Financial and Operating Reports FAQs

Click on a link below to access that FAQ (frequently-asked question) topic.


Balance Sheet and Retail Channel Inventory
Cash Flow Analysis Report
Cash Flow and Revenue Realization
Consulting Fees Do Not Equal -300,000
Consulting Fees of -300,000
Cost Recognition Timing
Decision History
Depreciation
Disposal Sales
Dividends
Dividends on the Balance Sheet
Excel Spreadsheet Results File
Historical Benchmarks
Historical Benchmarking Results Not Accessible
Information Technology Billings Interpretation
Inventory Charges
Inventory Charges (Detailed)
Inventory Turnover
Loans
Marketable Securities
Non-Operating Income
Ordering Financial and Operating Reports
Overheads
Patent Royalties
Patent Royalties Reported But We Didn't Reconfigure
Patent Royalty Payments: One-Time or Continuing?
Price on the Corporate P&L Statement
Product Costs
Profitability of Demand Drivers
Ratios Rather Than Absolutes
Raw Materials Transportation Costs
Research Studies Cost as Reported on Financial Statements
Research Studies Reports
Retail Pipeline Report
Return-on-Assets
Some Corporate P&L Statement Totals Seem Incorrect
Standard Financial and Operating Reports
Stock Prices Down Industry-Wide
Taxes
Taxes When a Firm Is Unprofitable
Transportation Cost Report
Transportation Costs Reporting
Unfilled Handling Costs Refunds
Weird Results
Word Formatting of LINKS Results File
Zero/Near-Zero Sales Volume in Channel 1




Balance Sheet and Retail Channel Inventory

“How can our Balance Sheet show zero inventory for product 1 while the retail channel inventory (from Research Study #12) shows 6,609 units for product 1?”

Retailers in channel 1 purchase finished goods from your firm, mostly to sell to their customers (final end-users) but partially to stockpile their own inventory level to serve their customers’ varying and unpredictable purchasing requirements. When you sell product to retailers, they take physical possession and ownership of that finished goods inventory (and you receive revenues from that sale). Thus, this finished goods inventory is no longer owned by you. You have apparently stocked-out of available inventory (perhaps you also have unfilled orders) but this has nothing directly to do with the inventory level maintained by retailers in channel 1. In summary, you’re looking at two different inventory pools, one owned by you and reported on your Balance Sheet and another owned by retailers and reported in Research Study #12.

revised 08/19/2005
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"Cash Flow Analysis Report

How can the Cash Flow Analysis Report be evaluated other than to explain how loans are created and liquidated? It appears that if a firm is successful and builds volume it will incur loans yet be able to pay them off. If volume levels off, the firm will incur less debt and may have difficulty liquidating the loan, but should as long as profits are forthcoming. Are there strategic implications embedded in the Cash Flow Analysis Report that can be revealed other than debt avoidance for firms with mounting losses?"

The Cash Flow Analysis Report tracks where cash comes from and where it goes. It’s included in the LINKS financial and operating reports so that all of the traditional accounting statements are present within the standard financial reports in LINKS (profit and loss, balance sheet, and cash flow).

Even with some accounting background, LINKS participants often don’t seem to understand the cash-flow consequences of inventories. Many participants, for example, don’t understand that procurement of raw materials and sub-assembly components has direct cash flow consequences (cash decreases and investment in inventories increases) but only indirect profitability consequences (when those inputs are converted into finished goods that are sold).

revised 05/27/2013
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Cash Flow and Revenue Realization

“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.

revised 01/02/2007
[000003.html]
listed under "Definitions"
listed under "Financial and Operating Reports"





Consulting Fees Do Not Equal -300,000

“Consulting Fees do not equal -300,000 on our Corporate P&L Statement. Why is this?”

Additional items (e.g., RFID insourcing costs) may be included in Consulting Fees beyond just the usual -300,000 bonus for on-time input submission. Review the DECISION VARIABLE CHECKS AND MESSAGES section of your financial reports (near the end of your financial reports) for reporting of additional charges included in your Consulting Fees.

revised 06/06/2013
[000254.html]
listed under "Financial and Operating Reports"





Consulting Fees of -300,000

“What is the source and meaning of the Consulting Fees of -300,000 on our Corporate P&L Statement?”

