How to increase leverage in capsim

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Topic: CAPSIM Simulation assignment for Business Policy Development and ImplementationFor any business, the primary function is to satisfy the goals of the stakeholders. This involves making profits (for the stakeholders), maintaining these profit margins, ensure high-quality products and also offer employment opportunities. The enterprise is organised into manageable groups each led by a leader whose function include:1) Planning2) Coordinating3) Controlling4) Organising5) CommandingThe interpersonal, political, conceptual, technical, diagnostic and leadership skills are vital for high performance accorded to any group. The groups involved included Chester, Andrews, Baldwin, Digby, Errie and Ferris. Each had its own leader.According to the implementation of policies and strategies in any business sector1) All policies should be agreed upon by the group members.2) An appropriate forecasting method should be inculcated to aid in sound decision-making.3) A team spirit and a favourable environment should be enhanced4) The set policies and strategies must be reviewed overtime to ensure the consistency of all plans and same objectives are aimed at.5) Depending on the changes in the sector, contingency plans should be developed.6) The leader must have the know-how (where and how) certain plans are useful.The analyses of the group performances are as based below.Profit-AnalysisIt is a type of cost-accounting applied for fundamental and short-term decisions. It extends the scope of the break-even analysis.Profit margin is a measure of the profitability index calculated as the ratio of the net income to the accrued revenues or the ratio of the net profits to the sales made. A higher profit margin depicts a more worthy investment having a greater degree of control over its cost when compared to other market players.Scrutiny of a company’s earnings does not depict its profitability index and a rise in its earnings also does not show increased profit margins. A company whose costs have increased at a greater rate compared to the sales depict a lower profit margin; the opposite is true.A little profit margin could show the effectiveness of the pricing strategy and also the impact of the market dynamics like competition. In the analysis of the profit margins, the following are considered:1) The average profit margin for the groups: Chester, Baldwin, Digby, Erie, Ferris and Andrews2) The difference between the operating margins and the profit margins for the said groups3) The available financing sources for the different groups.In the beginning, the groups had relatively same profit margins ($2,493,706), sales ($40,799,953) translating to 6.5% of the total turnover same leverage and no emergency loan. The market share was equally divided among the six groups. This is expected at the start before market dynamics entered to play.At round 1, the profit margins changed visibly across the six companies. Chester in particular made $2,786,788 (an increase of $293,082) with the sales at $56,515,995 (an increase of $15,716,042). This is quite commendable though the leverage decreased to 1.5 from 1.6 in the previous round though not comparable to the Ferris Company having a leverage of 1.9. This ranks Chester 5th as it had a higher ROA and Asset Turnover than Andrews Company.Chester continued to replicate its rise in profit with the margin rising by $1,343,740 to $4,130,528 in round_2 with the sales increasing by $12,541,278 to $69,057,273. The leverage maintained at 1.5 and was ranked 5th based on their leverage and ROA.The profits dropped to $4,057,144 though the sales increased to $72,011,399. The leverage increased to 1.8 though it still maintained the 5th rank based on their leverage and ROA. This is for the round_3.The profits continued to rise in round_4 to $6,762,263 and also the sales to $93,523,991. The leverage though dropped to 1.6 for this period.
Chester almost doubled their profits in the next round_5 to $12,508,519 with the sales increasing by $4,360,625 to $97,884,616. The leverage dropped to 1.4 during the same period.Operating Cash-Flow MarginIt refers to a measure of the amount of capital generated from the company’s core products and services in relation to operational costs accrued. It can be found directly from the company’s cash-flow statements. A higher operating cash-flow margin depicts greater efficiency in converting sales to cash and also a higher earning index.Analysis of this margin is useful in making long-term goals and decisions. For example, a company might need a large in-flow of capital from outside when it experiences negative cash-flow margins. During the first period, the cash in-flow was actually $0, translating to 0% of the total turnover considering no plans for plant improvement were integrated. By investing more on operational cash flow margin, the company will try to rely more on internally generated income, which stood at $5,602 for Chester during the first period, than on debt to fund its operations. With no positive cash flow, a company would1. Accrue debts [=$0(for the first round)]2. Raise additional equity (=$0(for the first round)3. Stay out of businessThough, in some instances, negative cash flow is not bad considering the company is investing in a worthwhile project like automation for the case of a production enterpriseOperating cash flow margin= Cash-flow from Operating Activities/SalesFor first 2014 period, CF= $5,602Chester had a positive cash-flow in the beginning hitting the $5,602 mark. This was mainly accrued from the Inventories ($2,352) and the Account Receivables ($3,647). The cash flow summary stipulates low investment levels by Chester with the operational costs ($4000) exceeding the financing cash ($1000).Chester performed dwindled in this sector the following year, round_1. The net cash-flow dropped to $4,061 from $5,602 (a decrease $1,541). This was due to extra costs like the $6,400 spent on plant improvement and increased net income (loss), $ 2,787 from $2,494.For round_2, the cash-flow increased by $520 t0 $4,581. This may be attributed to the sales of common stocks (at $2,000) and the cash issued from long term debt ($3,000) which was previously $0 in round_1.There was a steady rise in cash-flow with the value rising to $5,571 in round_3. This may be attributed to the cash from the emergency loan ($13,145) and the improved sales of common stocks ($3,750).The cash-flow increased to $9,417 for round_4. This may be attributed to the increase in the cash from long-term debt issued ($15,000), increase in sales of common stocks ($7,822) and the retirement of current debt ($13,145).
The cash flow for round_5 increased to $17,120. This may be attributed to the increase in the Net Income (loss) which stood at $12,509 as compared to round_4 which stood at $6,763.InventoryIt refers to a collection of unsold services/products waiting to be sold. It is categorized as a current asset in a company’s balance sheet. It may inculcate the finished goods waiting to be sold to the consumer, goods being delivered to their clients, the products as they navigate different production stages or the raw materials needed to produce the finished products. Inventories are usually maintained for:1) The expected demand2) Taking advantage of price fluctuations both in the finished goods and the raw materials alike (which depreciated by 2.4% during the 2014 period)3) Maintaining a steady stream of consignment to consumers instead of making one-stop deliveries4) Protection a...