Eagles Nest BBS 4/Eagles_Nest_Mac_Collection_Disc_4.TOAST/General Business/BusinessSim/Sim Files/TUTS.CON

Text File | 1987-06-08 | 112KB | 3,742 lines

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Annual Report
 The Annual Report is a summary of how well your company performed in
@@1
.  It includes information on the operating and financial results of
 your firm.

 The individual reports are:

 1) Sales and Inventory Report - How many units you sold, how many
    remain in inventory, and what it cost you to buy them.
 2) Income Statement - How much money your company made last year.
 3) Balance Sheet - How much money your company is worth.
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Decision History
 The Decision History is a listing of the decisions your company made
this past year.  The percent change between this periods and last periods
decisions are calculated for you.
The decisions for level one are:
 Price           - The price you charged consumers for your product.
 Advertising     - The amount you spent on advertising your product,
 (on TV or in newspapers), promoting it with coupons and free samples,
 and the cost of attending trade shows.
 Units Purchased - The number of units of sellable product that you
 purchased from your supplier.  To see how many of these units
 were sold and how many are still left in inventory, see the Sales and
 Inventory Report.
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Key Decision: Price
The price you establish for your product is the single most important
decision in the first level of simulation.  Some key pricing guidelines are:
 1. Your selling price should be greater than your buying price (obviously).
 2. Your price should be competitive with the other companies' prices.
 3. The lower the price the greater the sales volume (units) will be if
 all other factors are equal.  The higher the price the lower sales volume
 will be.

 More guidelines are available on the next screen.
More Pricing Guidelines:
 4. Greater sales volume at lower prices does not necessarily translate
    into greater profitability.
 5. Pricing is not the only influence on sales.  Advertising will also have
    an impact on the number of units that you can sell.  You must also have
    enough product available to meet the demand for your product.

A quick question:
Company A established a selling price of $10 and an advertising budget of
$200,000.  Company B set a selling price of $12 and an advertising budget of
$200,000.  Which of the following is most likely to occur:
A:  Company A sells more than Company B.
B:  Company A sells the same amount as Company B.
C:  Company A sells less than Company B.
Here is a more complex question:

Company Q has made a forecast of sales volume given various pricing assumptions.
Q's cost is $5 per unit.  At a selling price of $10, Q estimates it can sell
10,000 units; at a selling price $8, Q estimates it can sell 12,000 units, and
at a selling price of $12, Q estimates sales of 8,000 units.
What is the selling price that will maximize Company Q's profits?  Assume that
all other costs are constant (and can therefore be ignored).
A:  Price of $8.
B:  Price of $10.
C:  Price of $12.
The correct answer is $12, because 8,000 units are sold and a profit of $7 is
made on each unit for a total profit of $56,000 (before other expenses).
Selling Price -   Cost  =  Margin  x  Forecasted Volume =   Forcasted Profit
   $8         -    $5   =    $3    x     12,000        =       $36,000
  $10         -    $5   =    $5    x     10,000        =       $50,000
  $12         -    $5   =    $7    x      8,000        =       $56,000
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Marketing Decisions
 Each year you must make several marketing decisions to guide
 your firm.  In the START-UP phase you will have to decide how much
 you should charge for your product and what dollars you can afford
 to spend for advertising it.
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Key Decision: Advertising
 Advertising stimulates sales.  Too little advertising has little
 or no impact, as the advertising is spread too thin.  Too much
 advertising is wasteful.  It is also important to have high quality
 advertising.
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Operations Decisions
 Each year you must make several operations decisions to guide
 your firm.  In the START-UP phase you will have to decide how
 many units of the product you want to order from your supplier.
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Key Decision: Units Purchased
 The number of units purchased impacts your financial performance.
If you purchase more units than you sell, you will be left with inventory.
Too much inventory results in higher costs and cash shortages.  If you
purchase fewer units than you can sell, the result is "stockouts" (you are
out of "stock", or inventory).  Stockouts result in lost sales and lost
profits.
 If 200,000 units are purchased and 175,000 are sold, how many units are
left in inventory at the end of the year.  The inventory at the beginning of
the year was 0 units.
A:        0.
B:   25,000.
C:  375,000.
 Your company has a beginning inventory of 30,000 units.  Units purchased
were 250,000.  The company sold 240,000 units.  How many units are in your
inventory at the end of the year (ending inventory)?
A:  520,000.
B:   20,000.
C:   40,000.
 Beginning inventory of 30,000 plus purchases of 250,000 gave the company
280,000 units of sellable merchandise.  240,000 units were actually sold,
leaving the company with an ending inventory of 40,000 units.
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Sales and Inventory Report
 The Sales and Inventory report provides you with information on Unit
 Sales, changes in Physical Inventory levels, and Costs per Unit.
 This report shows how successful you have been in selling the product
 that you had available to sell.  This report can also be used to
 determine the number of units to purchase each year and how much you
 should charge for the product.

 Please review the tutorials for each line-item on this report.
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Beginning Inventory
 Beginning Inventory is the amount of inventory (product) that
 the company had in its warehouse at the beginning of

@@1
.  The number
 given here is in units (not dollars!), and it is always
 equal to the inventory on hand at the end of

@@2
.
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Units Purchased
 This is the number of units of the product that you purchased from your
 supplier in
@@1
.
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Units Available for Sale
 Units Available for Sale is the number of units that you had on
 hand ready to sell over the course of the year. This figure is equal
 to the Beginning Inventory plus Units Purchased during this year.
 Because you can't sell a product that you don't have in inventory, Units
 Available for Sale represents the absolute maximum that you could
 have sold in
@@1
.

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Units Sold
 Units Sold is the number of units that you sold to your customers
 in
@@1
.  The number on the right is the percent increase (or decrease)
 in unit sales from
@@2
.
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Ending Inventory
 Ending Inventory is the number of units left in inventory at the
 end of the year.  It is calculated by subtracting the Units Sold from
 the Units Available for Sale.  This number should be kept as low as
 possible without going to zero.  An Ending Inventory of zero usually
 means that you ran out of the product over the course of the year and,
 as a result, missed some sales.  If your Ending Inventory is too large,
 then you are probably over-purchasing units of the product from your
 supplier, and using valuable cash to finance inventory!
 The number on the right tells you how many months worth of
 inventory you have left, based on last year's sales.  A month of inventory
 is equal to 1/12th of the units sold in
@@1
.  If you continue to sell
@@0
 at the same rate as you did in
@@2
, your inventory on
 hand will last for less than
@@3
 month(s)!
 A commonly used rule of thumb is to try and keep two months worth of
 ending inventory on hand.
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Purchase Cost per Unit
 Purchase Cost per Unit is the price that your company paid
 for each unit of the product that you purchased in
@@1
.
 The Average Inventory Cost per Unit is computed by averaging
 the cost of the new inventory purchases for the year and
 the cost of the units purchased in prior years which remain
 in inventory.

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Inventory Cost per Unit
 Inventory Cost per Unit is the average price paid for all units
 of the product which were available for sale in

@@1
.
 This figure is used in calculating the Cost of Sales expense on the
 Income Statement and the Inventory account on the Balance Sheet.
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Income Statement
 The purpose of the Income Statement is to identify the revenues generated
 by the sales of products and the costs incurred to produce these
 revenues.

 Note that income, profit and earnings all have the same meaning and
 are used interchangeably.  Therefore, the Income Statement could also
 be called the profit statement or earnings statement.  Many companies
 refer to this statement as the P&L or Profit and Loss Statement.
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Sales Revenue
 Sales Revenue is equal to the price of the product times the number of
 units you sold to your customers.  It is the number of dollars to be
 received from the units sold during
@@1
.  Sales Revenue is sometimes
 referred to as Sales only or as Revenue only.

 If Sample Co. purchased 10,000 units of product in 1986 and sold 7,500
 at a price of $10 each in 1987, what is their Sales Revenue in 1987 ?
A: $100,000
B:  $87,500
C:  $75,000
 Only product that we sell in a given year is counted as revenue that
 year. In 1987, Sample sold 75,000 units @ $10, thus revenue = $75,000.
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Cost of Sales
 Cost of Sales is the direct cost of purchasing or producing the product
 that you sold in
@@1
.  It is equal to the number of units sold times
 the average inventory cost of what was available for sale.  Although some
 of the product you sold may have been purchased in previous years at lower
 cost, we average all purchase costs together through a process known as
 weighted average cost accounting.
 Please refer to the ANALYSIS MODE of this item and the TUTORIAL &
 ANALYSIS  MODES of inventory costs per unit on the Sales & Inventory
 Report for more information on costs per unit.
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Gross Margin
 Gross Margin is equal to Revenue less Cost of Sales.  It is the amount
 of profit remaining after the direct cost of supplying the units sold has
 been subtracted from the total revenue generated by selling the product.
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Selling, General and Administrative Expense
 Selling, General, and Administrative Expense (SG&A) includes all
 operating expenses other than the Cost of Sales.  Some of the
 components of SG&A which occur in the simulation are advertising
 budgets, administrative costs, research and development activities,
 sales force salaries and sales force commissions.  To see the breakdown
 of
@@1
's SG&A expense, view the ANALYSIS MODE of this item.
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Operating Income
 Operating Income is the amount of income earned from operating the
 business before any deductions for taxes and interest.  Operating
 Income is equal to Sales Revenue less Cost of Sales less SG&A Expenses.
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Interest Income (or Expense)
 Interest Income (or Expense) consists of the interest received
 on idle cash balances in the bank less any interest paid on loans.
 Interest is not included in Operating Income to allow you to see how
 well your company performs in its main business of selling products before
 the effects of investment and financial decisions are taken into account.
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Income Before Income Taxes
 Income before Income Taxes is equal to Operating Income plus Interest
 Income.  It is often referred to as pre-tax income. Income before
 Income Taxes less Income Tax equals Net Income.

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Income Tax
 Income Tax is the amount of money that your company pays to the
 government as a fee for doing business in the United States.
 Corporations typically pay income taxes of 40% unless they utilize
 certain tax incentives.  These tax incentives were passed by Congress to
 encourage investment in capital equipment.  Currently the federal
 corporate tax rate is 34% on all income in excess of $100 thousand.
 State and local income taxes add about 6% to that figure.
 In this simulation, your firm will pay taxes at a 40% rate.  If
 your firm loses money in the first few years, you can carry-forward
 losses to apply against future tax bills.
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Net Income
 Net Income is the amount of income (profit) left over after all
 expenses have been paid.  Remember, the major categories of expense are

 1)  Cost of Sales
 2)  Selling, General, and Administrative
 3)  Interest
 4)  Income Taxes

 Net Income is also called Earnings or "the bottom line."
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Balance Sheet
 A Balance Sheet is a statement of a company's Assets, Liabilities, and
 Equity at the end of the year.  Assets are the resources that a company
 owns.  Liabilities are what a company owes to other companies or people.
 Equity is the amount of money that the company is worth to its owner(s).
 Since Assets represent the total amount of money invested in a
 company, and Liabilities are what is owed to other people, Equity (or
 Owners Equity) is equal to Assets - Liabilities.  Since you have no
 Liabilities in
@@1
  , your Assets equal your Equity.
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Assets
 Assets are the resources that your company owns.  The more
 effectively you use your Assets, the more money your company can make.
 Assets can be Current Assets, such as cash, inventories, and accounts
 receivable; or Fixed Assets, such as land, plant, and equipment.

