Annual Report

Instructions:

1. Read through the Annual Report instructions in the template very carefully. It will give you detailed

instructions on how to complete the Annual Report.

2. Using the available charts, graphs, and information from the simulation you just played, fill out the

Annual Report according to the guidelines given.

3. You should save your draft Annual Report frequently.

4. When you feel that your Annual Report is complete, save the file on your computer.

Learning Outcomes

1. Through the careful analysis of previous decisions you will demonstrate that you learned the how to adjust strategies by using knowledge gained to impact company operations on a short-term and long term basis. You will discuss what changes that you would make if you could replay a quarter, as a discussion thread.

2. Demonstrate your ability to construct a Summary Annual Report and receive feedback.

Introduction Welcome to the final week of your Capstone experience. You have been managing a HISCO product offering. Deeply consider what you would do different if you could replay the simulation. In the business world planning for the next year may occur months before the current year ends. Even if you finish in first place in a market, you will need to focus on continuous improvement in order to stay ahead of your competition. By analyzing your results from feedback and data you will be able to make recommendations for improvement.

HISCO Annual Report

There are two sections to this assignment:

1) The ‘Stan Sloane Letter’, and

2) The Annual Report

The ‘Stan Sloane Letter’. HISCO’s owner, Stan Sloane, is very happy that he

decided to hire you to help turn the company around. He is interested in having

you stay on with the company. However, he will need assurance from you that you

are committed to continuing to grow HISCO. In three to four pages, explain to

Stan how you plan on running the company over the next two years. You should

discuss the majority of the items you developed when you first came on with the

company, including: whether you would make any changes to the SWOT analysis,

whether you would change the company strategy, negotiations you would make

with company stakeholders, future technology suggestions, growth expectations

in general for the industry and specifically for HISCO over the next two years, any

concerns that occurred in the past year that you would address, and any other

information you believe would be relevant in order to reassure Stan that he has

placed the company in the right hands. You will add this letter at the end of the

standard Annual Report. This letter is not part of a traditional Annual Report.

*The ‘Stan Sloane’ letter is from you, as the CEO, to the owner of the company.*

*The ‘Stan Sloane’ letter is a forward-looking discussion around specifically how

you will continue to grow Hisco over the next two years.*

HISCO Summary Annual Report Template

This HISCO summary Annual Report template is to be completed as part of your

year-end activities. The due date is no later than Day 7 of Week 6 and is your final

deliverable in BUS687. The HISCO summary Annual Report is worth 20% of your

overall grade.

The goal is to capture the essence of the major sections of an annual report and

provide an opportunity to synthesize your learnings from the simulation. This is

the reason we refer to it as a summary annual report. For example, you are not

responsible for the Auditor’s Report. Naturally, you are encouraged to review

real-world annual reports, which can be used as a strawman in preparation. Your

HISCO Annual Report should be your own original work. Your recently completed

Annual Operating Review in Week 5 – as well as your QBRs – can be leveraged in

preparing your Annual Report.

Preparing your HISCO summary annual report will be one of the most

comprehensive assignments you will have completed during your MBA. You will

gain an appreciation for the complexity and responsibility the senior executives

continually face. Hopefully, you have experienced the holistic and competitive

environment of the simulation.

The information – qualitative and quantitative – in an annual report should provide

current and prospective investors (as well as any stakeholder) a complete insight

into the company’s historic performance and its plans for growth and

improvement over the next few years, as defined by its strategy. Publicly traded

companies are required by law to prepare and submit to many constituencies a

variety of filings. The most well-known are the Annual Report to Shareholders and

related Form 10-K. An Annual Report is technically an unofficial document. The

Form 10-K will typically provide the most comprehensive summary of the

company’s history, financials, risks and opportunities, and current operations. The

Form 10-K is submitted annually to the U.S. Securities and Exchange Commission

(SEC). Technically, HISCO is a private company (you may have sold equity to the

venture capitalist) and only if it had publicly-traded debt would be required to file

a Form 10-K.

