User Guide - Mousetrap

8/6/2019 User Guide - Mousetrap

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The Mousetrap 2010 User Guide

Copyright 2010 Tycoon Systems Ltd - page 1

presents

Mousetrap 2010

Ameya MahadeshwarRegional Director, South Asia

Tycoon Systems [email protected]


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GETTING STARTED

LOGGING IN TO THE SYSTEM

You cannot do anything until you are logged in to the systems running on our

servers. This is a browser-based, real-time simulation, which requires allparticipants to be logged in, and also that they click the participate button to jointhe business game.

The home page is shown below.

At the top right of the screen is a link called LOGIN. Please click this

Alternatively go directly tohttp://mousetrap.industrymasters.com/login.php

The Login page is shown below.

Enter your assigned user name and passwordand click Logon

Usernames and passwords are CASE SENSITIVE.
http://mousetrap.industrymasters.com/login.phphttp://mousetrap.industrymasters.com/login.phphttp://mousetrap.industrymasters.com/login.phphttp://mousetrap.industrymasters.com/login.php


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PARTICIPATE

Before you can join in the simulation session or class, you MUSTParticipate byclicking this button. The instructor cannot start the simulation session until ALLmembers have joined in this way.

The opening screen is shown below, and you will find the Participate button in the

left column (highlighted below)

TIME GIVEN TO MAKE BUSINESS DECISIONSAll players must log in 15 minutes in advance of their preferred time slot. Thesimulation will run 20 quarters over 60 minutesthus the time available to makedecisions will be 3 minutes per quarter. Therefore, it is strongly recommendedthat you carefully peruse through all elements of this guide before you start playing.The first 15 minutes prior to the commencement of your 60 minute slot is thestartup phase elaborated below.


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WHAT YOU NEED TO DO

To start, you need a clear business strategy (see the following pages) including :

Where do you want to compete? Which product-markets do you want to investin? How do you decide this?

How will you compete? What competitive advantage can you build? How will youposition your company? How will you compete on the dimensions of quality,innovation, staff, customer service levels, and sustainability? What valueproposition are you proposing to your customers? Set your pricing and marketingpolicies.

Each quarter the competitive landscape will change.As the simulation proceeds, your competitors will be taking decisions that mayaffect you negatively, so you may need to react re-set prices, rethink marketingspend, reset your strategic initiatives, make decisions about additional product lineinvestments, expansion or rationalisation (upsize and downsize), relaunch a

product range - or even product-market withdrawal (liquidation).

Tactical adjustments Check your business and financial performancethroughthe wide array of reports available to you Too much inventory? Reduce prices?Increase marketing spend? Products seem outdated? Relaunch? Market is over-crowded (Supply levels)? Prices falling? Withdraw/liquidate? Attack with a salesdrive at lower prices / better value proposition?

Your business performance is reported in real time, and summarised in a stockprice. How do you compare to your competition? How are theysucceeding?

THE START UP PHASE

During the InitialStart-Up Phase, your job is to invest capital into an initial productportfolio. Some of the questions above will not apply yet because you and yourcompetitors are starting from a zero base, so you have no clues as to theirstrategies and business positions

At this stage you should agree in your teams to invest in 1 or 2 products. For eachproduct that you launch, a Business Unit is created instantly which serves tomanage the product.

Launching 2 products at the beginning has the advantage that you are more likelyto be able to develop a strong market position with each of the 2 products whilekeeping your overhead costs relatively low.

There is a risk in focusing on only 1 product which is that your corporation'sprofitability can be damaged if strong competition later threatens your dominantposition in a single marketplace. Your diversity can be your strength.

Later, you can launch more products and further diversify the risk of beingchallenged by strong competitors entering your markets.

With each product you launch, your company's overhead costs will increase, butyou will also realize synergy savings, resulting from economies of scope.


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Your Companys Starting Position

Every company:- Begins with a score of 100 and has a seed equity of $100,000K

- Is not invested into any sector-market combinations

- Has an investment budget of $250,000K.

Has the following initial balance sheet position

Initial Investment Budget = Seed Equity + Debt Limit


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Launching Products

To launch a new product, follow the steps below:1. Click on the Invest Now button on the left hand panel of the screen. Thereafter,

click on View More Details next to the sector in which you are considering aproduct launch

2. Alternatively, if you are looking to launch a product in a particular industry sectoryou may click on the Industry Sectors on the left hand panel to navigate to the

screen that shows the product listing within that sector

3. Click the View Details button for the product that you are considering investing

into to navigate to a screen that shows the parameters that should drive your

product launch decision.

4. On this screen, you will see the most important parameters to aid your

investment decision, including:

Supply Level: This represents the fraction of the total market demand for

that product that is already being met by existing players, if any.

Supply Level Forecast: This represents the fraction of the total market

demand that is estimated to be met if you decide to launch this product

now.

5. Click on the Launch Product button to close your choice of product. As soon as

you do that, the just launched product will appear on your company dashboardas a separate business unit panel. Further, your investment budget will

decrease to reflect the investment you just made.

ATTENTION: The simulation engine automatically takes on debt on your behalf as soonas your cumulative invested amount exceeds the seed capital.

TIP: You should be wary about getting into a product with a supply level approaching 90%or greater than 90%


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STRATEGIC DECISIONS REQUIRED DURING THE GAME

Product Markets:Wherewill you compete?

Evaluate the profitability of your expected or current portfolio of activities, anddecide which markets look attractive to you now and for the future.

Where can you make money? Where are you losing money? Can you rescue thepoor performers, or do you cut them loose? What is the cost of exiting from amarket?

Market attractiveness will depend on the following and other factors:

The intensity of competition in those areas effect of greater price competition

Current and expected supply levels (market saturation, market crowding)

The potential to dominate market share, and so influence pricing

Ability to build volumes and to achieve cost reductions through economies ofscale

Make a strategic plan for investing in attractive product-markets. How muchfinancing do you need? How much is available to you at any time?

Review the methods available to you to Invest, Relaunch, Upsize, Downsize orLiquidate a business unit. There are costs associated with each option these aredetailed on screen at appropriate times

Strategic Positioning :Howwill you compete ?

You have a number of decisions to make and track constantly throughout thesimulation.

Pricing levels and Marketing Budget

Customer Service Investment

Investment in Quality Improvements Innovation and R&D investment

Training and HR Budgets

Sustainability & Corporate Social Responsibility


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Offering Value For MoneyWhen designing a price / value proposition, you will need to consider the relativestrengths of your products compared to competition, and price according to thevalue you will offer :

Focusing on a Sustainable StrategyDeciding How to compete will also involve setting a path that is rational profitablefirms often focus their efforts on one of two approaches as indicated in the chartbelow: a Cost Leadership strategy, or a Differentiator approach. Either can lead toprofitable and successful operations


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Setting PricesWhen setting prices, review current Contribution Profit Margins - as well as EBITMargins - by product. How do you compare to the competition? Margins are afunction of Selling Prices and Total Product Costs. Offering lower prices mightbuildmarket share and sales volumes, which could lead to lower production costs aslarger scale economies are realised. There is a possibility that this might improve

profitability.Additionally you may wish to lower prices if you fear that inventories are too high.

On the other hand, raising prices could increase margins in certain markets wherefor example, there is very little inventory available for eager buyers.

Marketing spending will go hand-in-hand with pricing and inventory controldecisions. There is little point in setting a heavy spend on marketing if there is noavailable inventory in a rising market you will be able to sell most of your offeringat a relatively high price, with no promotion. However, if you are setting lower pricesto clear inventory, or to try to build market share, then a higher marketing budgetmight be appropriate to support that initiative

Use the Slider Tool in the SalesTab to change prices up or down afterchecking on the Competitors tab to determine a level that fits your chosenbusiness strategy

Marketing BudgetsThe Marketing Tab shows you marketing spend, market share and Inventory levels.Change the budget with the Slider Tool. If inventory is rising too fast, considerincreasing marketing, or cutting prices somewhat, or both.


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CompetitionThe Competitors Tab shows who is competing in a particular product market, alongwith their market share for that product, sales and cost data

ExpansionExpansion opportunities are explained in the Expand Tab with advice andhurdle on suitability of the action proposed. Upsizing is offered where you havethe required budget available to invest and where your credit rating is above aminimum standard. Supply level forecasts and warnings are highlighted.


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Production Planning

The planned production for the subsequent quarter must be adjusted by taking intoaccount current inventory levels and your assessment of future demand. Inproduction driven industries, maintaining high utilization levels is often the key tolowering unit costs. If you plan to produce more than capacity, then per unit costsmay be higher than normal as you will have to use overtime. This tab also showsyour production output from the previous quarter.

Strategic PositionBy balancing service, quality, innovation, personnel policies and CSR relative to aproposed price level, and compared to competitive offerings in the market you canincrease the appeal of your products and possibly gain market share.

Your settings should reflect your overall business strategy what are you trying tooffer your customers? High quality, innovative products at good prices? Or a lowerquality, but still adequate product at a lower price point? Increasing spending inthese areas will be reflected in increased costs, and will also have an impact ondemand.

The following diagram shows how increased spending in various areas of youroperation will impact your business and the financial statements. Lower spendingwill have the reverse effect.

For example, increasing the Customer Service budget will increase Demand (1stgreen bar in the diagram above) your customers will appreciate the extra care andattention you are offering; but will increase production cost (1st red bar in the diagramabove) because of the additional cost of supplying this higher level of service.

A successful combination of settings will depend on various factors like marketsaturation, debt ratio and relative competitor activity all of which fluctuate duringthe simulation.


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Customer Service:Higher levels of customer service will be expensive principally extra staff costs.This should be matched by setting higher prices, if you are trying to maintain profitmargins. In a cost leadership strategy, a lower customer service budget might beappropriate.

TQM/Product QualityHigh quality products are generally more complex, and require matching of higherindustry standards, so increasing production costs. A company with a high qualitypositioning should also move prices upwards, to maintain margins. A cost leadermight reduce investment into quality improvements, to cut costs.

R&D/InnovationIncreasing research and development spending should lead to more innovativeproducts, for which there will be higher demand from consumers. R&D costs will be

added to production costs so again, increases in R&D spending should bematched with a higher price strategy, so that profits can be maintained. A costleader may wish to set a lower R&D budget.

HR/Training of staffExtra staff training will increase employee satisfaction and motivation levels, leadingto better operational efficiency. Productivity will improves, and important savings infixed costs will result. Production output will increase with increased trainingbudgets, but staff costs will inevitably rise.


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CSR/SustainabilityCorporate Social Responsibility and Environmentally Friendly policies are becomingincreasingly important to global corporations. Such a policy will combine andbalance environmental, social and economic business objectives there is a cost,but consumers in different countries increasingly value such initiatives, and rewardCSR-focused companies with extra business. Additionally, many governments offersubstantial tax incentives to reward and encourage such behaviour which arevaluable to companies which are making profits.

In the simulation, a 30% tax reduction is available to those companies who chooseto invest in CSR policies

Additional Investments Optional Special Projects

These options are further opportunities to differentiate your offering and to improvefinancial and operating performance over various parameters.

By investing in these special projects you will impact on demand, costs, cash flowetc, thereby improving your competitive position.

You may not have sufficient funds to invest in all projects anddo all the other things

in your plan.

Initial Position :

After choosing to invest in one or more projects:

These investments are funded from your investment budget, and this number isadjusted accordingly (see this at the top of your screen)


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STRATEGY and MARKETING ISSUES

Economies of Scale and ScopeWith increasing volumes of production or sales of a product or a range of products,central overheads and other costs start to spread across a larger base. The cost ofproduction per unit, or the cost of delivery per unit, will therefore start to come down.

If you can build market share and generate extra sales from the same cost base, thenthe average cost per unit will continue to decrease, and profitability will rise.

This is called Economies of Scale unit costs will reduce to a level where theoverhead part of your cost structure is relatively small compared to the direct, variablecosts of manufacturing, delivery or service. The cost reduction per unit is not astraight line relationship, which will forever decline - more of an exponential curvewhich reaches an optimum operational cost level.

Market share-driven cost reduction is a major factor in creating profitable operations ina many businesses in the world today

Cost sharing benefits are also evident when you increase a range of products that canshare the same operational expense base such as a common sales force, acustomer service center, or a logistics system. This is referred to as the economies of

scope

Additional cost reductions may occur as a result of experience or learningsometimes these cost benefits are shared across industries (industry learning) astechniques and knowledge get passed around, or staff move between companies.

A company that is striving to become a cost leader in its industry will focus heavily ondriving costs down, including the application of economies of scale and experiencecurves.

A key driver in this simulation is relative cost advantage, because of the high fixedcost / high fixed asset investment nature of the industry. You can improve your costadvantage with greater market share.


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Supply Levels and Pricing - Market Crowding Fragmented Markets

In each product-market, manufacturers individually decide to invest in extra facilities,in order to satisfy the demand for the products they produce. Overall industry demandis a function of the size of the economy, and the rate of growth of this economy isrelated to the investment decisions of all the competitors in the simulation. Thedemand for individualproducts is also related to the size of the economy, as well as toadjusting factors such as pricing, price changes and value propositions.

The degree to which the market for each product is currently satisfied is referred to asthe Supply Level : the percentage of currentdemand that is satisfied by currentproducers.

As players expand and continue to invest in new production facilities, the supply ofcars available will increase so the supply levelgoes up. Each new investmentdecision leads to the establishment of an extra production unit with a fixed capacitythe capacity increase is referred to as 1x, 2x, 3x etc .

If new competitors enter a segment with new investments, the market becomes morecrowded and supply levels also increase. When supply levels rise well above 70%,the market average price level will start to decline consumers will have a wide rangeof competing products to choose from, and will start to bargain for lower prices.

Producers then need to start making attractive offers to maintain their sales volumes

A supply level of over 100%leads to much lower profit margins in the industry evendriving some producers into losses.

You should be aware of Supply Levels in all the market segments where you areoperating. As you and your competitors make investment decisions, the supply levelwill change quickly this will affect your ability to raise or even maintain high prices.Your competitive position is closely linked to Supply Levels for your product-markets.

Wherever possible, choose to invest in and promote businesses where Supply Levelsare relatively low, to give you a better chance of survival and higher profitability


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Market Dominance and Pricing

As you invest in new production facilities for a specific product, you will increase theSupply Level for that product, but also increase the market share available to you.

In this simulated market, investment in facilities increases the scale of your operationsand can also reward you with a larger share of the market. Other factors, such aspricing and your value proposition (quality, innovation, R&D input etc), will also havean effect on your demand and market share, but the scale of your operations is amajor factor. To grow market share then, it is important to continue to invest in newproduction facilities.

Because of the effect of scale economies, profitability is closely linked to highermarket shares, and the market will also reward you with higher prices in effect youbecome a price leader, not a price follower.

At some point, continued investment in extra production units will increase the SupplyLevel to unsustainable levels; pricing comes under pressure, inventory builds up andsales may fall. At this point, market share is less important as losses could mount up.


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Using Additional Investments

The simulation has three kinds of additional investments:- Those which help you boost revenues

- Those which help you reduce costs

- Those which help you boost revenues and reduce costs

The choice of an additional investment is a long term decision and hencerequires a careful thought on what is your priority in the long run:

- Are you going to be focused on topline growth in the long run?

- Is your focus going to be bottomline growth in the long run?

- Are both topline and bottomline growth important to you in the long run?

Before deciding to choose an additional investment that helps you achievetopline growth in the long run:

- Make sure you have built up the additional capacity required to serve the

incremental demand that arises from the additional investment chosen

- Make sure that the markets you are serving are not already saturated; if this

is the case, you will not see the incremental revenue growth promised by

the additional investment.

Before deciding to choose an additional investment that helps you reduce costs:- Scan the previous 2 to 3 P&L accounts to zero in on costs that have been

denting your profitability

- Remember that you will have to trade off an increase in some other cost toreduce the cost that you have zeroed in on

- A good approach to making cost savings investments is to do the following

exercise:

o Am I willing to trade off a slightly lower EBIT margin for a

substantially increased gross profit?

o Am I willing to trade off a reduction in gross profit for a substantially

increased EBIT margin?


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Remember the following about additional investments:

- They start taking effect after the time required to construct them has

elapsed

- Additional investments that are a capital expenditure result in the creation ofan asset in your BS whose depreciation is charged to the P&L beginning the

subsequent quarter, irrespective of the construction time. Further, these

investments are characterized by diminishing marginal returns with time, as

more and more of your competitors adopt them.

- Additional investments that are a one off cost get charged to the overhead

costs in your P&L in the same quarter that you invested into them

- Additional investments that are a monthly cost get charged to the overhead

costs in your P&L beginning the same quarter that you invested into them

until their validity expires.


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FINANCIAL MANAGEMENT

Debt and Leverage

Every quarter, your Treasury Department notifies you of the investment budget theamount of money available to you for expansion or redevelopment of your business.

This is made with reference to the level of credit agreed with your main bankers,based on the current availability of credit, your credit standing and your current levelof borrowing.

The investment budget is made up of seed equity available to you from yourshareholders, and loans available from the bank

Your INITIAL SEED CAPITAL is $200M

Your Available Budget for investing could be Your Capital + 130% x Your Capital inBank Loans. Example : equity of $200M + loans of $260M = $520M total budget

Credit rating is based upon debt ratios:- debt as a percentage of combined debt andequity financing in your balance sheet. A credit rating of AAA would be exceptionallyhigh, indicating low borrowings: F would be the lowest rating, before bankruptcy (D).

Your company will be declared bankrupt if your debt ratio rises above 100% - sobe careful when expanding and using credit limits. In the event of bankruptcy, yourcompanys assets will be sold (at a discount), with the proceeds being used to repaybank loans.

Leverage is also a term used to indicate debt ratios use of leverage can boostprofitability in your company. You can expand faster, leading to higher market shares,more dominant pricing, and scale economies. Further, the return on investment forstockholders can increase, subject to certain considerations.

However, these gains have to be viewed in the light of higher bank interest costs, anda higher risk of bankruptcy as you approach credit and lending limits


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EQUITY MANAGEMENT

You may issue and buy back shares through buttons that appear in the financialplanning panel. Shares can be issued and bought back in steps of 5% - for example ifthe existing number of shares is 1000 then you can issue 50 or buy back 50 shares inone step.

Issuing new shares has the following immediate effects:

- Increase in number of shares and investment budget

- Increase in shareholders equity

- Decrease in score

- Decrease in debt ratio

Buying back shares has the following immediate effects:

- Decrease in number of shares and investment budget

- Decrease in shareholders equity

- Increase in score

- Increase in debt ratio

INVESTMENT DECISIONS

ATTENTION: The option of issuing new shares becomes available to you when your EBIT margin isconsistently above a certain threshold or you are showing strong, consistent revenue growth. However,your debt ratio should be necessarily below and the EPS necessarily above another threshold at thatpoint in time for the option to become available to you. This is akin to the real word wherein a companygets equity participation only when the above conditions are met.

TIP:- Issue new shares when you need to fund an investment budget shortfall. Also consider issuing shares toreduce your chances of being taken over in a bid situation or when you want to deleverage considerably.- Buy back shares when you have excess cash that could be used towards reducing your overall dividendoutgo over a longer term. Also consider buying back shares when you want to improve your chances ofbeing taken over in a bid situation.


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CASH FLOW MANAGEMENT

Financing cash flow management through optimizing debt and equity levels is ofutmost importance for sustained growth in the industry.

When you raise debt or equity, it creates a cash inflow for you, which results in apositive financing cash flow. On the other hand, when you retire debt or buy back

equity, it creates a cash outflow for you, which results in a negative financing cash flow.When you make investment decisions, the simulation manages financing cash flow asfollows:

- The simulation checks if the operating cash flow generated is enough to

finance the investment. If yes, no additional financing is required.

- If the operating cash flow is not enough to meet the investment needs, the

simulation checks if the player has raised additional equity. If yes, it uses

this equity to finance the investment.

- If no equity has been raised or if the cash from equity falls short of the

investment need, the simulation automatically takes on short term debt to

finance the gap funding.

Therefore, if you want to prevent your company from being over levered oninvestments, you must ensure substantial positive operating cash flows and/or raiseequity before making such investments.

The simulation finances cash for working capital needs as follows:

- Is the operating cash flow enough to meet the working capital needs? If yes,

no problem.

- If no, the simulation automatically takes on short term debt to fund the

shortfall in working capital cash.

You should avoid getting into a situation where you have to borrow to meetworking capital needs.


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FINANCING EXPANSION

The Conservative Approach

o As soon as you break even and start making profits, you pump all your excess

operating cash flow into retiring long term debt that you had picked up during the

gestation period

o You forego expansion opportunities (organic or inorganic) until new equity becomes

available to you.

o The pros of this approach are assured long term financial stability; however, you

may miss out on the opportunity to grow aggressively as a result.

o Companies that choose to focus on the bottomline only after they have broken even

prefer to take this approach.

The Aggressive Approach

o You borrow heavily to fund an expansion as soon as the opportunity to do so

becomes available

o You prefer to plow the excess operating cash flow generated into funding further

expansion rather than into retiring long term debt

o Companies that are focused on the topline only after they have broken even prefer

to take this approach.

Deciding between debt and equity

o Here is a systematic way to determine if you should expand by borrowing or waituntil equity becomes available for funding further expansion:

In this simulation, the cost of equity has been defined as 12%

If the cost of long term debt > cost of equity, then it makes sense to forego

expansion and concentrate on retiring LT debt so that the interest cost on LT debt

for you comes down gradually

If the cost of short term debt < cost of equity, then it makes sense to cash in on the

expansion opportunity while it is red hot rather than waiting for more expensive

equity later in the simulation


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PRODUCT-MARKETSCheck the investment budget that is availableto you for this quarters operations

This is found at the top (right side) of theMy Corporation page

Review Investment options available to you in each product market.These options will change each quarter, depending on the investment budgetavailable, the current state of the markets and supply levels

These details are found within the individual product sections of the MyCorporation page. By clicking on any photograph of any product, you will be takento a product screen, where more product and market detail is available, as shownbelow

Summary information on all products is also available under the Industry Sector tab.Click on the link SECTOR METAL to see the screen below

>>

Overhead Costs : With each new investment, overheads will increase these arecosts associated with managing the new production units you have started. There issome synergy effect a sharing of knowledge and systems - between differentproduct lines in the same industry, which will balance some of this cost increase.

Remember that low, current supply levels indicate greater growth potential


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COMPETITOR INVESTMENT ACTIVITY

Finally, to keep a check on who is investing, where and how much: at the top of your

screen on every page you will see the News Ticker. This will be updated at everyquarter, and shows recent investment activity by you and by your competition

If you click on any corporations name in this list, you will be able to go to see whatthat companys summary corporate information looks like and, potentially, be able to

understand their business strategy, their strengths and weaknessesIf you click on any product link, you will be taken to the product summary page. Thisshows which competitors are active in that sector, as well as a range of data chartswith detailed, comparative market information


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UPSIZE / DOWNSIZE/ LIQUIDATE

A further investment decision area is where you wish to reshape your product portfolioto become more competitive. Your choices are :

UPSIZEWhere you wish to expand your production capacity, to tryto grow market share. Each upsize operation is costed for you andis available on a product-by-product basis when you have sufficientinvestment budget. Each Upsize investment indicates growth in

available capacitytermed a 1x increase (one-ex). Upsizing :

Increases the Supply Ratio - you should evaluate marketsaturation or supply ratios for the current product market

Reduces Production Costs - the new unit can be managedwithin the current central management budget which meansaverage margins will improve & overhead costs remain the same.

Average Market Pricing may decline if Supply Level increasesbeyond 70%

An alternative approach to expansion is to Relaunch

DOWNSIZEWhen Supply Levels exceed 100%, you may be offeredthe option to downsize your production this mothballs one productionunit, and lays off all the employees in that unit.

Supply level obviously reduces leading to a rise in average marketprices as there are fewer competitors and a relative shortage of supply

Production Costs per unit will rise as fewer operating units areabsorbing central overheads. Profit margins will depend on how farprices rise compared to the increase in costs.

LIQUIDATION To allow you to exit from a market. All plant andequipped is closed down, stripped out and sold off, and all employeesterminated.

If Supply levels exceed 140% - where the market is clearly saturatedyou will also be offered the option to close down.

Liquidation results in selling off any related Assets in the business unitfor 70% of Book Value the 30% accounting loss is written to theP&L, so your profitability, equity and share price will be hurt for that

period


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THE TAKEOVER PROCESS

After 10 quarters, you will be offered the possibility of bidding and acquiring one ormore of the competitors who are playing in your markets

You will be informed that a bidding process is open, and you can make an offer; theoffer can be increased or abandoned at any time during that bide period (normally oneor two quarters).

Other teams can also bid for these companies you are not informed about the valueof competitive bids. You will see that someone is bidding, but you will not knowwhich team, or how much they have offered.

