Enginuity2012 tutorial

Enginuity 2012

Tutorial
Copyright Virtual Management Simulations

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Contents
Getting Started The Task
Timeframe
Forming a Company Strategy

Making Decisions Financial Management
Overhead Management
Procurement
Job Progression
Resetting Decisions
Exporting Decisions

Assessing Performance Key Performance Indicators
Performance Statistics
Management Consultant’s Report
Analysis Tools

Industry Information Industry Information

Miscellaneous Exporting Information

Glossary Exit

Glossary
Finance Procurement
Dividend Job details
Factors affecting share price Successful tendering
Company value Margin adjusting
Cash account Choosing consultant designers
Overdraft limit Job risk
Capital base Bidding cost
Capital employed
Investments Job Progression
Project manager information
Profit definitions
Corporation tax Project manager performance
Gearing ratio Measured value (turnover)
% of a job completed
Job costs
Overheads
Departmental overhead staff Labour costs
Idle staff Retention
Job completion bonus
Forward workload and margin
Miscellaneous
The job cycle
Client relationships

The Task Getting Started

The success UK-based construction company, with headquarters possible timeframes.
A fledgling of the company is determinedmanaged through two in indicators :- been trading for just one
The company will be by 10 key performance London, has
The decisions global made, and mustofdemonstratingrests themanagement to satisfy the high
The first task facing the new management team is to form ain challenges to overcome, such as client
Managing the to be business involves the company, a range of hands of the new
Working in different countriesfate present some particularbusiness strategyskills. management team.
year. Turnover
demands of the company's shareholders, who are keen to Contract Completion their investment. unrest,
restrictions, global competitors and environmental problemsa (extreme weather conditions, civil
see quick return on
Gross Profit to Turnover ratio
local labour problems etc). Forward Workload
A new managementOperating Profitto run the company forForward Margin future, making the key
team is needed to the foreseeable
Although based in the UK, and subject Turnover ratio and interest rates, expansion into overseas
to UK tax laws
business decisions Company Value
each period/quarter.
markets, and different continents,and opportunities Managing ThePrice A lotsuch depend upon the
Share
Early Years
However, the potential rewards may be an attractive proposition.
of operating globally, will as worldwide client base,
Capital Employed Client Satisfaction
prevailing economic climate in large-scale contracts, may outweigh the risks.
niche markets and lucrative the UK, and worldwide.Global Business

The competition for jobs comes from a number of simulated companies. Each one has
their own unique profile and bidding history, and a careful assessment of the opposition
is required to formulate an effective procurement strategy.

Management
Corporate level Operational level
skills required

Road contract on HQ
the US Interstate
UK Economic
Highway System

Understanding the Forming company
Later Years
Climate
Energy contract in
the Middle East
Overcoming
Interpreting reports
Measuring performance
Analysing information
Making key decisions Solving problems
industry strategy problems
Making effective decisions
During the later years the teams compete against each other for work. This creates an
even more uncertain and pressurized environment in which the skills and team
dynamics formed in the early years are really put to the test.

UK and worldwide
Satisfy stakeholders
Finance The indicators are all weighted at the
Changes in economy
Job delays
start ofrequirements years to reflect their
New competitors early
the
OPPORTUNITIES Improve asset value
CHALLENGES
Economic climate Marketing Building project in
Achieve profitable growth
Availability of work Overheads Changing client
Rival competitionclient base
Worldwide Increase market share
Global competitors
Manage risk
Procurement variability, and initially sumNew1000
Personnel issues to Zealand
Keep Clicking Anywhere on the screen to advance
Client expectations Construction Supply chain problems
Lucrative contracts Client expectations
Enhance company reputation
Niche markets Environmental issues

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Timeframe Getting Started

Theyour company alreadyCompany at successful periods, known asYears, you may be invited to
If take control of the been operating for 4 during the Early the History Year, before
You Company has is one of the most the beginning of period 5. You then manage the company
you take overPhase of management. Later (two trading years). Thismanage the company
take part number 2, known as the
through a in the its periods, normally 8 Years. You then have to is known as the Early
through
Years. a further number of periods in direct competition with the other top companies
from the Early Years.
Each period represents one quarter, or 3 months.

Start of Start of Start of
History Phase 1 Phase 2

Period 1 …………… 4 5 ………………………………………. 12 13 ………………………. 18

Historical Year Phase 1: The Early Years Phase 2: The Later Years


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Forming A Company Strategy Getting Started

