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Debt AllocationVC Amount Requested 5,000.docx
- 1. Debt Allocation VC Amount Requested 5,000,000.00 Loan 3,000,000.00 Cash Currently on Hand 436,000.00 Less cash reserve (200,000.00)
- 2. Expand Factory (Q5 - for use in Q6) 2,000,000.00 19% New Sales Office Chicago (Q5) 170,000.00 Sao Paolo (Q5) 91,000.00
- 3. Toronto (Q5) 160,000.00 Abu Dhabi (Q5) 140,000.00 Sydney (Q5) 130,000.00 Shanghai (Q6) 170,000.00 Mumbai (Q6) 110,000.00 Warsaw (Q6) 104,000.00
- 4. Paris (Q6) 170,000.00 Q7 - TBD depending on region performance 1,245,000.00 12% R&D OS - Pro w/Ease of Use (Q5) 3,100,000.00 29% High speed networking or TBD (Q6) 2,000,000.00 19%
- 5. Q7 R&D - TBD 2,000,000.00 19% Design new brands (x5) 300,000.00 3% Zeus 2.0 - Workhorse (Q5) Athena Pro - Cost Cutter (Q6) Zeus 2.0 Pro - Workhorse (Q6) Olympus - Innovator (Q6)
- 6. Remaining - Use operating cash flow from Q5 & Q6 (2,409,000.00) *Adjust and scale accordingly
- 7. I listen, I forget. I see, I remember. I do, I understand. Old Chinese Proverb Business simulations are a form of combative training where participants pit their business skills against those of formidable opponents under the watchful eye of a training coach. When we study one discipline at a time, we are like a bunch of blind people trying to understand what an elephant is.
- 8. Please tell me what it is? It’s a snake. It’s a tree trunk. It’s a sheet of rawhide. It’s a steel tube.
- 9. With business simulations, you can crawl all over and under the new venture to help you to see and understand the whole thing.
- 11. Joyce Russell team work, human resourcesHarry Bruce leadership, governanceJim Reeve accounting, profit analysisSarah Gardial & Bob Woodruff customer valueJim Wansley financeErnie Cadotte marketingKen Gilbert production processesIvan Slimak brand design, quality processesTom Mentzer supply chainDominique Garval business strategy Participants learn about all aspects of business by managing a simulated business. The Marketplace Live scenario follows the lifecycle of a new product and new business.Business decisions are introduced as they become relevant in the evolution of the company. Develop leadership, teamwork and interpersonal skills.Promote better decision making by learning to manage a totally integrated company, including the management of sales outlets,
- 12. marketing , production, and human and financial resources.Facilitate learning of important business concepts, principles and ways of thinking. Develop strategic planning and execution skills within a rapidly changing environment.Instill a bottom line focus and the simultaneous need to deliver customer value.Crystallize the financial implications of business decisions and how they flow to bottom-line performance. Discover how important it is to use market data and competitive signals to adjust the strategic plan and more tightly focus business tactics.Live and breathe performance-based management.Learn what it takes to start up and manage a new venture. Build confidence through knowledge and experience. Teams are placed in a new venture scenario - starting up and running a new business.The opposition is played out by competing teams. opponent Market
- 13. opponent opponent Business Team Each team member assumes a tactical area of responsibility: Marketing // Finance //Distribution Production // Overall Leadership Business team receives information on current situation.Current situation is evaluated, strategy formulated and tactics set in place.Tactical decisions are fed into the Marketplace Live simulator, along with decisions of opponents. Results of decisions are fed back to business team. The business team can acquire information on what is happening in the marketplace: internal operationscustomer reaction to market decisionscompetitor actionsCurrent situation is evaluated, strategy formulated, and tactics
