resource
conditions
Human resource
strategy
Human resource
tactics
Human resource
assessment
Human resource
performance
Financial
conditions
Financial
strategy
Financial
tactics
Financial
assessment
Financial
performance
ENVIRONMENTAL ANALYSIS
Business
Strategy
FEEDBACK
Business
Performance
Assessment of Business Conditions
BUSINESS LEVEL
FUNCTIONAL LEVEL
STRATEGY
Market
objectives
Manufacturing
objectives
Human resource
objectives
Financial
objectives