 The value listed for the Assets represents their historical cost, or
 how much they cost when originally acquired.  This original cost stays on
 the books even if the Assets increase in value.  This concept is known as
 "Book Value."
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Cash
 Cash is the amount of money your company has in the bank. Companies
 with excess cash invest it in money market funds for months or even days
 at a time.
 The value of cash management cannot be over emphasized; too much
 cash on hand can be an under-utilized resource, but not having enough cash
 can be a big problem when you have bills to pay.
 In this simulation your extra cash is sitting in a checking account
 at the bank, earning interest at a rate equal to two points less than the
 prime interest rate.  Please refer to the ANALYSIS MODE of this item to
 see how funds flowed through your business in
@@1
.
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Inventory
 Inventory is the dollar value of the goods that are available for sale.
 Inventory provides a buffer to insure that the company has enough
 products to sell while it produces more.  If a company holds too
 little inventory, it may run out and lose potential sales to the
 competition.

 Too much inventory costs the company in two ways:

 1)  Inventory costs money for a warehouse storage.

 2)  The cash invested in excess inventory could be earning
     interest in a bank or in other investments.
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Current Assets
 Current Assets are those assets that could quickly be turned into
 cash, typically within one year.  Cash, inventory, accounts receivable,
 and stock held in other companies are all examples of Current Assets.
 Current Assets are also called Liquid Assets, because they can be
 liquidated (turned into cash) easily.
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Equity
 Equity is the money invested in the business by the owners.  It
 represents the book value of the Assets in excess of the Liabilities owed
 to other people  (Equity = Assets - Liabilities).

 Equity on the Balance Sheet is at historical cost.  It never shows
 what the company might be worth if the shares of stock were sold on the
 open market.  The market value information can be found in the business
 journal and on the main screen of the simulation after your company
 becomes publicly traded in the growth phase.
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Common Stock
 Common Stock is the amount of money invested in the company by its
 stockholders.  Common Stock is equal to the number of shares sold
 by the company times the price paid for each share of stock.  Stock
 sold on the open market (from one person to another) does not affect
 the Common Stock figure on the Balance Sheet at all.  This number only
 reflects the money paid when the stock was first sold by the company
 to the original investor(s).
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Retained Earnings
 Retained Earnings is the amount of money that your company has earned
 and kept (retained) in the business since your company was founded.
 Retained Earnings are a cumulative measure of profit that you have
 reinvested in the company. Retained Earnings are not the same as cash.
 Some of your Retained Earnings are already funding your inventory, plant
 and equipment and are not available to spend freely.

 In larger companies, earnings are paid out to stockholders, reducing the
 amount of Retained Earnings.  Since your company does not yet pay out
 dividends, all of your earnings (and losses!) are reflected by the value
 of Retained Earnings.

 The Retained Earnings in your company at the end of
@@1
 were:....$
@@2

 Net Income in
@@3
 was:........................$                   :
@@4

 Retained Earnings at the end of
@@5
 are:...............$
@@6

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Total Equity
 Total Equity is the sum of Common Stock (the original investment in
 the company by the stockholders) and Retained Earnings (the cumulative
 total of the company's earnings and losses since the founding of the
 company).  Total Equity is also called "Book Value."
 Equity is not the same as cash in the bank.  Much of your equity is
 already invested in your assets and is not available for you to spend.
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General Economic Information
 The General Economic Information section of the Business Journal
 presents information about economic conditions that will affect your
 industry.  Historical trends are provided so that you may observe how
 these factors have been changing from year to year.  You are also
 provided with two-year estimates of economic growth and inflation by
 well-known econometric forecasters.  These predictions, however, could be
 inaccurate in both their direction and magnitude.
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Consumer Price Index
 The Consumer Price Index (CPI) measures the average price of a
 specified set of goods and services purchased by wage earners in
 urban areas.  Increases in this index measure the rate of inflation
 during the year.


 The index is relative to the price levels in the first year of the
 simulation.  This index is useful when comparing current prices and
 expenditures to the prices and expenditures of previous years.
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Inflation Rate
 The inflation rate, the rate at which prices are increasing in the
 economy, is the percent increase in the CPI (Consumer Price Index).
 Many of your costs, such as raw materials, wages, and administrative
 costs, will increase by this annual rate of inflation.  The forecasted
 inflation rate will also give you an idea of how much to raise prices
 to cover increased costs.
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Real Economic Growth
 Real Economic Growth is an index measuring the total value of
 the nation's output of goods and services less any increases due
 solely to inflation.  Increases in this index measure the rate of
 economic growth during the year.  Real Economic Growth for this
 year is relative to the output levels of the first year of the
 simulation.  It is useful when comparing current sales levels to
 those in previous years.  Increases   in this index signal a
 greater demand for goods and services in general, and perhaps for
 your products as well.
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Growth Rate
 Growth rate, the rate at which the economy is growing or contracting, is
 the percentage increase or decrease in the Real Economic Growth index.
 The demand for your product will be influenced by this overall demand for
 goods and services.
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Prime Interest Rate
 The Prime Interest Rate is the interest rate that the most credit-worthy
 corporations must pay when borrowing money for one year.  To qualify for
 this lowest possible interest rate, your firm would have to be financially
 sound, with high earnings and low levels of debt.
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Industry Statistics
 The Industry Statistics section of the Business Journal provides
 you with information about your competitors' actions in
@@1
,
 and their success in selling their products.
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Competitive Prices
 Competitive Prices are the prices charged by each competitor in the
 marketplace.  If all other factors were equal, one would expect that
 a firm with a lower price would sell more than a firm with higher price.
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Competitive Advertising Budgets
 The Competitive Advertising Budget is the amount of money that each
 competitor spent on advertising.  If all other factors were equal, one
 would expect that spending more on advertising than the competition
 would result in increased sales.

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Market Shares
 The Market Share for each company is identified by the company's
 percentage of the total units sold in the marketplace.  Note that
 high market share may not result in high profits!  If a firm gains
 market share by pricing a product very low, it may not make any
 money because of the small amount of profit on each item sold.  If
 a firm gains market share through heavy advertising, it still may
 not make enough money to cover the large promotional expense.
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Marketing Decisions
 Each year you must make several marketing decisions to guide
 your firm.  In the GROWTH phase you will have to decide how much
 you should charge for your product and what dollars you can afford
 to spend for advertising it.1
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Operations Decisions
 Each year you must make several operations decisions to guide
 your firm.  In the GROWTH phase you will have to decide how
 many units of the product you want to produce in
@@1
 and
 if you need to expand your factory capacity in order to be able to
 produce more product in
@@2
.
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Production Cost per Unit
 This is what it cost your firm to produce 1 unit of product in
@@1
.
 This cost per unit includes wages paid to the factory workers, utility
 costs, raw materials and depreciation.
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Inventory
 In this phase of your company's development, you manufacture
 your own inventory.  The same basic principles apply: too much inventory
 ties up cash, and too little inventory can result in lost sales.  The more
 uncertain your sales forecasts, the more inventory you should have.
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Plant & Equipment
 Assets that have a useful life longer than one year are considered
 Fixed Assets.  All of your production plant, including buildings and
 equipment, is considered a Fixed Asset.  The Balance Sheet shows
 the historical cost of building the plant.  It does not show the
 current market value or replacement cost of the plant.

 If you do not invest enough in your production capacity, you may
 not be able to produce enough goods to satisfy demand.  Too large an
 investment may result in idle capacity, so that expensive financing
 costs are not being offset by income from the production and sale
 of product.
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Accumulated Depreciation
 Accumulated Depreciation is the total amount of depreciation expense that
 has been recorded through
@@1
 on the depreciable property: plant and
 equipment.

 Each year one tenth of the original cost of the manufacturing plant and
 equipment is included as part of the total cost of production.  The cost
 of the manufacturing plant and equipment becomes part of the Cost of Sales
 or Inventory accounts and finally ends up as accumulated depreciation.

 For tax purposes, the cost of an asset (e.g., plant and equipment) must be
 allocated over the estimated useful life of the asset.  For most assets
 the useful life extends over several years.  Therefore, we must recover
 our expenditure over several years by taking a depreciation deduction
 rather than take our entire cost as an expense in one year, as we would
 do with advertising.

 Let us look at an example.

 In
@@2
 we build an addition to our factory that costs $1000.

 We use straight-line depreciation over an estimated useful life of
 10 years for our investments in Plant and Equipment.  Each year we will
 writeoff one tenth ($100) of our original cost and charge it as a current
 production expense.

 It is important to note that the estimated useful life (or recovery
 period) of an asset is usually the shortest time allowed by tax
 authorities and does not necessarily correspond to the length of time
 that we actually use the asset.  For example, U.S. taxpayers can currently
 depreciate the entire cost of an automobile in three years and a building
 in 18 years.
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Fixed Assets
 Fixed Assets (or Net Fixed Assets) is the valuation, for balance sheet
 purposes, of the investment in the manufacturing plant and equipment, less
 the depreciation accumulated to date.
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Total Assets
 Total Assets consist of the Current Assets (cash and inventories)
 plus the Fixed Assets (plant and equipment) owned by the company.
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Long-Term Debt
 Long-Term Debt (or Long-Term Liability) is the amount of money that
 has been borrowed for a period longer than one year.  In the
 simulation, you can borrow money at a fixed interest rate for a 10
 year period.  The funds borrowed (principal) do not have to be repaid
 until 10 years have elapsed, but you must pay the interest due each year.
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Total Liabilities
 This is equal to any Current Liabilities plus Long-Term Debt. It
 represents the total indebtedness of the firm.
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Total Liabilities & Owners Equity
 Total Liabilities and Owners' Equity must equal Total Assets for the
 Balance Sheet to balance.
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AAA Bond Rate
 The AAA bond rate is the interest rate that the most credit-worthy
 corporations must pay when borrowing money for ten years or longer.
 To qualify for this lowest possible interest rate, your firm would
 have to be rated AAA by the Standard & Poor's credit service.  If you
 are rated as a poorer credit risk than IBM or Bell Atlantic, you will
 have to pay a higher rate of interest.
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Dow-Jones Index
 The Dow-Jones Industrial Average of 30 stocks, first used in 1884, is
 the most widely watched and reported stock market index.  It is generally
 thought to be indicative of rising or falling stock prices for the broad
 market.  When people ask, "How's the market doing?" they usually mean "Is
 the Dow-Jones Index going up or down?".

 An increase in the Dow-Jones Index indicates that investors are
 becoming more inclined to buy stocks.  This will help increase your stock
 price!

 The Dow Jones Industrial Average includes leading manufacturing,
 retailing, natural resources, telecommunications, and financial services
 firms.  As you can tell, the name "industrial" is a misnomer dating back
 to the establishment of the index by Charles Dow in 1884.  The present
 form of the index was established in 1928.