If you are successful in your bid, that competitor will be absorbed by tour companytheir balance sheet and P&L will consolidate with yours, and you will add their marketposition, market share etc to your own.

The competitor that gets taken over survives with cash meaning it can use theconsideration it receives for the takeover to start from a clean slate the competitorreturns to a position in the initial start up phase.

The following screens indicate the process involved :

Startup : At the start of the simulation before bidding is open, you see this message:

Bidding opens you can bid, if you have sufficient funds, ie, you have not investedthem elsewhere, or your performance has not been good enough to generateadditional profits in the first year

Increase or abandon the bid : After you have made a bid, you can increase the bid,or abandon in the same quarter (auction term is only one quarter) :


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Successful bid ! Your bid is successful: the acquired competitors businesses aremerged into yours and the acquired competitor returns to a clean slate, with theconsideration it received for the takeover as its seed equity.

Front Page News : The transaction is announced on the News ticker

A bigger share of the cake : Your market share is adjusted by the process:

Revenues jump! Your corporations sales revenues will experience a step increase

Post takeover:

- The targets entire product portfolio merges into the acquirers

- The target survives with cash with the takeover consideration as its new seedequity; the target is free to launch new products.


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The market concentrates : The number of competitors will be reduced

`

The valuation of a competitor up for takeover is calculated as follows in any quarter:

Valuation in quarter x = Shareholders Equity in quarter x *Share price in quarter x + Takeover premium of 10%


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PURSUING INORGANIC GROWTH

You should consider pursuing inorganic growth if:

- You spot a growth opportunity in a product market that you are not playing

in, but you do not have the resources to pursue organic growth from scratch

- You spot an unprofitable competitor deliberately undercutting your prices todrive you into unprofitability

- You spot a lot of unutilized capacity in the market which you are confident of

cross selling to your existing customer base.

- You are one of the stronger players in a fragmented market that is in need

of consolidation to improve overall industry profitability

Be wary of the following when considering inorganic growth:

- The Herd Mentality: In times of strong industry growth, a lot of companies

pursue inorganic growth just because it is fashionable to do so. Thetakeover decision is taken without regard to expected synergies, profitability

and revenue growth, and eventually, the takeover ends up becoming a

liability.

- The Winners Curse: When two or more companies get into an all out

bidding war for the acquisition of a target, they continue raising their bid to

outdo competing bidders, without regard to the maximum price they are

willing to pay for the target. As a result, the winner ends up paying much

more than the target is actually worth.

- The L-word : Remember that when you take over a company, you also takeover its liabilities. If you are already over levered, then the acquisition may

only end up aggravating your liabilities, thereby shifting your focus from

growth post acquisition to damage control post acquisition.


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INSTRUMENT PANEL

The Instruments on the main My Corporation page show important key ratios thatare required to manage the corporation and take investment decisions. For each ratiothe corporates current value is shown next to the ratio name and is also shown on thescale by the main indicator. The grey solid line on the scale indicates where the

corporates value was last tick. The dotted line with the little triangle indicates thecurrent benchmark for this ratio, based on all players values

Revenues Growth reflects the change of Revenues from thelast tick to the current tick. In the example shown the currentRevenues Growth (-1.17%) is below the average RevenuesGrowth of all Players and in the red (negative) range. Anegative revenues growth indicates investments in new orexisting Business Units.

The EBIT (Earnings before Interest and Taxes) Margin is ameasure for the profitability of the companies operations and iscalculated as: EBIT Margin = EBIT / Revenues. In the example

shown the current EBIT Margin (33.25%) is slightly below theaverage EBIT Margin of all Players but still in the green (good)range.

The Debt Ratio indicates how much the company relies ondebt to finance assets and is calculated as: Debt Ratio = Debt

/ (Equity + Debt). In the example shown the Debt Ratio(44.55%) is well above average and in the yellow range, closeto the green. Further Investments should be made as soon asthe Indicator reaches the green range. The red range indicatesa very risky situation where high interest rates are to be paid.

Earnings Per Share (EPS) which is calculated as

Net Income/Number of Shares
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FINANCE AND ACCOUNTING REPORTS

Your Score

This is shown at the top of your main company screen

The score is essentially the share price which is a composite of the RevenueGrowth, EBIT Margin, Debt Ratio and EPS.

At the bottom of your main company screen are a range of detailed financial reportswhich you should track the basic reports are Balance Sheet, Income Statement andCash Flow. These reports are updated every period, automatically.


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Charts :

There are many charts to assist your decision-making and control procedures

For each product market , a series of business strategy helpers, eg competitiveposition, relative market shares, selling prices and contribution margins as shownbelow


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Financial Charts : for example, cost structure, total corporate contribution margins etc


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BUSINESS SCENARIO CASE STUDY

This is visible in the form of a storyline at the top of the screen and with its impact onthe left hand panel of the participant screen. Participants must watch out for significantevents unfolding as part of the case study and alter their decisions accordingly, failingwhich, a less than desirable outcome may result.

BUSINESS TERMS

Annual ReportAn official quarterly or annual financial document published by a public company,showing Profit & Loss Statement, Balance Sheet and the Cash Flow Statement.

Balance SheetQuantitative summary of the financial condition of a company at a specific point intime, including assets, liabilities and net worth. The first part of a balance sheet showsall the productive assets a company owns, and the second part shows all thefinancing methods (such as liabilities and shareholders equity). also called statementof condition. The term balance sheet is derived from the simple purpose of detailing

where the money came from, and where it is now.The balance sheet equation is fundamentally:

(where the money came from) Capital + Liabilities = Assets (where the money is now).

Hence the term double entry - for every change on one side of the balance sheet, sothere must be a corresponding change on the other side - it must always balance.

Capital InvestedMoney (borrowed or owned) invested in a company's operations. Calculated by: TotalAssets less Excess Cash minus non-interest-bearing liabilities. The sum of acorporations long-term debt, stock and retained earnings. also called invested capital.

CashCurrency and coins on hand, bank balances, and negotiable money orders andchecks.

Cash FlowA measure of a companys financial health. Equals cash receipts minus cashpayments over a given period of time; or equivalently, net profit plus amounts chargedoff for depreciation, depletion, and amortization.

Cash Flow StatementOne of the three essential reporting and measurement systems for any company. TheCash Flow statement provides a third perspective alongside the Profit and Loss

account and Balance Sheet. The Cash Flow statement shows the movement andavailability of cash through and to the business over a given period, certainly for atrading year, and often also monthly and cumulatively. The availability of cash in acompany that is necessary to meet payments to suppliers, staff and other creditors isessential for any business to survive, and so the reliable forecasting and reporting ofcash movement and availability is crucial.


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Corporate Social Responsibility (CSR)Corporate Social Responsibility is a concept whereby companies integrate social andenvironmental concerns into their business operations and in their interaction withtheir stakeholders (employees, customers, shareholders, investors, localcommunities, government), on a voluntary basis.

Cost of Goods Sold (COGS)The directly attributable costs of products or services sold, (usually materials, labour,and direct production costs). Sales less COGS = gross profit.

Credit RatingA published ranking, based on detailed financial analysis by a credit bureau, of onesfinancial history, specifically as it relates to ones ability to meet debt obligations. Thehighest rating is usually AAA, and the lowest is D. Banks use this information todecide whether to approve a credit.

Current AssetsA balance sheet item which equals the sum of cash and cash equivalents, accounts

receivable, inventory, marketable securities, prepaid expenses, and other assets thatcould be converted to cash in less than one year. A companys creditors will often beinterested in how much that company has in current assets, since these assets can beeasily liquidated in case the company goes bankrupt. In addition, current assets areimportant to most companies as a source of funds for day-to-day operations.

DebtA liability or obligation in the form of bonds, loan notes, or mortgages, owed to anotherperson or persons and required to be paid by a specified date (maturity).

Debt RatioDebt capital divided by total assets. This will tell you how much the company relies on

debt to finance assets. When calculating this ratio, it is conventional to consider bothcurrent and non-current debt and assets. In general, the lower the companys relianceon debt for asset formation, the less risky the company is since excessive debt canlead to a very heavy interest and principal repayment burden. However, when acompany chooses to forgo debt and rely largely on equity, they are also giving up thetax reduction effect of interest payments. Thus, a company will have to consider bothrisk and tax issues when deciding on an optimal debt ratio.

EBITA financial measure defined as revenues less cost of goods sold and selling, general,and administrative expenses. In other words, operating and non-operating profitbefore the deduction of interest and income taxes.

EquityOwnership interest in a corporation in the form of common stock or preferred stock. Itis the risk-bearing part of the companys capital and contrasts with debt capital whichis usually secured and has priority over shareholders if the company becomesinsolvent and its assets are distributed.

Gross ProfitPre-tax net sales minus cost of sales. also called gross income.


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Gross Profit MarginGross profit divided by sales, expressed as a percentage.

Interest CostThe fee charged by a lender to a borrower for the use of borrowed money, usuallyexpressed as an annual percentage of the principal; the rate is dependent upon the

time value of money, the credit risk of the borrower, and the inflation rate. Here,interest per year divided by principal amount, expressed as a percentage.Also called interest rate.

Interest RateA rate which is charged or paid for the use of money. An interest rate is oftenexpressed as an annual percentage of the principal. It is calculated by dividing theamount of interest by the amount of principal. Interest rates often change as a resultof inflation and Federal Reserve policies.For example, if a bank charges a customer $90M in a year on a credit of $1000M,then the interest rate would be 90/1000 *100% = 9%.

Long-Term AssetsOn a balance sheet, the value of a companys property, equipment and other capitalassets expected to be useable for more than one year, minus depreciation.

Net IncomeSales minus taxes, interest, depreciation, and other expenses. Net Income is one ofthe most important measures of a companys performance, since the pursuit ofincome is the primary reason companies exist. Sometimes Net Income includes one-time and extraordinary items, and sometimes it does not.Also called net earnings or bottom line.

Profit & Loss Statement

An official quarterly or annual financial document published by a public company,showing earnings, expenses, and net profit. also called income statement or earningsreport. The P&L typically shows sales revenues, cost of sales/cost of goods sold,generally a gross profit margin (sometimes called contribution), fixed overheads andor operating expenses, and then a profit before tax figure (PBT). Basically the P&Lshows how well the company has performed in its business activities.

