SIMULATION GROUP REPORT

VinUniversity

FINANCIAL MANAGEMENT - FINA2010

Professor Nguyen Thi Mai Lan (Alex)

June 19th, 2024

Group 6 - Section 1

Group members:

Lê Bảo Ngọc - V202200836

Đặng Thu Thảo - V202100461

Phạm Thanh Vân - V202200690

Nguyễn Trường An - V202200718

Quarter 4 - Year 1 | Nguyen Truong An
A. Situation
In the 4th quarter of the 1st year, we experienced our first decrease in the stock price, going from
about 2$ to 1.65$.

Figure 1. Stock Prices Over Time Q4/Y1

This might have been seen as alarming, but this was expected because we decided to issue new shares
and the increase from 200,000 to 400,000 shares likely diluted the stock price through factors such as
the earnings per share. For example, our almost 50,000 net revenue is now divided across 400,000
shares which will reduce the value of the stock.

Figure 2. Total Number of Shares Q4/Y1

B. Decisions
R&D: The decision to issue the new shares came with the advantage of providing us with cash
reserves, about 360,000, to spend on improving our operations. Most notably, we decided to branch
out and research into the safe jetpack market. The objective of this was to provide us with more sales
and less competition in the long term as we could then fulfill both basic and safe contracts while it
was unlikely for everyone else to also research and focus on safe jetpacks.

Production: Around this time, we were also debating about whether we should set up the factory now
or next quarter for the new jack packs. Ultimately, we chose not to as the research took 2 quarters and
so the factory can be done later. As a result, we had to increase the output of our current singular
factory by 7%, totaling 114%, to meet the requirements of the current contract which increased
operational costs.

Contracts: We decided to continue pursuing a low-spending strategy, using only 10,501$ as

compared to 10,001$ in the last quarter. This increase was in case another company caught on to our
strategy and tried to spend slightly more than that 10,001$. This strategy required a careful level of
balancing as while we were spending less on contracts, we also usually got worse contracts so it was
important to manage the opportunity costs.

C. Results & Improvements

The outcome was that our stock price would still continue to go down by the next quarter.

Figure 3. Stock Prices Over Time Q1/Y2

This, however, was not unexpected as we were prepared to see the increased spending and our
strategy of issuing new shares hurt the company stock price. The important lesson here is that we have
to make these short-term trades if we expect the future benefit to be much greater.

Quarter 1 - Year 2 | Pham Thanh Van

A. Situation
RICH entered this quarter with adequate cash reserves ($361,838.94) after profitable operations in the
previous periods. However, competition was intensifying as more companies entered into new
product lines. While this expansion led to higher research and development costs and operational
expenses, it also created the potential for increased revenues through a wider variety of contract
opportunities. For our Basic Jetpack line, sales were plateauing with the aging product, so we aim for
a better performance to join the Safe Jetpack product next quarter.

Figure 4. Basic Jetpack’s price contract forecast

B. Decisions
Contracts: The initial strategy the company faithfully pursued was almost completely changed. To
gain an edge over competitors focusing only on the highest value contracts, we modified the bidding
strategy to target the second-highest contracts that others may ignore. This approach aimed to win
more contracts overall while maintaining profitability.
Production: For preparing Safe Jetpack launch, RICH decided to rent a factory to avoid large upfront
capital expenditures and preserve cash for other strategic needs. However, renting only helps limit
initial costs, but cannot take advantage of optimizing production costs compared to opening a factory
in the long run.
Dividends: The company boosted dividends with the highest rate 75% aimed to improve investor
sentiment. However, excess payouts depleted reserves while RICH still required significant capital for
new product launching, R&D, marketing, and manufacturing scale-up.

C. Results & Improvement

Even though the stock price increased from $1.46 to $8.59, our ranking still decreased. This decrease
in stock price indicates there were risks associated with this approach.
 Figure 5. RICH’s stock price over time until Q2/Y2

Firstly, bidding on slightly lower-value contracts increases the chance of winning bids, but could
reduce overall profitability if it has smaller margins. With more companies bidding on the top
contracts, there was a possibility of losing valuable deals. Therefore, a more careful analysis of
contract margins and the willingness-to-pay of competitors may help optimize the bidding strategy.
For example, continuing to bid aggressively on top deals while also pursuing secondary opportunities
in a calibrated manner could have balanced risks and returns better.

Figure 6. RICH's contract bidding results in Q1/Y2

Secondly, excess dividends boosted our stock in the short run but weakened our financial position,
limiting strategic flexibility. This means we must always keep good performance to get the valuable
contracts to maintain the dividend payout, and ensure cash flow and net income positive. For enduring
success, we must balance payouts with prudent investments balancing short and long-term goals.
Quarter 2 - Year 2 | Le Bao Ngoc
A. Situation
Despite making $274,800 in revenue, the company was not in a strong financial position by the end of
Quarter 1 of Year 2. Financial losses were indicated by a negative Net Income of -$45,856 due to
higher production costs and increased marketing expenses. However, cash reserves remained
relatively healthy with $293,956 at the end of Q1. Production was focused on the Team 4Rest product
at Factory #1, which was running at 114% capacity. Overall, RICH performed stable on the market
but struggled with limited product availability and competition.