Objectivelook at an example of setting key objectivescompanyto be answered, including :-
After a thorough take a there are view questions the need strategy.
In setting the to review, the following and runningthat company the next decisions for
It is very easy objectivesshort-termmany toreviewing are set forby making year :-
We‟ll now
Overall, in reviewing our without looking at thethe original strategy, we have extremely
the current period only, performance against wider picture. Whilst this hit and miss
To build on steady, profitable growth,from 4.7m tofor the(by 10%) through Measurement
well,havelevel ofcompany‟s achievedis especially the Head has been operating foraalong-term
improve and value of the company relationships.
aim forthat company existing price. increasing turnover from 28m (based improved the
ensure the improve overheads, share client 5.17m Office, QHSE and on half of
 What been areas the would we the objectives that year.
We and may given have
approach in all prove successful, it like toa company as effective as formulating
growth task of running achieve ?
unlikely to be year (the
company profits, and profitable growth, increasing turnover from 28m (based on half of the
departments,steady, making better yearof the company‟s assets.
To aim for are staffed the next use manage with the increasing turnover.
History at 14m) to 42m in sufficiently tothrough increasing prequalification for new work,
 How are weis considered to be in value of the company ?
History), and going to improve the a the company‟s objectives.
strategy for the company, based uponsound position by both the industry and its board of
competitive tendering and 42m in the next yearjobs. strategy in place. However, this would
Gearing Ratio to 14m) to progressing ongoing through increasing prequalification
ItHistory year of company company without any clearneed to achieve our objectives for new
is possible at
 What levels the company a a measure of are we likely to
directors.ratio of manage is overhead Dividend Payments ?
work, a very reactive
competitive tendering and progressing ongoing jobs. In could create untold
requireare we goingunlessapproach to running havebusiness, which the History (periodsand 4) a dividend of
The gearing
the of the shareholders ?
 How liability, and is the lookcash account interests an impact in future periods,
Decisions made in 0 tocurrent period often
its debt the after the 1 to in
problems asofthe value overall value of the companytake controlthe mostthewas paid each 4) to 5.8m, per
To improve going the of the company from had to make cause (at effective the
The status we the the company‟s activities, with to clients ? 5havocthroughuse of increased
is overdrawn. unforeseen and unconsidered circumstances is (byValue Company was across
2%
 How are end period 8 to improve relationships 4.7m our5.17mFuture10%) end 8 company valuethe
different areas ofcompany/market when we and increasedIn periodsannum), which kept the shareholders
By the :- Profitability
from 4.7m through to of period
period (8%
improved
organisation. an annual makingofbetter use of the the original objective. had a Future profitabilityeither way
company‟s resources account was always easily surpassing company‟s Thewhich i.e.,positive affectaffect (forward
company profits and increase 23%, assets.
During the History the cash long-term planning is essential.
representing company‟s no particular on industry
steadily, content
confidence fluctuated significantly would
margin)the share price.and this in periods 5-8,
ThereAn increase was no impact at theachieved throughand has of means :-price in themore company negative affect on
 The are there inis valued on isthat also needThe Headconsidered, and creating a long-termhave
in credit,company other areasaround 4.7m,
and many company to be a share havingof 1.35. thanand share price.
on company,
To ensure that company overheads, not guarantee Head Office,it does give Measurement
A clear, well-considered management will especially the14m(profitable growth), and company the second
success, jobsQHSE and company‟s share
and
strategy is jobthe overhead strategy to generate staffed, at profit fromenable the increase in to was
 Turnover a and efforts thethe MarketingaDepartment the periodically reviewed,company
For example, complex task. Indeed, strategyaround129% ofmayrequired level to manage thecompany‟sthe
will have to be butconfidence levelthe cash since
company value a number Office Department was a the
both positive adequately
helped to increase
 Good generated in of first year was operating industry progressedthe
share price.
the best opportunity tohave sufficiently andcompany anywork toincreasing seen by the comments in the
departments, company‟s capital base to secure within the confines of the be5beneficial, updividend is
 Utilising the aremay growbeen unattainable for with the tender be turnover.as point, bid
staffed profitably toturnover. Indeed, overstaffingperiod the in of to a it
manage
reserves
market which:-
In
objectives to a large job in period
prequalify fordate 8 thein business. 5. The
half of the first to
However, in periods 5 year cash account was
progress more number as can for the job, and a
decide price, of reasons, such
can
maintained.
operating. profit of 4.4%If the is not set in
To inreturn However, strategy
is submitted infinancingaother activities bid is was made on thejob costsprogresseduntil period 7. If it
 Making effective use of the company‟s assets, such stone, andgood build to beopportunities the Head a better
as the gains (lower investmentin regularlythat Report. and
identifying needs costs the case of reviewed
Management Consultants yield Office
 A gross thanthebank offers, or investments that can with reducedjob will the additional cost. In this case there
often improve
overdraft, period 6. of share price.
the company‟s turnover successful, the work not startto 8 shareholder expectation
updated to takeoverheadmarketinto account anin not outweighing other1.5% theturnover wasgrowth
 The base expansionfuture costs continuously changing of 142kIn levels had risen as company performance
(capital Company‟sadvantage it should
periods, of a forecasts was net gain environment. and
secure
Department)
very accurate,
In periods 6
were period 11. from of words, anticipated
then runs for five and investments), and thecomplete a operating profitoverstaffing. of a decision on
After taking
To buildnow examine these areas to see which ones contributed to the increase in company value in the last year.
gearing ratio fluctuated,improve both a
on and which had existing client relationships.
areas have positive affect on the effort in
achieved. not materialised.
whereWe‟ll target marketing company‟s period 5 has had an affect up until period 11, 3% had to be
to
negative and improved, and a dividend of and
 Increased competition has forced margins to be reduced topaidcompany‟s turnover, were equally
beyondcompany order book looksare taken into account. a forward workload of around
share price. retention repayments extremely healthy, with
The if secure work.
Similarly, the QHSE and Measurement Departments, whose
staffing is dependent upon the
to keep them content.

