Cash Flow and Revenue Realization
Dividends on the Balance Sheet
Market Share of a Firm
Taxes When a Firm Is Unprofitable
“How much calendar time does each decision round in LINKS represent?”
As described in the LINKS participant's manual, each LINKS decision round corresponds to one quarter.
“Our current cash balance is about $3,000,000. Are our costs expensed at the beginning of the next simulation round or the end of the next simulation round? The answer influences our marketing spending decisions, since we obviously don't want to spend money before we have it.”
Assume that all revenues and costs occur uniformly throughout a simulation round. For example, within a 30-day month, about 1/30 of a month's revenues and costs are attributable to each day's operations. Thus, you do have revenue coming in regularly throughout the simulation round to pay for your various within-round operating costs. Thus, there's no need to worry about within-round cash flow issues with regard to covering your operating costs and within-round marketing spending. Also, note that you do have access to loans, as necessary, to cover shortages in cash.
“Why are dividends reported as negative numbers on our Balance Sheet?”
Dividends are reported as negative numbers on the Balance Sheet because they represent cash outflows that effectively reduce owners' equity.
“How are loans repaid? Is it possible to accelerate loan repayment?”
Excess cash at the end of any simulation round is used to retire existing loans. If there are no outstanding loans, excess cash is invested in marketable securities. These operations are conducted automatically by the LINKS software with no intervention required. Given this automation situation, accelerated repayment of loans does not exist. Loans are already paid off as rapidly as available cash permits.
“How do Marketable Securities work in LINKS?”
Cash in excess of 10% of Revenues is automatically invested in short-term (1-quarter) Marketable Securities. Interest earned on Marketable Securities is reported as Non-Operating Income on the Corporate P&L Statement in the following quarter.
Marketable Securities are automatically converted to Cash during the next quarter, and then possibly re-issued if Cash again exceeds 10% of Revenues at the end of the next quarter. See the process flow in the Cash Flow Analysis Report for the details of the initial conversion to Cash and subsequent re-issuing of Marketable Securities.revised 12/13/2012
listed under "Definitions"
listed under "Financial and Operating Reports"
“How is a firm’s market share determined? Change in market share is one of the KPIs (Key Performance Indicators) on which our LINKS firm is accessed.”
Market share of a firm equals a firm’s sales volume to final end-user customers (across all products in all channels and all regions) divided by industry sales volume to final end-user customers (across all firms' products in all channels and all regions).
“How is the non-operating income credit/charge calculated on the Corporate P&L Statement?”
Positive [negative] non-operating income means that there were marketable securities [loans] on the previous round's Balance Sheet. Your firm receives or pays interest based on the previous round's marketing securities and loans positions. If your firm has marketable securities this round, you'll receive an interest payment next round; if your firm has loans this round, you'll pay interest next round.
“When do reconfigurations occur?”
Reconfiguration requests are processed at the beginning of a simulation round, so reconfigurations occur "immediately" (i.e., before the beginning of the next simulation round).
“What's the definition of 'Return-on-Assets' as used in the Performance Evaluation Reports?”
Return-on-Assets is defined in the LINKS participant's manual. In calculating Return-on-Assets, use last quarter's Total Assets (from last quarter's Balance Sheet) and this quarter's Net Income (from this quarter's Corporate P&L Statement) and then annualize the calculated Return-on-Assets figure. For example, if last quarter's Total Assets was $120,000,000 and this quarter's Net Profits is $6,000,000, then this quarter's ROI is 6,000,000/120,000,000 which equals 5% for this quarter. Then, you'd need to multiply this by 4 to translate it into annualized ROI (20%, in this example).
For example, if last quarter's Total Assets was $120,000,000 and this quarter's Net Profits is $6,000,000, then this quarter's ROI is 6,000,000/120,000,000 which equals 5% for this quarter. Then, you'd need to multiply this by 4 to translate it into annualized ROI (20%, in this example).
“Why is our Service Overhead so high?”