These are negative consulting fees. Since consulting fees are an expense on the Corporate P&L Statement, a negative consulting fee is a bonus. These 300,000 bonuses are provided automatically by the LINKS software during a game run when decision inputs (at least some new decisions and/or at least some research study orders) are received on time from a firm.

These on-time input submission bonuses reward LINKS firms for completing their inputting in a timely fashion (i.e., before a scheduled game run submission deadline). Of course, firms not submitting inputs in a timely fashion are also implicitly penalized in two other ways, beyond not receiving the -300,000 consulting fee bonus: their previous decisions remain in effect (unchanged from the previous LINKS round) and no research studies are ordered. Research studies must be ordered in each LINKS round, as there are no “standing-order” LINKS research studies.

Why give a bonus for expected/required behavior? Perhaps because it's better to reward “good” behavior (even if expected/required) than to explicitly punish “bad” behavior. This is consistent with the parenting motto: "catch them doing good."

revised 06/03/2015
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Cost Recognition Timing

“How did we have 'Product Costs" of nearly $10,000,000 this simulation round? We had an inventory of approximately 18,000 units with no new production orders this simulation round. Our plan was to eliminate our finished goods inventory that had built up over the recent past. I had always thought that product costs are incurred when the product is produced.”

The accounting principle of matching (i.e., matching revenues and costs) is key here. You are charged for variable production costs ("Product Costs" in LINKS) when it's sold not when it's produced. When the product is produced, it's a strict asset-side transaction on the financial statements with cash decreasing and finished goods inventory increasing. There's no profit-and-loss implication of production. When the product is sold, the Balance Sheet is affected with finished goods inventory decreasing and cash increasing. On the P&L Reports, the sale of the product has associated with it product costs.

revised 08/19/2005
[000016.html]





Decision History

“Where can I find our past decision inputs? It’s inconvenient to look back through our printouts to find the status of our decisions in the past.”

An Excel spreadsheet results file for each LINKS firm supplements the standard LINKS Word doc results file. After each LINKS round, you'll routinely access a printed copy of your firm's Word doc results file for review and analysis. The Excel spreadsheet results file doesn't replace the Word doc results file. Rather, the Excel spreadsheet results file is a supplementary reporting mechanism for your firm's financial and operating results.

The Excel supplementary results spreadsheet consists of five worksheets with supplementary data beyond that provided in each round's Word doc results file.

  • The Results worksheet includes most of the data reported in the Word doc results file, so you don’t have to manually re-input data from the Word doc results file into an Excel spreadsheet. This supplemental Excel spreadsheet isn’t designed to be particularly “pretty” … it’s strictly designed with functional considerations in mind. You’ll need to reformat this Excel spreadsheet as you see fit by, for example, cutting-and-pasting rows and columns of data into an Excel spreadsheet of your own design.
  • The Dashboard worksheet contains a single-screen top-line summary of your firm’s key results for the most-recent LINKS round.
  • The Decision History worksheet documents the last six rounds of inputs for each LINKS decision variable for your firm. This worksheet provides a convenient archival resource to access past LINKS decision inputs.
  • The Forecasts worksheet contains two extrapolative|quantitative forecasts of the next round’s sales volume. Be sure to review the details and background assumptions of these forecasts, as reported in this worksheet.
  • The KPIcharts worksheet contains charts of each LINKS KPI vs. the corresponding industry KPI best, industry KPI average, and industry KPI worst for each of the last six LINKS rounds. These KPI charts provide an appealing graphic rendition of the LINKS performance evaluation dimensions displayed in tabular form on the first page of each firm’s Word doc financial and operating reports results file.

    To access your firm’s Excel spreadsheet, click on the appropriate link on your firm’s webpage on the LINKS Simulation Database.
  • You’ll presumably wish to save this Excel spreadsheet with a suitable name on your PC. Note that each round’s Excel spreadsheet for your firm will have to same name, so you’ll need to rename successive rounds’ spreadsheets appropriately on your PC to distinguish the spreadsheets for various LINKS rounds.
  • You may wish to change the font used throughout the Excel spreadsheet to either “8514oem” (if available) or “Courier New”, 10-point size in both cases, to permit more convenient on-screen viewing.
  • You’ll need to widen the column widths to conveniently view all of the spreadsheet values and the row and column labels/titles.