A Client an how did changed, client satisfaction rating hasstaffed. that were the proof
 year later,anticipated profit of against the objectivessteadilyOverall,setaffects of the to enable the
30m, andexpectationswe perform 4.4% of relationships were not strong?enough levels of dividend
Overall, the company‟s
and client turnover.risen
adequately each period,
company to bid for work. work in the global met with regard to client relationships. Department as an affect
 The overall value of new objectives have been market fluctuates Head Office had no noticeable
that the company‟s around 400m.
paid would have
In order to decide upon the company‟s objectives, and whatat thebenchmark (last period of as „content‟
Looking
can the company‟s share achieved
be realistically sufficient
 AInvestments improving relationships were established with Office, QHSE and Measurement
number of clients.
We have succeeded in our objective of maintainingprice, the History,
example. The on
over a periodin We‟ll now look at how period to managedBy improve ofperiod 4) the share price the risen quo.
The company share time, there of we havewas 1.35. to the endanalysis staffing
Investments of price at the end needs 4 results detailed
other concerns had two positive be a :- inperiod 8,of :- maintainshad status to
staffing levelsthethe Head just ? was 3 staff could cope with around
relationships
Summary the original objective Profit
1.95, and Operating was met. Departments. 10.9m of turnover per period, or 2.8m per person.
Procurement
Based onprequalified for jobs, to increase turnover it is essential that and a detailed review of procured.
The A goodthe information information made an operating profit of 2.1% (before tax & interest). in a number of
company‟s share returnrose during periods on investments was made, which relationships have factors were company
Capital Employed the History the company given Since period 5 client was far more than improved
above, your :-
price of 4.5% per period 5-8, in line with company strategy. The contributory the equivalent
In
Having average capital base
The the company‟sAnalysis we‟ll1.25%equipment, lookways :-key being utilised (capital employed), through contract
If environment in which the per period. is operating Turnoverjobs period fluctuated a lot
company at the Prequalification are successfully
 Using the from the bank of around(plant,take a closerbuildings etc) issome of theinfluenced the share price :-during periods 5-8,
per
reports the Financial progression, then there is morethe turnover (measured makingin periodswere was 62.3m. year.
By using and the market, we must decide businessBy company value) marketingfor adjusted accordingly.
Dividend had no affectAnalysis, we can deducethe chance the as it stands job management. directing
return Financial
at weaknesses of that upon of thecompany‟s strategy 5-8 the next
now areas that
 The strengths andany time. this was improved to periods 5-8 the company bid for 36 of staff,and that it was
procurement and In periods 5-8
As we can see from the Performance Statistics, during
employing staffing levels
and the good
4.5%, mainly throughmore a profit. the 46 jobs
 Changes in payments to shareholdersby 0.77% by investing in appropriate would relationshipsectors that appeared to bestaffing
Company were reduced
value had a very positive affect
 Changes in in42m, so Profitability capitalfuture utilised, the cash account,were sufficient,all jobs progressed.
The likely competitionwell the our target.
only 41% of in over base was
WeOverallHistory, 9 (25%). Thethehad a mixed affect.increase the resources into during periods glanceduringthe future. with
able to, and won
Dividend build costswe were jobs secured helped
aimed for there It level the market before, one now exists e.g.,
Whereturnovercompanies e.g., first 5-8, and forHead Office
was no appear at investment that
in PHS
In the Forward The profitexcavators to all directly into but this increasedcompany‟s theshare of the total market
to an impressive 92%
growing, thesignificantly % company‟s value.
 Changes company value of would have fed sectors, reduced build Cornwall Water on but this can be verified by
Excavators Plc, suppliers
 Changes in in company future profitability
Devon and costs improving
levels
periods 5-8.
 Changes Gearing had a mixed affect. increased significantly during periods 5-8.
Where a relationship didthe Performance has been aided by
The high level of turnover was largely achieved by the impressive order referringplace at the end of the History, improved e.g.,
book in to exist before, this Statistics.
 Changes in company new burden (gearing ratio) with Crawford Petrochemicals UK
effective identification of debt work by the Marketing Department, and successful procurement for the rise in the share
Although there were mixed affects, the positive affect of increasing company value accounted during periods 5 to 8. price.
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Financial Management Making Decisions

Financial management involves :-
 Looking after the shareholders‟ interests.
 Trying to increase the value of the company by making the best use of the company‟s assets.
 Monitoring performance in all areas to improve company profitability.

Financial Decisions Overdraft Limit

Overhead Management Making Decisions

Overheads are the non-contract based support services required to enable the company to procure and
and progress work. They consist of :-
 4 key departments; Marketing, Head Office, QHSE and Measurement
 Non-departmental overheads, such as idle labour and idle project managers

The Overhead Manager is responsible for :-

 Setting appropriate staffing levels for each department
 Directing marketing effort into the 5 market sectors

The non-departmental overheads are the responsibility
of others, and are related to jobs in progress.

Marketing Decisions Other Dept Decisions Non-Dept Decisions

Procurement Making Decisions

Each period the company is offered a number of jobs for which a bid is invited, identified by the
marketing effort in the last period.

Bidding Decisions Margin Adjusting Successful Tendering

Job Progression Making Decisions

Progressing the jobs secured through procurement involves :-
 Allocating appropriate project managers to oversee the jobs.
 Allocating labour to progress the jobs in line with the company‟s strategy for job completion.

Project Mgr Decisions Labour Decisions Key Points

Resetting Decisions Making Decisions

Decisions can be reset to their defaults at the beginning of the
period.

The default setting is to reset all the decisions, but it is possible to
select particular decisions.

Exporting Decisions Making Decisions

The Export Decisions scenario.
Bothdecisionsfollowingoption enables back to team 1 theirand when ways category, for
Group 1 are the primary decisions for the period using into number of the the database. exporting to a
Consider themake theircommunicateddecisionsGroupleader,be selected, bycompany database is received by
groups could be group, containing the entered a own copy of :-
text each
themfile. period it is file created contains the the following changes to the default export options :-
The text
e-mailed to Group 2.
Group 2 make procurement and
job progression decisions made, in a clear and
 By phone
Group 1 are membersformat. into 2 the company database to the Competition Controller, and must put
A team of 6 responsible for sending groups of 3 members each, and is located in 2 different offices, all
concise is split  The Procurement and Job Progression decisions are chosen for export; the other
This e-mail
 By group now long team in
the decisions for the copy of the
Each has a number of uses :- their „master‟ copy of to company database.
geographically a has away apart. company databasethework on when making their individual decisions.
boxes are unchecked
Group 2 can now e-mailwordtext file to Groupis added to the export name to make it very clear which
 The the „_for_group_2‟ 1 for
Each keeping 2 let of each group
How do Group a its Group of master are highlighted bythe export file
The responsibilitiesdrawbacks :- database. decisionsthe diagram below.
 Foroption has hardcopy theknow what entered.
entering into 1 decisions are contained in are ?
decisions their
 Where a team is fragmented into smaller groups, it provides an efficient means for individual decisions
 to be communicated back to the teambutton is clicked to createintotext file.
By phone could be time-consuming
The Export leader for entering the the master company database.
 By e-mail requires a lot of typing of decisions
We‟ll look more detail at the second use. itself is a text file, and has the following characteristics :-
The export file
However, there is a far more  Its name alwaysmethod and that is to use and the rest can be altered option.
user-friendly begins with the competition id, the Export Decisions
 It is placed in the folder from where the company database was chosen

Team

Group 1 Group 2
Responsible for :- Communicate Decisions ? Responsible for :-
Decisions Made
Database E-Mailed
 Finance  Procurement
 Overheads  Job Progression
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Key Performance Indicators Assessing Performance

10 key performance indicators are used to measure the success of the company.

