FinGame Results

Game StrategyGame Strategy To test the market by To test the market by

following suggested following suggested financial decisions made financial decisions made in Quarter 1. in Quarter 1.

Knowing that poor Knowing that poor earnings had a earnings had a devastating effect on the devastating effect on the stock price and dividends, stock price and dividends, we initially planed to we initially planed to keep the gross profit keep the gross profit margin high while paying margin high while paying the lowest amount the lowest amount possible for our possible for our merchandisemerchandise

Liquidity of the Company

$(25,000,000)

$(20,000,000)

$(15,000,000)

$(10,000,000)

$(5,000,000)

$-

$5,000,000

$10,000,000

$15,000,000

1 2 3 4 5 6

Actual Quarters

Series1

Profitability Profitability

27.00%

27.50%

28.00%

28.50%

29.00%

29.50%

30.00%

30.50%

31.00%

31.50%

32.00%

1 2 3 4 5 6

Actual Quarters

Gro

ss P

rofi

t M

arg

in

Gross Profit Margin

Financial Reasoning Financial Reasoning By Quarter 3 we noticed By Quarter 3 we noticed

that productivity was not that productivity was not being maximized due to a being maximized due to a lack of plant space. We lack of plant space. We then decided to then decided to compensate for the deficit compensate for the deficit through a purchase through a purchase increase, yet failed to increase, yet failed to realize that one unit of realize that one unit of plant capacity equals one plant capacity equals one unit of product, and unit of product, and therefore underestimated therefore underestimated the amount of plant space the amount of plant space needed to meet future needed to meet future productions.productions.

It was also recognized in It was also recognized in this quarter that the excess this quarter that the excess in machinery was causing in machinery was causing us to lose money. us to lose money.

In regards to this In regards to this quarter, we should quarter, we should have purchased more have purchased more plant space when the plant space when the game began so that game began so that our financial our financial inefficiency would not inefficiency would not have occurred, and have occurred, and allowed us to possibly allowed us to possibly be more profitable be more profitable earlier on.earlier on.

Counteracting Long Term Counteracting Long Term Debt Through Short Time Debt Through Short Time

FinancingFinancing Though we felt incurring the initial debt Though we felt incurring the initial debt

of the factory would eventually net a of the factory would eventually net a substantial income we still wanted to substantial income we still wanted to decrease the amount of debt that we decrease the amount of debt that we currently possessed. Therefore, we currently possessed. Therefore, we attempted to pay off our short term attempted to pay off our short term debts, which would negate the amount debts, which would negate the amount of debt we possessed leaving the bond of debt we possessed leaving the bond taken on to finance the acquisition of the taken on to finance the acquisition of the plant.plant.

Debt RatioDebt Ratio Ratio used to determine how risky a company is and Ratio used to determine how risky a company is and

how much it owes to its investorshow much it owes to its investors The proportion of liabilities that a company has The proportion of liabilities that a company has

relative to its assets relative to its assets In the beginning of the game we were more In the beginning of the game we were more

conservative due to lack of knowledge of the conservative due to lack of knowledge of the environment but towards the end of the game we took environment but towards the end of the game we took on more debt through bond loans, high interest rates on more debt through bond loans, high interest rates and short-term investmentsand short-term investments

Our overall debt ratio for the game as a whole Our overall debt ratio for the game as a whole was .363;was .363;

Showing that we were relatively conservative in our Showing that we were relatively conservative in our financial decisions financial decisions

Debt Ratio Cont.Debt Ratio Cont. Initially our goal was just to have a debt ratio Initially our goal was just to have a debt ratio

less than oneless than one However, as we became more familiar with However, as we became more familiar with

the game, we wanted to maintain the debt the game, we wanted to maintain the debt ratio that paired with the highest stock price, ratio that paired with the highest stock price, which was .20 which was .20

Strengths: Investors consider our company Strengths: Investors consider our company safe to invest in, we were not required to pay safe to invest in, we were not required to pay high interest rates, and we did not run the high interest rates, and we did not run the risk of running out of money when needed risk of running out of money when needed

Weakness: Missing out on potential profitable Weakness: Missing out on potential profitable investments and sitting on large amounts of investments and sitting on large amounts of cash instead of using it to profit the businesscash instead of using it to profit the business

