Firm Reports

Sales Report

The sales report looks at sales outcomes for the quarter (such as unit sales, market shares, etc...) and the state of firm's marketing variables (price, sales representative salaries, etc...).

Total Unit Sales: your firm's total unit sales per product by area. If you are a wholesaler ( you have sold units through contracts) then this figure would include those sales.

Backorders: orders your firm could not fill this quarter. They will be first in line to be filled next quarter, at this quarter's price or at next quarter's price - the lower of the two. If you have backorders in a quarter, be sure to add those backorders to your next quarter's forecasted demand. If you cannot fill your previous quarter's backorders you will loose these sales altogether.

Returns: products that failed on initial use or shortly thereafter. The units are reprocessed and resold in the same quarter or, if not sold, are included in the finished goods inventory. The cost of reworking returns is approximately 30% of the unit's sales price (RETURNS X PRICE X .30). Additional expenditures in quality control will help eliminate the return problem.

Sales Lost: your inability to supply demand led retail buyers to seek product from another firm in your market group.

Market Share: market share is by product and area. It represents your share of what the firms in your market group sold. If there are five firms in your market group, then your "fair share" of the market would be 20%. Given 8 firms (the maximum in any one market group), a "fair share" would be 12.5%. Note that large wholesalers (selling through contracts) may upset market share figures by creating a larger total sales figure (with sales outside of the retail market of the market group). Ending Sales Lost for the market group are not calculated into the market share figure, nor are current backorders.

Sales Trainees: are hired and trained at a cost of $3,000. It takes 1 quarter to fully train a sales trainee. Once the trainee is ready he/she can be assigned to a territory for $3,000. You should still consider paying a salary and/or commission as soon as the trainee is assigned to an area. If you do not assign your trainee to a sales area, he/she will be kept on hold in the trainee pool and will earn 3,000 per quarter until you do fire or assign him/her.

Sales Reps: this is the number of sales representatives still with you at the end of the quarter. If you notice that the number is smaller than it should be this means that some sales reps have quit. The cost to hire a new sales rep is $12000. Yes, sales reps sometimes do quit. Sales reps compare the base salary and commissions you pay to the salary and commission paid by your competitors. The less relative pay, the less motivated the sales reps are and the greater their incentive to quit. Always check the Industry Report to see how many sales reps are ready to start the next quarter.

Base Salary: is the amount paid to each sales rep, each quarter, regardless of the number of units sold. The salary of $3,000 (in this example) may seem low for a quarter, but most of the reps carry complementary product lines for other non-competing firms. They are not your employees, but independent contractors. The number of sales representatives that have stayed with your product line and are ready to start the next quarter is public information and found on the Industry Report.

Commissions: are stated in actual dollars and cents per unit, NOT as a percentage of the selling price. Commissions are paid per unit sold (this includes previous quarter backorders but excludes contract sales for the quarter).

Product Prices: your prices per product per area

Advertising Budget: your advertising budget per product per area

 

Production Report

The production report breaks down manufacturing elements for the quarter, including production, inventory and plant capacity.

Production - Shift 1: is the actual number of units manufactured for the stated quarter. Production is broken down by product, area and shift. There is a day shift (shift 1) which exists as soon as the plants hours are available for operation. The second shift, or night shift must be set up through the capacity decision menu.

You will need to compare the actual production to the production schedule you set up in your decisions. The negative variance rarely drops as low as 15% and the positive variance rarely exceeds 5%. In countries with less dependable infrastructures (such as Mexico or The Czech Republic) the range is between 40% to 125%.

Production - Shift 2: is what the night shift produced. A second shift is ready to go in the same quarter it is added. In both shifts, wages are paid by the hour. The number of units produced per hour stays fixed. Therefore, the labor charge per unit stays fixed. The night shift earns a 5% premium over the day shift.

Remember that if you do not have a second shift in place, all second shift production which you schedule will be subcontracted.

Finished Goods Inv:are units on hand ready for sale in the coming quarter. There is a carrying cost per unit.


Inventory Unit Cost: averages the production unit costs of old inventory from previous quarters and the new units manufactured or purchased through contracts. The result is the cost of units in your inventory that will be charged to the income statement as cost of goods sold when those units are actually sold (perhaps in the coming quarter).

