Structured Approach to the Simulation Analysis Report BA 411 Structured Approach to the Simulation Analysis Report Created by Nancy L. McClure for classroom use only. Do not distribute, photocopy, or reprint without permission.

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BA 411 - Extra Credit Opportunity Smeal SWAP Sign up in the SWAP folder on ANGEL. To receive credit for the SWAP you must include: Your Name Your ANGEL ID Go to Poverty Resolutions Facebook group to document your fundraiser First SWAP Deadline is Tuesday, March 15th Raise $50 per student for Poverty Resolutions by this date and earn 2% extra credit

Simulation Analysis Report Grading Criteria for SAR at the top of the ANGEL website: Due Date for SAR is 2/24/16 at 9:00 a.m. Submit to Turnitin (Turnitin instructions provided by your TA)

How to Prepare your Simulation Analysis Report Materials/References Required: Capsim Courier (all 7 rounds) and Related Financial Reports “Seven Deadly Sins of Analytical Writing” Article

How to Prepare your Simulation Analysis Report Key Questions to Consider: Who is my Audience? What is the purpose of this communication? What are the key points I need to make? What is the best way to communicate this information?

How to Prepare your Simulation Analysis Report Analysis – The “Big” Picture: Should focus on answering: Why you made key decisions Impact of decisions on operations and profitability Consider your strategy and the competitive environment when analyzing these decisions Provide quantitative analysis (including charts and graphs you construct) to: support these decisions, and explain their impact on your company’s profitability

How to Prepare your Simulation Analysis Report Key Functional Areas Strategy R & D Marketing Finance Production

How to Prepare your Simulation Analysis Report Analysis – Application to Your Capsim Company: Consider your Strategy, and its impact on the following key areas: R&D Marketing Production Finance

Linking Strategy and Operations and ROI For Each Functional Area, consider expected ROI for potential investments: Marketing ROI for investments in Awareness and Accessibility R&D ROI for investments to update current products or introduce new products Production ROI for investments in capacity Finance ROI for debt (leverage)

How to Prepare your Simulation Analysis Report R&D Analysis: Some Key Questions to consider when analyzing your R&D decisions: Why did you change (or not change) your products placement on the perceptual map, including the timing of the adjustments? How, specifically, did this impact your company’s profitability? How did your competitors’ actions impact your decisions and profitability? What will you do differently in the future to improve your R&D outcomes? How could you quantitatively demonstrate these points in charts/ graphs?

How to Prepare your Simulation Analysis Report Marketing Analysis: Some Key Questions to consider when analyzing your Marketing decisions: How, specifically, did you invest in your products’ awareness and accessibility? How did the timing and amount of your investments impact your company’s profitability? What impact did your competitive environment have on the amount, timing, and profitability of your investments? What will you do differently in the future to improve your Marketing outcomes? How could you quantitatively demonstrate these points in charts/ graphs?

How to Prepare your Simulation Analysis Report Production Analysis: Some Key Questions to consider when analyzing your Production decisions: How did you link your sales forecasts to your production schedule? How did you manage any over/underproduction issues? How did you allocate your resources for capacity and production (e.g., purchase/sell capacity by product, overtime, automation, etc.)? What was the impact on your profitability of these decisions? How did you contribution margins impact your production decisions? How did you use TQM and Human Resources to improve your profitability? How did your competitors’ actions impact your decisions and profitability? What will you do differently in the future to improve your Production outcomes? How could you quantitatively demonstrate these points in charts/ graphs?

How to Prepare your Simulation Analysis Report Finance Analysis: Some Key Questions to consider when analyzing your Finance decisions: Why did you choose your current capital structure (i.e., proportion of debt to equity)? How has this choice impacted your profitability? How did you utilize (e.g., earn a return) and manage (e.g., generate funds to repay) your debt? How did you manage your operating cash flows as they related to your finance decisions? How did your competitors’ actions impact your decisions and profitability? What will you do differently in the future to improve your Finance outcomes? How could you quantitatively demonstrate these points in charts/ graphs?

How to Prepare your Simulation Analysis Report Additional Considerations: You should perform your basic ratio/quantitative analysis and then choose the key issues you will address in your paper You can identify the key issues by asking yourself what are they three most important points you need to communicate to your audience Then, you can provide the background analysis for the key issues and link them to your: strategy, competitive environment, profitability, and planned improvements for the future

Financial Analysis: Brief Tutorial The following slides provide a brief tutorial on financial analysis of a business. You may use these slides as a starting point for the analysis of your Capsim company. You may also use the Excel spreadsheet provided in the lecture notes folder on ANGEL to build your company’s financial analysis (e.g., to build ratios, charts, graphs, etc.). Next week, in lecture, we will dig deeper into the use of ratios and other tools to analyze your business.

Financial Analysis - Brief Tutorial A “Road Map” for Performance Measurement Financial Analysis Measures Company’s: Ability to pay debt as it comes due Effectiveness and efficiency of operations Profitability

Financial Analysis: Overview Financial Information useful when company compared to: Itself over time (longitudinal analysis), Industry measures of performance (horizontal analysis, benchmarking), and Economy-wide measures of performance.

Financial Analysis: Overview Performance Analysis – Two Approaches: Common-Size Analysis Ratio Analysis

Common Size Analysis: Overview Compares: firms of differing sizes, or year-to-year results for a single firm

Common Size Analysis: Computation Built by dividing each number on a statement by the largest number on that statement Balance Sheet - Items are stated as a percentage of Total Assets Income Statement - Items are stated as a percentage of Total Revenues

Sample Common Size Balance Sheet and Income Statement Balance Sheet - Items are stated as a percentage of Total Assets Income Statement - Items are stated as a percentage of Total Revenues Source: Investopedia.com

Ratio Analysis: Overview Converts financial data to percentages Allows comparison of: Same firm over time – trends Different firms at the same time – benchmarks

Ratio Analysis: Categories Major Categories: Liquidity – Cash to pay debt on time Activity – Efficiency of company’s operations Leverage – Mix of equity and debt Profitability – Earnings achieved

Ratio Analysis: Liquidity Able to pay short-term debt? Liquidity Current Ratio Current Liabilities Current Assets Quick Ratio (Cash+Mkt. Secs.+Receivables) Do our Assets Convert Easily to Cash?

Ratio Analysis: Activity Effective at Collecting Debt? Activity Accounts Receivable Turnover Net Sales Ave. A/R Inventory Turnover CGS Ave. Inventory Accounts Payable Inventory Purchs. Ave. A/P Times Inventory Sold Rate Pay Suppliers Do We Use Assets Efficiently?

Ratio Analysis: Leverage Solvency Debt to Assets Total Assets Total Debt Interest Coverage Op. Income before Interest Expense Interest & Taxes What % assets financed by debt? How many times can we pay interest? Can we Pay our Long-Term Obligations?

Ratio Analysis: Profitability % of Inc. available to pay Op. Costs Profitability Contribution Margin Sales – V.C. Sales Return on Assets Net Income Assets Return on Equity Total Equity Inc. Earned per Dollar of Assets Income per Dollar of Equity Have we covered our costs and earned sufficient returns?

Financial Statement Analysis: Caution Remember when using Ratio Analysis: Financial ratios merely compare one value to another Deemphasize relative size of firms No absolute answers Can help you ask the right questions GIGO Rule Applies - Garbage In, Garbage Out No single “correct” way to compute ratios Must understand structure and interpretation of ratios Watch out for accounting distortions