    revised 05/23/2009
    [000189.html]
    listed under "Financial and Operating Reports"
    listed under "LINKS Simulations Database"
    listed under "Website"





    Depreciation

    “I don’t see depreciation in the LINKS profit-and-loss statements. Where is depreciation reported in the LINKS financial statements”

    Depreciation is not reported directly in the LINKS profit-and-loss statements. Depreciation is included within the set-top box products' variable manufacturing costs ('Product Costs'). So, depreciation is included indirectly within the variable manufacturing costs ('Product Costs') reported on the LINKS profit-and-loss statements.

    revised 03/23/2007
    [000144.html]
    listed under "Definitions"
    listed under "Financial and Operating Reports"





    Disposal Sales

    “What are disposal sales?”

    Set-top box reconfigurations result in immediate disposal sales of all current finished goods inventory at all distribution centers. Please view the following video for more details.


    revised 10/25/2017
    [000006.html]
    listed under "Definitions"
    listed under "Financial and Operating Resports"
    listed under "Reconfigurations"





    Dividends

    “Where do we input the dividends decision?”

    Dividends are automatically managed by LINKS. You pay a dividend whenever you have a profit. Please refer to the LINKS participant's manual for details.

    revised 02/10/2007
    [000118.html]





    Dividends on the Balance Sheet

    “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.

    revised 08/18/2005
    [000005.html]
    listed under "Definitions"
    listed under "Financial and Operating Reports"





    Excel Spreadsheet Results File

    “Where can I find our past decision inputs? It’s inconvenient to look back through our printouts to find the status of our decisions in the past.”

    An Excel spreadsheet results file for each LINKS firm supplements the standard LINKS Word doc results file. After each LINKS round, you'll routinely access a printed copy of your firm's Word doc results file for review and analysis. The Excel spreadsheet results file doesn't replace the Word doc results file. Rather, the Excel spreadsheet results file is a supplementary reporting mechanism for your firm's financial and operating results.

    The Excel supplementary results spreadsheet consists of five worksheets with supplementary data beyond that provided in each round's Word doc results file.

  • The Results worksheet includes most of the data reported in the Word doc results file, so you don’t have to manually re-input data from the Word doc results file into an Excel spreadsheet. This supplemental Excel spreadsheet isn’t designed to be particularly “pretty” … it’s strictly designed with functional considerations in mind. You’ll need to reformat this Excel spreadsheet as you see fit by, for example, cutting-and-pasting rows and columns of data into an Excel spreadsheet of your own design.
  • The Dashboard worksheet contains a single-screen top-line summary of your firm’s key results for the most-recent LINKS round.
  • The Decision History worksheet documents the last six rounds of inputs for each LINKS decision variable for your firm. This worksheet provides a convenient archival resource to access past LINKS decision inputs.
  • The Forecasts worksheet contains two extrapolative|quantitative forecasts of the next round’s sales volume. Be sure to review the details and background assumptions of these forecasts, as reported in this worksheet.
  • The KPIcharts worksheet contains charts of each LINKS KPI vs. the corresponding industry KPI best, industry KPI average, and industry KPI worst for each of the last six LINKS rounds. These KPI charts provide an appealing graphic rendition of the LINKS performance evaluation dimensions displayed in tabular form on the first page of each firm’s Word doc financial and operating reports results file.

    To access your firm’s Excel spreadsheet, click on the appropriate link on your firm’s webpage on the LINKS Simulation Database.
  • You’ll presumably wish to save this Excel spreadsheet with a suitable name on your PC. Note that each round’s Excel spreadsheet for your firm will have to same name, so you’ll need to rename successive rounds’ spreadsheets appropriately on your PC to distinguish the spreadsheets for various LINKS rounds.
  • You may wish to change the font used throughout the Excel spreadsheet to either “8514oem” (if available) or “Courier New”, 10-point size in both cases, to permit more convenient on-screen viewing.
  • You’ll need to widen the column widths to conveniently view all of the spreadsheet values and the row and column labels/titles.

    revised 05/23/2009
    [000187.html]
    listed under "Financial and Operating Reports"
    listed under "LINKS Simulations Database"
    listed under "Website"





    Historical Benchmarks

    “What are the Historical Benchmarks?”

