CHESTER SENSORS2023 ANNUAL SHAREHOLDER’S

REPORT

Paul LaBarge

Rickie Lieu

Steven Quenzal

May 1, 2023

BUSN-460

Gene Davis (Instructor)

ContentsIntroduction.................................................................................................................1

Mission....................................................................................................................1Financial Analysis........................................................................................................2

Financial Performance..............................................................................................2Equity Performance..................................................................................................2

Stock Price............................................................................................................3Market Capitalization.............................................................................................3Total Equity...........................................................................................................4Return On Equity (ROE).........................................................................................4Return On Assets ROA..........................................................................................5Return On Sales ROS.............................................................................................5

Debt Performance........................................................................................................5Long Term Debt (Bonds)...........................................................................................6Emergency Loans.....................................................................................................6

Marketing Performance Analysis..................................................................................7Marketing and Promotion..........................................................................................7Sales........................................................................................................................8

Production Analysis.....................................................................................................9Customer Requirements and Expectations.................................................................9The Perceptual Map................................................................................................10Product Specifications............................................................................................10

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IntroductionChester Sensors was form as a result of the government break-up of the monopolistic Humongous Sensor Company in 2015, along with the five other evenly divided companies that resulted we have expanded the sensor market and attempted to improve the performance of supplied products.

MissionChester Sensors strives to supply top of the line sensory products to all market sectors at affordable pricing. Through a state of the art Research and Development program and advanced factory automation efforts Chester Sensors will continue to stay ahead of our competition for years to come. We aim to supply top notch results that please all our stakeholders, including our customers, employees and investors. Exceeding their expectations at every opportunity.

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Financial AnalysisChester Sensors team ended up winning the competition simulation, so our financial decisions and strategies likely were somewhat sound. In the earlier round (1 through 4) we were somewhat conservative and stayed towards the upper middle of pack of teams. We did look at the other teams’ decisions and relative performance to assess how they were playing out their strategies. After round 4 (when we were stuck with a large inventory carry over) we began to make more aggressive and somewhat riskier decisions. As these decisions were further adapted our results really took off and by the end of the simulation we ended up well ahead of the pack in almost every category. We guess that good business practices involve accepting some level of risk.

Financial PerformanceThis Profit/Loss table show that over the 8 rounds of competition Chester Sensors increase their profits 10 fold, though in reality these profits really shot up in the last three round. Our number for both the first and last round showed that we were the top performers in both rounds. We were able to make our big profits on the two High Tech products, which made up for our lack luster profits (the last two rounds the Low Tech product operated very near the breakeven point) of our Low Tech “Cake” line. Hind sight showed that our margins could have been improve if we had shut down that line and concentrated our efforts on the “Castle” and “Crete” product lines. The retention of those trained employees until we brought our new “Cyclops” product line online was the reason we kept the underperforming product line running, but looking at the Balanced Scorecard data that decision cost us points.

Equity PerformanceOur stockholder’s had a better return on their investment than any other company in this simulation. A savvy investor who invested $10,000 when the companies first split in 2015 and reinvested all of the paid dividends back into our stock would currently have $111,163 worth of our stock. This represents a really good rate of return.

Stock PriceAs the bold yellow line clearly shows from round three our stock price was the highest of all six teams competing. Our strategy was to pay reasonable dividends when we could afford to do so, which we did from round 2 through 8. We were the only team to do so, only 2 other teams paid out any dividends and each only paid one round

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Profit/Loss2016 2023 Change

CYASales $53,070,199 $169,898,910 27.5%

Expenses $49,812,526 $131,730,138 20.6%Profits $3,257,673 $38,168,772 134.0%

each. We also limited the amount so stock we issued, ending with 2,640,068 shares, which is the 2nd lowest amount for all teams. In the last round we did issue $7,000,000 in order to reduce the other long term debt, so as to return money that was going to interest on that debt to our shareholders as dividends.

During round 4 the stock price actually went slightly downward as this was the first year our team took out an emergency loan. Look at what other team’s stock prices generally did when they had to resort to receiving emergency loans, we were pretty fortunate. Our loans were smaller than most.

Market CapitalizationAs the bold yellow line clearly shows team Chester also ended with the highest Market Capitalization level of all competing teams, thought we did not occupy the top performing spot until round 7. Market Capitalization is calculated by multiplying total stock share issued by the price of each share, as we had 2nd fewest share issued even though we had the highest stock price after round 4 we were not the highest in this category. The “Stock Shares Issued” bar graph show that Chester (Yellow Bar) stayed below the average number of shares issued after the very first round. Issuing additional shares generally dilute (Lower) the actual price per share of the company’s stock. Paying dividends generally raise the company’s stock price and we consistently paid these dividends. During the entire competition we did not buy back any stock share.

