Transcript Capsim Success Measures

Capsim Success Measures
RETURN
ON
EQUITY
(ROE)
Formula
Description:
What Does
Return On
Equity Tell
You?
Return on equity (ROE) is net profit
divided by total equity.
Return on equity tells you how
effectively a company is using
the dollars invested in it by
stockholders.
ROE is the most often quoted single
statistic when describing a firm's
performance. It is also one of the
statistics considered to be most
useful by stockholders.
RETURN
ON
ASSETS
(ROA)
Formula
Description:
You determine return on assets by
dividing net profit by your total asset
base.
What Does
Return On
Assets Tell
You?
Return on assets is an efficiency
ratio. It compares the profits
generated with the asset base
required. It answers the question,
how hard are you working your
assets?
There is an economic opportunity
cost notion associated with this
ratio. An operating manager may be
challenged with how a dollar spent
on assets might do compared with a
dollar invested in some other area
(e.g., a bank account), or how the
ROA compares with the interest a
firm is paying on the money
borrowed to pay for the asset.
RETURN
ON
SALES
(ROS)
Formula
Description:
What Does Return
On Sales Tell
You?
You determine return on sales by
dividing net profit by net sales.
Since return on sales (ROS) gives
the analyst an idea of the profit
margin on a product, this ratio can
reveal a great deal about product
positioning and pricing policies. For
example, a high ROS suggests
premium pricing. This suggests the
product will not be aimed at a
commodity market. ROS is also a
good indicator of demand and
supply within the industry. The more
competitive an industry, the more
pressure there is on price and
subsequently ROS falls. For
example, the ROS of the airline
industry has been low due to intense
competition in the last few years.
Asset
Turnover
(T/O)
Formula
Description:
What Does Asset
Turnover Tell
You?
Asset turnover is derived by dividing
period sales by average total assets.
Asset turnover tells an analyst more
about volume of sales than it does
about profitability (the numerator is a
top line number on the income
statement, not a bottom line number).
Asset turnover (T/O) demonstrates
how effective the asset base is in
generating top line revenue. High T/O
values have implications in terms of
plant structure, level of backward
integration, and aggressiveness of
pricing policy.
CUMULATIVE
PROFITS
Formula
Cumulative Profits is the total
Description
of all year's Net Profit.
:
What Does
How Profitable the company
Cumulative
has been over time
Profits Tell
You?
MARKET
SHARE
BY
DOLLAR
VOLUME
Formula
Description:
What Does
Market Share
in Dollars Tell
You?
Percentage share of industry sales
dollars.
What portion of total industry sales
a company has captured.
STOCK
PRICE
Formula
Stock Price is a function of
Description
book value, EPS, and
:
average dividend.
What Does
This is an indication of the
Stock Price
value independent
Tell You?
investors believe you
shares possess.
MARKET
CAP
Formula
Description:
Market Capitalization is calculated by
determining the weighted average
number of shares for a given period
and then multiplying that number by
the closing Stock Price.
What Does Market
Cap Tell You?
The recognition that Market Cap is a
function of both share price and
share volume is significant for this
number tells you more about the real
value of the company than just the
share price alone. In the extreme a
corporation could be trading at a
huge P/E multiple but if it only had
relatively few shares outstanding
then the company would not be
worth as much as a company that
was trading at a relatively poor
multiple but had a large number of
shares outstanding.
Market Cap is the truest indication of
the markets estimate of a company's
worth.
Capsim Performance Measures
• You must use at least 3 performance measures
total, with at least 1 market-based measures
(stock price / market cap)
• No one measure can be weighted more than
50% of your total weightings.
• Your initial performance measures and mission
statements are due in lab prior to Week 1 of the
simulation.
• You have a last chance to change measures in
lab after Week 2, after that the choices are
frozen.