1. Sam Holt, Grace Lewis

2. Goals Achieve the highest Shareholder Value (SHV)
Price/Volume strategies
Net Income
Market share: Creating awareness
Spend money to earn money, within reason

3. Decisions Year 1 Year 2 Product Quantity (production & forecast)
Sales price
Advertising & PR (Tv, Magazine, Internet)
Year 2
Year 1 Decisions +..
Distribution Assistance
Distributor Margins (notice different types of stores)
Branding

4. Basics to Keep in Mind: Supply & Demand
Price
Supply
Surplus (inventory)
Equilibrium Price
Shortage
(Lost Sales)
Quantity of Bikes
Quantity Produced
Equilibrium Quantity
Quantity Produced

8. Decisions cont… Year 3 Year 4 Year 2 +…
Capacity planner (SCU, Efficiency, Quality)
Debt
Year 4
Year 3 +…
1 New Product (including all its advertising, production, pricing decisions, etc.)
Equity (shares & dividends)

12. Modifying Existing & Creating New Products
Once you are able to create new bikes, you can also modify existing products to make their specifications conform with market demand, OR to reduce production costs, OR both!
COSTS:
$1,000,000 to modify specs
$1,000,000 to reduce production costs
$2,000,000 to do both
$1,000,000 to launch a new product
**Information about product launch and modification available on “The Year Ahead” page of year that these become available
***Inventory left from before modifying product will no longer be sellable

13. Modifying Existing Products
Production = 21,000
Cost of Production (COP) = $185/unit: $3,885,000 total
REDUCE COSTS to $133/unit: $2,793,000
Savings = COP – (REDUCED COST + EXPENDITURE)
Savings = $92,000… and that’s if production stays the same. It should increase annually as a reflection of increasing product awareness, branding, distribution, etc…
(if you raise production by 2,000, you save $196,000)

14. Modifying Existing Products
Similarly, modifying a product’s specs will increase demand for your bikes because it will match them closer to what consumers are looking for**
Change in QD from previous year is hard to calculate, it is a bit of a guessing game
**Preferences are likely to change annually, always check product specs (See next slide)

18. Spend on Efficiency to Reduce Wastage (increases Idle time, allows for increased production without purchasing SCU)
Spend on Quality to Reduce Rework (Faulty products having to be scrapped, re-built, warranty claims, etc.), increases demand for Quality sensitive bike markets…
**Rework Found in “Products Marketing: Products- Sales, Margin, Production” Report under ALL REPORTS, MARKETING REPORTS
***sensitivity to Quality found in “Market Information” Report- KEY REPORTS

19. Helpful hints…
Spend money to make money- advertise and use PR/branding to gain awareness, gain market share
Pricing strategies- low price/low volume doesn’t make money- and high price/high volume is unrealistic
Use forecast results to speed up the simple math (it adds up all your spending and subtracts that from your forecasted sales x price)
Invest in Quality + Efficiency to reduce costs / raise sales
Evaluate creating new products / modifying existing ones to see if it can save you money… $$ saved goes directly to profit

20. Helpful hints cont…
Distribution is important- help your suppliers and they will help you, but don’t waste money. The more stores you’re in, the better
Dividends are a guaranteed increase in SHV because it is a guaranteed payment to the shareholder- spend the cash if you have it after other product spending decisions
Debt can be helpful if you need money- it is also a burden on value
When you can, try creating new products
Use the reports’ data to influence your decisions!!

23. More Basics: Accounting
Assets = Liabilities + Owner’s Equity
**D/E Ratio = Liabilities(debt)/Equity. Factors into SHV
Net Income = Revenue – Expenses
**If you think you’ve minimized expenses, optimize them to raise more revenue, i.e. Net Income- directly effects SHV… is each dollar being spent in the best possible place?
***If you think you’ve maximized revenue (you haven’t), cut expenses to raise N.I. (do it anyways- it’s good for you)
Total Retained Earnings
= R.E.(beginning) + Net Income – Dividends
**Retained Earnings is another way of saying CASH. Make sure you have a stockpile (check statement of cash flow), but pay a dividend! Less R.E. doesn’t necessarily mean lower SHV, because paying a dividend directly increases it

24. Good Luck!!
Sam Holt:
Grace Lewis: