Utilize the course document Guide--Capstone Courier Analysis and write a 200- 300 word analysis of the results.

PROFITS:You earned one star because your profits were $ 7,006,093. Profits are listed on page 1 of the Capstone Courier . Losses are usually the result of insufficient margin caused by a high cost structure and too low prices. Profit can also suffer from excessive expenditures in selling and advertising, heavy interest payments on debt, and losses on liquidation (scrapping) of inventory when retiring a product line.

ANALYSIS- Congratulations! You turned a nice profit for the year.

CONTRIBUTION MARGIN:You earned 1 star because your corporate contribution margin is 33.5%. Contribution margin is defined as:

Sales - (Direct Labor + Direct Materials + Inventory Carry)

Sales

It is reported on Page 1 of the Capstone Courier as an aggregate average of each team's product portfolio. A good benchmark for contribution margin is 30%. A product-by-product margin computation is available on the Income Statement portion of your company's annual reports.

ANALYSIS- You have good margins. You are getting good returns on your sales.

EMERGENCY LOANS:You earned one star , because you avoided an emergency loan. Emergency loans are listed on Page 1 of the Capstone Courier . The simulation gives you every benefit of a doubt, but if you are out of cash at the end of the year, "Big Al" arrives to give you just enough cash to bail you out -- at a 7.5 percentage point premium, of course. In the real world we often refer to emergency loans as "a liquidity crisis", "Chapter 11", or simply "Bankruptcy."

ANALYSIS- You have good cash management.

To diagnose your emergency loan, examine your Cash Flow statement. It represents the net flow of money into and out of your checking account. A positive number indicates an inflow, a negative number an outflow. For example, find the "Inventory" line. If your inventory position increased compared to last year, you had to pay for the additional inventory, and that resulted in a cash outflow. On the other hand, if you sold all of your old inventory, that represented a cash inflow.

INVENTORY:You earned one star for your year-end inventory position. The ideal year-end inventory position is one unit in each product line. In that case you would know that every potential sale was made, and that inventory carrying cost was minimized. This is the goal of "Just In Time" inventory systems. In the simulation, however, you cannot adjust production during the year to meet demand. Therefore, you must balance the risk of losing sales to competitors because of stock outs against the cost of carrying additional inventory should your demand exceed your expectations. At some point inventories become excessive. A good benchmark would be, "inventory levels should not exceed 60 days (two months) of Sales." For example, if your product's sales are $12 million, inventories should not exceed $2 million. To earn a star of your inventory management, each product must satisfy two conditions:

1. Teams must satisfy at least 95% of the demand they generate across the entire product line. Actual Total Industry Unit Sales/Potential Industry Unit Sales >= 95%.(on a per team basis)
2. Teams cannot carry more than 90 days of inventory defined as Total Unit Inventory/Total Units Sold<=25%.

ANALYSIS-CHECK FOR STOCK OUTS. You may have under-produced and turned away customers. Examine the ACTUAL VS. POTENTIAL graphs for each segment analysis in the simulation reports. This will indicate how badly your stock out hurt you.

ANALYSIS-CHECK FOR EXCESSIVE INVENTORY LEVELS. On the Production Analysis (page 4), compare "Units Sold" with "Units in Inventory". Inventory should be less than 1/6th of unit sales. Inventory consumes cash, drags down your performance measures, and in extreme cases drives emergency loans. Inventory carry overheads chew into profits. Typical problems include:

1. Overly optimistic sales forecasts. Previous year customer demands (and segment growth rates) are listed for each market segment pages. Compare your sales forecast figures against segment demand. Were sales expectations unrealistic? For example, if the segment demand ceiling was 3 million units, and there are six teams with products in the segment, a "fair share" starting point is 500 thousand units per team. If you have a better than average product, your sales will be higher. Below average products produce below average demand. But unless your product is dramatically better or worse than the other products in the segment, you demand will be somewhere between 50% and 150% of average. This is discussed further in the help files on the website under "How do we develop a unit sales forecast?"
2. Sometimes teams confuse the relationship between sales forecasts, production schedule, and production capacity.
   • Sales Forecasts only affect proformas. They are a tool - not a management "decision." When you enter a forecast, you force the software to use your number to drive the Income Statement. When the simulation is processed on the web site, actual sales depend upon the actions of your competitors.
   • Production Schedule (on the Production spreadsheet of the student software) is the actual production for the year. This is added to the starting inventory. Production occurs in monthly increments.
   • Production Capacity is the size of the factory. If the Capacity is 500 thousand, you can produce up to one million units by running 100% overtime. All units produced above 500 thousand will be affected by time-and-a-half overtime charges. You buy or sell capacity, or simply leave it idle and unused.

STOCK PRICE:You earned one star because your stock price rose last year by $ 6.95. Stock price is affected by performance, asset base, debt, dividend policy, and number of shares outstanding. In a year of aggressive investment in plant expansion and automation, you would expect that the necessary debt load would cause some uneasiness on the part of shareholders. But, if the stock price dips more than $15.00, it may be a warning sign of too much debt. The stock price can also suffer in profitable years. For example, liquidation of plant brings in cash, but makes shareholders wonder about the long term competitive ramifications. Paying dividends in excess of profits, or obtaining a Big Al emergency loan, will have a negative effect on stock price.

ANALYSIS- You did a good job for shareholders. Your annual meeting should turn into a nice celebration! May we suggest Maui? The management team can expect swift approval of a proposed increase in your compensation package.