In this simulation participants manage a simulated firm which executes short and long term financial
transactions related to time value of money, working capital management, capital structure, and capital
budgeting. Funding is available through short and long term loans, bonds and stock. On the investment
side,
the
firm can invest in short-term certificates of deposit of various denominations, in plant expansion,
and/or
in
equipment replacement. Firms also must choose between two suppliers based on price, term conditions.
They
should
also consider extending three different cash discounts for the three products they manufacture and sell.
Furthermore, they have to forecast liquidity needs and net income after taxes.
This simulation, in addition to giving participants the opportunity to
assess
the relevance of decisions in the funding and investment activities of a company, allows them to
apply
time value of money concepts in operations (with the selection of suppliers) and sales (with
cash
discounts). Performance reports are comprised of financial statements and corresponding
footnotes.
The
report also details errors in cash budgeting and in projecting income statements. Points to
teams
are
assigned based on firm ROE and financial forecasting errors.
The simulation is
suggested
for Corporate Finance and Financial Management courses. It is also ideal for Bank Credit Officers as
it
permits them to experience financial management from their clients’ point of view.
Students can be grouped in teams of two to five members. Up to twenty teams can
participate.
The
simulation can last up to twelve weeks with each week simulating three months of operations.
Before
the
beginning of each simulation, the economic environment and the degree of competition in which
the
companies will conduct their operations can be modeled. The potential profitability and risk of
the
company can also be modeled.
A manual and weekly instructions for students are
provided on
this website before each round of decisions. After each round, reports and financial statements in
Excel
format are made available to students. The professor also receives a summary
report. Decisions
are implemented in a progressive manner. The number and complexity of the decisions increases as
the
simulation progresses. A tentative decision schedule is available. After a simulation round is
processed, firm reports, including financial statements and footnotes, are made available to
participants and professors. Another report includes a summary of performance variables and a
ranking of
the teams. Depending on the preference of the instructor and the nature of the course, an Excel
template
can be made available to aid the students in forecasting financial statements. Students can also
receive
technical support from ASDSIM Business Simulations.
Decision Schedule
Decisions
and forecasts can be implemented gradually, increasing the number and
complexity of the decisions as the simulation progresses, quarter after
quarter. The following is a tentative decision schedule: The first decision
usually encompasses projecting short-term funding needs. The second decision
requires projecting earnings; the third one, deciding on whether to use trade
credit or a banking loan. The fourth decision requires participant to decided
extending cash discounts for prompt payment. Up to this round of decisions,
production and marketing decisions have been automatic to allow students to
concentrate on short-term funding decisions. Decisions have also been
cumulative: once a decision is required or allowed in a certain quarter, it is
required or allowed in the following quarters. The fifth decision is about
setting production orders under uncertain sales conditions. The sixth one
allows participants to consider replacing equipment with different costs and productivity. This requires decisions that will have
long-term effects. Students are allowed to make any decision in the following
quarters including pricing and setting promotional expenditures.
Performance Evaluation
Teams are assigned points depending on their
forecasts accuracy and ROE. For the long-term decisions, like replacing assets,
the program assigns points depending on NPV analysis conducted by the program.
Final Note
FINANCESIM
has been developed by Fernando E. Arellano. He holds an MS degree in Business
and a Ph.D. in Economics from Colorado State University. He has also developed VALUATIONSIM - A Corporate Valuation simulation, MANECSIM - A Managerial Economics Simulation and BANKMAN - A Bank management
Simulation, the latter, with the late Dr. Richard D. Johnson. Dr. Arellano has taught at Colorado State University while pursuing his doctoral degree (1990-1993), Instituto Tecnologico y de Estudios Superiores de
Monterrey in Mexico (1993-1996), at Universidad Peruana de Ciencias Aplicadas and Centrum - Catholic University of Peru, both in Lima Peru (1997-2000), and at University of Dallas in Dallas (2001-2020). He is currently retired, but still teaches a Valuation course online as an adjunct professor for Southeastern Oklahoma State University.