- 14. set in place.Tactical decisions are again fed into the Marketplace Live simulator. You and your business partners have decided to enter the international microcomputer industry. The microcomputer industry is in its introductory stage of the product life cycle.Several other international firms are entering the market at the same time. Q1: Organize the team, name the company and contract for a survey of potential customers. Q2: Analyze market information, establish strategic direction and set up shop (design brands and set up a sales office and/or regional web centers and build a factory). Q4: Study end user feedback, competition, operating performance, employee morale and financial performance and make adjustments in strategy. Q3: Test-market brands, prices, ad copy, media campaigns,
- 15. sales staffing and internet tactics. Determine production schedule for each brand. Q5: Prepare a one-year business plan. Present business plan and financial request to venture capitalists and negotiate equity investment. Q5 – Q8: Initiate international roll-out campaign. End of game: Prepare report to the Board regarding: Second year performance deviations from plan justification for departures analysis of current market plan for future The initial capitalization is $4M which is being invested by the executive team over the first 4 quarters.The executive team owns 100% of the company.Forty thousand shares of stock will be issued to the executive team in exchange for their $4M. The initial stock value is $100 per share
- 16. At the end of the first year of business, the executive team will have the opportunity to request up to $5M from a venture capitalist. The venture capitalist will expect an outline of the strategic plan for the second year in business, including: target markets // sales channel expansion // R&D plant expansion // quality improvements, etc. The bank will extend a line of credit to the executive team equal to one and a half times the firm's equity position in the previous quarter. The bank is highly risk adverse and will call in your loan in part or whole if your debt capacity declines due to unusual or extended losses. Other financial institutions will also buy long-term notes at 2 points over conventional bank loans. The acceptable debt capacity is two times the firm’s equity position in the previous quarter. Long-term debt is for 5 years with little possibility of the financial institution calling in the note due to short-term swings in income.
- 17. The bank is intolerant of poor financial management. If a firm ends a quarter with a negative cash position, the bank will contact a loan shark by the name of Guido to obtain an emergency loan to cover the firm's checking account. Guido requires repayment in the next quarter The emergency loan interest rate is a sliding scale which begins at 10% per quarter and may go as high as 25% per quarter. For each $100 which Guido places in your checking account, he will take one share of stock in your firm. The issuing of stock to Guido causes a dilution of your stock value and your share of the company. A firm is technically bankrupt if its cumulative losses exceed its equity investment. Stated differently, the management has used up all of the equity of the firm when the negative value of the retained earnings exceeds the value of the common stock. Strategic thinking and tactical analysis in Executive Briefings Balanced Scorecard for last 4 quarters Business Plan Report to Board How well the company is prepared for the future
- 18. Market conditions Marketing strategy Marketing tactics Market assessment Market performance Manufacturing conditions Manufacturing strategy Manufacturing tactics Manufacturing assessment Manufacturing performance Human resource conditions Human resource strategy Human resource tactics Human resource assessment Human resource
- 19. performance Financial conditions Financial strategy Financial tactics Financial assessment Financial performance ENVIRONMENTAL ANALYSIS Business Strategy FEEDBACK Business Performance Assessment of Business Conditions BUSINESS LEVEL FUNCTIONAL LEVEL STRATEGY Market objectives Manufacturing objectives Human resource objectives Financial objectives Cash flowPro Forma Cash FlowQuarter 1Quarter 2Quarter 3Quarter 4Quarter 5Quarter 6Quarter 7Quarter 8Beginning Cash Balance0912,000839,683457,479436,6421,935,2411,291,6361,0 89,466Receipts and Disbursements from Operating
