Goodwill - How to test goodwill factors
09.07.2019
In previous article, we discussed factors of the Goodwill and how is it calculated. Managing Goodwill is one of the most important skills in GMC, no less important than demand forecasting or choosing the optimal strategy. Goodwill is cunning. In the history of the championships there were a lot of games where the team with lower Net assets won the game due to higher Goodwill and as a result of Investment performance.
Goodwill factors
Unlike demand factors, Goodwill factors cannot be tested individually to understand how they are influenced by various decisions of the company. According to the management report, only a consolidated indicator of Goodwill can be calculated, which will include the value of each of the factors:
- Dividends
- Liquidity
- Research & Development
- Market share
- Backlog
- Agents and Distributors
- Resources
- Investment return
Goodwill = √ (Dividends * Liquidity * R&D * Market * Backlog * A&D * Resources * Investment)
Testing factors
It is impossible to test any of the factors “in isolation” from others. For example, when assessing the impact of R&D on goodwill with two test companies, you get NONE in one case, and in another case there is MINOR development. Other things being equal in the decision, you will have to increase the budget of R&D, which reduces profit and value of the factor “Investment return”. Also, MINOR development will increase the demand for products and value of the factor “Market share”. If the increase in demand is not satisfied by production, then value of the “Backlog” factor decreases, etc. on a chain.
Thus, it is impossible to correctly assess the impact of the decision on each of the factors of goodwill separately using only management reports. However, there is another way. The fact is that the management report (which is provided to the teams) is only a part of the data that GMC simulator generates when calculating result of the period. In addition to the report, there are other auxiliary files with logs. One of them contains detailed information about the values of goodwill factors. This log looks like this:
| Group 1 | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| DIVD | LIQU | IMPR | M/SHR | S/BL | RSCES | AGENT | RETN | SHPROD | NAV | SHARE | NET ASS | MKT VAL | INVPERF |
| 0.976 | 1.133 | 1.024 | 0.866 | 1.010 | 1.036 | 1.000 | 0.992 | 1.00863 | 1.14020 | 1.15005 | 4560810 | 4600000 | 4843931 |
| 0.943 | 1.147 | 1.026 | 0.901 | 0.999 | 1.036 | 1.067 | 0.934 | 1.01471 | 1.10492 | 1.12118 | 4419689 | 4484400 | 4648031 |
| 0.943 | 1.162 | 1.039 | 1.025 | 0.987 | 0.954 | 1.000 | 1.053 | 1.07532 | 1.22115 | 1.31312 | 4884591 | 5252400 | 5416031 |
| 0.955 | 1.051 | 1.011 | 1.036 | 0.988 | 1.036 | 1.000 | 1.020 | 1.04722 | 1.18667 | 1.24271 | 4746700 | 4970800 | 5134431 |
| 0.943 | 1.146 | 1.024 | 1.084 | 0.984 | 0.993 | 1.067 | 1.038 | 1.13928 | 1.20381 | 1.37148 | 4755051 | 5417030 | 5645523 |
| 0.989 | 0.988 | 1.002 | 1.041 | 1.000 | 1.036 | 1.070 | 0.978 | 1.05112 | 1.12640 | 1.18398 | 4505614 | 4735600 | 4979531 |
| 0.943 | 1.162 | 1.039 | 1.025 | 0.987 | 0.954 | 1.000 | 1.053 | 1.07532 | 1.22115 | 1.31312 | 4884591 | 5252400 | 5416031 |
| 0.976 | 1.162 | 0.992 | 1.013 | 0.993 | 1.036 | 1.070 | 1.042 | 1.14253 | 1.20201 | 1.37334 | 5288863 | 6042520 | 5767553 |
You may notice that columns from 1 to 8 correspond to the values of goodwill factors. To find the decision parameters that most affect each of the goodwill factors, we used correlation data analysis tools. Further calculation of the influence of decision parameters on goodwill factors proceeds as well as for evaluation of demand factors. The results can be found in the following articles.
Automatic forecast of Goodwill and Investment performance is built into the Calculation model, which can be purchased in our store.