Service representatives incur direct and indirect expenses in connection with providing customer service. Direct expenses generated are in terms of fringe benefits (health insurance, government taxes of various kinds, and so on) and long-distance charges. Indirect costs to support service representatives include periodic service training activities, service management overhead, office support, infrastructure support related to call center technology, and the like. The services overhead rate is detailed in your LINKS participant's manual. Your firm is automatically billed for the direct and indirect costs associated with maintaining service representatives in each market region. These service expenses are recorded as "Service O/H" on your financial statements.
Your firm is automatically billed for the direct and indirect costs associated with maintaining service representatives in each market region. These service expenses are recorded as "Service O/H" on your financial statements.
“How are "Service Salaries" on the financial reports calculated? We seem to have a number that’s 50% higher than multiplying the number of CSRs in the region times region’s CSR monthly salary.?”
"Service Salaries" (total CSR salaries) on the financial reports for a region equals the number of CSRs in a region times the region’s CSR monthly salary times 3. The "times 3" multiplier converts CSR monthly salary to CSR quarterly salary, since each round in LINKS corresponds to a quarter (three months). Then, "Service Salaries" (the share of total CSR salaries allocated to a particular service) equals the CSR % time allocation to a service in a region times the total CSR salaries for a region. For example, with 100 CSRS in a region and a CSR monthly salary of $3,000, total quarterly CSR salaries in that region equals $900,000. And, a service with a 50% CSR time allocation in that region would have $450,000 in "Service Salaries" allocated to it.
“How are stock prices determined?”
Stock prices presumably reflect investors’ expectations of a firm’s future financial performance. Investors’ expectations presumably are based on a firm’s current and recent-past financial performance along with other factors like operational efficiency. In addition, industry-wide financial performance might also influence a firm’s stock price, since industry-wide performance reflects long-run financial potential for all firms in an industry. There’s also likely to be a degree of randomness in the formation of investors’ expectations.
“When a firm loses money, do taxes still exist?”
If operating income plus non-operating income (interest from marketable securities plus interest paid due to loans plus the sum of all patent royalties paid and received) is negative, the firm is unprofitable. Such a loss generates “negative” taxes (i.e., a tax credit) which results in a reduction in the size of the final, post-tax net income, since the tax credit effectively subsidizes the operating income loss. In such a situation, taxes will be a positive number, reflecting the tax credit. (Normally, taxes is a negative number representing the taxes paid. But, taxes are only paid if the firm is profitable.)
“What's a 'top-box score'?”
A top-box score is an overall summary measure of customer survey responses to a rating scale. For example, suppose that a four-point rating scale is used to measure customer satisfaction. The points on this rating scale might be described by the verbal anchors "Poor," "Fair," "Good," and "Excellent." Rather than translate these verbal anchors into the numeric scale 1, 2, 3, and 4 and then calculate the associated rating-scale average for the survey responses, we might focus on the percentage of survey respondents who checked the top-box on this four-point rating scale (i.e., the percentage of survey respondents who checked "Excellent"). If 32.1% of survey respondents checked the top-box ("Excellent" in this case), then its top-box score would be 32.1%. Rating-scale averages summarize all survey responses while top-box scores focus on the extreme upside of rating scales. Thus, top-box scores are about customer delight not merely satisfaction. Extreme beliefs drive customer behavior and top-box scores focus on measurement of the extreme upside of customer rating scales. Note, also, that customer satisfaction and product/service perception measures are normally only useful in comparison to other similar measures, either at earlier points in time or for competitive products/services at the same point in time.
Rating-scale averages summarize all survey responses while top-box scores focus on the extreme upside of rating scales. Thus, top-box scores are about customer delight not merely satisfaction. Extreme beliefs drive customer behavior and top-box scores focus on measurement of the extreme upside of customer rating scales. Note, also, that customer satisfaction and product/service perception measures are normally only useful in comparison to other similar measures, either at earlier points in time or for competitive products/services at the same point in time.
“Can unfilled orders exist?”
Yes. Note that these are unfilled orders not backlogged orders. There’s no requirement that customers wait to purchase your support service when it becomes available in the future. For those customers facing unfilled orders, some presumably shift to other firms’ available support services immediately while some wait to purchase their preferred support service when it becomes available in the future. Of course, all sales and customer choices in the future are governed by the prevailing conditions (e.g., taking into account your price and the prices of competitors) in the future.