The indicators are weighted according to their variability, totalling a 1,000 at the end of the History.
As time progresses the weighting of each indicator will change, highlighting improvements or
deteriorations in that area, but the overall total will be the measure by which the ultimate progress of
the company is determined.
The weighting for each indicator at the end of a period is based on a comparison with the position at the
end of the History, and there are two types of comparison :-
Trend comparison
Smoothes the calculations over the time the company has been operating. Applies to Turnover, Gross
Profit to Turnover ratio, Operating Profit to Turnover ratio, Capital Employed, Contract Completion and
Client Satisfaction.
Snapshot comparison
Compares the current indicator to the position at the end of the History. Applies to Company Value,
Forward Workload, Forward Margin and Share Price.

Calculating Performance Indicators

Performance Statistics Assessing Performance

Company Performance Statistics provide a detailed set of statistics relating to all aspects of the
company‟s activities, and can be used to identify strengths and weaknesses, and explain the rise and fall
of particular performance indicators.

The use of Performance Statistics

Management Consultant‟s Report Assessing Performance

It cannot many methods available for assessing the performance of the company, is, if used effectively.
There arebe emphasised enough how valuable the Management Consultant‟s Reportsuch as performance
indicators, performance statistics and the report can alsoIn addition the category. has the use of an external
The category analysis tools. be filtered
Within each report can be filtered by decision area :-by sub
company
management consultant, example, thein detail is now in period 9, the the Construction
For whoFIN (Financial)
looks company at all areas of and company‟s business, especially where
The report can also be filtered by period,
 and in most cases the previous processed
there may be problems, and OVH (Overheads)one being analysed.project managers during
Manager compiles be the performance of all
 is interested inappropriate report.
period will an the
 PRO (Procurement)
the previous period. To achieve this the following filters are used :-
We will now look in more detail at what the report looks like.
 RUN (Job Progression)
 Category choice of “RUN”
 Period choice of 8 The nature of the comments made is either :-
 Sub Category choice of “Project Managers”
 „P‟ if the comment is positive
 „N‟ if the comment is negative
What do the results look like ?
 „U‟ if the comment is unclassified

It is the negativecost per period of the Management
The comments that will need to be
addressed as a matter ofReport is shown in the
Consultant‟s urgency.
Industry Information.

----------------------------------------------------------
Key Point(s)
The Show additional information can be used
The Construction Manager can The cost of the management consultant
clearly see that all the project managers
to display more detailed information about the well during period 8.
performed extremely cannot be avoided.
highlighted comment, if any is present.
However, there are some areas of concern. The quality of the project
managers is so high that :-

 Eric Chatterton resigned from job 127 after being headhunted by another
company.additional information relates to the highlighted the job in period 9.
The A new project manager will need to be found for
comment about Eric Chatterton being headhunted.
 There is a danger of Vic Peterson being lured away from job 165 by other
offers, and a higher bonus may need to be paid to him to try and tempt him

to stay with the company.

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Analysis Tools Assessing Performance

Information is available to enable a thorough analysis of the affectis the gateway Displayinginformation about
The ProcurementOverhead Analysisdetailed joba number of
The Job Analysis of previous to provides in details :-
The Analysis decisions detailed period
The Financial Analysis provides detailedprovides a detailedthe financialprovides
information about analysis of
key business areas, providing an aid for making effective decisions for company has identified (prequalified for).
any of the jobs that the the future. each department.
information appropriate to
detailed information relevant to
performance  Bidding success byitperiod; operating. This includes :- to see
of the company since began each job is examined in turn
why it was won or lost, taking into account thestatus of factors that
For the Marketing Department :- various a job.
the current
We‟ll take a brief look at the Analysis Tools available . the bidding, such andprocurementfor all periods
The information includes :-
 Financial performance; by period as graphically restrictions (company of
affect  Market trend; the past, current and future value
 Shareholder information;specific) and price.andand dividend payments
Further analysisand job including shareinformation
based tools provide historical price location.
 A list of all new work bycan be filtered by status
jobs; these sector
 InvestmentRivalcompany‟sanalysis;performance; staffing levels, all rival bids
relating toHistory; performance of all investments
the relationship with clients,
 Marketing for all information about the where
  Detailed riskhistory; Detailedjobs won and progressed
bidding
project managers and consultants.
 date, to retention analysis; for all jobs won and progressed
toDetailed enable future effort was directed, be refined.
marketing bidding strategy to and the value of new
work identified.

For the Head Office, QHSE and Measurement
Departments
On all analysis screens a ?
 Performance; staffing levels allocated in relation to
Indicates that more detailed
the turnover of the company.
information is available about
how a figure was arrived at.
The R resets filters back to their defaults.

Performance (All Periods)
Presents key information in a
The Selected jobs analysis
graphical format.
provides a graphical analysis of
the jobs currently being displayed Quit

Industry Information Industry Information

The CountryThe Industry Outlook is given for the UK and Overseas
Information Environment parameters define the environment in
The Economic describes
the countrieswhich thefor the foreseeable future.
in which company Client
The is operating.
economies the country may Information lists the clients with
be able to identify work. whom the company are able do work for,
Most remaintheand but some can indication of the for the company
Knowledge of fixed, also gives an vary from periodlevel of
economic outlook is vital in order to period, such
to as the prevalentstrategy rates. may beand in which markets it
decide upon its interest forthat future, needed with the
relationship the
wishes to focus its efforts. future in order to be able to bid
client in the
for work with them.


Exporting Information Miscellaneous

Selected information can be exported to CSV format
for importing into spreadsheets for further analysis.

The Job Cycle Glossary

Although 6 in was progressedsuccessful bid for its job. stages :-
Work startedjobperiod 8, and timeframe job for whichplanned 10, the job periods, finishing of jobs will
In has beenthe company put inthefrom timeframe periods 8client during prequalification
The companydemonstrated, theajob a new measuredof periods, duration, this time a number interested
As period the is managed identifiedjob completed in in up the3 toand invited3 periods were :-by in period 10.
7 over cycle consists the to
parties. The job in the market which can 3 identified, tendered for and progressed (if won).
become availablehad a planned duration ofbe periods.
 Prequalificationjob was period 8 of the timeframe
Period 1 of the
The progressing job was period 9
 Procurement of jobs can begin in any period, and the jobs can last from 2 to 5 job periods.
Period 2 of the
 Progression the job was period 10
Period 3 of
It is important to grasp the concept of the job cycle, and the following example should illustrate this.

