Goals: The simulation is designed to highlight the benefits of managing working capital effectively in a growing firm. The goal is for students to develop their intuition in how to use working capital as an internal funding source, especially when other sources of funding are limited$.$ Students should learn the often counterintuitive concept that not all growth is value$-$creating. By playing the simulation, students deepen their understanding of the important distinction between profitability and liquidity $-$ and why "recording profit" is not equivalent to collecting cash. This simulation helps students develop a cross$-$functional perspective $-$ specifically, that sound working capital management extends beyond the finance and accounting functions, notably to logistics$,$ sales, operations management, and marketing.

Develop intuition regarding a firm's cash conversion cycle and the operating ratios associated with it$.$

$>$ Learn the trade$-$offs between managing revenue and EBIT growth simultaneously with net operating working capital $($i$.$e$.,$ the fundamental balance sheet levers$).$

$$ Appreciate firsthand how too much or too little investment in net operating working capital can have significant consequences.

$>$ Learn how managers, especially entrepreneurs, often focus excessively on the income statement and, in the process, ignore the balance sheet and statement of cash flows.

$>$ Develop intuition for the relationships among the income statement, balance sheet, and statement of cash flows $-$ and appreciate how attention to cash$-$management techniques is critical to managing a firm effectively.

$>$ Walk the tightrope between growth and illiquidity $($in a simulated environment$).$ Growth is important, but these key questions must be considered:

$$ Does the business have access to external funding?

$$ Does the business have high profit margins?

Has the business been paying attention to it working capital management?

$$ Learn to maximize a firms' growth opportunities in a limited$-$credit environment.

$$ Example: A high$-$margin business can reduce the need for external funding by collecting receivables earlier, even if that means offering discounts to induce earlier payments.

$$ Example: A low$-$margin business will gain more by increasing its profitability and optimizing its working capital than by simply increasing sales.

Simulation

Students act as the CEO of Sunflower Nutraceuticals and manage investment in a variety of growth and cash$-$flow improvement opportunities during three phases over a nine$-$year period. Each opportunity has a unique financial profile that students must assess and involves working capital investment but not fixed assets. To finance the operating working capital requirements associated with the various opportunities, students have access to a bank line of credit that is limited in its size and availability. Students who do not effectively manage the operating working capital balances either cannot take advantage of future profitable growth opportunities or run out of cash and available credit and put the firm in peril. The choice of investing $($or not investing$)$ in certain opportunities in Phase $1$ can determine the ability to invest in opportunities in future phases. If you exceed your credit constraint you will go bankrupt $($game will end immediately.$)$ Game is repeatable. ask

Complete a minimum of five runs $-$ you can do as many as you want. Your first decision will be your choice of Tinancing $-$ there are three alternatives. Your base credit line is $>3\mathrm{.}2$ million. Try out different strategies; experiment to get the highest firm value, the highest amount of sales, the highest amount of profit $-$ are the strategies consistent, or do they involve tradeoffs? Can you keep your firm from bankruptcy? How easy is it to go bankrupt? What do you learn about the options, and how to make optimal decisions? What impact does your financing decision make?

$2.$ Write a short reflection paper on what you learned from working on this simulation.

Submit

through Blackboard before our class discussion on the simulation.

Background on Simulated Firm

Sunflower Nutraceuticals, founded in $2006,$ is a privately held nutraceuticals distributor based in Miami, Florida. The firm started as an internet$-$based, direct$-$to$-$consumer distributor and retailer of dietary supplements, including vitamins, minerals, and herbs for women, with product offerings for all age groups. Through its website and catalog, the firm offers customers a large selection of stock keeping units $($SKUs$)$ from more than $50$ third$-$party brands. The company ambitiously expanded into new retail outlets and launched several private$-$label brands, including a line of women's electrolyte sports drinks, metabolism$-$boosting powders, and a vitamin line for teenage girls.

The firm is breaking even, with relatively flat annual sales growth on total revenues of $$10$ million.

The business is working$-$capital$-$intensive, and margins are generally thin. Several times during the past few years.