How to Forecast in Capsim and 7 Deadly Sins

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Goals for analytical writing (3)
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1. The reader should recognize your conclusion or recommendation 2. The reader should be able to judge the quality of the underlying analysis 3. The document should be an effective tool for the reader
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The Seven Deadly Sins of Analytical Writing
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1. Extravagance- too many words 2. Gluttony- too much information 3. Sloth- making the reader do your job/ write clearly 4. Confusion- Lack of clarity or purpose 5. Anger- Vague or emotional language 6. Pride- style over function 7. Arrogance- Disregarding instructions
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The Executive Summary
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Identifies critical support for the recommendation. Also the identification of one important constraint, as opposed to an extensive listing, illustrate the writes ability to make judgement
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Ratios can be classified as :
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Leverage, Liquidity, activity, and profitability
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Working Capital
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Current assets- current liabilities
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ROS: Return on sales
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Net Income (before interest and tax) /sales
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ROA
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Net Income /Total assets
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EPS
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Net Income/average common shares outstanding
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Liquidity Ratios (cash to pay debt on time)
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– Acid Test Ratio – Current Ratio – Working Capital Ratio – Quick Ratio
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Current Ratio
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Current Assets/Current Liabilities a.Ability to pay short & long term debt obligations (next 12 months)
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Quick Ratio
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= Cash+ Marketable securities + Receivables / Current Liabilities a.Ability to meet short-term obligations
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Operating Cash Flows:
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Flows= Op Cash Flows/ Current Liabilities a.Amount of cash a company generates from the revenues it brings in
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Inventory to Net Working Capital
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= Inv/ (Current Assets- Current Liabilities) a.% of the firms capability to finance its inventories from available cash
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Profitability Ratios
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1. ROE- return on equity 2. ROA – return on assets 3. Profit Margin
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Activity Ratios
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Days Accounts receivable outstanding
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Sales Forecast
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Segment demand X (1+ growth rate) X (Market Share % next year)
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Production Next Year
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Sales forecast + ( Desired ending inventory)- (beginning inventory)
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DuPont Analysis
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1. ROE= ROS x TAT x Leverage 2. Leverage= Assets/ equity 3. Leverage Increases as ROE increases ROA remains constant
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Cash Conversion Cycle
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DIO+DSO- DPO >>>> – Days Inventory Held+ Days Accounts receivable outstanding= Operating cycle- Days Accounts Payable Outstanding= CC – Measures management effectiveness, the lower the CC cycle the better. Good to compare to competitors
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Inventory Turnover
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= Sales/ Average Inventory a.How many times a company’s inventory is sold and replaced over a period b.Amazon has a high IT while Boeing has a low IT
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Days Inventory Held
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=365/Inv Turnover a. raw materials into cash
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Accounts Receivable Turnover
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= Net Credit Sales / Average AR a.# of times per year a business collects its avg. accounts receivable
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Days AR Outstanding (DSO)
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= 365/AR Turnover a.Avg. # of days company takes to collect revenue after a sale
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Accounts Payable Turnover
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= Inventory Purchases/ Average AP a.How many times per year company pays its suppliers
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Days AP Outstanding
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365/AP turnover a. Average number of days a company takes to pay its suppliers
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Leverage (mix of equity and Debt)
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1. Debt to Asset= total debt/ total assets a. Indicates a company’s financial strength 2. Interest coverage= EBIT/ Interest Expense a. Company’s ability to meet its interest payments i. Leverage= total assets/ equity ii. Times interest Earning= EBIT/ Total Interest payable on debt iii. Operating cash flows to total liabilities
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Profitability (earning achieved)
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1. contribution Margin= (Sales- Variable costs)/ Sales a. per unit measure of a products gross operating margin 2,. Return on Assets= Net income/ Assets a. How efficient a company is using its assets to generate earnings 3. Return of Equity= net income/ total equity a. How efficient a company is using its equity to generate earing
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Dupont Analysis
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Provides a basis
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6 Basic Strategies
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1. Broad Differentiator (Presence in every segment) 2. Niche Differentiator (High End, Performance, Size) 3. Broad Cost Leader (Presence in every segment) 4. Niche Cost Leader (Traditional, Low End) 5. Cost Leader with Product Lifecycle Focus (High End, Traditional, Low End) 6. Differentiator with Product Lifecycle Focus (High End)
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Capstone Courier includes:
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– Public Financial Records – Product Positioning – Customer Buying Patterns
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Customer survey scores
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can be found in the Courier’s segment analysis
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R and D controls:
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Changes in performance, size and MTBF
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Completely new products:
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Generate 25% awareness without spending any money
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MTFB