 The 30 stocks that make up the Dow-Jones Index are:

 Allied-Signal     DuPont            McDonalds         Sears Roebuck
 Aluminum Co       Eastman Kodak     Merck             Texaco
 American Express  Exxon             Minnesota M&M     USX
 AT&T              General Electric  Navistar Inter    Union Carbide
 Bethlehem Steel   General Motors    Philip Morris     United Technol
 Boeing            Goodyear          Primerica         Westinghouse
 Chevron           IBM               Proctor & Gamble  Woolworth
 Coca-Cola         Internatl Paper

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Over-The-Counter Stocks
 Stocks are the heart of the U.S. economic system.  Shares of common
 stock represent pieces of ownership in the companies that issued them.
 Companies issue stock to raise money for their activities; investors
 buy them in the hope that the value of the stock will increase as the
 company's business prospers and that some of the profits will be paid to
 the investor as dividends.
 When your company issued shares of stock, the process of selling
 them to investors took place in what is called the primary market.
 (More information on next page)
 It helps greatly in selling new issues if investors can easily resell the
 stock when they wish.  This need for marketability has given rise to stock
 exchanges, called secondary markets.  Here, buyers and sellers exchange
 cash for shares, but none of the proceeds goes to the companies that issued
 the shares.  Most initial public stock offerings, such as your company's,
 are first traded by one or more securities dealers in what is known as the
 "Over-the-Counter" marketplace.
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Stock
 Each share of Common Stock your company has issued represents a portion
 of ownership in your firm.  Owners of your Common Stock are entitled to
 vote their shares to elect members of the Board of Directors.  Common
 Stock owners are also eligible to receive shares of your profits in the
 form of a dividends.
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Dividend
 A Dividend is the distribution of earnings to the Common Stock owners.
 Most Over-the-Counter stocks do not pay any dividend.1
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BID
 This is the highest price that any prospective buyer will pay for one
 share of common stock in this company as of 4:00 p.m. on the last trading
 day of the year.  The actual amount that an investor will be willing to pay
 depends upon :
 o the current earnings of the firm
 o the potential for earnings to increase in the future
 o the value of the dividends (if any)
 o the current investor interest in all stocks
 Here's how investors currently value the shares of firms in your
 industry :
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 Asking Price
 This is the price at which an owner of your stock is willing to sell, if
 a buyer can be found.  If the price of your shares have been rising rapidly
 then there will be a larger spread between what an investor is "bidding" for
 your stock and what an owner is "asking" to sell their stock.

 For more information on stock prices, please refer to the "BID" tutorial
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Net Change
 Net Change describes the change in the value of one share of common stock
 during the past year.  A minus sign indicates that the price declined, a
 plus sign indicates the price increased.  Common stock is traded in
 one-eighth fractions of a dollar. Each eighth is worth 12.5 cents.
 The best performing stocks in your industry were:
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Common Size to Sales
 It is difficult for us to comprehend a number as large as

@@1

 thousand dollars of Sales Revenue.  Common Size analysis makes
 such numbers more meaningful by relating them to other numbers as
 large as they are.
 On the Income Statement, we can look at each line-item as a
 percentage of Sales Revenue.  Think of Sales Revenue as 100 cents;
 for every dollar of revenue it costs us

@@2
 cents to supply the
 product and

@@3
 cents for Selling Goods & Administration expenses.  Our
 Net Income after Tax was

@@4
 cents on every dollar of revenue!
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% Change Analysis
 The Percentage Change Analysis column contains the increase (or decrease)
 in each line-item from
@@1
 to
@@2
.

 You can use this information to quickly spot developing trends.
2
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Backorders
 Backorders occur when demand for your product exceeds the supply you
 have available for sale.  Backordered customers wanted to buy your
 product in
@@1
 but are willing to wait until your
@@2
 product becomes
 available to receive their orders.

 Backorders will be filled at the new
@@3
 price.  If the customers find
 that price to be unreasonable, they might cancel their orders.
 If you have backorders, then some of the demand that you generated
 for your product was wasted as only about one out of every five disappointed
 customers will backorder a product.  The remaining customers either buy
 from your competition or decide not to purchase the product.
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The Business Journal
 The Business Journal is published each year as a source of
 information on what's happening in the economy and in your industry.
 A thorough review of this journal, combined with the TUTORIAL and
 ANALYSIS capabilities of the simulation, will provide insight into the
 dynamics of your marketplace.
 The Business Journal currently contains two sections:

 Economic Information -- a status report on inflation and
                         economic growth
 Industry Statistics  -- a concise summary of how your prices,
                         advertising budgets, and market shares
                         compare to those of the competition.
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Price/Earnings Ratio
 The Price to Earnings ratio is calculated by dividing the
 closing stock price at the end of
@@1
 by the
@@2
 earnings per
 share (EPS) of $
@@3
.
 If your company lost money in
@@4
, no P/E is shown.
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Digest of Corporate Earnings
 Each year THE BUSINESS JOURNAL publishes the Digest of Corporate
 Earnings, a digest of industry Income Statements based on public informa-
 tion released by the companies.  The figures corresponding to your company
 match the line-items on your Income Statement in your Annual Report

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Net Interest
 Net Interest is the amount of interest paid by your firm less any
 Interest Income.

 Specifically, Net Interest is equal to Interest Expense less Interest
 Income. If Net Interest is less than 0, your interest income exceeded
 your interest expense.
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Earnings per Share
 Earnings per Share (EPS) is equal to Net Income divided by the
 number of shares of stock outstanding.

 - Your Net Income in
@@1
 was $
@@2
 thousand dollars.
 - You have
@@3
 thousand shares outstanding.
 - Your
@@4
 EPS is $
@@5
.
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Ten-Year High
 Ten-Year High is the highest that your stock has ever sold for during
 the last ten years (or since you went public).  Making a new all-time
 high is significant news and is usually reported on in the financial press.
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S&P  Rating
 Standard & Poor's (S&P), a well-known credit rating concern, evaluates
 the credit worthiness of your firm each year.  S&P will look at several
 key measures of liquidity and solvency: Fixed Charge coverage, Current
 ratio, and the Debt-to-Equity ratio. S&P will then rate your firm's
 ability to pay interest and principal on monies that you borrow.  These
 ratings can range from AAA to D and directly impact your firm's cost of
 borrowing for one year or longer.
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Survey of Company Balance Sheets
 Each year THE BUSINESS JOURNAL publishes the Survey of Company Balance
 Sheets, a survey of industry Balance Sheets based on public information
 released by the companies.  The figures corresponding to your company
 match the line-items on your Balance Sheet in your Annual Report.

1
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Markets
 A Market is a collection of people who have similar needs, a
 willingness to buy, and the authority and purchasing power to
 complete the purchase.

 The concept of market is crucial to business because customers keep a
 business alive.  Because every person has different needs, it is very
 difficult to please each person's needs individually.  By grouping
 people with similar characteristics into markets, companies can make
 better decisions about how to approach customers.
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Factory Capacity
 This is the maximum output of your competitor's factories running one
 eight-hour shift per day.  Running three shifts would allow your competitors
 to produce 3 times this amount.
 The more capacity a competitors has, the more units they can produce
 and sell.  Under-capacity tends to lead to price increases, while
 over-capacity tends to lead to price cutting!
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Shifts Worked
 This is the number of eight-hour shifts that your competition ran
 their factories for in
@@1
.  A "+" indicates over-time production.
1
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Five-year Performance Summary
 The Five-Year Performance Summary shows how your company has performed
 over the last five years or since you went into business.
 Companies want to show increases in Sales, Net Income, Earnings Per
 Share, and Stock Price from each year to the next.  At the same time,
 it is important to maintain a healthy Cash Balance and to increase
 Total Assets.
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Shares Outstanding
 Shares Outstanding is the number of shares of common stock that have been
 issued by your company.  You personally own
@@1
 thousand shares; the
 balance is owned by your venture capitalists and the general public.
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Ten-Year Bond Rate
 The Ten-Year Bond Rate is the rate at which your company can borrow funds
 for a ten-year period.  The rate that you must pay is determined by your
 Standard & Poor's rating and is based upon historical yield curves.
1
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Common Size to Assets
 It is difficult for us to comprehend a number as large as
 $
@@1
 thousand dollars of Total Assets.  In order to make number
 such as these more meaningful, we relate them to other numbers as large
 as they are.  This is called Common Size Analysis.
 On the Balance Sheet we can look at each line-item as a percentage of
 Total Assets.  If we think of Total Assets as 100 cents, our company is
 financing every dollar of Assets with
@@2
 cents of debt and

@@3
 cents of equity !
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Dividend
 This is the annual cash dividend paid on each share of common stock.
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Closing Stock Price
 Closing Stock Price is price at which the last trade of this stock
 occurred as of 4:00 p.m. on the last trading day of the year.  The
 amount that an investor was willing to pay depended upon:

 o the current earnings of the firm,
 o the potential for earnings to increase in the future,
 o the value of the dividends (if any), and
 o the current investor interest in all stocks.
 Here is how investors currently value the shares of the firms in your
 industry:
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NASDAQ Over-the-Counter Market
 There is now enough investor interest in your stock to have it listed
 nationally through the National Association of Securities Dealers
 Automated Quotation (NASDAQ) system.  Most successful start-up technology
 companies such as Apple Computer, MCI, and Compaq Computer list their
 shares here.

 The national NASDAQ system presents price information based on actual
 transactions rather than bid-and-ask prices. The NASDAQ system is
 increasing in popularity and many companies are deciding to continue to
 list their shares here even after they qualify for listing on the American
 or New York Stock Exchanges.
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Dow-Jones Index
 The Dow-Jones Industrial Average of 30 stocks, first used in 1884, is
 the most widely watched and reported stock market index.  It is generally
 taken to be indicative of rising or falling stock prices for the broad
 market.  When people ask, "How's the market doing?" they usually mean "Is
 the Dow-Jones Average going up or down?".
 An increase in the Dow-Jones Average indicates that investors are
 becoming more inclined to buy stocks, this will help increase your stock
 price!        (more info on next screen)
 The "Industrial" average includes leading manufacturing, retailing,
 natural resources, telecommunications and financial services firms.  As you
 can tell, the name "industrial" is a misnomer dating back to the
 establishment of the index by Charles Dow in 1884.  The present form of the
 index was established in 1928.

 The 30 stocks that make up the Dow-Jones Industrial Average are:
 Allied-Signal     DuPont            McDonalds         Sears Roebuck
 Aluminum Co       Eastman Kodak     Merck             Texaco
 American Express  Exxon             Minnesota M&M     USX
 AT&T              General Electric  Navistar Inter    Union Carbide
 Bethlehem Steel   General Motors    Philip Morris     United Technol
 Boeing            Goodyear          Primerica         Westinghouse
 Chevron           IBM               Proctor & Gamble  Woolworth
 Coca-Cola         Internatl Paper


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Annual Report
 The Annual Report is a summary of how well your company performed in
@@1
.
 It includes information on the operating and financial results of your
 firm.