Production Unit Cost: includes the labor and raw material cost components of the product. If you find you have excessive production costs, check to see if you are subcontracting the units you are manufacturing (scheduling production beyond capacity). Remember also that if you wait for the program to order your raw material units at market, you loose 2 weeks of production. The production unit cost is used to adjust finished goods inventory unit cost if the units are not sold.

This is a basic production unit cost (day shift with no overtime and no subcontracting)

Aftershave Perfume
6 units raw materials type 1 x $1.33     12 units raw materials type 1 x $1.33
12 units raw materials type 2 x $0.96 25 units raw materials type 2 x $0.96
1.7 stage 1 hours x $12    3 stage 1 hours x $12
2.0 stage 2 hours x $5.50  2.5 stage 2 hours x $5.50
Total = $50.90       Total = $89.71

Raw Mtls In: are your raw materials in inventory. The numbers shown in this section are what you have on hand to start the next quarter. The firm cannot place an order for raw materials at market price. The model is designed to order at market automatically, any time during the quarter when production runs out of raw materials.

RM Units/ FGU P1 and P2: Raw Material Units/ Finished Goods Unit, specifies how many units of raw material are required to make one finished goods unit.

Plant Size: Labor Hrs/ Shift 1: measures the physical plant in terms of labor hours available for production. The figures are stated for shift 1 by Area and by Stage. Hours lost are the actual or real depreciation of the plant and equipment. The accountant, at the same time, is reporting a depreciation for tax purposes at the rate of 2.5% per quarter.

Second Shift: is a night shift. The union contract requires a 5% wage premium be paid.

Labor Hours/ FGU: is the number of labor hours required to manufacture one unit of finished goods.

New Construction (Hours): are stated in hundreds of hours. You will have an entry if you ordered a plant expansion or started a new facility.

 

Balance Sheet

A balance sheet is a snapshot of the firm's current financial condition taken on the last day of the quarter. Assets are balanced against liabilities and equity. Assets - liabilities = equity.

Cash: is the amount of cash your firm has on hand at the end of the quarter. Your firm must maintain a minimum cash balance of $10,000. If your cash threatens to drop below $10,000 the program will issue you a special loan to cover any further expenses. Interest on a special loan is 36% annually, 9% quarterly. Your cash flow statement gives you a detailed account of cash transactions for the quarter, so that you can see how the ending balance was derived.

Accounts Receivable: are those sales dollars which your firm has earned that have not yet come into cash. These would be credit sales as opposed to cash sales. Accounts Receivable are approximately 40% of sales revenue, this is true even of contract sales to other firms. These receivables can be factored, which turns them into cash during the same quarter. The cost to do this is 4.25%. The decision to factor receivables can be made on the financial decision menu.

Marketable Securities: is the record of your firm's subsidiary investment, if you have opened a subsidiary. This number would be 51% of the shares issued by the subsidiary at the issue price.

Inventories: finished Goods inventory is shown here as a dollar amount. Be careful that the money you tie up in finished goods assets is not excessive. Raw Materials inventory is also shown on the balance sheet as a dollar amount.

Plant and Equipment: is the original dollar value of your firm's plant. In this example the firm ordered plant construction in Quarter 1, Year 1 worth $670,000. The number on the balance sheet, $750,000 also includes the $80,000 site fee which is charged to all firms constructing a factory. If this firm had ordered High-tech (see the Scent Industry Section), this would also be recorded in the worth of the plant and equipment.

Accumulated Depreciation and Net Plant: is the accountant's record of plant depreciation. When Accumulated Depreciation equals Plant and Equipment, Net Plant will be zero. Depreciation is straight line, using 10 years which is 10% annually, or 2.5% quarterly. The program calculates depreciation using beginning plant and equipment for the quarter (or last quarter's ending plant and equipment).

Accounts Payable: at the end of each quarter you will have a number of unpaid bills or partially paid bills. These are your accounts payable. To find out where your accounts payable are coming from, you should order a cash flow report. Accounts payable are approximately 30% to 35% of payments made for raw materials and labor, including administrative expense.

Loans and Bonds: shows loans and bonds. Note: the bond market may close for a firm after a 1/1 debt to equity ratio is reached by that firm.

Common Stock: the Common Stock account on the balance sheet records $1.00 for every share issued. Additional issuance of shares would add $1.00 per share. Likewise, a repurchase of shares would reduce this account by $1.00 per share.

Other Paid in: of course, your firm probably sold stock for more than $1.00 per share. The Other Paid in account on your balance sheet is where the accountant records the dollar amount above $1.00 which your firm earned on the sale of its shares. A later issuance of shares would increase the Other Paid in account by the issuance amount over $1.00 per share.

