Corporation -- A Global Business Simulation Presented by: John Doe Jane Doe Mary Jane.

Corporation -- A Global Business Simulation

Presented by: John Doe Jane Doe Mary Jane

Company Background

DEEP BLUE INTERNATIONAL, INC

A multi-divisional firm operating in the highly competitive information systems industry

Company Background

Deep Blue International, Inc.

SBU#1Hardware

SBU#2Software

SBU#3Integrated MIS

Company Background

Two level decision making process•SBU: President•Parent corporation:

•CEO•Board of Directors

Mission Statement

To be the market leader in the information industry through the establishment of competitive advantages so as to increase the value of the company.

Strategy

Target on High-end product consumers Strategic development on “vertical”

applications Achieve competitive advantages by

Increasing marketing, operation technology new product research and HR investment.

Operation of SBU #1 Pricing Strategy: High end and keep increasing

because of market demand and lost sales. Constant improvement and moderate more

expense than industry average in:-Marketing Expenses

-Operations Technology

-Quality Budget

-New Product Research

-Human resource Budget

Export Strategy : Start export to ASEAN (Area 2) in Period 4, based on competitive advantages already set up and little competition in ASEAN.

Final Result (SBU #1)

Capacity: from 3610 to 3710 units (3% ) Book value: from $3500 to $3600 (3% ) Export: area 2, 15.1% Sales: from $ 1879 to $ 2518 (34% ) Cost of sales: $913(49%) to $1053 (42%) Profit: $198 to $426 (215% ) SBU profit/sales: from 11% to 17%

(All numbers in thousands)

Operation of SBU #2

Pricing Strategy: competitive in high end Constant improvement and moderate

more expense than industry average in:-Marketing Expenses

-Operations Technology

-Quality Budget

-New Product Research

-Human resource Budget

Operation of SBU #2

Capacity expansion Strategy: - Constant moderate expansion based on

market demand increase- Major expansion in Period 6 based on

competitive advantage, lost sales and demand increase

Export Strategy: - Export Area: MERSUR (4)- Capacity availability- Little competition in the market

Operation of SBU #2

Selling Price of SBU#2

480

500

520540

560

580

600

1 2 3 4 5 6

Final Result (SBU #2)

Capacity: from 4750 to 5225 units (10% ) Book value: from $4253 to $4775(12% ) Export: area 4, 15.7% Sales: from $2569 to $3239 (26% ) Cost of sales: $1237(48%) to $1421(44%) Profit: $380 to $537 (41% ) SBU profit/sales: 15% to 17%

(All numbers in thousands)

Operation of SBU #3

Pricing Strategy: competitive in high end Constant improvement and moderate

more expense than industry average in:-Marketing Expenses

-Operations Technology

-Quality Budget

-New Product Research

-Human resource Budget

Operation of SBU #3

Capacity expansion Strategy: - Conservative expansion from Period 1 based on

market demand increase

- sharp expansion in Period 2 based on competitive advantages and lost sales

- moderate expansion in Period 4.

Export Strategy: - Export Area: NAFTA (1) and MERSUR (4)

- Capacity availability

- Little competition in these markets

Operation of SBU #3

Selling Price of SBU#3

500

520

540

560

580

600

1 2 3 4 5 6

Final Result (SBU #3)

Capacity: from 5415 to 6545 units (21% ) Book value: from $5762 to $6355 ( 10% ) Export: area 1 , 12.7%

area 4, 12.8% Sales: from $3376 to $3603 (7% ) Cost of sales: from $1631(48%) to $1594(44%) Profit: $362 to $514 (42% ) SBU profit/sales: from 11% to 14%

(All numbers in thousands)

Result (SBU level)

SBU profit analysis

0

100

200

300

400

500

600

1 2 3 4 5 6

SBU1

SBU2

SBU3

Result (SBU level)

COGS percentage

0.41

0.42

0.43

0.44

0.45

0.46

0.47

0.48

0.49

1 2 3 4 5 6

Capacity Analysis

01000

200030004000

50006000

70008000

1 2 3 4 5 6 7

SBU#1

SBU#2

SBU#3

Capacity Analysis

Beginning Capacity

3610, 26%

4750, 34%

5415, 40%

1 2 3

Ending Capacity

3710, 24%

5225, 34%

6545, 42%

1 2 3

Problem Areas

Cash managementSales forecastingPricing

Corporate Decisions

Based on the SBU decisions Sales forecast Pricing

Immature market Domestic International expansion

Financial management

Capital Structure

Capital Needs: Expand capacity for each SBU according

to sales forecast in 1st period Aggressively expand capacity of SBU#3 in

2nd period Constantly Increase marketing, operation

technology and new product research budget

Human resource expenses Export & marketing abroad

Capital Structure

Decision Criteria: Increase shareholders’ value Not dilute EPS and stock price Keep reasonable D/E ratio

Plan of action: Borrow 1000 bank loan in 1st period Borrow 400 bank loan and issue 2000 bond in 2nd

period Pay back bank loan in the following period by using

internal generated cash flow

Ratio Analysis

Debt/Equity Ratio

1.691.94

1.671.51

1.21 1.13

0.00

0.50

1.00

1.50

2.00

2.50

1 2 3 4 5 6

Dividend Policy

In 1st period, we kept the previous dividend level We decreased the dividend payment in 2nd

period We decided to follow a constant amount plus

extra payment policy since 3nd period We started by paying $.03 and kept increasing

the level of dividend according to our operation profits increase.

Dividend Policy

0

0.01

0.02

0.03

0.04

0.05

0.06

0.07

1 2 3 4 5 6

0

10

20

30

40

50

60

Div P/S

Dividend Payment

Incident Report (E)

New Advertising Campaign in Period 5 Emphasizes our presence in the market

in terms of growth in sales and profits. In major business publication and airline

or-board magazines. Response: Key decision makers in major

corp. are reached, smaller businesses are missed.

Incident Report (F)

New Business Tactics in Period 6 Host a party and provide image building

items in export areas Cost: $ 15,000 Effective promotion Legal promotion

Performance Evaluation

DEEP BLUE INTERNATIONAL, INC.

Period 1 ----------- Period 6

Financial Statement ----balance sheet

Cash 909 Accounts Payable 1220

Accounts Receivable 2808 Annual Loan Payment 767

Short Term Investment 0 Annual Bond Payment 190

Current Assets 3717 Current Liabilities 2177

Bank Loans due>12 months 6903

Building & Equipment 21807 Bonds due>12 months 1712

Less Accum. Depreciation

7077 Total Liabilities 10792

Net Fixed Assets 14730 Common Stock 4000

Retained Earnings 3655

Total Equity 7655

Total Assets 18447 Total Liabilities & Equity 18447

Financial Statement ---- income statement

Sales Revenue 9360

COGS 4068

Gross Margin 5292

Operation Expenses 3815

EBIT(SBU Profits) 1477

Interest Expense 363

Other Expense 46

Income before Taxes 1068

Taxes 320

Net Income after Taxes 748

Dividends Paid 40

Retained Earnings 708

EPS 0.94

Competitive Advantages

  SBU#1 SBU#2 SBU#3

marketing 168 153 225 184 192 241

operation tech. 91 115 123 135 145 153

new product 79 81 96 135 119 136

sales person 2.5 3 2 2 2.5 3

service person 1.75 2 1.5 2 1.75 3

employee turnover rate 9.7% 8.4% 9.7% 9.0% 9.7% 7.7%

defective goods 2.4% 2.3% 2.2% 2.1% 2.1% 1.8%

Evaluation: Profitability

7000

7500

8000

8500

9000

9500

1 2 3 4 5 6

0

100

200

300

400

500

600

700

800

Total Sales

Net Profit

49.00%

50.00%

51.00%

52.00%

53.00%

54.00%

55.00%

56.00%

57.00%

1 2 3 4 5 6

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

Gross Margin

Profit Margin

Evaluation: Stock Price

Stock Price

10.01 8.8214.03 15.34

23.1527.56

0

5

10

15

20

25

30

1 2 3 4 5 6

Stock Price

Evaluation: EPS

EPS vs. P/E Ratio

0

5

10

15

20

25

30

35

40

1 2 3 4 5 6

0

0.2

0.4

0.6

0.8

1

Stock Price

P/E Ratio

EPS

Evaluation: Returns

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

1 2 3 4 5 6

Return on Sales

Return on Assets

Return on Equity

Ratio Analysis

Current Ratio

0

500

1000

1500

2000

2500

3000

3500

4000

1 2 3 4 5 6

0.000.200.400.600.801.001.201.401.601.80

Current Assets

Current Liabilities

Current Ratio

Strategy Adjustment

  SBU1 SBU2 SBU3

Period Profit Expense Profit Expense Profit Expense

1 198 1681 380 2189 362 3014

2 224 1753 222 2631 356 3795

3 283 1771 395 2535 461 3577

4 182 2077 423 2736 366 3507

5 408 2006 549 2543 505 3199

6 426 2092 537 2702 514 3089

Total 1721 11380 2506 15336 2564 20181

Profit/Cost 15.12% 16.34% 12.71%

Strategy Adjustment

Initially, we wanted to strategically expand SBU#3

Based on the profit/cost efficiency analysis, we change the strategy to follow a more balance expansion plan

In the latter period, we reduced the capacity of SBU#3 by depreciation, while kept the reasonable operation budget

Management Audit Performance Summary

How many times the team have a zero cash balance, requiring an overdraft loan 1

How many times was there an excess amount of cash that was not invested 5

How many period did you have lost sales 6 Total number of lost sales units

4449 Total capacity for all SBUs in the last period 15480 Total amount spent on market research 186 What are your total profits

4021 What was your average stock price 16.49

Q & A

Thanks a lot!

Good luck in the real world!!