 The reports are:
 1) Sales and Inventory Report - How many units you sold, how many
    remain in inventory, and what it cost you to buy them.
 2) Income Statement - How much money your company made last year.
 3) Balance Sheet - How much money your company is worth.
 4) Performance Summary - How well you have done over the last few
                          years.
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Ending Inventory
 Ending Inventory is the number of units left in inventory at the end of
 the year.  It is calculated by subtracting the Units Sold from the Units
 Available for Sale.  This number should be kept as low as possible,
 without going to zero.

 An Ending Inventory of zero usually means that you ran out of product
 over the course of the year, and as a result missed some sales.  If your
 Ending Inventory is too large, then you are probably over-producing your
 product, and using valuable cash to finance inventory!

 The number on the right tells you how many months worth of inventory you
 have left, based on last years sales.  A month of inventory is equal to
 1/12th of the units sold in
@@1
.  If you continue to sell
 product at the same rate as you did in
@@2
,  your inventories on
 hand will last for
@@3
 month(s)!

 A good rule of thumb commonly used in business is to keep two months
 worth of inventory on hand at all times.
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Sales and Inventory Report
 This report provides you with information on Unit Sales, changes in
 physical Inventory levels, and costs per unit. It shows how successful you
 have been in selling the product that you had available to sell.
 It can also be used to determine the number of units to produce each
 year and how much you should charge for the product.

 Please review the tutorials for each line-item on this report.
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Units Produced
 This is the number of units of product that you produced in your
 manufacturing facility in
@@1
.
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Inventory Cost per Unit
 Inventory Cost per Unit is the average cost of each of unit of the
 product available for sale in
@@1
.

 This figure is used in calculating the Cost of Sales expense on the
 Income Statement and the Inventory account on the Balance Sheet.
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Income Tax
 Income Tax is the amount of money that your company paid to the
 government for the pleasure of doing business in the United States.
 Corporations typically pay income taxes of 40% unless they use tax
 shelters. These tax shelters were developed by Congress to encourage
 certain types of investments.  Currently the Federal corporate tax rate is
 34% on all income in excess of $100,000.  State and local income taxes add
 about 6% to that number.
 In the simulation, your firm will pay taxes at a 40% rate.
 If your firm loses money, you can "carry-back" losses to receive
 refunds of taxes paid in prior years (if any) or you can "carry-forward"
 losses to apply against future tax bills.
 To see how your
@@1
 tax bill was determined, please view the
 ANALYSIS for this item.
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Corporate Bond Report
 In contrast to stocks, bonds do not convey any ownership in the entity
 that issues them.  A bond is a loan.  It pays interest to the investor, and
 the loan is repayable after a stipulated period.  Bonds are issued by a
 variety of borrowers, including corporations, governments, and agencies of
 the government such as highway authorities.

 Your company issues debenture bonds.  These loans are backed by
 your company's earning power rather than by specific assets.  Bonds backed
 by specific assets are called mortgage bonds.  Your bonds are publicly
 traded on the Stock Exchange.
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Bond
 The Bond Column identifies the name of the company that issued the bond.
 A firm may have several different issues of bonds outstanding.  Each time
 you sell long-term debt, you create a new bond issue.
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Coupon and Series
 The Coupon and Series column identifies each bond issue by listing the
 original interest rate at the date of issue. It also shows the year of
 maturity, with an "s" for ease of readability.  Thus 11.5S98 means the
 "11 and 1/2's of 98," or the bonds that mature in 1998 and pay interest
 at 11.5% of their face value each year.
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Yield
 The current percentage yield of each bond traded on the open market
 is calculated by dividing the annual interest payment, the coupon, by
 the current market close price of the bond.  For example:

            Stated interest rate of 15% on $100        $15
 % Yield =  -----------------------------------  =     -----   =  20.0%
                  Closing Bond Price of $75            $75
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Closing Bond Price
 The Closing Bond Price is the price an investor was willing to pay to
 own one of your bonds.  For example, a closing price of 95 1/2 means that
 your bond is trading at $955.00 per $1,000 of face value, a discount from
 the original issue price.  A price of 110 means that your bond is trading
 at $1,100 per $1,000 of face value, a premium from the original issue
 price.

 The price that an investor is willing to pay for your bonds is equal
 to the present value of the interest payments received each year, plus the
 present value of redeeming the bond for its face value when it comes due.

 Once the bond is trading on the open market, its value is determined
 by what happens to interest rates and by the ongoing financial health
 of your company.  If interest rates decline, the fixed interest rate of
 the bond will look more attractive to investors. The investors will bid
 up the price of the bond, so that the current yield is about equal to the
 yield available on other similar investments.

 If your company's Standard & Poor's credit rating improves, your bonds
 will be considered less risky by investors.  Therefore, they will be
 willing to accept a lower yield each year due to the increased safety of
 the investment.  Once again, the price of the bond will be bid up by
 investors until the current yield approaches the yield available on other
 lower risk bonds.

 Factors that will cause the market prices of your bonds to RISE are

 A decline in long-term interest rates (the "AAA rate").
 An improvement in your firm's credit rating  (e.g., from A to AA).

 Factors that will cause the market prices of your bonds to FALL are

 An increase in long-term interest rates,
 A deterioration in your firm's credit rating (e.g., from AA to A).
3
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The Financial Scoreboard
 The FINANCIAL SCOREBOARD looks at a series of financial returns and
 ratios and multiplies them together to arrive at an important criterion by
 which investors judge corporate performance, the ratio of Market Value to
 Book Value.  Because you have now been running your company for
@@1
 years, it is time to examine how well you are doing relative
 to generally accepted yardsticks of management performance.

 It is important to understand each element of the Financial Scoreboard
 as the basic building blocks of corporate strategy.  The following model
 outlines the basic ways management can increase the value of the firm as
 compared to the historical cost of putting the company together:

                                                      Stock      How well we
 Profitability  x  Asset Utilization  x  Leverage  x  Market  =   are doing
                                                     Perception   as Managers
 Examine each tutorial on this screen carefully.  The ratios are explained
 so you can compare your results with your competitors', and see how well
 you would fare in the real world.

 Basic accounting terms used here are explained in the TUTORIALS on the
 Income Statement and the Balance Sheet in your Annual Report.


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Return on Sales
 This is a key measure of PROFITABILITY for your company.

 RETURN ON SALES (ROS) is the fraction of each sales dollar that
 remains as income after you've paid all of your expenses and taxes.
 Your
@@1
 ROS was calculated as follows:

                              Net Income of
                                  $
@@2

        Return on Sales  =      ---------       =
@@3
%
                                  $
@@4

                                    of
                              Sales Revenue


 For every $1 of Revenue, you generated
@@5
 cents of Net Income!
 Here's how successful some well-known companies were in squeezing
 profits from each sales dollar in 1986:

 Company          Industry       Sales    Net Income            ROS
 -------          --------     -------    ----------           ----
                              (in millions of dollars)

 Exxon            Oil          $94,591       $4,985            5.3%
 General Motors   Autos         74,581        3,730            5.0%
 IBM              Computers     40,180        5,485           13.6%
 Apple            Computers      1,085           59            5.4%
 Sears            Dept. Stores  35,883        1,342            3.7%
 Here is where you rank in your industry.

 How does your return on sales compare with IBM's or GM's?
4
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Return on Assets
 Return on Assets (ROA) is the profit generated by each dollar of Assets
 used in your business.  This is a key measure of your profitability as
 compared to the dollars your firm has invested in the business.

 Your
@@1
 ROA was calculated as follows:

                           Net Income of
                              $
@@2

     Return on Assets =     ----------     =
@@3
%
                             $
@@4

                               of
                          Total Assets
                    (in thousands of dollars)

 For every $1 of Assets you earned
@@5
 cents of Net Income!
 Here is another way to look at Return on Assets:

             Profitability   Asset Turnover
        ROA =     ROS     x  Sales/Assets =
@@6
% x
@@7
 =
@@8
%

 Both calculations give the same results, but here you can see that it is
 possible to improve ROA by either expanding your profit margin (make more
 on every item you sell) or employ your assets more productively (sell
 more of your product).

 It is up to you to decide if your firm should follow a high
 margin/low volume strategy or be a low margin/high volume company.

 Here is how successful some well-known companies were in squeezing
 profits from each dollar of Assets in 1986:

 Company          Industry        Net Income   Total Assets        ROA
 -------          --------        ----------   ------------        ---
                                 (in millions of dollars)

 Exxon            Oil              $4,985       $62,963           7.9%
 General Motors   Autos             3,730        49,866           7.5%
 IBM              Computers         5,485        38,146          14.8%
 Apple            Computers            59           626           9.4%
 Sears            Dept. Stores      1,342        46,176           2.9%
 Here is where you rank in your industry.

 How does your return on assets compare to that achieved by IBM or Sears?

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Assets/Equity
 Assets to Equity represents the extent to which you have used borrowed
 funds to acquire assets.  It measures your use of OPM (other people's
 money) or debt.  The higher your leverage ratio, the more debt you have
 relative to the stockholders' investments in the company.

 Your
@@1
 leverage was calculated as follows:

                              Total Assets
                                  of
                                $
@@2

        Assets to Equity =      --------      = $
@@3

                                $
@@4

                                   of
                              Total Equity
                        (in thousands of dollars)

 Every $1 of Equity allowed you to buy $
@@5
 of Assets!
 Here is how some well-known companies used borrowed funds to buy
 Assets in 1986:

 Company          Industry   Total Assets  Total Equity   Assets to Equity
 -------          --------   ------------  ------------   ----------------
                              (in millions of dollars)

 Exxon            Oil          $62,963       $29,152         $ 2.16
 General Motors   Autos         49,866        19,031           2.62
 IBM              Computers     38,146        21,940           1.74
 Apple            Computers        626           378           1.65
 Sears            Dept. Stores  46,176         9,319           4.95
 Here is where you rank in your industry.

 How does your leverage compare to that of Sears or Apple Computer?
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Return on Equity
 Return on Equity (ROE) is the profit generated by each dollar of Equity
 invested or retained in your business.  The level of ROE that you achieve
 will have a major bearing on the value of your common stock and the total
 market value of your company.  ROE is the key measure of your
 profitability as compared to the dollars your stockholders have invested
 in the business.

 Your
@@1
 ROE was calculated as follows:

                              Net Income of
                                 $
@@2

        Return on Equity =      -------         =
@@3
%
                                $
@@4

                                   of
                              Total Equity
                        (in thousands of dollars)

 For every $1 of Equity you earned
@@5
 cents of Net Income!
 Here is another way to look at Return on Equity:

             Profitability    Leverage
     ROE =       ROA    x  ASSETS/EQUITY =
@@6
% x
@@7
 =
@@8
%

 Both calculations give the same results, but here you can see that it
 is possible to improve ROE by either improving ROA or by "leveraging" the
 stockholders' investment with borrowed funds when buying assets!

 There is no "free lunch" on Wall Street however, too high a leverage
 factor will expose your firm to unnecessary financial risk and cause your
 firm's stock to trade at a lower Price to Earnings ratio.