Figure 7. Income statement Q1/Y2

B. Decisions
Production: RICH’s main strategic decisions were to increase production capacity and diversify
product offerings to tackle these financial challenges. Among other competitors, our market share for
Basic Jetback was ranked last with a relatively low share of 18.82%. In response to meeting the
increasing market demand, particularly for the Safe Jetpack, the two new factories were completed
and running at 140% capacity.
Financing: In an attempt to enhance our financial position, we also issue 1,000 bonds and secure a
specific amount of capital via debt financing. This aimed to support our expansion strategy, enhance
the production capacity, and increase market share.
 Figure 8. Market share (% of total revenue) in Basic Jetpack Segment

Contracts: For this quarter, we chose the Safe Jetpack as our primary investment product. To
effectively navigate the fiercely competitive marketplace, our company manages our financial
resources by giving priority to medium-value contracts rather than high-value contracts, thus avoiding
unnecessary expenditure. It enables RICH to allocate its capital with careful consideration.

C. Results & Improvements

The implementation of these decisions produced positive results in this quarter. RICH’s revenue
increased to $1,174,000, exceeding our expectations and demonstrating successful sales strategies.
Gross profit rose to $343,154, which showed that we had better cost management and operational
efficiency. Net income rebounded to $162,633, a significant improvement over the previous quarter's
losses. Issuing 1,000 bonds also brought us more capital from investors, which are utilized for
expanding production capacity and enhancing R&D.

Figure 9. Financial Report Q1/Y2

Figure 10. Financial Report Q2/Y2

Nevertheless, despite these operational successes, Total Equity dropped significantly from $616,917
in the previous quarter to $365,946. The decline in equity was primarily due to high dividend
payments and financing outflows. We ended Q2 Year 2 with zero cash reserves and an overdraft of
$325,127, highlighting our serious shortcomings in cash flow management and liquidity planning.
These results alerted us to review carefully costs, cut unnecessary expenses, and bid contracts more
reasonably.

Figure 11. Statement of Cash Flows Q2/Y2

Quarter 3 - Year 2 | Dang Thu Thao

A. Situation
RICH is ranked #2 in stock price, trading at $8.5891, just behind JETBRO, which has led for three
consecutive quarters.

Figure 12. Stock prices over time up until Q3/Y2

This ranking is driven by high sales per share ($11.74), thanks to significant order fulfillment in the
previous quarter that boosted our revenue to $1,174,000 and our 200,000 shares repurchase. High
Earning per share ($12.1795) also contributed, as revenue growth outpaced COGS’s increase rate.

Notably, most companies started paying dividends, but RICH stood out with a high dividend yield
(75%), which we believe has sent positive signal.
 Figure 13. Dividends over time up until Q3/Y2

For production, RICH received orders for 1,300 Basic and 1,800 Safe Jetpacks. As we anticipated
increased demand for Safe Jetpacks, we produced 75% more than required.

B. Decisions
Financing, R&D, Dividends: No decisions.
Production: RICH secured three orders: 1,300 Basic Jetpacks (paid Q1 Y3), 1,100 Basic Jetpacks
(paid Q1 Y3), and 2,300 Safe Jetpacks (paid Q4 Y2). With existing inventory, the company produced
only enough to meet the current Safe Jetpack order.
Contracts: Initially, we prioritized contracts paying in Q4 Y2, avoiding Basic Jetpacks due to their
longer payable terms. This approach reflected an agency conflict as we acted more like managers than
owners. However, realizing the simulation extends beyond Q4 Y2, we decided to bid on Basic
Jetpacks to increase revenue.

C. Results & Improvements

Our ranking fell to #4, with the stock trading at $4.5258, as revenue dropped by 33% due to low-profit
margins on delivered orders, impacting sales and EPS.

Figure 14. RICH’s stock report by Q3/Y2

At that point, we are disadvantaged in boosting sales due to previous missed opportunities for R&D
and production expansion as we used to think they would not translate into immediate returns in our
management terms. Also, issuing more shares earlier could have facilitated share buybacks now.
Contrary to expectations, the company earned more contracts for Basic than Safe Jetpacks, totaling
2,400 Basic and 2,300 Safe Jetpacks, creating production pressure for the next quarter with only three
factories. Bidding for Basic Jetpacks at the lowest cost would have been wiser given the competition
and our focus on Safe Jetpacks.

Figure 15. Contract bidding results by Q3/Y2

The company ended up with minimal products in storage, causing undelivered contracts in Q4 Y2 and
impacting our bottom line. Looking forward, setting up or renting more factories would ensure
smooth delivery for large orders, especially as competitors move into new markets like Green
Jetpacks.

THE END