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Investment perfomance

What is it - investment perfomance? Lets check how manage and maximize it.

IP - investment perfomance

MV - market value (capitalization)

GW - goodwill

NA - net assets

SP - share price

SC - share capital

SIR - shares issued or repurchases

DIV - dividends

 

Investment perfomance

IP = MV + DIV + SIR (with discount rate each period)

MV = GW * NA (company's value, adjusted by goodwill)

MV = SP * SC (company's value on stock market)

Both formulas are equal:

GW * NA = SP * SC

GW * NA = (SP * SC / NA) * NA = SP * SC

 

Issuing or repurchasing shares

Repurchasing shares:

Net assets - decrease, because company spent free cash on share buybacks.
Share capital - decrease, because part of shares repurchased by company.
Goodwill - decrease, because liquidity of company is reduced (goodwill factor).
Share price - decrease, because SP = (GW * NA) / SC

NA ↓ > SC ↓ > GW ↓ > SP ↓ = IP ↓

 

Issuing shares:

Net assets - increase, because cash grows by emission.
Share capital - increase, because you release new shares on market.
Goodwill - increase, because liquidity of the company is increased.
Share price - increase, because SP = (GW * NA) / SC

NA ↑ > SC ↑ > GW ↑ > SP ↑ = IP ↑

If we consider impact of issuing or repurchasing shares on investment performance within several periods, where at first you repurchase shares, second issue and return to its original state, then you will not have any difference in investment performance with team that does not change anything with shares (if everything else is equal). Financial bonus from issuing is compensated by repurchasing shares and vice versa. But from the point of one period share issue will give an important bonus which increases IP. Alse extra bonus can give a game on course of your own share price, if you repurchase shares at low price and issue at high, difference between courses will be your net profit.

 

Dividends payment

NA ↓> GW ↑> SC ↑> IP ↑

Repurchasing shares and dividends payment - two tools that spend NA, but increase GW and SC. For accurate analysis you should compare their growth.

 

Financial strategy

Issuing or repurchasing shares and dividends payment are powerful tools for manipulation investment performance. It is important to track share price of your company in order to issue shares at the highest possible price and achieve maximum effect. Also you should remember that issue can be made only when SP > 1.000. For example, in scenarios where SP at the start of the game less than 1,000, company which can reach this limit first, will have great advantage. Unfortunately, we can not issue shares indefinitely and rise IP every time. Total share capital after issue can not be more then 110% of the value in 1 quarter, so you need to remember to issue shares at the beginning of the game if available. Otherwise in 5 period, your less forgetful competitors easily bypass you by issuing more shares then you. Keep in mind that simulator uses share price of previous perod in calculation of issuing or repurchasing.

 

Strategy on scenario 12C3

1 period (Q3) - SP const (1.527), issue shares +10%, GW ↑ > SP ↑ = IP ↑ - you need to issue shares +10% in 1 or 2 period, because 2 period is last quarter (Q4) of the year. After 1 period company will get a loss and share price will fall, so issuing shares in 2 period will be less profitable than in 1 period.
2 period (Q4) - SP ↓ (1.450)
3 period (Q1) - SP ↑ (1.620), repurchase shares -10% GW ↓ > SP ↓ = IP ↓ - you can play on difference between share prices after 2 and 4 periods. Usually, share price after first two periods is minimum, and increases smoothly by 5 period.
4 period (Q2) - SP ↑ (1.710) - boost goodwill to increase share price before 5 period to get maximum effect from issue.
5 period (Q3) - SP ↑ (1.750), issue shares +20%, GW ↑↑ > SP ↑↑ = IP ↑↑ - maximum possible issue +20% increases final IP, also due to the difference between repurchasing and issuing (1.620 and 1.750), we obtain an additional profit.

*SP - SP from the previous period, but not from the current period (because it is not known yet). Calculation of issuing or repurchasing shares uses SP from the previous period.

 

UPDATE

Topic rewritten, previous version contains wrong logical conclusions.


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