Period 1 Period 3
of the job of the job

Period
5 6 7 8 9 10 11 12

Identify Bid Progress the job
(Prequalify) Submitted
(Procurement)


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Financial Decisions Glossary

Key Point(s) 5, andresponsibilitiesfinancial decisionscurrent investments, look opportunity selection of otherthe :- and that
One of the
Its period main theInvestments In addition to the to Manager inon the cash account,thatachievedcompany, and or it
Some additional points to Financial ManagerFinancial FindingDividend there after the be of may go into overdraft, build
All the of the needs Anreview the company are also a andoffers a goodcompanies
note about investments :- have an affect to
increase investment value can interests through
an is financial structure it the of return,
company‟s shareholders. in thealready of the made. from the is period.the usingpayments declared thesuccessfully the
The other company basedthat needthebe overdraftand theselast Themake the best Add new investment option.
main responsibility of butbe Financial Managercandue viewedcompany‟s use of out ofCompany‟s not
to are
Not only upon any changes core businessbe invested in, cost savings and dividend paymentsector-based workload,account,
decide is the The may UK, toitsin company is procuring be to taxable contracts, and the by cash is
Dividends progressing the comes
the assets
Apart from paying dividend, each period the Financial Managerthe value of the company is if done a company's
can bank
could choose to leave reduced. of the rest
account is and increasecompany will report a healthy operating profit, and use ofmoneycompromise has to be reached asare
 to try held inor UK Institution.the Company‟s value. and
Any increases a reductions in investments affect the cash account, but increase the company‟sassets However, there to
Making effective directors and is being moved
possible, and the company‟s shareholders, normally
always board of sinceoften a given to itsvalue.
financial structure of of the companyaisincreasing the ifwhichofquarterly. Theysuchaccountincentiveproductivelycredit
between assets, the value theThis ways ofunchanged, A valuemoneyhopethe cash as by investing in other stock in stable
company great concern number of choicesto earn some interest fromconcerns, which
alternative is not
and simply company, desirable. :- is used to own a in other
unchanged.. the benefit is more available
the from are provide an
balance in the cashsubject areas,not be construction-related. companies eventhe Industry Information. much growth.
Hence, the company is may orto account. UK financial is an overdraft limit, as defined in if they are not experiencing
may but there rates,
 There are limitations shown  Using cash to increase the Capital Base and arise that offers
such as interest and tax,rates. in the Industry Information. onexample, an investment opportunity may support further growth.
For the :-
However, this wouldinvestment 2 ways of increasing the company‟sdividend paid manipulatingand one which mayeach one
• Increase in a single There There are also differentthere areoff adependingsavings in size Transport sector, inkey factors
be short-sighted, since eachSelling Thebuild costCapitalthe the of theis we‟llof the which the
are that can be made overdraft rates % of the the size of the concern company‟s assets
 substantial value through investments, the
period, depending on of to shareholders cash, examine be
other ways upon Base to raise overdraft.
to improve the
• The number ofcompany‟s value, involving the transfer ofthe cash active. However,cash account,returns option.the
investments by reviewingheld currentonecompanyin funds between the the price :-
in turn affects the company share investment capital base
that can be the at any investmentif are very account has exceeded Display Details may if be
required thatPHS Excavators Plc using the the overdraft limit, or not
time
and investments. When the overdraft limit is exceeded, allis not being fully utilised.tooutweighs the risk of thebelow
Capital Base efforts must be made reduce the overdraft to
very good, but the cost-saving benefit
 Insufficient dividend will well.
 There is no limitation on the the limit, whichcan be madeUsing cash to invest further in other companiesthe shareholders and
reduction that may involve investment itself not performing verydisappoint who offer a better
 :- an investment.
to
return than can be obtainedprice. the bank, or who may be able to
reduce the share from
Although these changes don‟t immediately change thecosts the jobs in company, keep the endselling off period with
 Any investment returns changeNot payingof thedividend in theandvalue of the progress, orby the shareholders content,
 the value any investments, current period dividend will conversely, of the
reduce not on cash account.
Sufficient
the affects of the changesSelling off part of the capital base amongst others :-
 will have been felt, including, change in the
investments no to raise cash. share price.
Capital Base  Reducing investments  Ample dividend will make the shareholders very happy,
--------------------------------------------------------------------------------------------------------------------------------------------
The levelCost Savings Due (turnover) that can be undertakenwe limitedneed to size of at least 300,000 to obtain preferential on
The Industry InformationTo Investments large company is would by the invest share price.
of future workload shows that for a
Key Point(s) could expect build cost the bidding, and the and increase the the company‟s capital base, as shown
Build
the Capital we the investment changes to yield company‟s value willcan felt obtained from the when cash is potentially an the
rates, and BaseScreen. affectingsavings of at least 0.9%. level of future work that can be undertaken
Procurement changes companies
Operating Profit
The well as investing in otherat any time ison the a betterits assets. After payingprofitthe periodconsistthere
As affects of return than be be
measured Returns The affectduring increases the cash :-cost savings
bank,
The value of thechanges yielding returns, and by Generating operating profitprice is determined by the and hence
Investment Company for investing in other concerns. Investmentincreasing operating dividendthrough buildaccount, they of
account interest is although a minimum of In the last 4and buildof thesavings are share achieved Plc has been consistently so
even more lucrative reasonand investment returns periods the return fromonand Excavators through good job % ofoverhead
calculated, cost company, known.
value any single investment in a period cannot exceed 150,000, high,
PHS is and the
The capital base of 4.5m can support up to 45.5m of is required,Since theAlthough having workload control 30m (the value of work
Bear in mind that 300,000 workload.
management. company‟s equity that is paid is only over these functions,
current forward no direct as a dividend.
it would the at objectives Progression Screen), 3.6%costs scopeperiod (14.4% andwork. per annum). shareholders,
at between and 4% per
The long-termleast the Jobin to the Financial Manager stillmay look afteron work in progress theonce the and
If enough money is invested particular concerns, build is are to investment. more
16%
still to bein take bankon 2 periodsof gain any build cost savings from thebefor winning the interests as in specific sectors due
which is a liability. There is an overdraft limit the
responsibility of other people, such of
Cash completed (-200,425) there However, Overhead
reduced
This can either be in credit or in overdraft, when it is considered Cluesto be a reassessment of the size of dividend are base
company‟s procurement decisionsto manipulatein iftherean asphaltassetsthewould reduceManager by themonitor progress
PHSmake effective materials, have Whether notConstruction Managers, the success, inbuildvalue for any return,
to Excavators Plcon a good companybeen made, work may needcompany sectors, as the levels of phrase
e.g., investing company‟sdone to any a improve terms must thecapital
and across different costs of the company.
andpreferential Industrydecisionsplant etcto investorthe the both build costinbeenaffects of allindicatedof the cash Transport
rates are in is being as Financial
PHS Excavators Plc is anrequired. investment in terms of investment hassavings some commodity and investment using
defined in an increase is excellent
the Information.
to work being undertaken. The concerns offeringIndustry” in these areassuppliers the company sectors, run as construction
decide if
“supplying .... to all sectors of the Construction these benefits must be to further in, wouldwhat is being to in the History, into the
available by examining
of happened the
returns, so wethe clues lyingfunded from which would be worthPlc 5,000,000 shares of value menuupon equity profitably5,000,000.
will increase in investment in PHS Excavators investing
The Company was originally the the company profiles. possible. the Relevantto
industry. With
ensure exceed the minimum level required to as
a share (equity) issue of by 150,000 information 1, with an
depend
option.
looking deeper
value of
Capital Base (4,546,264) prevalent bank rates, both credit and overdraft rates (as defined in the Industry
obtain thein time, since procurement decisions have not been made, and since there is „unused‟ capital base, we‟ll leave it
build cost savings.
At this much would we need to invest to obtain the preferential rates, and what level of build cost saving could we
point
How Since period 1 the company has paidInformation) at of equity the investments were made, asand this the kept the of the
This end ofavailable investmentfollowingdividend of 2%givenequity value at 6,750,000 (5,000,000 level has balance
information is the time
every period (8% per annum), well as
At the shareholders content, as we can see from the Consultantsbuildings etc, which determines themore detail.
For is the company‟s the share in plant, equipment, facilities,:-
unchanged. achieve ? concern, the price stands at 1.35, and thenow----------------------------------------------------------------------------------
each
expect to the History cash account. We‟ll Report. some of these options in x 1.35).
of work that the company can undertake. Key at
lookPoint(s)
-------------------------------------------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
 The investment
Key Point(s) influenced by a number concern.
The share price 5 we‟lldetails describes the of factors :-
Key Point(s) As the share price changes, so does the equity value of the
We‟ll In period isfurther.
investigate
Investments (204,500) base alsothe % returnthis build previouscompany, andbut more has to be invested to obtain the
continue to pay dividend at the level.cost savings on offer, paying the same level of dividend in
----------------------------------------------------------------------------------------------------------------
The larger to the capital concern the greater given in
changes the investment
 AnyThe performance history gives affects the cash account. periods to all investors, and
The ------------------------------------------------------------------------------------------------------------------------------------------------------------
Key Point(s)
 If the company‟s cash the company direct it may be which may to consecutive
savings.any monies investment in may have invested. Financial Manager to raise cash for otherdifferent affect on share price
details basewhich is under the other concerns, appropriatenotreduce it periods will have a uses, such as further
 Paying dividend, is being underutilised, control of the
capital be construction-related.
Key Point(s)
 Although the value an overdraft. saving The size (small, mediumas theon twothe investment concern determinesbuildamount
or large) of equity changes. is a higher level of the cost
of
 Changes or reducingof build cost changeis displayed, the savings are % thetiers, and there
investmentsin the minimumthe Company
Shareholder expectations can is not shown. operating performance of as defined in the Industry Information. or
as the company changes, and may be higher
that can be invested each period, the concerns, and the
 The future moretheinvested, which
saving if profitability of current cash
is
 There are limitations on the changes toaccount balance, each period, defined in the Industry Information.
Taking into account the the Company the capital base potential returns from
bank minimum depreciates to This each build cost savings is now make decision about keep them happy.
The lower thanis currently period for 4,550,339. the level of dividend that needs to be paid to
The rates on of History level. at will affect
 The capital baseoffer each valueda %the theyear, as shown would based uponathe required level after the financial decisions
company
 The debt burdenlevel requiredby obtain cash account, we in the Industry Information.
the Company
whether or made, worthdoes not take into account of the available opportunities.
have been not its and investing any cash in any the returns made from the investments during the period.

