In this two-part assignment, students will examine the capabilities your company

Question

In this two-part assignment, students will examine the capabilities your company needs to develop to deliver its strategy. An important aspect here is to determine the measures that you want to use to determine the success of your efforts. We assume that your team is about to have a meeting to set long range priorities around performance measures. This assignment is pre-work for that meeting.

Part Two: Performance Measures What performance measures should be used by your stakeholders to assess your company’s performance? What is their relative importance to each other? The simulation offers 8 performance measures: 1. Cumulative Profit 2. Ending Market Share 3. Average ROS (return on sale) 4. Average Asset Turnover 5. Average ROA (return on asset) 6. Average ROE (return on equity) 7. Ending Stock Price 8. Ending Market Capitalization You will find a brief explanation for each measure on the Capsim website under “Homework”, “Success Measures”, “Criteria Definition” links. Also read the Overview. Prioritize these measures by applying a weight between 0% and 100%. (I don’t recommend that you choose just one success measure but you can if you want!) I recommend about four but you can have from one to eight. The percentages across all measures must add up to 100%. For example, you might set Cumulative Profit to 30%, Market share to 20%, ROS to 10%, ROE to 10%, Stock price to 10%, and Market Capitalization to 20%. Given your measures, the simulation will score all teams to develop a winner based on each team’s criteria. The Capsim report “Final Score Relative” tells you how you are doing to your success measures. The report uses a three-step process: 1. The system determines a raw score for each category by dividing the team’s score (“Team's Value”) by the highest scoring team in that category (“Highest Value”). For example, if the “Team’s Value” for Profit is $5,000,000 and the “Highest Value” is $10,000,000, the team receives a raw score of .5 ($5,000,000 ÷ $10,000,000 = 0.5). 2. Next, the system multiplies the raw score by the success measure entry. Continuing with the previous example, if the team’s success measure (“Team Weighting”) is 12.0, multiplying 12 by 0.5 will derive a “Score” of 6. 3. The scores for each category are added, and the resulting sum appears in the Total row. Write a 1-page explanation for your choices for each performance measure. Be sure to relate your explanation to the concepts introduced in the text. For example: 1. Is this measure appropriate for evaluating your strategy? For example, if you are in every regional segment, market share is appropriate. If you are in only two regional segments, it is not appropriate, even if you have highest overall market share at the moment. 2. Why did you prioritize it with the value you gave it? In particular, if you think it is an appropriate measure, why? Likewise, if you think it is marginally appropriate, why?

Explanation / Answer

Average asset turnover = (Net sales) / (Average total asset)

Cumulative profit is the retained earnings that feature under stockholder’s equity. It has no connection with average asset turnover.

Ending market share has no connection with company’s performance. It only creates goodwill of the company.

ROS is the return on sales. Increasing average asset turnover increases ROS too, since the corresponding profit increases.

ROA is the return on asset = (Net income) / (Average total asset)

Both the denominators of average asset turnover an ROA are the same.

ROE is the return on equity = (Net income) / (Total equity)

ROE has no connection with average asset turnover

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