Author Topic: Selling ALL capacity during final year?  (Read 8196 times)

Tanaka

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Selling ALL capacity during final year?
« on: December 11, 2012, 07:52:46 AM »
Hi all! This is my first post, so please bear with me.

At our university, we play BSG Online in 10 teams of 2 co-managers until Y20. We are currently in Y16; our company is doing quite well (relatively, at least): 4th place, overall GTD of 70.
We have bought capacity from others several times; now we have 8000 capacity and that is paying off very well.

So my co-manager and I were joking to ourselves that since there won't be a Y21 anyway, one could even sell every single drop of capacity, just to boost one's Y20 score. If I understand the concepts of business correctly (and I'm an engineering, not an MBA student), this has the following effects:
Direct:
- EPS goes up, if the cash gained counts towards this;
- RoE goes up, as tangible assets fall under equity.

The cash on hand one will receive could be spent towards the indirect effects:
- Credit rating goes up by early repayment of debts;
- RoE and stock price go up when repurchasing company stock (up to the the limit of that year);
- Stock price goes up further by paying dividend (assuming other parameters are favorable as well);
- Image rating could go up by allocating more money towards corporate citizenship (assuming previous consistent investments, as these usually take quite a while).

I'd greatly appreciate some feedback to my previous statements. Of course, actually pulling off such a stunt would be unethical at least; but this thought experiment could help me get a better understanding of these aspects, because I believe my knowledge here is a little bit lacking.

WinBusinessStrategyGameTips

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Re: Selling ALL capacity during final year?
« Reply #1 on: December 11, 2012, 11:09:54 AM »
Hello,

Thanks for posting, the thought of selling capacity goes on in many BSG games. But it doesn't artificially boost up scores and furthermore brings about the ire of profs as not being sound business practices.

In the case of RoE and EPS, the levers to both formula is "Return on Equity" which is Net Profit/Equity and "Earnings Per Share" which is Net profit/Shares outstanding. No where in the calculation is assets included, and this is because equity is "shareholder's equity" which is retained earnings, additional capital, and common stock. You can verify this on the balance sheet theoretically as well as in the game and sell the plant.It does nothing neither way.

There is base logic, credit rating may go up with early repayment of debts.
Stock price "may" rise, although this is more unlikely than credit rating.
Extra dividends may in fact help stock price, but also unlikely.
Image rating is somewhat unlikely as the strength of image rating is consistent efforts, and not a quick push in the last year.


Outside all the theories, you should need the capacity to simply keep on producing shoes for you to sell. While selling capcaity is a move I utilize from time to time, it is not this end all be all grand strategy with amazing effects.
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