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Overdraft Limit Glossary

The amount of money that can be borrowed from the bank following example. and the cash
The warningConsider the is not disappeared, current
message has now unlimited. The
overdraft limit, imposed by the bank depending upon the economic climate, is shown in
account balance is below the overdraft limit.
the Industry Information. Its period 8, and after decisions were processed
last period the company‟s overdraft has reached
-----------------------------------------------------------------------------
What happens if the overdraft limit is exceeded ?
Key Point(s) 1,375,291. This has exceeded the limit of
 If all possible measures as a result a warning message is
750,000, and have been taken, and the cash
-------------------------------------------------------------------------------------------------------------------------
account balance still exceeds the overdraft limit, then no
displayed.
Key Point(s) further action needs to be taken, and the user is not
The „base‟ overdraft limit imposedprevented from normallyto another screen.
by the bank is movingthe Financial Decisions Screen is
As soon as the same for all companies.
However, it may be reduced even further for a specific company if the message appears.
closed a critical warning company‟s current
 The cash account can exceed the overdraft limit when
share price falls too far relative to the price atThe start of the History. This will be reported in
the message informs the Financial Manager
the Management Consultants Report. decisions are processed, but during the following taken to
that all possible measures need to be period
all possiblereduce the overdraft totaken to reduce the
measures need to be below the limit.
balance to below the overdraft limit.
The Financial Manager decides the best action
to take is to reduce some of the company‟s
investments.