A repurchase of stock is a more difficult accounting calculation. A repurchase would reduce cash, reduce the Common Stock Account by $1.00, reduce Other Paid in by an average of paid in capital per share, and reduce retained earnings by any excess paid to repurchase the stock.

Unamortized Discount: the unamortized bond discount is the portion of the bond discount not yet amortized.

Retained Earnings: is the account where gains and losses to the stockholder are recorded. Each quarter you will see gains or losses reflected in your retained earnings. If you are repurchasing your firm's stock at a price which is higher than its average issue price, you will see a loss to your Retained Earnings account.

Total Equity: is an important number to keep track of. If your firm has a total equity of zero, it means that you have lost 100% of the stockholders investment in your firm. In other words, you are bankrupt!

 

Income Statement

The purpose of the income statement is to show whether the firm made or lost money during the quarter. It reflects a period of time (the quarter). The income statement shows how revenue (money coming in through sales) is transferred into net income. Revenue - cost and expenses charged against the revenue (including, for example, depreciation and taxes) = the bottom line or net income (or loss).

Sales revenue: is calculated as: previous quarter's backorders x previous quarter's price + contract sales this quarter x contracted price + retail sales this quarter at this quarter's price. To determine Area 2 sales revenue you will need to take the exchange rate into consideration. To do this you will need to divide area 2 sales revenue by the current exchange rate listed in the Industry Economic Report.

Reprocessing cost: is the cost of putting returned items back into inventory. This cost is 30% of the unit's sales price. Returned items are reprocessed and put back into that quarter's inventory for sale in the same quarter, they do not go into inventory.

Net Sales: is the total sales revenue less the reprocessing costs.

Investment Income: shows the type of investment made (0, 1, 2, or 3) and the profit or loss from this investment. The amount of profit or loss from moving excess cash into one of the quarterly options is part of gross income.

Income From Marketable Securities: is the amount of dividends paid out by the firm's subsidiary. If a subsidiary is started in another market group, the firm receives 51% of the dividends paid by that subsidiary. Dividends paid by subsidiary arrives in the following quarter.

Cost of Goods Sold: is the weighted average cost of finished goods from previous quarters and the cost of goods manufactured or purchased this quarter, times the number of units sold. Remember, if you purchase finished goods through Contracts, then the price you pay for these finished goods will also average in with the Cost of Goods Sold figure.

Advertising: is a budgeted decision made by the team.

Quality Control: is a budgeted decision used to reduce returns and improve product image.  Inadequate expenditures on quality control will cause more returns and will affect market share over time. 

Bad Debts: is a function of the credit policy selected by the firm and the amount of sales.

Product Improvement: is a budgeted item, spent in an attempt to achieve a short run differentiation advantage over competitors. If secured, the benefit will last two quarters.

Engineering is a budgeted item, spent in an attempt to lower production costs. Engineering budgets are entered in 1000's. Efficiency gains over time are hard to track. You will need to monitor production unit costs closely to pinpoint engineering effects.

Sales Expense: is the total of commissions and salaries paid to sales representatives, (excluding both last quarter's backorders and contract sales). Unexpected variations in sales expense are due to variations in commissions. If you pick up the sales lost of other firms, you do not pay a commission on the sale. If your sales expense falls far short of what it should be, beware.

Administrative Expense =

1. $.05 X plant size (stage 1 + stage 2)
2  $.15 X hours used (hours used in production for the quarter both stages)
3. $350 X each 10% of second shift
4. $.025 X plant hours under construction
5. $ Fixed administrative overhead = $ 50,000

* Plant size measuring first shift only in both Stage 1 & 2; the program uses plant size at the start of the quarter (or last quarter's ending plant size)

Inventory and Shipping Charges =
1. Number of P1 units inventoried x $.60per unit
2. Number of P2 units inventoried x $.90 per unit
3. Number of T1 rmtls inventoried x >$.005 per unit
4. Number of T2 rmtls inventoried x $.005 per unit
5. Number of P1 units shipped ocean freight x $2.25per unit
6. Number of P1 units shipped air x $2.925 per unit
7. Number of P2 units shipped ocean freight x $6.25 per unit
8. Number of P2 units shipped air x $8.125 per unit

Inventoried units are those in the quarter just ended (NOT inventoried units from the previous quarter's report)

Maintenance: is an absolute budget and NOT a per hour nor a per unit entry. Inadequate maintenance accelerates the number of plant capacity hours worn out each quarter. You should increase maintenance proportionally if a second shift is used. Remember, some maintenance is required even if zero production is scheduled. If you don't budget enough for maintenance then you risk loosing plant hours at an ever increasing rate. A VERY expensive proposition.