As a future leader of a public or private company, you will learn the integrative

nature of any business while you complete the HISCO summary Annual Report.

This document can become an important part of your e-portfolio as you continue

throughout your career. Your owner, Stanley Sloane, looks forward to reading your

HISCO summary Annual Report. While details may vary state by state, even if your

career leads to growing a small private business, you will need to file an Annual

Report with The Secretary of State in your jurisdiction; another benefit to learning

from our final activity.

The following page identifies specifics instructions for preparation of each

required section. Please remember to save your work frequently. An on-line

search will reveal innumerable sites devoted to annual reports; all work on your

HISCO Annual Report must be your own.

Required Sections in

HISCO Summary Annual Report

We leave to your imagination, creativity, and perusal of real-world Annual

Reports as to what Financial Statements, Graphics (e.g., from the Business

Intelligence Dashboard, Variance Walks, and all others in your model), pictures,

etc., to copy and paste (or alt-print screen, paste and crop) from the simulation

model into the Word document below.

The required sections are as follows:

Cover Page

You can design your own cover page. It should be reflective of your corporate image and may include a picture and/or logo. At a minimum, it will include the name [Simulation Year] HISCO Summary Annual Report as well as your name and date. The cover page can only be 1 page.

CEO Letter

The CEO Letter is designed to share the Strategy, Financial Highlight Summary, and Business Overview of the past year. It will typically also include the future growth outlook for the

business (detailed in the Sales, Marketing, and Industry pages below). The CEO Letter should be 2-3 pages.

Sales, Marketing, and Industry

This section should detail all aspects of HISCO’s Value Chain, from supplier to manufacturing to the customer. Products, NPIs, Pricing, in an industry perspective of competition should be elaborated on. A review of your SWOT would probably help as well as elements of your recently completed Annual Operating Review. An essential component is for current and prospective investors to understand how HISCO makes money and will be able to create growth and deal with risks. The Sales, Marketing & Industry section should be 4-5 pages.

Financial Statements

Financial statements are the heart and soul of the Annual Report. This is quantitative section that provides current and prospective investors a look into HISCOs financial performance. The financial statements consist of the Income Statement, Balance Sheet and Cash Flow Statement. This section should discuss key metrics or line items from the financial statements that you want your audience to focus on. We suggest you show a minimum of the past two years for the Income Statement, Balance Sheet and Cash Flow. You will need to provide details on the Credit Line. The Financial Statements section should be 4-6 pages.

Management Discussion and Analysis (MD&A)

The Management Discussion and Analysis section provides the real detail on year-to-year performance. This section contains the real substance of the Annual Report. In your case, this will be the current simulation year just completed vs. the prior simulation year. Topics will be both qualitative and quantitative around all aspects your recently-completed year relative to the prior year. The MD&A should include a complete variance analysis of performance and the successes and failures of your decisions for the year. It is the time you will delve into the details of your operating decisions. The MD&A section is typically devoted to the past (your future was described in prior sections). Reference to the Financial Statements and your recently completed Annual Operating Review is crucial. Graphics from your Business Intelligence Dashboard and your Variance walks on Income and Cash can provide visual insight into your performance. The Management Discussion and Analysis (MD&A) should be 5-6 pages.

Notes, Appendices, and References

Any references, supporting documents, comments, information, glossary of terminology, and/or clarifications you deem relevant to your Annual Report to assist current and prospective investors should be included. The Notes, Appendices and References should be 1- 2 pages.

LINKS

https://www.forbes.com/sites/fotschcase/2017/09/05/six-tips-for-planning-a-great- 2018/?sh=5b4d43c565c6

https://www.forbes.com/sites/louismosca/2017/10/18/business-planning-for- 2018/?sh=359dbec2692d

Page 1 of 3

Annual Operating Review

What key concept or technique from the week’s readings and/or discussion were

you able to utilize in the quarter’s decisions?