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Factors That Affect Share Price Glossary

The company‟s share price where a of the keyin period 5.
GearingProfitability example, is one company is performance indicators in measuring the success or
Consider Ratio
Company Value
Future the following Dividend payments
The final factor that affects thecompany fromshare pricegearingaffectincreasing industrytaxable payments the
failure of the value of thewithprice is changes in the in the future profitability (forward margin) of the company, which is
Changes in the company,share a price is the changes signifying the share price. are confidence in declared by a
Another factor affecting the share rising period to period also ratio. Dividends
fortunes a ratiocompany‟s work incompany‟s liabilities (cash account overdraft) priceassets board ofbase industry confidence
Apart from of thedecline during period 1, the share price trend has been an improving one.
The gearing
small Company.
based upon the
is the ratio of the
progress. company's
(capital
directors and given to its
If the company value falls in a period, it will have a depressing effect on share to its as shareholder and and investments, and
shareholders, normally quarterly. They provide
indicates the debtifburden of increases then confidence will improve, and the share price jobs,increase. no forward margin.
falls. Conversely, the value the company. was being established, theregearing ratio is 0. will and hence
whilst the company If there are no liabilities, the were no ongoing
At the end of period 1, detail at why this has been the case.
We‟ll now look in more influenced by :-
The share price is 2 to 4 when some work was secured, forward margin was constantly rising, stock in a very positive
an incentive to own stable companies
However, during periods having
If the gearing ratio increases the company will be adverseas being vulnerable to both interest rate notaexperiencing muchservice its
As can be seen the trend has been mixed, with even if they are rises, and its ability to growth.
viewed affects on share price in periods 1-3, then positive affect during
affect on the share price, as reflected in comments in the Management Consultants Report.
debts from its future profit flows. Consequently, share price. Comments in the Management Consultants based if the gearing ratio
period 4 which would have helped to boost the this will have a depressing effectDividend payments are Report provide current
on share price. Conversely, upon the further
 The level of dividend paid to the shareholdersfinancially sound, and the share price will increase.
decreases then the company will be viewed as being more
evidence of the affects of the company value changes. share price.
 The value of the company
As can be seen, the cash account was overdrawn during periods 3 and 4, and theThe equity gearing ratio had aany time is the
increasing of the company at negative affect
 The future profitabilityslight onecompany no comment in the Management Consultants i.e., the number of shares in
on the share price, albeit a very of the as there is overall share value Report.
 The debt burden (gearing ratio) of the company circulation multiplied by the current price per
share.

There is a level of dividend, measured as a % of
the equity, at which the share price does not
change. Paying more than the „equilibrium‟ level
will cause the share price to rise, but paying less
will be not be well received by the shareholders,
and the price will fall.

In Summary Dividend payments of 2% of equity have been
Each of the 4 factors have different levels of impact upon the companyeach period, It may be, for example,
made share price. and the affect has been
that the share price rises even though 3 of the factors have negative affects, but the positive affect the level of
“Shareholders are content with of the 4th
factor has the greatest impact. dividend paid”, implying no change to the share
price.
Careful examination is needed of the company data to determine which factors have had which affects, and
to what level. In the previous analysis we have seen that :- If dividend has had little affect on the share price,
what about other factors ?
During period 1 the share price fall was down to a drop in company value.
Even though company value fell further during periods 2 and 3, this was more than offset by a rapidly
improving forward profitability, and the share price rose.
During period 4 both company value and forward profitability improved, and the share price rose further. Quit

Dividend Glossary

The dividend paid to shareholders each period is one of the key factors that affects the share price of
the company.

The dividend paid is expressed as a % of the equity of the company.

The equity of the company at any time is the overall share value.
Equity = number of shares x current share price

The dividend % of equity can be :-
 Insufficient to satisfy the shareholders, which will reduce the share price
 Sufficient to satisfy the shareholders, which will have a no effect on the share price
 More than sufficient to satisfy the shareholders, which increase the share price

The Management Consultants Report gives an indication of how the shareholders felt about the level of
dividend paid in a particular period.

Company Value Glossary

The value of the company at any time is measured by its assets and liabilities, which consist of :-

Cash in the Bank Capital Base Investments
The cash balance can be :- The company‟s investment in The company‟s cash
 In credit (an asset) plant, equipment, buildings investment in other
 In overdraft (a liability) + etc, which determine the + concerns, which may not
level of work that the necessarily be construction-
There is an overdraft limit. company can undertake. related.

The value is increased by :-
 Generating an operating profit through the company‟s activities (into the cash account)
 Good investments

The value is reduced by :-
 Dividend payments to shareholders (from cash account)
 Making an operating loss through the company‟s activities (from cash account)
 Depreciation of the capital base
 Poor investments

Cash Account Glossary

The company has one UK bank account, known as the cash account, which can be :-
 In credit, when it is considered an asset
 In overdraft, when it is considered a liability

Interest is earned/paid on the cash account balance at the beginning of the period. The prevalent
interest rates each period are defined in the Industry Information.

Credit Interest
If the cash account is in credit,
interest is earned at the
Overdraft Interest annual rate shown.
If the cash account is overdrawn,
interest is paid at the annual
rates shown, depending upon the Overdraft Limit
size of the overdraft.. The cash account can be
overdrawn up to the overdraft
limit. If this is exceeded steps
need to be taken to try and
reduce the overdraft.

The cash account is increased by :-
 The company generating an operating profit
 Selling off a % of the capital base
 Selling investments

The cash account is reduced by :-
 The company making an operating loss
 Dividend payments to shareholders
 Increasing the capital base or investments

Gearing Ratio Glossary

Liabilities Assets
The gearing ratio is the ratio of the company‟s
liabilities (cash account overdraft) to its assets
(capital base and investments), and indicates the
debt burden of the company.

If there are no liabilities the gearing ratio is 0.