    How high is “up”? In LINKS, the answer is partly provided by the within-industry benchmarks reported on the first page of each firm’s financial reports. These within-industry benchmarks provide a firm’s current-industry performance “ups” (current-industry minimums, averages, and maximums) on Key Performance Indicators such as Net Income To Revenue % and Forecasting Accuracy %.

    However, the larger question remains: what’s possible? … what’s the upper limit of performance? The LINKS Historical Benchmarks provide the answer to this broader question.

    LINKS Historical Benchmarks are based on the history of all firms since February 1, 2012 for a particular LINKS Simulations variant.

    These Historical Benchmarks provide a meaningful cross-industry performance reference for any firm at any point in time in a LINKS event. For example, a firm in a LINKS Supply Chain Management Simulation industry in Month #6 may compare its performance to all past firms in Month #6 of LINKS Supply Chain Management Simulation industries via the Historical Benchmarks.

    Note: The Global Top-10 Rankings also provide benchmarks, but the comparison in the Global Top-10 Rankings is to all other firms in all LINKS Simulations variants with a scheduled game run in that calendar week. And, of course, those other firms are using any LINKS Simulations variant (not necessarily your LINKS Simulations variant) and are at various stages in their LINKS events.

    revised 06/14/2013
    [000254.html]
    listed under "Financial and Operating Reports"
    listed under "LINKS Simulation Database"
    listed under "Performance Evaluation"





    Historical Benchmarking Results Not Accessible

    “I am having problems finding the link for Historical Benchmarking. Where is the link?”

    Historical Benchmarking results are available when enough historical data for a LINKS Simulations variant are available for meaningful comparisons. Sufficient historical data for your particular round-count for your LINKS Simulations variant aren't available.

    LINKS firms always have access to your own within-industry Forecasting Accuracy results for each round on page 1 of your financial results (your firm's Word doc file). A graphical report for the last six rounds is included in your KPI (Key Performance Indicator) charts in your Excel results.

    revised 05/27/2013
    [000253.html]
    listed under "Financial and Operating Reports"
    listed under "LINKS Simulation Database"
    listed under "Performance Evaluation"





    Information Technology Billings Interpretation

    “Why are we being charged for Information Technology on the Corporate P&L Statement? We're not currently using any information technology options.”

    As described in the LINKS participant's manual, Information Technology billings include the $1,000 per output-page charge for financial reports as well as the charges associated with any Information Technology options.

    Page count is only known after the Word doc output file is generated, which occurs after the current-rount financials are calculated. So, Information Technology costs for the current round are reported on the following round's financial reports.

    revised 10/23/2017
    [000095.html]
    listed under "Financial and Operating Reports"
    listed under "Information Technology"





    Inventory Charges

    “How are inventory charges calculated in LINKS?”

    Inventory charges in LINKS are based on the average of the beginning and ending inventory valuations in each simulation round. Inventory valuations are reported on the firm's Balance Sheet.

    revised 12/18/2010
    [000007.html]
    listed under "Definitions"
    listed under "Financial and Operating Reports"





    Inventory Charges (Detailed)

    “How are inventory charges determined in LINKS? We had two successive rounds with the same inventory charges and this seems difficult to believe given our varying inventory levels.”

    As per the description in the LINKS participant's manual, inventory charges are based on the average of beginning-round inventory value and ending-round inventory value. Your firm’s inventory values were $0, $10,164,020, and $0 at the end of rounds #4, #5, and #6, respectively. Thus, the inventory charge in round #5 was based on ($0+$10,164,020)/2 and the corresponding charge in round #6 was based on ($10,164,020+$0)/2. In both cases, this resulted in a total inventory charge of $152,460 (rounded).

    Because your firm’s inventory value went from $0 to $10,164,020 to $0 in successive rounds, the inventory charges were identical in the latter two rounds. Perhaps you are attempting to reconcile your inventory charges using only ending-round inventory value, not the average of beginning-round and ending-round inventory values as described in the LINKS participant’s manual.

    revised 12/18/2010
    [000213.html]
    listed under "Definitions"
    listed under "Financial and Operating Reports"





    Inventory Turnover

    “Can you help me understand the inventory turnover calculation a little better?”