Debt Ratio (Actual)Debt Ratio

0.00

0.10

0.20

0.30

0.40

0.50

0.60

1 2 3 4 5 6

Actual Quarters

De

bt

Va

lue

Debt Ratio (ProForma)Debt Ratio

0.00

0.10

0.20

0.30

0.40

0.50

0.60

1 2 3 4 5 6

Pro Forma Quarters

Deb

t va

lue

Fundamentals of the Fundamentals of the businessbusiness

Every company has a common goal of producing Every company has a common goal of producing a great product which increases revenue while a great product which increases revenue while keeping the cost of labor low and increasing their keeping the cost of labor low and increasing their equity equity

While stockholders’ common goal is to have a While stockholders’ common goal is to have a higher rate of return in the company of their higher rate of return in the company of their choicechoice

Smart investors look for the subtle changes in a Smart investors look for the subtle changes in a non-cyclic company. If revenues and profits are non-cyclic company. If revenues and profits are on a steep upward trend, with no indication of on a steep upward trend, with no indication of leveling off, then they will invest and the stock leveling off, then they will invest and the stock will increasewill increase

Sector Changes and Market Sector Changes and Market Swings Swings

Sector changes are simply sudden changes in the market, Sector changes are simply sudden changes in the market, which can have an negative of positive impact on the stock which can have an negative of positive impact on the stock price…ours being the “Wehrley Shift”price…ours being the “Wehrley Shift”

Market swings are the natural flow of the market; it could go Market swings are the natural flow of the market; it could go up or down at any time, which can push stocks up or down; up or down at any time, which can push stocks up or down; which accounts for the variation in accumulated wealthwhich accounts for the variation in accumulated wealth

The fluctuations in our stock price was a direct correlation of The fluctuations in our stock price was a direct correlation of our net income and investments in the companyour net income and investments in the company

Return on EquityReturn on Equity Defined as: how efficient a company is in Defined as: how efficient a company is in

reinvesting earnings to generate additional reinvesting earnings to generate additional earnings earnings

Investors look for a high and growing ROE Investors look for a high and growing ROE percentage rate of companies to invest inpercentage rate of companies to invest in

The shareholders of our company did not receive The shareholders of our company did not receive a good return on their capital that was invested a good return on their capital that was invested in the business due to the sharp increase of in the business due to the sharp increase of interest expense, decrease in gross profit margin interest expense, decrease in gross profit margin and therefore decrease in net income during and therefore decrease in net income during Quarter 4. Quarter 4.

The ROE was also decreased because of the bond The ROE was also decreased because of the bond we used to finance the large amount of plant we used to finance the large amount of plant purchased, significantly reduced our net income purchased, significantly reduced our net income

Return on Equity (ROE)Actual

Return on equity

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

1 2 3 4 5 6Pro Forma Quarters

Pe

rce

nta

ge

of

Pro

fit

Return on equity(ROE) - Quarterly

Return on equity(ROE) - Annual

Return on Equity (ROE)ProForma

Return on equity

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

1 2 3 4 5 6Pro Forma Quarters

Pe

rce

nta

ge

of P

rofit

Return on equity (ROE) - Quarterly

Return on equity (ROE) - Annual

Mistakes and Tips for Mistakes and Tips for Future GenerationsFuture Generations

Failing to purchase a plant Failing to purchase a plant when needed left us with when needed left us with excess machinery, a excess machinery, a steadily raising demand steadily raising demand and an absence of and an absence of inventory for the last two inventory for the last two quartersquarters

This small mishap cost us This small mishap cost us a lot of money, trust with a lot of money, trust with our shareholders and halt our shareholders and halt in productivity in productivity

For a percentage of the For a percentage of the time our ROE varied time our ROE varied slightly from the bank slightly from the bank because we were not because we were not using our assets properlyusing our assets properly

Take advantage of the Take advantage of the “wehrley’s shift” to buy “wehrley’s shift” to buy back shares back shares

Pace your production in Pace your production in relation to plant capacity relation to plant capacity and machinery and machinery

Finance long-term projects Finance long-term projects with long-term debt; (debt with long-term debt; (debt should not be paid off until should not be paid off until looking at your ROA and looking at your ROA and ROE)ROE)

Never sit on idle cash, Never sit on idle cash, always reinvest it in the always reinvest it in the company for growth company for growth and/or distribute to and/or distribute to shareholdersshareholders

ConclusionConclusion

As a result of not purchasing more As a result of not purchasing more plant space upon the commencement plant space upon the commencement of the game we failed to maximize of the game we failed to maximize productivity, which ultimately caused a productivity, which ultimately caused a loss in possible profit. Once recognized loss in possible profit. Once recognized profits began to increase and the new profits began to increase and the new focus became the management and focus became the management and financing of debt incurred as a result of financing of debt incurred as a result of asset acquisitions and debt control. asset acquisitions and debt control.