Profit Before TaxP&L position that shows the profit on ordinary activities before taxation.

Return on Equity (ROE)Return on Equity. A measure of how well a company used reinvested earnings to

generate additional earnings, equal to a fiscal years Net Income divided by Equity,expressed as a percentage. It is used as a general indication of the companysefficiency; in other words, how much profit it is able to generate given the resourcesprovided by its stockholders. investors usually look for companies with returns onequity that are high and growing.


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Return on Investment (ROI)A measure of a corporations profitability, equal to a fiscal years income divided byLong-Term Assets. ROI measures how effectively the firm uses its capital to generateprofit; the higher the ROI, the better.

Sales (Revenues)The final amount of sales, determined by subtracting the amount of sales returns and

allowances and sales discount from the total amount of sales, for a fiscal period.

Stock (Balance Sheet)A companys merchandise, raw materials, and finished and unfinished products whichhave not yet been sold. These are considered liquid assets, since they can beconverted into cash quite easily. There are various means of valuing these assets, butto be conservative the lowest value is usually used in financial statements.

SynergyArrangements which are mutually beneficial to the parties involved. Corporate synergyoccurs when corporations interact congruently. A cost synergy refers to theopportunity of a combined corporate entity to reduce or eliminate expenses

associated with running a business. Cost synergies are realized by eliminatingpositions that are viewed as duplicate within the merged entity. Examples include thehead quarters office of one of the predecessor companies, certain executives, thehuman resources department, or other employees of the predecessor companies.

TaxesTaxes are compulsory, unrequited payments, in cash or in kind, made by institutionalunits to government units; they are described as unrequited because the governmentprovides nothing in return to the individual unit making the payment, althoughgovernments may use the funds raised in taxes to provide goods or services to otherunits, either individually or collectively, or to the community as a whole.

Total AssetsThe sum of current and long-term assets owned by a person, company, or otherentity.

Total Equity & DebtThe sum of Equity and Liabilities owned by a person, company, or other entity.


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General Terms and Conditions, Tycoon Systems, Inc

Tycoon Systems will supply certain services (TS Services) to clients under the following general terms andconditions.

1) TS Services include, but are not limited to, access for selected individuals toTycoons business simulationsystems, business games and web-based software, for use inexecutive education programs and on-linebusiness competitions, on payment of access fees asspecified in an agreed Scope of Services.

2) These General Terms and Conditions will form an integral part of any agreement to supply such services.3) Where a supply of TS Services involves access to Tycoon Systems webservers and websites then, the termand conditions as specified on the websites are deemed to have been read and understood and agreed priorto using such TS Services. A current example is available for inspection athttp://www.industrymasters.com/termsofuse.html

4) Tycoon develops online, webserver based simulation games, which reside on their own secure webservers,and are under their control at all times. It is not possible to install these games on any other servers forexample, on clients own web servers. Clients may access our simulations and games via standard, widely-used web browsers such as Internet Explorer, Firefox etc from anywhere in the world by using a standard URwhich we will supply.

5) Intellectual-Property Ownership and Use: No proprietary software is required to be physically installed onclients systems, and no ownership of software is transferred to clients. All Intellectual Property Rights of any

customized business simulation and its user guide, except Pre-existing Materials from clients, shall remainexclusively with Tycoon.

6) Any Tycoon Systems simulation that is based on real-world events is only representational and not anaccurate depiction of real-world events. Users should under no circumstances seek to imitate any gameexperience in real life.

7) Privacy Considerations: In order to take advantage of the full capabilities of the simulation and to receive e-mailed information and announcements, you Tycoon may require information about the users. Anycommunications made through the simulation may be monitored by Tycoon's personnel, with the consent ofthe client. We respect the users privacy and we will, of course, endeavour to take care of any informationsupplied to us. We reserve the right to use "cookies," which are small computer files we would thereby transfto your computer's hard drive to allow us to monitor website usage. The users have the ability to accept ordecline cookies, but if users choose to decline cookies, performance of the simulation might be adversely

affected.8) No Warranty: The simulation, including any content or information contained within it and any linked website,

is provided "as is" and "as available." TO THE FULLEST EXTENT PERMITTED BY LAW, TycoonEXPRESSLY DISCLAIMS ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, WITHOUTLIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULARPURPOSE, AND NON-INFRINGEMENT.

9) Limitation of Liability: Tycoon shall have no liability for the deletion of any communications or informationcollected, maintained or transmitted by the simulation or the failure to store any information, includingpersonalized settings.

10) Jurisdiction and Choice of Law: All claims regarding the simulation shall be governed according to the laws othe State of Delaware, United States of America, without regard to its conflicts of law principles. Any claim oraction arising under this agreement shall be subject to the exclusive jurisdiction of courts in Delaware, United

States of America.11)Complete Agreement: This document constitutes the entire agreement between IIMA and Tycoon with respe

to use of TS Services. If any provision of this agreement is found to be unenforceable, the other provisionsshall still remain in full force and effect.
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User Guide - Mousetrap

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