- 20. ActivitiesRevenues00706,4002,536,4006,200,848- Rebates0010,90040,200110,500- Production00820,4371,112,9082,338,788- Research and Development0120,000150,00005,326,624- Quality Costs0018,899147,027166,705- Advertising00201,972357,324297,724- Sales Force Expense00171,035407,627761,701- Sales Office and Web Sales Center Expenses0350,512596,399544,299725,058- Web Marketing Expenses000176,05068,000- Marketing Research88,000069,00092,000115,000- Shipping0013,79346,630106,324- Inventory Holding Cost0036,16912,1236,520- Excess Capacity Cost00053,8430- Income Taxes00000+ Interest Income00001,950- Interest Charges000071,500+ Licensing Income00000- Licensing Fees00000+ Other Income00000- Other Expenses00000= Net Operating Cash Flow-88,000-470,512-1,382,204-453,631- 3,891,646Investing ActivitiesFixed Production Capacity0601,8050567,2062,079,755000+ Sinking Fund0000130,000= Total Investing Activities0601,8050567,2062,209,755Financing ActivitiesIncrease in Common Stock1,000,0001,000,0001,000,0001,000,0005,000,000000+ Borrow Conventional Loan00000000- Repay Conventional Loan00000000+ Borrow Long-Term Loan00002,600,000000+ Borrow Emergency Loan00000000- Repay Emergency Loan00000000- Deposit 3 Month Certificate00000000+ Withdraw 3 Month Certificate00000000- Dividends00000000= Total Financing Activities1,000,0001,000,0001,000,0001,000,0007,600,000000C ash Balance, End of Period912,000839,683457,479436,6421,935,241Cost of Goods SoldStarting Inventory000361,688121,234+ Production00820,4371,112,9082,338,788= Available Inventory00820,4371,474,5952,460,022- Cost of Goods Sold00458,7501,353,3622,394,822= Ending Inventory00361,688121,23465,200
- 21. ISPro Forma Income StatementQuarter 1Quarter 2Quarter 3Quarter 4Quarter 5Quarter 6Quarter 7Quarter 8Gross ProfitRevenues00706,4002,536,4006,200,848- Rebates0010,90040,200110,500- Cost of Goods Sold00458,7501,353,3622,394,822= Gross Profit00236,7501,142,8383,695,526ExpensesResearch and Development0120,000150,00005,326,624+ Quality Costs0018,899147,027166,705+ Advertising00201,972357,324297,724+ Sales Force Expense00171,035407,627761,701+ Sales Office and Web Sales Center Expenses0350,512596,399544,299725,058+ Web Marketing Expenses000176,05068,000+ Marketing Research88,000069,00092,000115,000+ Shipping0013,79346,630106,324+ Inventory Holding Cost0036,16912,1236,520+ Excess Capacity Cost00053,8430000+ Depreciation0025,07525,07548,709= Total Expenses88,000470,5121,282,3421,861,9987,622,365Operating Profit-88,000-470,512-1,045,592-719,160- 3,926,839Miscellaneous Income and Expenses+ Licensing Income00000000- Licensing Fees00000000+ Other Income00000000- Other Expenses00000000= Earnings Before Interest and Taxes-88,000-470,512-1,045,592-719,160- 3,926,839+ Interest Income00001,950- Interest Charges000071,500= Income Before Taxes-88,000-470,512- 1,045,592-719,160-3,996,389- Loss Carry Forward00000000= Taxable Income00000000- Income Taxes00000000= Net Income-88,000-470,512-1,045,592-719,160-3,996,389Earnings per Share-9-24-35-18-44 Sheet2Pro Forma Balance SheetQuarter 1Quarter 2Quarter 3Quarter 4Quarter 5Quarter 6Quarter 7Quarter 8Current AssetsCash912,000839,683457,479436,6421,935,241+ 3 Month Certificate of Deposit00000+ Finished Goods Inventory00361,688121,23465,200Long Term Assets+ Sinking Fund0000130,000+ Net Fixed Assets0601,805576,7301,118,8613,149,907=
- 22. Total912,0001,441,4881,395,8961,676,7365,280,347DebtConve ntional Bank Loan00000000+ Long-Term Loan00002,600,000+ Emergency Loan00000Equity+ Common Stock1,000,0002,000,0003,000,0004,000,0009,000,000+ Retained Earnings-88,000-558,512-1,604,104-2,323,264- 6,319,653= Total912,0001,441,4881,395,8961,676,7365,280,347 Scenario: Marketplace Stimulation We are the head manager for a technology company (computer selling), we are in quarter 5 right now. Please use the pro forma accounting information to do a financial analysis（accounting）. 3 Pages