Total EquityWe did in fact end the competition with the highest level of equity or assets, though we didn’t achieve this position until the very last round. The spike for Erie in round 6 was they had an emergency loan of over 81 million dollars. The last round drop in Andrew’s level was due to paying a $4.59/share dividend during that round, without making a profit high enough to justify

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that kind of dividend. If Andrew had paid out a reasonable dividend (in the area of $0.85/share) they would have been really close to us for that top spot. Our assets increase during every round, which shows not only a healthy growth but also consistency. Our steady long term performance is why our stock prices ended up in that top spot and that is why our Market Capitalization level was where it was, in other words investor confidence in our future performance.

Return On Equity (ROE)Looking at this chart, we certainly consistent. We stayed between 13% and 30% the entire competition having an average ROE of 21.7%. This ROE is a ratio of a company’s profit to the equity of the company’s. As we had both the highest profit and highest assets in round 8, a ratio of the two figures doesn’t really reflect on how we compare to our competitors. The consistency and high average are a much better reflection of our performance against the other teams, along with the last few rounds being on the higher end of the band show a healthy company.

Return On Assets ROAAs the Second of the three major ratios, this chart also show how team Chester ROA stayed among the upper performers and generally increased. This also reflects that the group made consistently good decisions and the company is doing well. These ratios are what major investors look at in order to make their choices on who to invest with. Teams Andrew and Erie also showed fairly consistent performance on this particular ratio over the course of the competition, as they were the 2nd and 3rd place competitors this isn’t surprising.

Return On Sales ROSThis last of the three major ratios showed that most of the teams were about even. This is probably due to our being in the same basic industry since after all we all started out evenly in the same break up of one monopoly. Digby’s downward spike in Round three was a result in their decisions after visiting Big Al (getting an Emergency Loan) round about that

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time, they were the first to do so in such a large way. Though it is a little hard to see on the chart, the actual data show that our performance was above the competition average during average round. The table below the chart shows this in a much more evident way. Round 5 is where we ended up as close to the average as we did, that is the round where we were stuck with the high left over inventory (860 units).

The overall strong performance on all three of these major financial analysis ratios is certainly a contributing factor to why our stock price and market capitalization performance ended up so much higher than all of the competition at the end of the simulation. We were impressed that our stock price nearly doubled our nearest competitor, this show us that the investors have a lot of confidence in Team Chester’s future performance and ability to adapt to changing market situations.

Debt PerformanceOverall Team Chester managed their debt fairly well, though we feel that in the last round we should have paid off our long term debt (bonds) completely, this was actually due to a misunderstanding of how to read the Bond Rating data. We left a small amount of long term debt, so that we could prove our “AAA” bond rating during our final presentation. The data in the CAPSIM reports analysis showed data that was not contained in the FastTrack reports for companies that had completely paid down their long term debt.

Long Term Debt (Bonds)The bar graph shows the levels of each team’s long term debt over the eight rounds, with the green line indicating the average debt level. Team Chester remained below that average line in all but the very first round, this showed that we were able to keep that higher interest rate borrowing down to a reasonable amount. Two teams actually paid off their bonds during round 6 and we had ours down to just above 1 million dollars in round 8. During round 8 a decision was made to shift over our bonds to stocks. We felt it was better to pay our shareholders dividends, than to pay an outside entity interest on those funds. This also accomplished raising our market capitalization a bit, partially resulting in us ending with the highest rating as far as market capitalization (a factor in the Recap grading rubric). I teams Andrew and/or Erie had done the same, they may have occupied that top spot, but the larger factor in Andrew was certainly them paying a really excess stock dividend in round 8.

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Emergency LoansWe were forced to take out Emergency loans during rounds 5 and 6, though as the bar graph shows the amount of each of those loans was fairly small as compared to most of the other loans taken. The average of all emergency loans came in at just over 20.6 million dollars, though if the round six 81-million-dollar loan is disregarded that average ends up at around 16 million dollars. Either case we stayed well below that level by about 50%. Team Digby only receive one emergency loan (which was fewer than we took), but the amount of that loans was larger than our two loans combined. We feel that our investors understood the reasons behind our having to take out those loans, as our stock prices during those round did not drop off excessively. The basic reasons for both of our emergency loans was that we ended up getting stuck with excessive end of year inventories and that we underfunded the plant improvements during those rounds.

Below are the tables that the “Long Term Debt” and “Emergency Loans” charts were created from as a more detailed point of viewing.