Depreciation: is straight line, using 10 years which is 10% annually or 2.5% quarterly. Depreciation begins as soon as plant hours exist and includes the $80000 site fee.

Interest
The interest expense on your income statement is composed of the following interest charges:   

Interest on Short Term Loan. Short term funds are borrowed for use in the quarter and paid back the first day of the next quarter with interest.  At the start of the simulation the interest rate is 9.2% annually or 2.3% quarterly.

Amortized Bond Discounts. Amortized bond discounts are included in the interest charge. A firm does not always receive the full value of the Bonds it sells. Bonds mature in five years (20 quarters) so the quarterly amortization rate is 5% per quarter.

Interest on Bonds. The bonds pay 10% (2.5% per quarter) on the $1,000 face value.

Interest on Long Term Loan. Interest on Long Term loans is also included in the interest charges found on your Income Statement. The charge for long term borrowing is a set rate for all firms (at the start of the game this rate is 12% annually). Unlike short term, long term interest is paid when you receive the funds, not when you repay them. So, if you borrow in Q1, interest will be collected in Q1. The loan itself is not repaid until your firm orders repayment in their decisions.

A Special Loan. A Special Loan is the Mother Rate of all loans. This loan is provided automatically by the program whenever you are short on funds. The Special Loan has an interest rate of 36% annually or 9% quarterly. As with a short term loan, a special loan is automatically collected the next quarter along with interest. Note: Contracts often generate a special loan. Because Contracts are put through before the quarter run occurs, many firms find themselves short on funds, and are given a special loan. Be careful when making contracts for finished goods that you understand the effects of a special loan on your income statement.

Factor Cost: is the discount taken when you elect to convert all your incoming accounts receivables instantly into cash. The service fee and interest charge is 4.25% of the receivables factored. If you factored all your incoming receivables, Accounts Receivable would be zero and cash would have increased accordingly.

Miscellaneous

The Miscellaneous charge on the Income Statement is composed of the following:

1. Hiring new sales reps $12000 each
2. Hiring Trainees $3,000 each
3. Assigning trainees $3,000 each
4. Transferring sales reps $3,000 each
5. Cost of changing second shift
6. Administrator's charges<
7. Contract gains and losses on the sale of raw mtls and plant hours
8. Seller's contract fees
9. Consulting Contract

Administrative charges are those charges which the Global View Administrators assign to your firm for violating rules, law suits, and so forth, as well as charges for various reports being offered.

Income Taxes
Income Taxes are paid quarterly at the rate of 22% on the first $6,250 earned and 48% on the balance of earnings. Losses can offset taxes paid over the last three years. If you paid taxes and then have a loss, a tax rebate will be provided and shown as a negative tax (-). The 48% tax rate reflects federal, state and local income taxes, plus other miscellaneous taxes.

Net Income: In the case of a loss,the offset on the balance sheet is a reduction in the stockholders Retained Earnings by the same amount.

The Bottom Line: on the Income Statement is important. You can see that an income loss is recognized immediately in the stockholder's net worth (retained earnings). However, it is important to consider the long run objectives. Perhaps, some short term loss can be tolerated to gain long run market position. Losses in some cases are unavoidable and may spread throughout the industries. The net income and the Balance Sheet must be compared to all firms in order to determine the relative value.

There is a common misconception that increases in assets means taking a loss on the income statement. Let's look at expanding plant capacity as an example. Most teams consider the building of a plant to be an expense. What you are doing is simply trading one asset (cash) for another (plant). That is not an expense. Only as it wears out is it an expense (depreciation).

Decision makers are reluctant to expand plants late in the simulation. When challenged regarding that decision, most say it is too late in the game to recover the cost of building. In this situation, however, you are trading an inferior asset (cash) for one you hope to be superior (plant). After two quarters of construction, if you were right, the plant will be on line and will generate returns. Investors will recognize the new level of net income flow and stock prices will increase that quarter and in future quarters as the flow gains stability. In this situation, an argument could be made to begin a plant capacity expansion as late as the second quarter of the last year.