For period 8 the gearing ratio of 0.051 is the absolute value of :-

Cash Account Balance / (Capital Base + Investment Value)
-310,719 / (4,433,668 + 1,698,938)

Changes in the gearing ratio have an impact on the company share price :-

 If the gearing ratio increases the company will be viewed as being vulnerable to both interest rate
rises, and its ability to service its debts from its future profit flows. Consequently, this will have a
depressing affect on share price.

 Conversely, if the gearing ratio decreases then the company will be viewed as being more financially
sound, and the share price will increase.

Capital Base Glossary

The capital base is the company‟s investment in plant, equipment, buildings etc, and determines the level
of work that the company can undertake.

One of the key company performance indicators is capital employed, which measures how well the capital
base is being utilised over a period of time.

Changes to the capital base are the responsibility of the Financial Manager, and the Industry
Information shows factors that affect the capital base.

Changing
 It can be increased, reducing cash reserves, in order to support further growth. There are limitations on the
increase possible each period. The Company based Restrictions on the Procurement Screen gives an indication
of when an increase may be necessary.

 It can be reduced, increasing cash reserves, which may be desirable if money is needed for other things, or it is not
being fully utilised. There are limitations on the % of the capital base that can be sold off each period.

Depreciation
Each period the capital base depreciates by a %,
reducing the overall value of the company. This
occurs at the end of the period.

Writing Down
Any increases in the capital base can be used to reduce the
company‟s tax burden, known as capital writing down.

Capital Employed

Calculating Capital Employed Glossary

The company‟speriod 4 the company‟s initial forward workload of the company‟s capitalwas on (plant,healthy at 89 %,
At the start of capital employed measures how much was 22,072,940. This was based extremely equipment,
For Period 4 the company‟s capital employed base the turnover still
buildings etc) is on the 3 jobs in progress at the start ofthat the capital case was being very effectively utilised.
to be completed being utilised. indicating the period.

Not jobs were bid for, and 3 were secured, whichof how was thethat could workload post-bidding to 40,879,480. hinder
8 utilising the capital base is a wasteBut resources capital employed % determined ?
took the cumulative forward be directed elsewhere, and can
growth.
The capital employed measures how much ofThe answer can potential workload (45,748,570), based on the capital period 4.
the company‟s be found by looking at the Procurement Analysis for
base, was actually being progressed i.e.,
Consider the following example where a company is in period 5, and the financial performance is being
reviewed for /period 4. * 100 = 89 %
(40,879,480 45,748,570)


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Investments Glossary

The core business of the company is procuring and progressing contracts, and if done successfully the
company will report a healthy operating profit, and increase the company‟s value.

However, there are alternative ways of increasing the value of the company, such as by investing in other
concerns, which may or may not be construction-related. Such investments can :-
 Offer a better return than can be obtained from the bank.
 Offer a competitive advantage for work in progress (benefits) e.g., investing enough money in a tarmac
company would reduce build costs for Transport jobs as preferable material rates would be obtained.

Each period a number of new investment opportunities may arise, adding to the list of available
investments, and for each one some key information is given to help in making investment decisions :-
 The investment profile describes the concern.
 The Past Performance gives the % return given in previous periods to all investors, and details any money
the company invested, and any build cost savings gained.

The Industry Information shows factors that affect investments.
Build Cost Savings
Depending upon the size of the concern,
Increasing Investments
there is a minimum level of investment
The increase in a single
required to gain build cost savings, and a
investment each period cannot
minimum potential % saving.
exceed a given amount,
depending upon the size of the
investment concern.
Number of Investments
There is a limit on the number of
investments that can be held at
any one time.

Profit Definitions Glossary

Company Gross Profit
In any period, the gross profit of the company is a measure of how profitable the jobs in progress have
been.

Monies IN Monies OUT
 Measured value across all jobs progressed  retentions held from jobs progressed
Gross Profit =  Retentions repaid from completed jobs -  costs across all jobs progressed
 Early completion bonuses

Company Operating Profit
In any period, the operating profit of the company is a measure of the overall profitability of the
company.

Monies IN Monies OUT
Operating  Gross profit  Company overhead costs
-
Profit =  Credit interest (cash account)  Overdraft interest (cash account)
 Corporation Tax

Corporation Tax Glossary

Corporation Tax is a tax on a company's taxable profit, which is defined as :-

Operating Profit Before Interest & Tax

Taxable Profit = Gross Profit - Overheads - Capital Allowances

If the company makes a operating loss before interest and tax no corporation tax is paid, and any capital
allowances are carried forward to future periods.

Capital Allowances are acquired by investing in the company‟s capital base, and are calculated on a
„written down‟ basis; the rate of writing down allowances is given in the Industry Information.

The corporation tax rate is shown in
the Industry Information.

Capital writing down rate
per annum.

Calculating Corporation Tax

Calculating Corporation Tax Glossary

Consider the following example where a company is in period 9, and the Financial Details are being
reviewed for period 8.
For Period 8, using the Financial Analysis, we can see that the
company‟s Operating Profit before tax & interest was :-

Gross Profit: 752,527
Less
Overheads: 377,865
-------
Operating Profit Before Interest & Tax: 374,662

The Operating Profit Before Interest & Tax was then subject to Corporation
Tax of 110,207. How was this calculated ?

We can use the drill-down to investigate further.

A Corporation tax rate of 30% was levied on the taxable profit of 367,357 to give Corporation Tax of 110,207.

The tax burden was offset by the Capital Allowances of 7,305.
The Capital Allowances to be written off is adjusted each period as follows :-
Capital Allowances are acquired by investing in the company‟s infrastructure (capital base), and are calculated
 Increased/reduced by basis; thein theof writing down allowances is given in the Industry Information.
on a „written down‟ changes rate company‟s capital base
 Reduced by using up capital allowances that are written off by 25% per annum (6.25% per period)
We can use the drill-down to see exactly how the 7,305 was determined.
Capital allowances are not used if an operating loss is made.

In period 8 an operating profit before interest & tax of 374,662 was made, and as a result capital allowances were used.
These amounted to 6.25% of 116,882, the amount still to be written off, giving the figure of 7,305.

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