 Here is how successful some well-known companies were in generating
 profits from each dollar of Equity in 1986:

 Company          Industry        Net Income   Total Equity       ROE
 -------          --------        ----------   ------------       ---
                                 (in millions of dollars)

 Exxon            Oil              $4,985       $29,152          17.1%
 General Motors   Autos             3,730        19,031          19.6%
 IBM              Computers         5,485        21,940          25.0%
 Apple            Computers            59           378          15.6%
 Sears            Dept. Stores      1,342         9,319          14.4%
 Here is where you rank in your industry.

 How does your return on equity compare with IBM's?
4
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Price to Earnings Ratio
 The Price to Earnings Ratio is the investment community's opinion of the
 growth potential for your firm's revenues, earnings, and dividends,
 relative to the growth rates of your competitors and all companies in
 general.  The PE Ratio is the key measure of the stock market optimism for
 your company.  All of the other measures of performance looked at
 previously are based on how well you did in
@@1
, the PE multiple looks
 ahead to
@@2
 and beyond.
 Your
@@3
 PE was calculated as follows:

                              Stock Price of
                                $
@@4

       Price to Earnings =      -------         =
@@5

                                $
@@6

                                   of
                           Earnings per Share

 For every $1 of Earnings, you created $
@@7
 of Market Value!
 In the Management Scoreboard, the PE ratio is reported as it is in the
 financial press, comparing today's stock price with the latest reported
 annual earnings of your firm.  This "Accounting PE" is a good way to
 compare many companies across diverse industries, but it tends to
 disguise the "Economic PE" actually used to determine stock market values.

 The "Economic PE" depends upon many factors, including quality of
 earnings, potential for growth, and financial risk.  Please refer to the
 TUTORIAL on Stock Price in the Five-Year Performance Summary for a more
 detailed explanation of the key factors impacting the value of your
 Common Stock.
 Here is how the stock market perceived some well-known companies on
 February 29, 1985:

 Company          Industry   Stock Price       E.P.S.       PE Ratio
 -------          --------   -----------       ------       -----------

 Exxon            Oil          $ 39           $ 5.79            6.7
 General Motors   Autos          69            11.84            5.8
 IBM              Computers     110             9.04           12.2
 Apple            Computers      26              .98           26.5
 Sears            Dept. Stores   34             3.80            9.0
 Here is where you rank in your industry.

 How does your PE Ratio compare to Apple's?
4
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Market to Book
 Market to Book is the current market value of each dollar of Equity
 invested or retained in your business by stockholders.  This is the key
 measure of the market value you have created in running your firm as
 compared to the dollars your stockholders have invested in the business.

 Your
@@1
 Market to Book ratio was calculated as follows:

                          Total Market Value of
                                $
@@2

        Market to Book   =      -------         = $
@@3

                                $
@@4

                                   of
                              Total Equity
                       (in thousands of dollars)

 $1 of Equity invested in your company is worth $
@@5
 on the stock market!
 Here is another way to look at Market to Book:
                  Profitability  Market Valuation
   Market to Book =   ROE      x      P/E   =
@@6
% x
@@7
/100 =
@@8


 Both calculations give the same results, but here you can see that it
 is possible to improve Market to Book by either improving ROE or by
 convincing the investment community that your company's growth potential
 and financial stability deserve a higher PE ratio than the competition.

 Here is how successful some well-known companies were in increasing
 the market value of each dollar of stockholder investment in 1985:

 Company         Industry   Total Market Value  Total Equity  Market to Book
 -------         --------   ------------------  ------------  --------------
                                 (in millions of dollars)

 Exxon           Oil             $33,816         $29,152         $1.16
 General Motors  Autos            17,699          19,031           .93
 IBM             Computers        60,116          21,940          2.74
 Apple           Computers         1,712             378          4.53
 Sears           Dept. Stores     10,344           9,319          1.11
 Here is where you rank in your industry.

 How well have you done for your stockholders as compared to
 CEO John Scully at Apple Computer?
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Sales/Assets
 Sales to Assets (or Asset Turnover) represents the sales dollars
 generated for every dollar of investment in Assets.  It measures how
 efficiently you manage and deploy your Assets.  This is a key measure of
 Asset productivity for your company.

 Your
@@1
 Asset productivity was calculated as follows:

                      Sales Revenue of
                          $
@@2

  Sales to Assets  =     --------         =  $
@@3

                          $
@@4

                             of
                        Total Assets
                  (in thousands of dollars)

 For every $1 of Assets, you generated $
@@5
 of Sales!
 Here is how successful some well-known companies were in utilizing
 their Assets to produce Sales Revenue in 1986:

 Company          Industry       Sales    Total Assets    Sales/Assets
 -------          --------     -------    ------------    ------------
                              (in millions of dollars)

 Exxon            Oil          $94,591      $62,963          $ 1.50
 General Motors   Autos         74,581       49,866            1.50
 IBM              Computers     40,180       38,146            1.05
 Apple            Computers      1,085          626            1.73
 Sears            Dept. Stores  35,883       46,176            0.77
 Here is where you rank in your industry.

 Compared with the management of Exxon and Apple Computer, how
 successful were you in maximizing your assets productivity?
1
2 0
0 n 0 a 0
The CEOs
 These are your fellow CEOs!  How well are you doing compared
 to the other companies in your industry?

1
7 0
0 n 0 a 0
Stock Price
 Stock Price is the current market value of each share of stock that you
 own in your company.  Since you own such a large block of shares, you
 might be able to sell them for more than the market price if your
 company is performing well.  If your company is not performing well
 and you are forced to sell your shares to raise cash, you might get
 less for your shares.  Your fortune is now tied up in your company.
 You had better work hard to increase its value!
1
5 0
0 n 0 a 0
Shares Owned
 Shares Owned is the number of shares of your company's stock that you
 currently own. When the company was started, you and your
 investors each received a certain number of shares.  The number
 that you see here reflects any stock splits that might have
 occurred since then.
2
9 0
11 0
1 n 0 a 0
% Ownership
 You now own
@@1
% of the shares your firm has outstanding.

 When you first started this company, you owned a certain
 percentage of the outstanding shares.  Your percentage of ownership
 will decrease every time you issue additional shares of stock.  Your
 percentage of ownership will increase if you decide to buy back some
 of your shares on the open market.
 Here's how successful some famous entrepreneurs have been in keeping
 control of the companies they started:

 Entrepreneur    Age   Company         Industry          Ownership
 ------------    ---   -------         --------          ---------

 David Packard    73  Hewlett-Packard  Office Equipment      18.5%
 Bill Gates III   31  Microsoft        Computer Software     45.0%
 An Wang          63  Wang Labs        Office Equipment       9.7%
 Sam Walton       65  WalMart          Discount Retail       16.2%
 Leslie Wexner    45  The Limited      Retail                30.0%
2
5 0
11 0
0 n 0 a 0
Net Worth
 Your current Net Worth is based upon the total market value of
 the shares of stock that you own in your company.  Net worth,
 in the simulation, assumes that you are using your salary and
 stock dividends to pay for your living expenses. Therefore,
 salary and stock dividends are not included as part of net worth.
 Here's how successful some famous entrepreneurs have been in
 amassing fortunes from the stock they own in the companies they started:

                                                        Approximate Value
 Entrepreneur    Age   Company         Industry            of Stock Owned
 ------------    ---   -------         --------            --------------
 David Packard    73  Hewlett-Packard  Office Equipment    $2,115,000,000
 Bill Gates III   31  Microsoft        Computer Software    1,150,000,000
 An Wang          65  Wang Labs        Office Equipment       519,000,000
 Sam Walton       67  WalMart Discount Retail               4,441,000,000
 Leslie Wexner    47  The Limited      Retail               2,027,000,000
2
17 0
12 0
2 n 0 a 0
Pricing of Your Product
 Setting the price that you charge your customers is the most important
 decision you will make during the Start-up phase of establishing your
 company.

 Here are some general guidelines to follow:

 To achieve a reasonable Gross Margin on Sales, your price should be
 sufficiently greater than your cost.
 What is the purchase cost for
@@0
 in
@@1
?

 Your price should be competitive with the other companies' prices.
 How much are your competitors charging for their products?

 More Pricing Guidelines:

 The lower the price the greater the sales volume (in units) will
 be if all other factors are equal.  The higher the price the
 lower sales volume will be.
 What is your
@@2
 market share?

 Greater sales volume at lower prices does not necessarily
 translate into greater profitability.
 Can you make money at your current pricing level?
3
26 0
19 0
20 0
16 n 0 a 0
Pricing of Your Product
 Pricing continues to be an important decision.
 How are you doing according to our guidelines?

 1.  Your selling price should be sufficiently greater than your cost
     to purchase or produce the product in order to achieve a
     reasonable Gross Margin on Sales.
 In
@@1
:
 Your selling price was            $
@@2

 The average cost of each unit was
@@3

 Your Gross Margin on each unit was $
@@4
.

 For every $1 of Sales Revenue,
@@5
 cents went to pay
 for the product, and
@@6
 remained as Gross Margin to cover
 marketing and administrative expenses.
 2.  Your price should be competitive with the other companies'
     prices in order to maintain significant market share.

 In
@@7
:
 The average price charged by your competitors was $
@@8

 Your price of $
@@9
 was
@@10
% higher(or lower)!

 You had a
@@11
% market share.

 3.  Greater sales volume at lower prices does not necessarily
     translate into greater profitability.
     Are you making money at your current pricing level?

 In
@@12
:
 Your Gross Margin % was
@@13
% and Operating
 Income was $
@@14
 thousand.

 Your competitors averaged
@@15
% Gross Margin
 and Operating Income of $
@@16
 thousand.
1
11 0
1 n 0 a 0
Advertising
 Pricing is not the only thing that influences sales of your product.
 Advertising can also stimulate sales.  Advertising funds will be spent
 on trade advertising, regional media, promotional campaigns, and annual
 product shows.

 Too little advertising has little or no impact as the advertising is
 spread too thin.  Too much advertising is wasteful as there is a
 saturation  point above which marginal effectiveness is diminished.
 Advertising expenditures also affect sales in future years as effective
 marketing campaigns are often remembered by the consumer long after the
 last TV commercial!
1
21 0
4 y 3 d 0
Advertising of Your Product
 As we discussed during your Start-up phase, current year advertising
 expenditures also impact sales in future years because effective marketing
 campaigns are often remembered by the consumer long after the last TV
 commercial!

 Now that you are planning for
@@1
, you can analyze your spending
 patterns over the past few years and see if you are being outspent by your
 competition.

 Let's compare your total
@@0
 advertising budget for the years
@@2
 and
@@3
 to that of your competition.

 Are you keeping pace or falling behind?

1
16 0
2 n 0 a 0
Units Purchased
 During your Start-up phase, you must deal with three of the four "P's"
 of Marketing; Pricing, Promotion (Advertising), and Product.
 In order to have enough products available to sell in
@@1
, you
 may have to purchase some from your supplier.

 How many
@@0
 do you expect to sell in
@@2
?