Marketing

Performance AnalysisThe closest of the six basic strategies that described our overall strategy was “Differentiator with Product Lifecycle Focus”. We continued to maintain a presence in

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both High and Low Tech market sector throughout the simulation and even as we plan to drop our “Cake” line, our “Crete” actually began to sell products (0.2%, not enough to make the low tech top seller list) in the Low Tech Sector. Our marketing strategy was to promote all of our products across both sector, and our future looks to even create an Ultra High Tech sector where it is hoped that no one will truly compete with us.

Marketing and PromotionIn the first round we spent less on the Sales and Promotion Budgets than the competitors that outperformed us, this was due to our concentrating on our research and development of our High Tech Crete line. Overall we did actually have the overall combined highest market share, because even though we didn’t spend very much on marketing the high tech sector ate up the tech savvy product. The bar graph shows that after 2017 (round 2) we continued to concentrate on our high end products and thus had higher market shares on those line. Somewhere around round is when we introduced the Castle line of High Tech sensors that no other team ever even approached on the product perception map. As we increased our sales and promotion budgets after this point both Customer awareness and Access took off and thus so went our market shares in the High Tech Sector. Eventually by round 8 we ended up at the top of the combined market share also, with a 26.8% market share that round. Looking back, it would have been wiser to spend more funds on Sales and Promotion in the earlier rounds. This would have positioned us into an even better market leader sooner, which probably would have truly resulted in even more impressive results at the end of the simulation. This Combined Market Share Graphic shows how in the middle rounds

Team Andrew really grabbed the lion’s share of the total market, looking at the way they had accomplished this, prompted our increased Sales and Promotion Budgets. This resulted in our increases in market share, though our price drop in our Cake line (in order to dump inventory) also helped. This line graph helps pull the last two graphs together.

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SalesThe following table shows our investment in Sales and Promotion budgets for the first and last rounds of the simulation.

During round 1 our products were better than most of the competitors’ and sold fairly well despite having relatively low Customer Awareness and Customer Accessibility percentages. This is why we stated that we should have put more money into these budgets.

During the last round the lower percentage in Customer Accessibility were due to our intention to phase out the Cake line in the next round or two, after our new Cyclops line came on-line. In all we had the top selling product in both sectors by the end of competition, so we were certainly doing many things correctly.

The table above shows how we placed and priced our sensor products in such a way as to be competitive in the marketplace. Of note is the $7.50 price drop on the low end Cake line product, this caught our big competitors (Erie and Andrew) off guard and cleared out most of the inventory we were stuck with (860 units) in round 6. This was possible due to our TQM investing and labor reduction by only running first shift on that line. Our margin on that line during rounds 7 and 8 were next to nothing or even running at a slight loss. Our High Tech line were running such good margins that overall we still maintained one of the

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better total margins. During those two round we set records for total sales during the competition.

Production AnalysisCustomer Requirements and ExpectationsAs laid out in the initial briefing of the simulation and in the “Team Member Guide” issued to us, there are certain things that the customer’s look for before buying any sensors. These items differ a bit in each market sector (Low and High). In order to design and sell your product you must find the factors that affect the customers.

The Perceptual MapIn each FastTrack Report there are 3 of these that lay out where the Size and Performance of each sector’s products are likely to sell the best. The map to the right is from round 0 and show the starting point for the simulation. The two solid circles indicate where the customers are most likely to buy the product, the dashed circle show that the customer is not likely to buy if the product fall outside of that circle. The low tech idle spot (Center of circle) will move down by 0.5 units and to the right by 0.5 units for each round. The High tech idle spot moves similarly by 0.7 units. Thus when building a new line or even just updating an existing one, planning to keep the product viable means staying within the circle at all times. By round 8 there is very little overlap between market sectors. This map also shows how Chester’s Crete and Castle product line have very little close competition as far as their specifications are concerned. Only the Crete line falls into the upper left quadrant of its current market sector, that is because we are getting ready to allow it to move into the Low Tech market in the coming rounds.

Product SpecificationsThe table below show where our product specification fell throughout the simulation and where the idle spot on the Perceptual Map was during those rounds. We stayed within acceptable parameters the entire simulation. The FastTrack report also stated the ranges for Price and Mean Time Before Failure (MTBF) and those are reflected on this

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table also.

Conclusion In conclusion, as a group we succeeded in what we wanted to do for this project.

We took the strategy of focusing on towards the high end tech products. We domoninated in that market and became the highest cumlative profit out of all the groups. We also focused on the low tech segments as well and towards the end of the project made sure that we could succeed by having the lowest prices on the last round to try and sell all of our inventory. We were the only group for the majoirty of the competition to have a dividend for our shareholders. We made sure that only one person was going to submit and make changes per round to not cause confusion among fellow team memebers. For the future we will be rolling out an ultra high tech item that we feel that will be extremely successful among the market. This new high tech item will most likely be in a class of its own because of how high tech it is.

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