 

Cash Flow

A cash flow report shows the movement of money into and out of the firm during the quarter. All incoming cash for the quarter is compared against all outgoing cash to determine your ending cash figure on the balance sheet. If you do not have enough cash to cover outgoing then you will be given a special loan.

Most of the figures which appear in the Cash Flow Report can be taken directly from your current Market group and Firm Reports. Let's take a closer look at some of the more difficult numbers on the Cash Flow Report.

A Note About Contracts
Contracts are put through first, then main decisions are run. All cash is paid out for contracts before the start of the quarter. If you are a firm purchasing finished goods, make sure that you have an ending cash balance from the previous quarter to purchase goods through contracts. If you have no cash on hand a special loan is generated. Special loans carry a 9% quarterly interest rate.

The seller of finished goods will deliver and receive payment for goods during the quarter. This allows the producer of goods to produce during the quarter to meet contract demand. It also allows contracts sales to be properly counted in income statement revenue. The same rules apply to contract cash inflow as to other other sales revenue inflow - 60% to cash and 40% to accounts receivable. Bad debts can occur and are influenced by your firms credit policy.

Net Cash Sales: are approximately 60% of total net sales, the remainder will be credit sales. Credit sales (accounts receivable) and will be collected as cash in the following quarter.

Raw Materials: 65 - 85% of the raw materials purchased are paid for immediately. The remaining 15 -35% go into accounts payable. The cash outflow for raw materials will depend upon your scheduled production. It will also depend upon whether or not your firm had raw material inventory on hand. Multiply the raw material cost (remember to combine inventory and at market costs if you start with some raw materials on hand but also order at market during the quarter) by the number of raw material units needed to produce one unit by the number of units manufactured.

Manufacturing Labor Costs: The cash outflow for manufacturing labor costs will also depend upon scheduled production and whether or not you used overtime or subcontracting. As with raw materials, only 65 - 85% of your quarter's labor costs are paid up front. The 15 - 35% remainder will appear in your accounts payable. You need to remember to multiply the wage rate by the number of hours required to produce one unit by the number of units manufactured.

Here is a simple example. If 2000 units of aftershave (product 1) are produced with no overtime or subcontracting:

Stage 1: (1.7 hours required x $12 paid per hour) x 2000 units produced = 40800
Stage 2: ( 2 hours required x $5.50 paid per hour) x 2000 units produced = 22000
Total: $62800
Total cash outflow: $62800 x 85% (approximate) = $53380
Total in accounts payable: $ 62800 - $53380 = $9420

Administrative Expense: The cash outflow for administrative expense is approximately 65% of the total administrative expense. The remaining 35% will appear in accounts payable.

Raw Materials Futures: When you purchase raw materials futures (raw materials which are available at the end of the quarter for use in the following quarter) you must pay 70% of the cost immediately. The 30% remaining will appear in accounts payable.

New Construction: New construction is paid for in two quarters. Half in the first quarter and half in the second quarter. If this is your initial (first time) plant construction at a particular site, you must also pay an $80,000 dollar site fee in the first quarter.

Changes in Capital Accounts: As the name implies, this section of the Cash Flow Report shows you the changes in your Capital Accounts. The final "equity" number is the total of everything listed below BONDS in one column.

 

Credit Report

A credit report is your credit reputation.

Credit Rating: is evaluated each quarter. An evaluation of 1 is the best and 5 the worst. Your rate will begin at 1 and quickly decline since you will probably loose money in your start up quarters. The rating determines, in part, the firm's short term bank borrowing rate.

Short Term Rate: is your short term borrowing rate. For example, your firm's credit rating of 1.783 influenced a S.T. (short term) borrowing rate of 13.363%. If your firm borrows $100,000 in short term for Q4, the collection in Q1, Year 2 will be at 13.363% (3.34% per quarter).

Debt-to-Equity: is a measure of financial risk undertaken by the firm. 0.0 to 1.0 is ultra conservative and may restrict the growth in the stock price of a successful firm. 1.0 to 1.5 starts to worry both stock investors and bankers. Above the 1.5 ratio you will find two types of firms: high risk firms pushing financial leverage to its maximum and firms that have lost a great deal of equity and are in financial difficulty.

The Contract Report

The contract report shows you contracts executed with your firm during the quarter. Even if you did not make contracts with other firms or within your own firm, it is still a good idea to check this report.