 Do you have any
@@0
s in inventory?
2
33 0
26 0
16 n 0 a 0
Units Purchased
 In order to have product available to sell in
@@1
, you may have
 to purchase some from your supplier.

 How many
@@0
 do you expect to sell in
@@2
?

 In
@@3
:
 You were able to sell
@@4
 thousand units.
 From
@@5
 to
@@6
, you gained (or lost)
@@7
 points of market share.
 Each point of market share equals
@@8
 thousand units of
@@0
.

 Based on your Marketing strategy, will you gain or lose share in
@@9
?
 What is happening to the overall market demand for
@@0
?

 Total No. of
@@0
 sold
@@10

@@11

 (in thousands)

@@12

@@13


 % Change
@@14
%

@@15
 to
@@16

3
13 0
11 0
15 0
8 n 0 a 0
Long-Term Debt
 There are two ways for you to finance your capital expenditures during
 your company's Growth stage: Long-Term Debt and Common Stock.

 Selling Long-Term Debt (or bonds) means that you are agreeing to pay a
 fixed rate of interest to borrow money for a ten-year period.  In return,
 your firm receives funds that it does not have to pay back (or "retire")
 until the year
@@1
.

 Should you sell Long-Term Debt in
@@2
?
 Your Long-Term Debt decision depends on several factors:

 Does your firm need the money?
 The new factory capacity that you are building is going to cost
 more than $
@@3
 thousand.
 Your firm currently has $
@@4
 thousand in cash.

 Can your firm afford the interest payments each year without
 endangering the financial health of the company?

 You can borrow "long-term" at
@@5
% interest per year.
 If you financed 80% of your capital expenditures with debt, your
 additional interest payments would be $
@@6
 thousand per year.
 In
@@7
 your Operating Income (before Interest and Taxes) was $
@@8
 thousand.
3
9 0
13 0
21 0
10 n 0 a 0
Common Stock
 There are two ways for you to finance your capital expenditures during
 your company's Growth stage: Long-Term Debt and Common Stock. Selling
 Common Stock (or equity) means that you are giving up (diluting)
 some of your ownership of your firm.  In return, your firm
 receives funds on which it does not have to pay any interest.

 Should you issue (sell) common stock in
@@1
?
 Your Common Stock decisions depend on several factors:

 Does your firm need the money?

 The new factory capacity that you are building is going to cost
 more than $
@@2
 thousand dollars.

 Your firm currently has $
@@3
 thousand dollars in cash.

 Are you receiving a fair price for your stock, given your operating
 history and general market conditions?

 You can sell stock for $
@@4
 per share; this is
@@5
 times
@@6
 earnings!
 Earnings per Share increased (fell) by
@@7
% from
@@8
 to
@@9
.
 Book value is $
@@10
 per share.
8
10 0
21 0
8 0
40 0
8 0
25 0
26 0
19 0
29 n 0 a 0
Pricing Strategy
 There are three basic schools of thought on how one should determine
 what price to charge for a product.  They are:

 Market-based Pricing

 Competition-based Pricing

 Cost-based Pricing

 Let's look at each option in detail ......
 Market-based Pricing

 The price established will result in selling all of the goods made
 available for sale without incurring any "backorders".  This "market
 clearing" price is based upon an estimate of the quantity of goods being
 offered for sale (by all firms) and the total market demand for the
 product.

 For example:
 The total number of units of
@@0
 sold in the
 First market last year was
@@1
 thousand units given the
 prices charged by the five companies.
 If this resulted in industry-wide backorders then industry-wide
 prices are too low.  If this resulted in industry-wide increases in

@@0
 inventory, then industry-wide price levels were too high.
 Competition-based Pricing
                                                                                Competition-based Pricing

 The price should be similar to that charged by competitors who are
 selling similar products.  The key task is to identify which competitors are
 pursuing similar strategies (i.e. cost leadership, differentiation) and to
 stay within striking distance of their price.


 For example:

 The chart below compares each competitor's
@@0
 price over the
 last two years with your own.

           Company
@@2

@@3

           -------      -----       -----
              1
@@4

@@5


              2
@@6

@@7

              3
@@8

@@9

              4
@@10

@@11

              5
@@12

@@13

 Cost-based Pricing

 The selling price is set equal to production cost plus profit desired.
 Profit should be sufficient that so that profit margin times turnover will
 provide your firm with the target level of return on assets.
 In Cost-based pricing, a target level of Return on Assets(ROA) and
 Asset Turnover are first identified, then a pricing structure to achieve the
 necessary level of Return on Sales (ROS) is determined.
 For example:

 If you would like to achieve a 15% Return on Assets in
@@14
,
 and
@@15
 Turnover was
@@16
 times and expected to
 stay about the same, what ROS would you have to have?

 ROS   x    Turnover   =   ROA

  ?    x
@@17
 =   15.0%

 Return on Sales has to be at least
@@18
% to deliver
 a 15% Return on Assets.  Given a 50% tax rate, the pre-tax ROS has to be at
 least
@@19
%!
 Let's use Cost-based pricing to determine what our Total Revenue needs
 to be in
@@20
 in order to achieve our ROA target of 15%.
 We'll assume that all of our
@@21
 costs will increase by our
 inflation forecast of
@@22
%

 Forecasted
@@23
 Cost of Sales        $
@@24

 S G & A Expense
@@25

                           Interest Expense
@@26

                           ----------------      ------
                             Total Expense
@@27

 The formula for determining our Total Revenue requirement is:

                                 1
 Target Revenue($)  =   ------------------     x   Total Expenses
                         (1- Target ROS)

                                1
                    =   ------------------     X   $
@@28

                               .85

                    =   $
@@29


 Prices must then be set so that we will reach our Total Revenue
 requirement.  A simple way to do this is on a percentage basis using the
 common size analysis.
2
36 0
26 0
17 n 0 a 0
Units Produced
 In order to have enough product available to sell in
@@1
, you
 may have to produce some new units to add to any inventory left over from

@@2
.

 How many
@@0
 do you expect to sell in
@@3
?

 In
@@4
, you were able to sell
@@5
 thousand units.
 From
@@6
 to
@@7
, you gained (or lost)
@@8
 points of
 market share.  Each point of market share equates to
@@9
 thousand
 units of
@@0
.

 Based on your Marketing strategy, will you gain or lose share in
@@10
?
 What is happening to the overall market demand for
@@0
?

 Total # of
@@0
 Sold
@@11

@@12

 (in thousands)

@@13

@@14


 % Change
@@15
%

@@16
 to
@@17

4
36 0
26 0
20 0
33 0
27 n 0 a 0
Units Produced
 In order to have enough product available to sell in
@@1
, you
 may have to produce some new units to add to any inventory left over from

@@2
.

 How many
@@0
's do you expect to sell in
@@3
?

 In
@@4
, you were able to sell
@@5
 thousand units.
 From
@@6
 to
@@7
, you gained (or lost)
@@8
 points of
 market share.  Each point of market share equates to
@@9
 thousand
 units of
@@0
.

 Based on your Marketing strategy, will you gain or lose share in
@@10
?
 What is happening to the overall market demand for
@@0
?

 Total # of
@@0's
 Sold
@@11

@@12



@@13

@@14


 % Change
@@15
%

@@16
 to
@@17

 In addition to making sure that you have enough inventory to meet
 expected demand, you should also consider the "lost sale vs. carrying cost"
 question on additional units you might want to carry as "safety stock"
 with the possibility that you might be able to sell them.

 What is your gross margin on each unit if you should happen to
 sell it as opposed to the carrying costs of inventory if you don't?

 Let's assume that
@@18
 production costs will rise by the
 estimated rate of inflation, giving you a
@@19
 production cost per
 unit of about $
@@20
.

 At what point should you build inventories with the hope of being
 able to sell them?  When is it a good economic "bet"?
 Currently you are planning on a
@@0
 price of: $
@@21

 If production cost is about                     -
@@22

 Your Gross Margin per Unit Sold will be         = $
@@23


 This will be your incremental margin on every additional unit you might
 produce with the hope of selling it.

 Let's assume that you would finance additional inventory with
 short-term loans costing
@@24
% per year.  Each unit of
@@0

 would then cost you $
@@25
 to carry in inventory for the year.

 Your potential "pay-off" of this "bet" is
@@26
 to 1,
 (Gross Margin divided by Carrying Costs).  If you think your chances of
 selling additional product are greater than 1 in
@@27
 then you
 should produce some "speculative" inventory!
1
23 0
7 n 0 a 0
Factory Construction
 New construction takes one year to complete, so the plant you build in
@@1
 will not be ready to use until
@@2
.  How much capacity will you need
 in two years?

 Last year you sold
@@3
 thousand units, a
@@4
% increase
 over
@@5
.  If your sales continue to grow at the same rate for another
 two years, how many units will you have to be able to produce in
@@6
?
 Each unit of factory capacity can be used up to three shifts.  Therefore,
 the minimum plant size you will need is one-third of the potential sales
 volume in
@@7
!
2
28 0
25 0
15 n 0 a 0
Forecasted Sales
 How many
@@0
's do you expect to sell in
@@1
?

 In
@@2
, you were able to sell
@@3
 thousand units.
 From
@@4
 to
@@5
, you gained (or lost)
@@6
 points of
 market share.  Each point of market share equaled
@@7
 thousand
 units of
@@0
.

 Based on your Marketing strategy, will you gain or lose share in
@@8
?
 What is happening to the overall market demand for
@@0?

 Total # of
@@0
's Sold
@@9

@@10

 (in thousands)

@@11

@@12


 % Change
@@13
%

@@14
 to
@@15

3
29 0
26 0
44 0
30 n 0 a 0
Forecasted Sales

 How many
@@0
's do you expect to sell in
@@1
?

 In
@@2
, you were able to sell
@@3
 thousand units.
 From
@@4
 to
@@5
, you gained (or lost)
@@6
 points of
 market share.  Each point of market share equates to
@@7
 thousand
 units of
@@0
.

 Based on your Marketing strategy, will you gain or lose share in
@@8
?
 What is happening to the overall market demand for
@@0
?

 Total # of
@@0
's Sold
@@9

@@10



@@11

@@12


 % Change
@@13


@@14
 to
@@15


 What is happening to the long-run growth (product-life cycle)
 curve of
@@0



 % Increase in Total Industry Sales


@@16
 to
@@17

@@18
%

@@19
 to
@@20

@@21
%

@@22
 to
@@23

@@24
%

@@25
 to
@@26

@@27
%

@@28
 to
@@29

@@30
%
1
6 0
0 n 0 a 0
One-Year Loan
 A One-Year Loan is the money that has been borrowed from your
 banker (or other lender) for one year.  Your banker will permit
 you to borrow money at a fixed interest rate for one year at a
 time.  In the simulation, the funds borrowed (principal) are repaid
 on the first day of the new year.  If you wish to roll over these
 funds, you must ask for a new loan at a new rate of interest.
1
7 0
0 n 0 a 0
Accounts Payable
 Accounts Payable is the money you owe suppliers for the raw materials
 you purchased from them.  Suppliers are always trying to get your
 business.  Therefore, they offer sales on credit much as you do.  Your
 astute Purchasing Department takes advantage of these credit terms and
 buys on account.  It is up to you to decide how quickly you wish to pay
 these bills.  Whatever bills you have not paid at the end of the year
 are your Accounts Payable.
2
9 0
4 0
0 n 0 a 0
Accounts Receivable
 Accounts Receivable is the money owed to you by your customers. If you
 choose to offer credit terms to your customers, a certain percentage of
 them will not pay cash immediately, but will instead take advantage of
 the credit you are offering and not pay you for 30 days.  Therefore, you
 will usually receive the money for the sales made in January, in February.

