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Analysis and Application of Capsim Mini-Case Study on Finance

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Analysis and Application of Capsim Mini-Case Study on Finance

In our Capsim Simulation, we were making decisions basing on Team Baldwin.

Immediately we received our Capsim Project, we made decisions on the members to head

departments. R&D, the department focused majorly on improving the existing products as well

as designing the new products basing on preferences of consumers. 3 Ps (promotion, product and

price) were used by the marketing department to make decision. The process of decision making

by the marketing department is focusing on sales forecast, customer accessibility and awareness.

The work of production department is to achieve the schedule of production in response to sales

forecast by the department of marketing. The department of finance is responsible for monitoring

the flow of money.

After discussion, we made the decision that Broad Differentiator is our strategy. The

main aim for this chosen strategy is for both segment presence maintaining. We aimed on

marketing activities and R&D to achieve the intended outcomes by creating easy accessibility

and high awareness. Bell for high-tech segment and Baker for low –tech segment were our two

products the rounds

Income Statement impact due to group’s Capsim decision Round (2-2023)

Decisions:

R&D

After analyzing Round 2 Fast Track report, we decided not to change any specifications related

to the product. We still had one competitor in high-tech segment- Fast. Our main focus shifted to

marketing activities especially creating awareness and accessibility to boost our sales.

Marketing
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The major importance was price hence Baker’s price was reduced from $34 to $32, and Bell’s

price was reduced to 38.50 from $39. We decided to decrease the sales and promotion budget for

Baker in order to make room for Bell`s marketing budget.

Production

Marketing department`s plan to increase sales forecast resulted in a decision in which we added

300 units capacity for Bell. Before this decision, finance department confirmed and validated

possible effects on this investment in our cash flow and balance sheet.

Finance

This time we decided to manage the all the activities of Baker and Bell with the available fund.

And, we planned not to put ant debt on company by borrowing or issuing any stock.

Result Overview

We didn’t have any left inventory for Baker and Bell therefore, our profit is increased and we

jumped to no. 2 position in the competition. Profit was $4,045,896 and in terms of cumulative

profit we were at 3rd position. Sales growth was even better than our last year with improved

specification. This year we made a huge jump in terms of overall growth of the company.

(Capsim, 2021)

Cash flow management is very important when it comes to balance sheets and having a

policy of credit which leads to easy simulation management. (Capsim, 2016)

Balance Sheet impact on Team’s Capsim decision

The balance sheet helped us to predict our financial condition during the investment time.

We were able to analyze our performance and financial stability. Compared to other groups, our

group’s decisions resulted in a higher net profit. The net income in the cash flow statement was

used as net profit. We used the final cash position in the balance sheet as our cash opening. The
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threat of increasing our capacity in production by investing more in automation (plant and

equipment) was rated as having a larger value in our total assets. An investment in fixed assets is

beneficial to a corporation from a business standpoint because it will be reflected in the closing

balance. Having more assets implies that the economic benefits will be greater. We opted not to

have inventory charges like the rest of the team because we didn’t have any merchandise to sell

in the future. Our debt/asset ratio is favorable on our balance sheet, implying that the majority of

our assets are financed through equity.

Decision-making logic

Decision-making logic is generally using logic to make a decision in a better way. This is

possible because decision-makers develop arguments by using evidence and reasons to come up

with conclusions and make proper decisions. Cash flow was used as a basis of decision-making

logic because it has been proven beyond any reasonable doubt to be the most important piece of

document that is very useful when making decisions about issues related to management. The

company’s management uses cash flow statements to evaluate if the company is in a position to

sort bills, even with little or no knowledge of whether the company is making profit or loss. A

good picture of financials can be presumed by net income and manipulation of earnings.

