Report on the business simulation TOPSIM General Management II


Term Paper, 2007

15 Pages, Grade: 2.0


Excerpt

Table of contents

1 Starting situation

2 Summary of the first three periods

3 Period 4

4 Period 5

5 Period 6

6 Outlook periods 7 to 9

7 Shareholder earnings (Figure 2) and enterprise value (Figure 3)

8 Result

1 Starting situation

When my board colleagues and I took over Copyfix AG on 01.01.2000, the company had a turnover of 129.0 MEur with its black-and-white copier Copy 1. The company, consisting of 1204 employees, achieved an operating profit of EUR 10.36 million and a net profit after tax of EUR 4.60 million. The equity of EUR 32.6 M was offset by liabilities of EUR 13.6 M. Cash flow amounted to EUR 13.6 million.

Copyfix AG generated similar results and market shares as its 4 competitors.

In the following, economic periods 1 to 3 are briefly summarized and periods 4 to 6 are explained with their objectives, measures and results. An outlook is given on what to do in periods 7 to 9 in order to successfully continue Copyfix AG. Then, the development of shareholder earnings and the company's value is briefly presented. A conclusion rounds off the group report.

2 Summary of the first three periods

2.1 Summary period 1

The first period went very well for our company, we were able to sell most of the industry with about 50,000 copiers.

We have increased our sales staff to a total of 120 employees and hired an additional 80 new employees in production, as we expect an increase in sales due to higher advertising expenditure (+ 2.5 MEur).

We have bought a new machine Type C for 30 MEur to expand our capacities, sell more products and ensure customer satisfaction. Due to the purchase of the new machine, the low environmental index (83.0) and the low capacity (8000 units) of production line type A No. 1, we decided to scrap this machine.

In the first period, we achieved an operating result of EUR 5.79 million. Net income for the period amounted to EUR 1.61 Meur and cash flow after tax to EUR 13.00 MEur.

2.2 Summary period 2

Since we could have sell more copiers in the first period and had hired too few employees and in the second period the overall market is expected to grow by 8 – 12%, we hired 380 people in production.

Our supplier has announced a price increase of about 3% for feedstocks/parts, so we have increased our price to 3150 €.

The economic forecast for period 2 stated that the new development of a successor product for product 1 can be started, whereby we have increased our employees in product development from 36 to a total of 70 and the ecological expenditure from 2.7 MEur to a total of 7.5 MEur.

By purchasing the type C machine in the previous period, we took out a loan of 42 MEur.

Unfortunately, we had to take out an overdraft of EUR 14.06 million, which caused our company to fall from 93 to 21 points in terms of rating.

In the second period, we achieved an operating result of EUR -0.50 M and a loss carried forward of EUR -5.25 M. Cash flow after tax amounted to EUR 5.89.

2.3 Summary period 3

A second market was opened up for our product, which increased our advertising expenditure from 9.0 MEur (period 2) to 16.0 and increased our sales staff to 137.

Due to the high advertising costs, we hope to be able to optimally exploit a larger sales volume in order to optimally use our production capacities, so that our manufacturing costs are kept as low as possible in order to achieve a larger contribution margin.

Since we expect an increase in sales, 350 new production employees were hired and an additional type C machine was purchased. The recruitment of the new employees causes considerable personnel costs. Although we are able to produce and sell more, we have to sell a large quantity in order to cover the costs incurred or to achieve a larger net profit for the period.

In addition, we have increased our technology staff to a total of 190 MEur and the ecology expenditure to a total of 20 MEur. As a result, we hope to place better and newer products on the market in the future.

In this period, it would have made sense to introduce product 1 – new to the market. However, we decided to relaunch product 1 – old because the economic forecast for period 2 stated that a newly introduced product should be better than the existing one in terms of technology and ecology. However, this was not the case with us, as the product indices of the new product were not above those of the old product. In the event of a product launch, according to the economic forecast for period 2, massive sales slumps would have been expected.