 The Accounts Receivable on your balance sheet are the sales made during
 the year that have not been paid as of the end of the year.

 Sometimes customers pay their bills very slowly or not at all.  This
 usually becomes a problem when the economy is poor or interest rates
 are high.  Your costs of collecting from delinquent accounts are included
 in SG&A expense on the Income Statement.
2
13 0
27 0
8 n 0 a 0
% Credit Sales
 How liberal should you be in allowing your customers to purchase "on
 account" with payment due in thirty days?
 This decision is both a Marketing decision and a Finance decision.
 The more liberal you are in granting credit, the more likely you will be to
 attract new customers and sell more product.  On the other hand, this
 decision will drive your Accounts Receivable (the money recognized as
 Revenues from product sales but not yet received as cash).
 The cost of extending credit is the cost of financing growth
 in Accounts Receivable.

 How much will it cost you to extend credit in
@@1
?
 Let's assume that Revenue will increase by the same
@@2
% growth rate
 as last year, giving you a
@@3
 Sales Revenue of $
@@4
 thousand dollars.
 If 50% of your sales were made with credit terms then $
@@5
 thousand
 dollars of credit sales would be made during the year, or $
@@6
 thousand
 dollars for every day of the 365 day year.
 If you assume that it will take 40 days to collect receivables, then
 at the end of
@@7
 you would have 40 days worth of credit sales still
 outstanding.  This would give you $
@@8
 thousand dollars of forecasted
 receivables.  Your cost of carrying these receivables will run about 25% of
 the total, considering both financing costs and bad debt expense.
 For more information on the costs of carrying receivables refer to the
 TUTORIAL and ANALYSIS of Accounts Receivable in your Annual Report and in
 the Journal.
4
13 0
12 0
24 0
16 0
13 n 0 a 0
Long-term Debt
 There are now three basic ways for you to finance your capital
 expenditures: Short-term Debt, Long-term Debt and Equity.

 Selling Long-term Debt (or bonds) means that you are agreeing to pay a
 fixed rate of interest to borrow money for a ten-year period.  But in return
 your firm receives funds that it doesn't have to pay back (or "retire")
 until the year
@@1
!

 Should you sell Long-term Debt in
@@2
?
 It depends on several factors:

 1) Does your firm need the money?

 The new factory capacity that you are building is going to cost
 more than $
@@3
 thousand.

 Your firm currently has $
@@4
 thousand in cash.
 2) Can your firm afford additional interest payments each year without
    endangering the short-term solvency of the company?

 You can borrow "long-term" at
@@5
% interest per year.
 If you financed 80% of your capital expenditures with debt, your
 additional interest payments would be $
@@6
 thousand
 per year.

 In
@@7
 your Operating Income (before Interest and Taxes) was
           $
@@8
 thousand, and your Interest Coverage was
@@9
 times!

 (if your Operating Income was greater than zero and your Coverage
 was less than zero, then your Interest Income exceeded your
 Interest Expenses!)
 3) Can your firm add additional long-term liabilities to the
    Balance Sheet without harming the long-term solvency of the business?

 In
@@10
 you had Total Liabilities of $
@@11
 and
 Total Equity of $
@@12
 for a Debt to Equity Ratio of
@@13
.

 You should use the PRO-FORMA PLANNER to view the impact of your
 financing alternatives on these measures of financial strength!
1
20 0
5 n 0 a 0
Supplier Payment Period
 Your firm is now large enough that your suppliers will allow you to
 purchase goods and services on credit, just as you now provide credit to
 your customers.
 Your total purchases in
@@1
 were $
@@2
 or $
@@3
 per day.
 Each day longer that you take to pay your bills will provide you with
 an additional $
@@4
 in cash sitting in your checking account
 earning interest at
@@5
%!
 But remember, your Accounts Payable are your suppliers' Accounts
 Receivable; if you take too long to pay they may become upset and fail to
 provide you with the deliveries and quality you need!
3
11 0
19 0
11 0
8 y 2 d 1
Dividend Per Share
 How large a Dividend should you be paying to the holders of your
 firm's Common Stock?

 There are two basic ways to formulate a Dividend policy:

 1) What % of your current earnings should you return to stockholders
    as opposed to re-investing the funds in your existing business?

 2) What dividend yield should investors buying your stock
    receive in order to consider your stock an attractive
    investment on the basis of current income?
 Your
@@1
 earnings were $
@@2
 per share.
 The
@@3
 dividend of
@@4
 cents meant that you had a
@@5
%
 dividend payout rate and a
@@6
% retention rate.

 In 1985, the companies that make up the real world S&P 500, a broad
 cross-section of the stock market, paid an average of 42% of earnings
 out in dividends!
 The other factor you must consider is how to make your stock
 attractive to investors.  Each investor can be classified as seeking capital
 appreciation, dividend income, "bargain" assets or some of each (refer to
 the TUTORIAL on Stock Price in the Five-Year Performance Summary for more
 information).

 You can attract the income-seeking investor by paying an attractive
 dividend so that the yield on their investment approaches about 1/2 of the
 prime rate (currently
@@7
%).
 How does your current yield compare to that offered by your
 competitors?
4
12 0
15 0
25 0
16 0
13 n 0 a 0
One-year Loans
 There are now three basic ways for you to finance your capital
 expenditures: Short-term Debt, Long-term Debt and Equity.

 Borrowing from your banker on a year-to-year basis means that your
 cost of borrowing may increase (or decrease) from year to year depending
 upon the prevailing trend in interest rates and your financial strength.
 But in return your firm can use the cash flows generated each year to reduce
 the total amount borrowed and thereby minimize interest expense.

 Should you borrow funds from the bank in
@@1
?
 It depends on several factors:

 1) Does your firm need the money?

 The new factory capacity that you are building is going
 to cost more than $
@@2
 thousand.

 Your firm currently has $
@@3
 thousand in cash
 and a One-year Loan of $
@@4
 thousand.
 2) Can your firm afford additional interest payments each year without
    endangering the Short-term solvency of the company?

 You can borrow "Short-term" at
@@5
% interest per year.

 If you financed 80% of your planned capital expenditures with
 bank loans, your additional interest payments would be $
@@6

 thousand per year.

 In
@@7
 your Operating Income (before Interest and Taxes) was
           $
@@8
 thousand, and your Interest Coverage was
@@9
 times!

 (if your Operating Income is greater than zero and your Coverage
 is less than zero, then your Interest Income exceeded your
 Interest Expenses!)
 3) Can your firm add additional short-term liabilities to the
    Balance Sheet without harming the long-term solvency of the business?

 In
@@10
 you had Total Liabilities of $
@@11
 and
 Total Equity of $
@@12
 for a Debt to Equity Ratio of
@@13
.

 You should use the PRO-FORMA PLANNER to view the impact of your
 financing alternatives on these measures of financial strength!
1
8 0
1 y 4 d 0
R & D Budget
 How much you should spend on improving your product quality depends
 upon the relative positioning of your product amongst competing products.
 If you are attempting to charge a high price for your product relative to
 the competition, you should probably spend more for R&D to improve
 and differentiate your product. (Please refer to the CONSULTATION on
 Price for comparisons.)

 Are you keeping up with the competition in R&D spending?
 Let's compare your total
@@0
 R&D spending over the past two years
 with your competitors...
1
5 0
1 y 2 d 0
R & D budget for New Products
 How much you should spend on developing new products depends
 upon your strategic plan.  Are you trying to be the market leader in
 bringing out new technology?

 Are you keeping up with the competition in R&D spending?
 Let's compare your total new product R&D spending over the past two
 years with your competitors...
2
5 0
7 0
0 n 0 a 0
The Business Journal
 The Business Journal is published each year as a source of
 information on what's happening in the economy and in your industry.
 A thorough review of this journal, combined with the TUTORIAL and
 ANALYSIS capabilities of the simulation, will provide insight into the
 dynamics of your marketplace.
 The Business Journal currently contains two sections:

 Economic Information -- a status report on inflation and
                         economic growth
 Industry Statistics  -- a concise summary of how your prices,
                         advertising budgets, and market shares
                         compare to those of the competition.
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The Business Journal
 THE BUSINESS JOURNAL is published each year as a source of
 information about what's happening in the economy and in your industry.
 A thorough review of this newspaper, combined with the TUTORIAL and
 ANALYSIS capabilities of the simulation, will provide insight into the
 dynamics of your marketplace.
 THE BUSINESS JOURNAL currently contains six sections:
 Economic Information -- a status report on inflation and
                         economic growth
 Industry Statistics  -- a concise summary of how your prices,
                         advertising budgets and market shares
                         compare to those of the competition.
 Stock Market Report  -- information on how much investors
                         thought of your performance.
 Corporate Bond Report-- the reaction of fixed-income investors
                         to changes in interest rates
 Corporate Earnings   -- How well are you doing compared to the
                         competition.
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The Business Journal
 THE BUSINESS JOURNAL is published each year as a source of
 information about what's happening in the economy and in your industry.
 A thorough review of this newspaper, combined with the TUTORIAL and
 ANALYSIS capabilities of the simulation, will provide insight into the
 dynamics of your marketplace.
 THE BUSINESS JOURNAL currently contains seven sections:
 Economic Information -- a status report on inflation and
                         economic growth
 Industry Statistics  -- a concise summary of how your prices,
                         advertising budgets and market shares
                         compare to those of the competition.
 Stock Market Report  -- information on how much investors
                         thought of your performance.
 Corporate Bond Report-- the reaction of fixed-income investors
                         to changes in interest rates
 Corporate Earnings   -- How well are you doing compared to the
                         Company Balance Sheets  competition.
 Financial Scoreboard
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Current Liabilities
 This is equal to One-Year loans plus Accounts Payable.
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Liabilities
 Liabilities represent all the monies borrowed by the firm that must
 eventually be repaid.  If these debts are due in one year or less, then
 they are classified as Current Liabilities.  If the debt is not due for
 more than one year, then it is classified as a Long-Term Liability or
 Long-Term Debt.1
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1 Year Loan Rate
 The One-Year Loan Rate is the rate at which your company can borrow funds
 for a one-year period.  This rate is above the Prime Rate, at which
 AAA-rated firms can borrow.  The rate you must pay is determined by your
 Standard & Poor's rating and is based upon historical yield curves.
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Factory Capacity
 This is the maximum output of your competitor's factories running one
 eight-hour shift per day.  Running three shifts would allow your competitors
 to produce 3 times this amount.
 The more capacity a competitors has, the more units they can produce
 and sell.  Under-capacity tends to lead to price increases, while
 over-capacity tends to lead to price cutting!
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Dealer Co-op Percentage
 This is the percentage of sales revenue paid back to dealers to help them
 promote your products.  This money goes into a fund which helps dealers
 underwrite local promotional activities.  Co-op promotions complement
 your corporate marketing activities.
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Competitive Credit Sales
 This is the % credit sales allowed by each competitor in the
 marketplace.  One would expect that a firm who is more liberal with credit
 would sell more than a firm with a lower % sales on credit, if all other
 factors were equal.
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Competitive R&D Ranking
 You would not be able to determine exactly how much your competitors
 were spending on research and development in a given year.  You might be
 able to judge your relative position through "the grapevine", who was hiring
 the best engineers from MIT and Penn, and so forth.
 We provide you with a ranking of the current year's R&D spending so
 that you can see if you're falling behind your competitors.
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Dealers
 Dealers represent the number of retail stores or value-added resellers
 you have selling your products in your market.  Dealers are the conduit
 through which your company gets its products to your customers.  A good
 relationship with your dealers, is critical to your success.
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Shifts Worked
 This is the number of eight-hour shifts that your competition ran
 their factories for in
@@1
.  A "+" indicates over-time production.
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Pricing
 Pricing continues to be a very important decision for your company.