Conversely, a real projection of the company’s position is given by cash flow. Bad times

for the company can be predicted by shorter cash flow. The company can thwart this situation by

adjusting prices, checking on the company’s debts, and other issues that might be affecting the

business. Formulation of cash flow and net sales can be one of the best ways to ensure the

company’s good shape. This kind of formulation aids in giving the sum amount of cash that has

been received from sales. Lastly, liquidity is very important, just the same way as profitability

desires. (Ohio University, 2021)

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How did the decision affect sales?

Some decisions resulted in higher sales, while others resulted in decreased sales. Let’s

start with the impact of variable expenses (direct labor, direct materials, and inventories) on sales

fluctuations. The volume of the sales went up because much of our products would reach the

market due to the decision reached to invest a lot in direct material. This holds true for direct

labor as well. Having a large workforce ensured that more products were created, and since the

market was assumed to be available, sales increased significantly. Other decisions that

influenced sales included those related to research and development as well as marketing.

Despite being a cost, the sales promotion was established to a higher value than any other team.

Conversely, development and research, and advertising were critical in determining the charged

price to be used and the awareness level that had been exposed to potential buyers, in addition to

common accessibility. This will ensure that sales volume increases automatically on its own.

The decision was agreed to invest in fixed assets such as machinery to guarantee an

increase in the volume of production. This is because the market generally has all that it takes for

a ready market. Given that the volume is high and the demand exists, sales were higher when

compared to groups that invested minimally in the machinery.

How did profit affected by the decisions made?

Our group recorded the highest profit, as evidenced by the income statement. Generally,

there is a relation that is directly proportional to the sales, given that expenses are being

moderated at all times. As evidenced that the recorded sales were high, it was obvious that profit

netted could be higher as compared to what other groups recorded. Increases in direct material

and labor costs were critical, especially in the short run, because they let the business determine

what is needed to generate a profit in a very short investment period. The brand products
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expanded the segment of the market, implying clearly that more sales were realized and thus

increase in profit made during investment time.

Effects of contribution margin based on decision made?

Contribution margin is simply the difference between revenues and total costs of

variables. The choice to involve the two variable costs resulted in a reduction in sales and, as a

result, a reduction in contribution margin. Because our contribution had the maximum positive

value, the business endeavor would be significantly more profitable than other

groups/companies.

Conclusion

Every departmental strategy is crucial in meeting with the expectations of the company;

however, R&D and Marketing are key players in shaping the company towards profitable

venture. As a company, we decided to adapt Broad Differentiator strategy from the beginning.

By choosing this strategy, we aimed to maintain a presence in both segments. Importance of

R&D and Marketing activities was evident from the beginning, that`s why we focused on

positioning, pricing and marketing budgets in order to achieve targets. As a result of this

strategy, R&D department concentrated both low-tech and high-tech products by taking into

consideration ideal positioning for each segment. Marketing department struggled to find the

right pricing strategy as rounds moved forward and the competition increased. Our competitors

reacted to the game in various ways, adjusting price strategy, focusing on marketing activities,

increasing automation, etc. During some rounds, we failed executing our own strategy due to

lack of in-depth analysis of our competitor`s strategies. Baldwin company received an

emergency loan during Round the rounds because of the inventory. This was unexpected and

demotivating on our part.

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Works Cited

Capsim. (2016). Intro to business: a Primer: Companion Text to CapsimCore Business

Simulations. . Chicago, Illinoi: CreateSpace Independent Publishing Platform.

Capsim. (2021, October 15). Finance. Retrieved from capsim.com:

http://ww3.capsim.com/modules/GIA/files/1_0/0/CapsimCore/EN/PDF/CapsimCore_Mi

ni-Cases_Student_Finance_WD.pdf

Bloomberg. Hain Celestial Group. Retrieved from

https://www.bloomberg.com/profiles/companies/HAIN:US-hain-celestial-group-inc/the

Ohio University. (2021, October 15). The Role of Financial Statements in Managerial Decision

Making. Retrieved from onlinemasters.ohio.edu: https://onlinemasters.ohio.edu/the-role-

of-financial-statements-in-managerialdecision-making/