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Capsim Success Measures

RETURN Formula Return on equity (ROE) is net profit

ON Description: divided by total equity.
EQUITY
(ROE)
What Does Return on equity tells you how
Return On effectively a company is using
Equity Tell the dollars invested in it by
You? stockholders.

ROE is the most often quoted single

statistic when describing a firm's
performance. It is also one of the
statistics considered to be most
useful by stockholders.
RETURN Formula You determine return on assets by
ON Description: dividing net profit by your total asset
ASSETS base.
(ROA)

What Does Return on assets is an efficiency

Return On ratio. It compares the profits
Assets Tell generated with the asset base
You? required. It answers the question,
how hard are you working your
assets?

There is an economic opportunity

cost notion associated with this
ratio. An operating manager may be
challenged with how a dollar spent
on assets might do compared with a
dollar invested in some other area
(e.g., a bank account), or how the
ROA compares with the interest a
firm is paying on the money
borrowed to pay for the asset.
RETURN Formula You determine return on sales by
ON Description: dividing net profit by net sales.
SALES What Does Return Since return on sales (ROS) gives
(ROS) On Sales Tell the analyst an idea of the profit
You? margin on a product, this ratio can
reveal a great deal about product
positioning and pricing policies. For
example, a high ROS suggests
product will not be aimed at a
commodity market. ROS is also a
good indicator of demand and
supply within the industry. The more
competitive an industry, the more
pressure there is on price and
subsequently ROS falls. For
example, the ROS of the airline
industry has been low due to intense
competition in the last few years.
Asset Formula Asset turnover is derived by dividing
Turnover Description: period sales by average total assets.
(T/O) What Does Asset Asset turnover tells an analyst more
Turnover Tell about volume of sales than it does
You? about profitability (the numerator is a
top line number on the income
statement, not a bottom line number).

Asset turnover (T/O) demonstrates

how effective the asset base is in
generating top line revenue. High T/O
values have implications in terms of
plant structure, level of backward
integration, and aggressiveness of
pricing policy.
CUM- Formula Cumulative Profits is the total
ULATIVE Description of all year's Net Profit.
PROFITS
:

What Does How Profitable the company

Cumulative has been over time
Profits Tell
You?
MARKET Formula Percentage share of industry sales
SHARE Description: dollars.
BY
DOLLAR
VOLUME
What Does What portion of total industry sales
Market Share a company has captured.
in Dollars Tell
You?
STOCK Formula Stock Price is a function of
PRICE Description book value, EPS, and
: average dividend.

What Does This is an indication of the

Stock Price value independent
Tell You? investors believe you
shares possess.
MARKET Formula Market Capitalization is calculated by
CAP Description: determining the weighted average
number of shares for a given period
and then multiplying that number by
the closing Stock Price.
What Does Market The recognition that Market Cap is a
Cap Tell You? function of both share price and
share volume is significant for this
number tells you more about the real
value of the company than just the
share price alone. In the extreme a
corporation could be trading at a
huge P/E multiple but if it only had
relatively few shares outstanding
then the company would not be
worth as much as a company that
was trading at a relatively poor
multiple but had a large number of
shares outstanding.
Market Cap is the truest indication of
the markets estimate of a company's
worth.
Capsim Performance Measures
• You must use at least 3 performance measures
total, with at least 1 market-based measures
(stock price / market cap)
• No one measure can be weighted more than