How to win Capsim simulation
This is a market simulation tool with several functional areas. One of the topics on the table in these areas is finance. Finance decisions are made after other departments have made their decisions. Following the management team’s decision on the resources needed for the company’s demands. This department is responsible for dealing with financial concerns. One of the finance department’s responsibilities is to ensure that sales estimates and sensor prices are accurate. Unrealistic prices and estimates lead to unrealistic sales predictions. The marketing managers are challenged by the department to defend their estimates and price decisions. Are you in need of assistance? Don’t be concerned! We’ve got your covered!
The Finance Department is concerned about the following five issues:
- Obtaining the funds necessary for asset expansion, notably plant and equipment. Current debt, stock issues, bond issues, and earnings are all ways to display capital.
- Creating a dividend policy that maximizes shareholder returns.
- Creating policies for accounts payable and receivable.
- The firm’s financial structure and the relationship between debt and equity are driving factors.
- Performance measures that support your strategy should be chosen and monitored.
The capstone spreadsheet shows the outstanding debt from the previous year. The business can refinance the debt by borrowing the same amount of money. For the existing debt, there are no brokerage fees. Interest rates are determined by the amount of debt you have. The more debt you have in relation to your assets, the more the danger you pose to creditors, and the higher your current debt rates.
A corporation will use current financing issued by banks to fund short-term assets such as accounts receivable and inventories. Banks can lend up to 75 percent of your accounts receivable and 50% of the previous year’s inventory as current debt. These banks examine the previous year’s statement to estimate the company’s inventory for the next year.
Bankers assume the worst-case scenario, which will result in a three- to four-month inventory, and will lend up to half of that amount. This equates to around 15% of the combined value of total direct labor and total direct material on the income statement from the previous year. The lenders’ final step is to extend the loan limit by 20% because the company expands every time and needs more space for accounts receivable and inventories.
Bonds are typically used to support long-term investments in capacity and automation. All of the bonds have a ten-year maturity. For issuing the bonds, the corporation pays a 5% brokarage cost. The interest rate is represented by the first three digits of the bond’s series number. The bond’s due date is indicated by the final four digits. The letter S, which stands for series, separates the numbers. A bond with the number 12.6S2011, for example, has a 12.6 percent interest rate and is due December 31, 2011.
Bondholders will lend you up to 80% of the value of your plant and equipment in total. Each bond issue delivers an annual interest payment to investors in the form of a coupon. The holder of bond 12.6S2011 would get a payment of $126,000 every year for the next ten years if the face amount or principle of the bond was $1,000,000. At the end of the tenth year, the holder would additionally get the $1,000,000 principal. The corporation is awarded a credit rating every year that runs from AAA (best) to D (lowest) (worst). The current debt interest rates are compared to the prime rate in order to evaluate the ratings.
The interest rate on new bonds will be 1.4 percent higher than the current debt interest rate. The bond rate would be equal to 13.5 percent if your current loan interest rate was 12.1 percent. Bonds can be repurchased before their maturity date. All that is required is the imposition of a 1.5 percent brokerage fee. On January 1 of each year, these bonds are repurchased at market value.
The order in which bonds were issued determines the order in which they are retired. The oldest bonds are the first to mature. Bonds that are allowed to mature to their full maturity date have no brokerage fees. Your lender gives you the current debt to pay off the bond principal if a bond is still outstanding on December 31 of the year it falls due. This sum is added to any other current debt due at the start of the next year.
Transactions in stock prices take place at the current market price. For stock issuance, the corporation must pay a brokerage fee of 5%. In any given year, new stock issuance are limited to 20% of the company’s outstanding shares. The book value, the last two years’ profits per share (EPS), and the last two years’ dividend all influence the stock price.
Divide the equity dividend by the number of shares outstanding to get the book value. The common stock and retained earnings values on the balance sheet are referred to as equity. The number of shares outstanding refers to the number of transactions that have been made. For instance, if the company’s equity is $50 million and there are 2,000,000 shares outstanding, the book value per share is $25.
The dividend is the amount given to shareholders per share each year. Stakeholders are unresponsive to dividends over the EPS because they believe they are unsustainable. If your EPS is $1.50 per share and your dividend is $2.00 per share, for example, stakeholders will disregard anything above $1.50 per share as a stock price driver. Dividends have little impact on stock prices in general.
There is one little difference between Capstone and the real world: there are no external investment opportunities. If you can’t use profits to expand your business, you’ll end up with a lot of idle assets. Capstone is built in such a way that your firm is likely to become a cash cow in later rounds, churning out excess capital.
Loans in a Hurry
Financial transactions are made straight from your cash account throughout the year. If you don’t manage your money well, Capstone will provide you with an emergency loan to make up the difference. Big AI, a gentleman who arrives at your house with a checkbook, provides the loan. The amount of the loan is the same as the shortfall. To make it worthwhile, you pay one year’s worth of existing debt interest on the loan, plus a 7.5 percent penalty fee from Big AI.
Policy on credit
The number of days between transactions and payments is determined by the company. For instance, your business could give customers 30 days to pay their invoices while delaying payments to suppliers for 60 days.
Shortening the accounts receivable lag from 30 to 15 days effectively recovers a client debt. Extending the accounts payable lag from 30 to 45 days, on the other hand, extracts a loan from your suppliers.
The customer’s survey score is influenced by the accounts receivable lag. If your organization does not offer credit terms, your sensor customer survey will only receive roughly 65 percent of the maximum score. At the 30-day mark. The result is a 92 percent. There is no reduction after 120 days. The longer the latency, the more money is encumbered in receivables.
Production is hampered by the accounts payable lag. As the gap lengthens, suppliers become apprehensive and begin to withhold material for production. They withhold 1% for the first 30 days. They withhold 80% after 60 days, 26% after 90 days, and 63 percent after 120 days. They withhold all materials after 150 days, causing a shortage on the production line. As a result, workers are idle, and labor expenses per unit grow.
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