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is measured in hours
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Customer Buying Criteria
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– Positioning and price criteria change every year – Age and MTFB criteria remain constant
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Segment prices fall
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at a rate of $50 per year
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Performas and Reports are:
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– Projections for the upcoming year – results from the previous year
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4 department/ functional areas
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1. R&D 2. Marketing 3. Production 4. Finance
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Customer Segments
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– High end – Performance – Size – Traditional – Low end
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4 Buying criteria of Customers
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– Price: inexpensive or advanced technology for higher price? – Age: brand new tech or proven tech that has been around for years? – MTFB (mean time before failure): reliably measured in hours – Positioning: Size and Performance (speed/sensitivity with which they respond to change in physical conditions)
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Over time customers expect:
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Product that are smaller and faster
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Perceptual maps can be used:
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to plot any 2 product characteristics
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Customer Survey score:
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– Drives product demand (higher the score, higher the demand) – Calculate 12 times a year
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Customers prefer products:
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within the fine cut circle, but will buy products within the rough cut circle as well
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Price ranges in all products segments:
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drop $.50 per year
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R&D
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– Invention projects take 1 year to complete – Each 1,000 hours of reliability (MTFB) ads $.30 to the material cost – Segment circles on the perceptual map move between .7 and 1.3 units each year – Project lengths can be as short as 3 months or as long as 3 years – Changing the MTFB alone will not effect a products age – Re positioning the product cuts the products age in half
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Marketing
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– Promotion and Sales budgets – From one year to the next 33% of people who knew about the product last year forget about it – Promotion determines awareness – sales budget determines acceptability – You must have 2 or more products in the segment fine cut to achieve 100% accessibility
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Production
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– Capacity – each new unit of capacity costs $6 for the floor space and $4 x (automation rating) – can be sold for $.65/ unit – If you sell all the capacity on a sensor, capstone will interpret this as a product liquidation and will sell your inventory for half the cost of production – Labor costs increase each year – Automation costs $4/ unit
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Finance
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4 ways to acquire capital needs 1. Current Debt 2. Stock Issues 3. Bond Issues (Long term Debt) 4. Profits
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Positioning Score
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Must understand both what customers want and their boundaries in terms of products size and performance 1. Rough Cut Circle 2. Fine Cut Circle 3. Ideal Spot
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Rough Cut Circle
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– Dashed outer circle defines the outer limit of the segment, customers WILL NOT purchase a product outside this boundary, radium of 4.0 units – In the rough cut, products are poorly positioning and have reduced customer survey scores -Just beyond the fine cut score drops 1%, half way through the rough score drops 50%, and almost at the dashed line scores drops 99%
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Fine Cut Circle
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– Solid inner circle defines the heart of the segment, customers prefer products within the circle, “make the fine cut”, radius of 2.5 units – For inexpensive tech, the idea spot is to the upper left of the segment, where material costs are lower – For cutting- edge tech, idea spots is the lower right of the segment, where material costs are higher
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Ideal Spot
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Point is the hear of the segment. All other things being equal, demand is highest
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Price Score
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Every segment has a 10 dollar price range. Customers prefer products towards the bottom of the range. Price ranges in all segments drop 50 cents per year. – Segments that demand higher performance and smaller sizes will be willing to pay a higher rice
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Price rough cut
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sensors riced $5 above or below the segment guidelines will not be considered for purchase. products fail the price rough cut – sensors priced a dollar above or below guidelines will lose about 2% of their customer survey score for each dollar above or below, up to 4.99
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Price Fine Cut
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Prices follow a clasic economic demand curve, as price goes down, the price score goes up
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MTBF
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– Each segment sets a 5,00 hour range for Mean Time before failure – the number of hours a project is expected to operate before it malfunctions, customer prefer products towards the top of the range – as MTFB increases, the score increases. Customers are indifferent to MTFB above the segment range
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MTFB rough cut
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Products with MTFB 1000 hours below the segment guideline lost 20% of their customer survey score, for every 1,000 hours below the guideline, on down to 4,999 – At 5,000 hours below this range, demand for the product falls to zero
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MTFB fine cut
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the customer survey score improves as mtfb increases, however material cost increase .30 cents for every additional 1,000 hours of reliability. customers ignore reliability above the expected range
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Age Score
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– criteria does not have a rough cut, product cannot be too young or too old to be considered for purchase -Cutting edge tech- prefer newer tech (1.5 years or less) – Proven tech- seek older designs (2 or more years)
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Customer survey score
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your score/ (sum of your score+ competitors scores)
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R&D
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