    Inventory turnover is based on average ending inventory for this round and for previous round. Thus, with this averaging, a firm might have a "relatively low" inventory turnover this round even though its current ending inventory is zero ... if its ending inventory in the previous round was substantial. Note that the maximum inventory turnover ratio for a firm is 100.0, corresponding to situations with near-zero or zero average inventory levels.

    revised 09/11/2013
    [000045.html]
    listed under "Definitions"
    listed under "Financial and Operating Reports"
    listed under "Performance Evaluation"





    Loans

    “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.

    revised 08/19/2005
    [000008.html]
    listed under "Definitions"
    listed under "Financial and Operating Reports"





    Marketable Securities

    “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
    [000249quarter.html]
    listed under "Definitions"
    listed under "Financial and Operating Reports"





    Non-Operating Income

    “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.

    revised 01/03/2007
    [000009.html]
    listed under "Definitions"
    listed under "Financial and Operating Reports"





    Ordering Financial and Operating Reports

    “How do we order the financial and operating reports?”

    You don't order the financial and operating reports. The financial and operating reports are provided to your firm automatically at the conclusion of each LINKS round. You do "pay" for these reports at the rate of $1,000/page which is billed to you as part of your "Information Technology" expenses.

    revised 06/03/2002
    [000151.html]





    Overheads

    “How are the various O/Hs (overheads) calculated on the LINKS financial reports?”

    Please consult the participant's manual for details about the various overheads reported in your LINKS financial reports.

    revised 08/18/2005
    [000087.html]





    Patent Royalties

    “Do we have to pay patent royalties of any kind if we copy a competitor’s product when we reconfigure?”

    Yes, patent royalties exist in LINKS. Please refer to the LINKS participant’s manual for details about patent royalties.

    revised 09/22/2004
    [000161.html]
    listed under "Configuration"
    listed under "Financial and Operating Reports"
    listed under "Product Development"
    listed under "Reconfigurations"





    Patent Royalties Reported But We Didn't Reconfigure

    “We've just looked at our new results and we're surprised to see patent royalty fees of more than $300K. We didn't reconfigure a product. So, why are we being charged patent royalty fees?”

    On your Corporate P&L Statement, your Patent Royalties were receipts not payments. (Patent Royalties that are payments to other firms would be preceded by a "-" sign.) Please see the last page of your current financial financial reports for details about these Patent Royalties receipts from other firms whose reconfigurations violated the patent zones for your products.

    revised 02/16/2007
    [000127.html]





    Patent Royalty Payments: One-Time or Continuing?

    “Are patent royalties payable only once, at the time of reconfiguration, or are there continuing payments as long as a patent violation exists?”

    Patent royalties are payable once only, at the time of reconfiguration. There are no continuing payments.

    revised 09/22/2004
    [000192.html]
    listed under "Configuration"
    listed under "Financial and Operating Reports"
    listed under "Product Development"
    listed under "Reconfigurations"





    Price on the Corporate P&L Statement

    “How is price determined on the Corporate P&L Statement? We didn't change our prices but our corporate-level prices seem to have changed.”

    Corporate-level prices for your products are calculated as revenues divided by sales volumes. Thus, corporate-level prices are effectively weighted-average prices across all of the channels and regions in which you're selling set-top boxes. Even if your channel-specific and region-specific prices are identical through time, corporate-level prices can change due to varying sales volumes in the channels and regions in which products are actively distributed.

    In addition, the different prices in the indirect and direct channels contribute to the calculation of corporate-level weighted-average prices. If, for example, sales volume shifts from channel 1 (an indirect channel) to channel 2 (a direct channel), then the higher prices in channel 2 result in an increase in corporate-level weighted-average price even though your actual channel-specific and region-specific prices haven't changed.

    revised 02/20/2007
    [000086.html]





    Product Costs

    “What's included in Product Costs on our P&L statements?”

    Product Costs are the per-unit costs of finished goods inventory times the number of units sold. If ending inventory exists, you can see this per-unit cost on your firm’s Balance Sheet.

    Note that finished goods inventory isn’t a cost (in a P&L sense) until the finished goods inventory is sold. Before sales occur, finished goods inventory is an asset, reported on a firm’s Balance Sheet.

    Product volumes and associated dollar values are tracked separately throughout your inventory pipeline. To obtain the relevant units and dollar values of inventory available for sale, your current-round production is added to your beginning inventory level. The average dollar-value of your beginning inventory and your current-round production may differ, due to varying procurement ordering patterns from sub-assembly component suppliers.