Since we relied too much on the economic forecast and did not introduce product 1 – new, we had to file for bankruptcy in this period.

Our competitors have all released product 1 new and as a result our sales have collapsed.

Due to our insolvency, we achieved an operating result of EUR -29.31 million and a cash flow after tax of EUR 48.50 million.

3 Period 4

3.1 Goals

Our targets have now changed significantly from our previous targets (Figure 1) due to our insolvency. Securing the company's existence now has the highest priority over all other corporate goals.

3.2 Measures

During this period, we have separated from our previous product, the old black-and-white copier. We have launched a faster and more powerful black-and-white copier and at the same time a new product, a color copier.

For product 2, a price of 8000 euros per copier is expected on market 1. We have decided to charge a price of 7200 Euros to sell our products as much as possible.

On market 1, a decline in demand of about 10% is to be expected for product 1, based on this forecast, we have reduced advertising costs from 12.0 MEur to 9.0 MEur.

For product 1, a sales increase of 20 – 30% is expected in market 2, which is why we have increased our advertising expenditure by 1.0 MEur. We have drastically reduced the price for product 1 in market 2 from 3150 FCU to 2100 FCU in order to sell as many products as possible.

Due to our poor economic situation, we had to lay off 25 employees in product development and 100 in production.

We have reduced the ancillary personnel costs from 41% to 38% in order to further reduce our costs. We accept that the motivation of employees will decrease as a result and absenteeism will increase.

A wholesaler wants to buy 7000 pieces of product 1 for 2650 euros per device, as this is a guaranteed sales, we have decided to sell this amount to the wholesaler.

In the tender for the foreign government, we offered a price of 2900 euros per piece.

3.3 Result

In the fourth period, we were able to find a foreign customer for our remaining stock of product 1-old and sell them for about 59 MEur, which significantly reduced our stock.

From product 1 we were able to sell our complete planned sales volume. Since we could not sell anything on market 2 and 7000 copiers went to the large customer, we would probably have been able to sell significantly more products.

Product 2 has not been sold as well as hoped. We were only able to sell 4758 units with a planned sales of 8000, although we had the clearly lowest price compared to our competition.

For product 1, we have a positive contribution margin of EUR 297. The contribution margin of product 2 is very negative at -4766 euros, which is due, among other things, to our low price and the high research and development costs.

We were able to use 1277 people in production, but 1307 people would have been required, so we laid off 30 employees in production too many.

The environmental impact indicator of our company increased by 4.25 points to 104.85, which is very positive and due to the purchase of the 2 new machines.

The motivation of the employees has fallen from 96 to 90 points, which is due to the many redundancies.

Our technology and ecology values are satisfactory, only the technology index of product 2 still needs to be improved.

Due to our incorrect handling of the input mask borrowing, we have in this period with 65.70 MEur a much too high cash balance and thus liabilities of 134 MEur.

Our share price has continued to rise enormously, at € 312.7/share compared to € 196.3/share in period 3. As a result, shareholder earnings more than doubled from EUR 51.3 million in the last period to EUR 124.8 million in this period.

At the same time, the enterprise value rose by EUR 58.2 million to EUR 156.4 million compared to the previous year.

In terms of customer satisfaction in the industry, we are in second place because the technology and environmental indices of our products are good.

Despite the redundancies, our corporate image improved by 5.2 points to 114.4 points.

In the fourth period, we achieved an operating result of EUR -7.55 M and a loss carried forward of EUR -16.10 M. Consequently, cash flow after tax was also negative at -5.47 MEur.

We were awarded the contract in the tender.

[...]

Excerpt out of 15 pages

Details

Title
Report on the business simulation TOPSIM General Management II
College
Cologne University of Applied Sciences
Grade
2.0
Author
Year
2007
Pages
15
Catalog Number
V1256126
Language
English
Keywords
report, topsim, general, management
Quote paper
Dominic Weckmann (Author), 2007, Report on the business simulation TOPSIM General Management II, Munich, GRIN Verlag, https://www.grin.com/document/1256126

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