 How are you doing according to our guidelines?

 To achieve a reasonable Gross Margin on Sales, your selling price should
 be sufficiently greater than your cost to purchase or produce the product.

 In
@@3
:
 Your selling price was: ............... $
@@4

 The average cost of each unit was: .... $
@@5

 Your Gross Margin on each unit was: ... $
@@6


 For every $1 of Sales Revenue,
@@7
 cents went to pay for the product,
 and
@@8
 cents remained as Gross Margin to cover
 marketing and administrative expenses.

 To maintain significant market share, your price should be competitive
 with the other companies' prices.

 In
@@9
:
 The average charged by your competitiors was $
@@10

 How does your price of $
@@11
 compare?
 You had a
@@12
% market share.

 Greater sales volume at lower prices does not necessarily translate
 into greater profitability.  Are you making money at your current pricing
 level?

 In
@@13
:
 Your overall Gross Margin was
@@14
% and Operating Income
 was $
@@15
 thousand.
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Advertising Budget
 Let's compare your advertising budget for
@@1
 in the
@@2

 market for the years
@@3
 and
@@4
 to that of your competition.


 Company                   Total Advertising Budget
@@5
 &
@@6

  ------------------------  --------------------------------

@@14
 $
@@7


@@15
 $
@@8


@@16
 $
@@9


@@17
 $
@@10


@@18
 $
@@11

 Are you keeping pace or falling behind in total spending?

 Let's also look at where you stand in advertising dollars spent per unit
 sold in
@@12
...

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Number of Dealers
 In deciding how many dealers to use in the
@@1
 market,
 you should consider how many dealers you currently use as compared to the
 competition.  You should also consider the costs of carrying these dealers
 in terms of co-op funding per dealer.

 Higher co-op funding usually means that your dealers are more motivated
 to sell your products.
 Here is how your total expenditures for your dealer network (including
 fixed overhead and co-op) in the
@@2
 market in
@@3
 compares to
 that of your competition.
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Dealer Co-op Funding
 In deciding your co-op funding policies in the
@@1
 market,
 you must trade off how much funding your competitors are providing for
 their dealers and the costs associated with carrying your own dealers.

 More dealers usually means more sales.  However, if your dealers are not
 adequately funded, they will lose the incentive and lack the dollars to
 sell effectively.
 Here is how the co-op funding per dealer in the
@@2
 market
 in
@@3
 compares to that provided by your competition.

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Units Produced
 In order to have enough product available to sell in
@@1
, you
 may have to produce some new units to add to any inventory left over from

@@2
.

 How many units of
@@3
 do you expect to sell in
@@4
?

 In
@@5
, you were able to sell
@@6
 thousand units.

 In the
@@0
 market:
 From
@@7
 to
@@8
, you gained (or lost)
@@9
 points of
 market share.  Each point of market share equaled
@@10
 thousand
 units of
@@11
.

 Based on your Marketing strategy, will you gain or lose share in
@@12
?
 What is happening to the demand for
@@13
 in the
@@0
 ?

 Total # of
@@14

 Sold
@@15

@@16

 (in thousands)

@@17

@@18


 % Change
@@19
%

@@20
 to
@@21

 In addition to making sure that you have enough inventory to meet
 expected demand, you should also consider the "lost sales vs. carrying cost"
 question on additional units you might want to carry as "safety stock"
 with the possibility that you might be able to sell them.

 What is your gross margin on each unit if you should happen to
 sell it as opposed to the carrying costs of inventory if you don't?

 Let's assume that
@@22
 production costs will rise by the
 estimated rate of inflation, giving you a
@@23
 production cost per
 unit of about $
@@24
.

 At what point should you build inventories with the hope of being
 able to sell them?  When is it a good economic "bet"?
 Currently you are planning on a
@@25

 price in
@@0
 of:                              $
@@26

 If production cost is about                     -
@@27

 Your Gross Margin per Unit Sold will be         = $
@@28


 This will be your incremental margin on every additional unit you might
 produce with the hope of selling it.

 Let's assume that you would finance additional inventory with
 Short-term Loans costing
@@29
% per year.  Each unit of
@@3

 would then cost you $
@@30
 to carry in inventory for the year.

 Your potential "pay-off" of this "bet" is
@@31
 to 1,
 (Gross Margin divided by Carrying Costs).  If you think your chances of
 selling additional product are greater than 1 in
@@32
 then you
 should produce some "speculative" inventory!
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Factory Construction
  New construction takes one year to complete, so the plant you build in
@@1
 will not be ready to use until
@@2
.  How much capacity will you need
  in two years?

  The Decision Aids show you how many units you sold in
@@3
 and
  the percentage increase from the year before.  If your sales continue
  to grow at the same rate for another two years, how many units will you
  have to produce in
@@4
?
  Each unit of factory capacity can be used up to three shifts.  Therefore,
  the minimum plant size you will need is one-third of the potential sales
  volume in
@@5
.
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Supplier Payment Period
 Your firm is now large enough that your suppliers will allow you to
 purchase goods and services on credit, just as you now provide credit to
 your customers.
 Your total purchases for your manufacturing operation in
@@1

 were $
@@2
 thousand dollars, or $
@@3
 thousand dollars per day.
 Each day longer that you take to pay your bills will provide you with
 an additional $
@@4
 thousand dollars from cash sitting in your checking
 account earning interest at
@@5
%!
 But remember, your Accounts Payable are your suppliers' Accounts
 Receivable; if you take too long to pay they may become upset and fail to
 provide you with the deliveries and quality you need!
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Forecasted Unit Sales
 How many units of
@@1
 do you expect to sell in the
@@2
 market
 in
@@3
?

 In
@@4
 you were able to sell
@@5
 thousand units.
 From
@@6
 to
@@7
, you gained (or lost)
@@8
 points of
 market share.  Each point of market share equaled
@@9
 thousand
 units of
@@10
.

 Based on your Marketing strategy, will you gain or lose share in
@@11
?
 What is happening to the overall market demand for
@@12
?

 Total Unit Sales
@@13
 ...
@@14

 of
@@15
 in
@@16

 (in thousands)

@@17
 ...
@@18


 % Change
@@19
%

@@20
 to
@@21

 What is happening to the long-run growth (product-life cycle)
 curve of
@@22
?


 % Increase in Total Industry Sales in
@@23



@@24
 to
@@25

@@26
%

@@27
 to
@@28

@@29
%

@@30
 to
@@31

@@32
%

@@33
 to
@@34

@@35
%

@@36
 to
@@37

@@38
%
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Yield
 This is the dividend yield on the stocks of your firm and your
 competition.  It is obtained by dividing the cash dividend by the closing
 price of the stock.  This yield can be compared with that on other stocks
 and with the interest paid on debt-instruments (bonds).
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The New York Stock Exchange
 There is now enough investor interest in your stock to have it listed
 on the New York Stock Exchange (NYSE).  Most successful companies (IBM,
 General Motors, Exxon) ultimately list their shares here.
 The NYSE was founded in 1798 and is the most important securities
 market in the world.
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American Stock Exchange
 There is now enough investor interest in your stock to have it listed
 on the American Stock Exchange (AMEX).  Many successful companies (Wang
 Labs, New York Times, Key Pharmaceuticals) list their shares here.
 The AMEX was started in the 1850s and is the second largest stock
 exchange.  It was known as the New York Curb Exchange until 1953.  The
 listing requirements of the AMEX are less stringent than those of the New
 York Stock Exchange.
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Canada
 You now have the opportunity to market your products in the Canadian
 market. This country contains approximately 1/6 of the population and
 purchasing power of the U.S..
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West
 You now have the opportunity to market your products in the Western
 half of the United States.  This geographic area covers all states west of
 the Mississippi River and contains approximately 1/2 of the population and
 purchasing power in the country.
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Retained Earnings
 Retained Earnings is the amount of money that your company has earned
 and kept (retained) in the business since your company was founded.
 Retained Earnings are a cumulative measure of profit that you've
 re-invested in the company. Retained Earnings ARE NOT THE SAME AS CASH.
 Some of your Retained Earnings are already funding Inventory or Plant and
 Equipment and are not available to spend freely.

 In larger companies, earnings are paid out to stockholders, reducing
 the amount of Retained Earnings.  Since your company does not yet pay out
 dividends, all of your earnings (and losses!) are reflected by the value
 of Retained Earnings.

 The Retained Earnings in your company at the end of
@@1
 were: $
@@2

 Net Income in
@@3
 was                   :
@@4

 You paid dividends of                    :
@@5

 Retained Earnings at the end of
@@6
 are : $
@@7

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Common Stock
 There are now three ways for you to finance your capital expenditures:
 Short-term Debt, Long-term Debt and Equity.

 Selling Common Stock (or Equity) means that you are giving up ("diluting")
 some of your ownership of your firm.  But in return your firm
 receives funds that it doesn't have to pay any interest on!

 Should you issue (sell) common stock in
@@1
?
 It depends on several factors:

 1) Does your firm need the money?

 The new factory capacity that you are building is going to cost
 more than $
@@2
 thousand dollars.

 Your firm currently has $
@@3
 thousand dollars in cash.
 2) Are you receiving a "fair" price for your stock, given your
    operating history and general market conditions?


 You can sell stock for $
@@4
 per share, this is

@@5
 times
@@6
 earnings!

 Earnings per Share increased(fell) by
@@7
%
 from
@@8
 to
@@9
.
 Book value is $
@@10
 per share.
 3) Can your firm add additional long-term liabilities to the
    Balance Sheet without harming the long-term solvency of the business?

 In
@@11
 you had Total Liabilities of $
@@12
 and
 Total Equity of $
@@13
 for a Debt to Equity Ratio of
@@14
.

 You should use the Pro-Forma Planner to view the impact of your
 financing alternatives on these measures of financial strength!