    When you sell products, the associated volumes are withdrawn from inventory at their current average values. Current-round product costs will normally only equal your calculated variable costs if your beginning inventory of a product in a round is zero. With beginning inventory of a product being equal to zero, all units produced this round are costed at the standard variable costs in effect this round, so this is the only time when per-unit Product Costs are equal to your calculation of current-round variable costs.

    revised 09/11/2013
    [000229.html]
    listed under "Definitions"
    listed under "Financial and Operating Reports"





    Profitability of Demand Drivers

    “What can we do to assess the relative importance and potential profitability of all of the elements that drive our firm's demand?”

    The following video provides advice for your LINKS team about assessing the profitability of the wide range of potential demand drivers that might affect your LINKS business.


    revised 08/03/2017
    [000264.html]
    listed under “Advice”
    listed under “Financial and Operating Reports”
    listed under “Generate Demand”
    listed under “Information Technology”
    listed under ”Marketing”
    listed under "Service"





    Ratios Rather Than Absolutes

    “Why are ratios used in the performance evaluation metrics rather than absolutes? For example, why isn't (absolute) net income a performance metric?”

    Ratios are used in the performance metrics so that firm size is not a factor. Within the performance metrics, everything is expressed in ratio terms or relative-to-"something" terms (like relative to revenues) so that large or small firms aren't obviously advantaged or disadvantaged in the performance metrics.

    revised 05/16/2000
    [000078.html]
    listed under "Financial and Operating Reports"
    listed under "Performance Evaluation"





    Raw Materials Transportation Costs

    “Who pays for the in-bound transportation costs associated with raw materials? These transportation costs don't seem to be included anywhere in our financial reports.”

    In-bound transportation costs for raw materials are paid by the raw materials suppliers.

    revised 08/18/2005
    [000039.html]
    listed under "Financial and Operating Reports"
    listed under "Procurement"
    listed under "Transportation"





    Retail Pipeline Report

    “Why don't some products appear on the Retail Pipeline Report?”

    Products must be actively distributed in channel 1 (the retail channel) to appear on the Retail Pipeline Report. Otherwise, there is no retail inventory pipeline data and the relevant data in the Retail Pipeline Report are, by definition, all zeros.

    revised 08/19/2005
    [000180.html]





    Research Studies Cost as Reported on Financial Statements

    “The Research Studies cost on our Corporate P&L Statement doesn't match our research studies actually received. What's going on?”

    Research studies are executed after the simulation round concludes (i.e., after the financial reports for the simulation round are generated). Thus, research studies billings are lagged one simulation round. For example, on the round-5 financial reports, the research studies received with your round-4 financial reports will be billed.

    revised 08/19/2005
    [000133.html]
    listed under "Financial and Operating Reports"
    listed under "Research Studies"





    Research Studies Reports

    “Where do we find our research studies reports? We ordered lots of research studies with our inputs for the just-completed game run and we're anxious to review the research studies results.”

    After each round in LINKS, your firm’s single Word doc output file contains your firm’s financial and operating reports followed by the results of any research studies that your firm ordered.

    revised 01/27/2007
    [000061.html]
    listed under "Financial and Operating Reports"
    listed under "Research Studies"





    Return-on-Assets

    “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).

    revised 02/20/2007
    [000136quarter.html]
    listed under "Definitions"
    listed under "Financial and Operating Reports"
    listed under "Performance Evaluation"





    Some Corporate P&L Statement Totals Seem Incorrect

    “The figures on our Corporate P&L Statement don't seem to add correctly. For example, Total Fixed & Other costs for All Services doesn't equal the sum of the individual service Total Fixed & Other costs. The same problem arises for Operating Income. What's going on?”

    Only some of the fixed costs on the Corporate P&L Statement are allocated to individual services. Most of the fixed costs on the Corporate P&L Statement are left unallocated (i.e., they only appear in the All Services column). Thus, while all columns in the Corporate P&L Statement add correctly, the specific rows for Total Fixed & Other costs and Operating Income don't sum across correctly since many of the fixed cost elements weren't allocated out to the individual services.

    You could, of course, create your own Corporate P&L Statement with all fixed costs fully allocated to individual services. Then, the All Services column would be correct for the Total Fixed & Other costs and Operating Income rows. To do this, it would be necessary to make some assumptions about cost-allocation rules. And, that's a general problem with profit-and-loss statements: how should fixed costs be allocated out to individual lines of business (to services, this case). Whether such a revised Corporate P&L Statement would be more informative is an interesting question.

    revised 08/19/2005
    [000134sm.html]





    Standard Financial and Operating Reports

    “Are the financial and operatings reports that we received at the beginning of LINKS the standard report package that we'll receive in every future simulation round?”

    Yes. Note, however, that a number of information technology options exist which would generate additional pages of financial and operating reports. Research studies also exist which, if ordered, would generate additional pages of research studies reports. Research studies reports are included after the financial and operating reports, in the single Word doc file which comprises a firm's full post-round results.

    revised 09/12/2013
    [000064.html]





    Stock Prices Down Industry-Wide

    “Stock prices are down for all firms in the industry. Granted, the majority of firms are currently losing money. But, stock prices are down even for firms that are currently profitable. What’s happening?”

    Reductions in net income (and losses) obviously reduce long-run expectations of performance and, therefore, stock prices. And, average industry performance presumably does influence future expectations of industry-wide performance for all firms in an industry, even those with positive net income at the moment.

    revised 01/02/2007
    [000235.html]
    listed under "Financial and Operating Reports"
    listed under "Performance Evaluation"





    Taxes

    “How are Taxes calculated?”

    Taxes are based on "net" Operating Income (i.e., Operating Income adjusted for Non-Operating Income and Patent Royalties). Note that Non-Operating Income and Patent Royalties can be positive, negative, or zero.

    Non-Operating Income is the sum of interest received (for Marketable Securities) and interest paid (for Loans); Patent Royalties is the sum of royalties paid and royalties received.

    Specifically, Taxes in LINKS are calculated as follows: Taxes = 50% of {Operating Income plus Non-Operating Income plus Patent Royalties}

    Taxes will always equal Net Income since the "other 50%" of "{...}" is, by definition, Net Income. Taxes will be a varying percentage of Operating Income, depending on the relevant values for Non-Operating Income and Patent Royalties.

    revised 07/20/2005
    [000219.html]
    listed under "Definitions"
    listed under "Financial and Operating Reports"





    Taxes When a Firm Is Unprofitable

    “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.)

    revised 06/21/2009
    [000220.html]
    listed under "Definitions"
    listed under "Financial and Operating Reports"





    Transportation Cost Report

    “Why does the Transportation Cost Report exist in LINKS?”

    The Tranportation Cost Report shows the source of all of the transportation costs reported in your financial statements. In the Transportation Cost Report, the per-unit costs are as reported in the LINKS participant's manual. The various volume figures are also drawn from other parts of the LINKS financial and operating reports. Volumes for sub-assembly component in-bound shipments are the summation of usage in production plus replacement parts demand. Replacement parts demand depends on product failure rate. Volumes for customer shipments from your manufacturing plant are the summation of all products for each listed region and channel.

    revised 09/12/2013
    [000044.html]





    Transportation Costs Reporting

    “Where are transportation costs reported on the financial statements? They don’t seem to be included in the Product P&L Statements as variable costs.”

    Transportation costs are not allocated down to the level of individual products, channels, and regions. They are reported only on the Corporate P&L statement. Note that transportation include a mixture of product-specific and other costs (for in-bound sub-assembly components, for example), so it’s not obvious how all of the transportation cost elements should be allocated to individual products, channels, and regions. Nevertheless, LINKS participants can, if they wish, perform such cost allocations and recalculate the Product P&L Statements under whatever cost allocation rules for transportation costs that they consider appropriate.

    revised 08/19/2005
    [000194.html]
    listed under "Financial and Operating Reports"
    listed under "Transportation"





    Unfilled Handling Costs Refunds

    “When we have unfilled orders, unfilled handling costs arise. Do we receive a refund of these unfilled handling costs when the unfilled orders are ultimately fulfilled?”

    No, unfilled handling costs accrue with unfilled orders. (See your LINKS participant's manual for reasons why unfilled handling costs arise.) There is no "refund" if customers eventually buy from you at a later time. And, note that unfilled orders aren't backlogged orders; there's no guarantee that any/all unfilled orders will eventually translate into actual sales.

    revised 02/04/2007
    [000085.html]





    Weird Results

    “The LINKS markets seem a lot more volatile than I’m used to in my own business experience. Is there something peculiar about the way LINKS behaves?”

    The LINKS markets are what they are. Surely, the ultimate business principle is “listen to your customers” (markets). So, please do “listen” carefully to the various LINKS markets. You need to build your business practices around your markets, which may be different than markets in which you have personal business experience.

    And please:

    1. Consider the term “markets” (with an “s”) … different markets may behave differently, so attend to such possible market segment differences.
    2. Don’t assume that your “Pacific” region is identical to the Asia-Pacific region with which you might have personal or business experience. The LINKS “Pacific” market could be different (different in size, in growth, in behavior, in sensitivity to various marketing instruments, etc.) than your personal Asia-Pacific region.
    3. Reflect on the possibility that markets can change through time (“drift” not “revolution”).

    revised 02/05/2007
    [000090.html]
    listed under "Advice"
    listed under "Financial and Operating Results"
    listed under "Forecasting"
    listed under "Strategy"





    Word Formatting of LINKS Results File

    “When I access a LINKS Word doc results file, the formatted document (i.e., margins) is hard to read due to the line wrapping. I find that I must re-set the left and right margins to make the results file document readable. Can you help with this?”

    Margins are set within your local version of Microsoft Word.

    To improve readibility of Word doc results files, you may need to change the left- and right-margins to 0.9 inches and change the document's font to a fixed pitch like 10-point Courier or Courier New. If necessary, consult your local IT guru to make this default-margin change permanent within your Microsoft Word version on your local personal computer.

    revised 12/19/2010
    [000179.html]
    listed under "Financial and Operating Reports"
    listed under "LINKS Simulation Database"
    listed under "Website"





    Zero/Near-Zero Sales Volume In Channel 1

    "Why is our sales volume equal to zero units in region 3, channel 1? The last simulation round's sales volume for this product in this channel and region was 8,646 units."

    Retailers in channel 1 are intermediaries in the inventory pipeline from manufacturers to final end-user customers. Retailers routinely carry finished goods inventory, to have adequate on-hand supplies to meet final end-user customer demand which varies through time.
    If retailers' sales volume is relatively consistent/constant over time, then retailers will be re-ordering relatively predictable volumes from manufacturers. If retailers' inventory is sufficient to meet customer orders (and retailers' on-going target inventory levels) without replenishment from manufacturers, then retailers will not need to make any new purchases from manufacturers in the current simulation round.

    There are, of course, noteworthy differences between retail and direct channels ... for example, there's no inventory buffer stock in a direct sales channel (direct from manufacturer to final end-user customer).

    Details of the sales and inventory transactions for your product in region 3, channel 1 are reported in the following table (data sources include Research Study #12 and Research Study #14):
    Region 3, Channel 1
    Round #7 Ending-Quarter Channel 1 (Retail Channel) Inventory [Source: RS #12] 5,982
     - Round #8 Channel 1 Sales Volume (To Final End-User Customers From Retailers) [Source: RS #14] - 2,083
    + Round #8 Orders From Manufacturer [Source: Sales Volume on the Manufacturer's P&L Statement] + 0
    = Round #8 Ending-Quarter Channel 1 (Retail Channel) Inventory [Source: RS #12] = 3,899
    Retailers had sufficient on-hand inventory to meet all current final end-user customer sales requirements and retailers' on-going target inventory levels without re-ordering any more units from the manufacturer (your firm). It follows that your sales volume in region 3, channel 1 was zero units in this simulation round.

    Why the large drop in sales volume? From your own research studies, your competitive product positioning in this channel and region has become very weak (above-average price, low product quality, low service quality, and average availability), thus explaining declining market share for your product. Perhaps your firm really doesn't have the product that meets customers' needs in this region and channel, given your competitors' current products and positionings in region 3, channel 1.

    For further reading on this bullwhip effect in supply chains, the following two web-based articles may be referenced:

  • Bullwhip Effect (Wikipedia.org)
  • The Bullwhip Effect (QuickMBA.com)
  • revised 11/26/2012
    [000104.html]
    listed under "Distribution"
    listed under "Financial and Operating Reports"
    listed under "Forecasting"
    listed under "Generate Demand"




    LINKS® is a registered trademark of Randall G Chapman. All rights reserved.               Copyright © 2004-2018 by Randall G Chapman. All rights reserved.