Throughout our prior conversation, I gained a profound understanding of the Annual Operating Report

(AOR). As we aim to elevate our company's overall performance, we must conclude the year

positively. Initially, I needed to recognize the importance of investing in our company's strengths,

which resulted in our competitor, Matek, exceeding us due to our lack of quality. Therefore, we must

prioritize our strengths instead of focusing on areas that require improvement. Although it may seem

tempting to seek external assistance in areas needing more expertise, we must remain committed to

our core competencies to succeed.

Using the Pre-Tax Net Income (Plan vs Actual) Walk Chart, explain all variances

and explain the key drivers. Provide data to support your explanations.

Hisco, a leading company in its industry, has again experienced a considerable increase in pre-tax net

income. This success can be attributed to the company's impressive growth and sales, clearly

demonstrated in the chart indicating that Hisco is executing its plan efficiently. In addition, the

company's growth and market share are almost equal, indicating a balanced and sustainable strategy.

To ensure that Hisco stays on track, the company has increased its advertising and marketing funding

compared to previous quarters. Despite these efforts, the final quarter saw such high sales that Hisco

could not break even. However, the base costs reveal a significant increase in sales, with a record-

high of $160k for Hisco. This is an impressive milestone for the company, indicating it is on the path

to even more significant achievements. As the company expands globally, its growth is expected to

continue, and Hisco can look forward to a bright future.

Using the Cash Flow Walk Chart, explain all sources/uses of cash and explain the

key drivers. Provide data to support your explanations.

The financial performance of Hisco this quarter has been notably impressive, showcasing a consistent

trend of positive cash flow over the past year. Despite the revenue generated from sales being wiped

out by receivables, this is a common challenge when dealing with hospitals that tend to delay

Page 2 of 3

payments. However, negotiating for quicker payment agreements can resolve this issue. In addition,

since taking over, Hisco's cash flow has seen substantial enhancements, despite currently sitting at –

$160K, the highest negative figure in the company's history. Nonetheless, we remain optimistic that

cash flow will continue to improve and eventually become positive. As a result, by Q3 next year, we

anticipate a much better cash flow position for Hisco.

What revisions would you make to your original SWOT analysis going forward

over the next 2 to 3 years? Be specific within each of the four categories.

Our engineering expertise at Hisco is highly esteemed and our most valuable asset in the market. To

maintain our edge over competitors, we recognize the importance of securing funding, despite

limitations. Throughout the first quarter, we diligently worked towards reducing our reliance on credit

and are proud to say we have become self-sufficient. As we focus on expanding our global outreach

and providing top-notch services to hospitals worldwide, we acknowledge the challenges we continue

to face, including stiff competition from new players in the East as we grow.

In what ways were you surprised by the final team rankings in the value creation

winning? Within each metric on the ‘Winning’ slide, what did or did not reflect

your expectations?

I was surprised by the turn of events when Matek emerged as the victor in the competition, leaving

Hisco in the dust. Hisco had been performing admirably in the initial three quarters, but Matek gained

the upper hand in the fourth quarter. Upon scrutinizing the financial statements, I observed that Matek

had a higher net income despite having less cash flow. This indicated that Matek had invested in their

enterprise to gain an advantage over their rivals. I realized that net income carried more significance

in the competition, and thus, I shifted my focus towards increasing our own company's net income as

well.

Over the next 2 to 3 years, in what potential new market/product/service

opportunities could Hisco invest for growth? Discuss at least 2 specific

opportunities

Page 3 of 3

Hisco must expand its global presence and increase its market share within the next two years. Our

achievements in the eastern market have set the foundation for growth. We plan to invest in eastern

locations with additional financial resources to secure more substantial expansion. Our latest research

project, number three, is a true game-changer. It introduces innovative hospital housekeeping,

maintenance, and dietary control features, significantly enhancing our readers' functionality. This

project alone can potentially increase our market share by a staggering 50%, surpassing Redex's Q3

breakthrough and positioning us to compete at a higher level.

If you could make one single change over the past year, what would it be? How

might that change impact the outcome?

Investing in Research and Development is crucial for the growth and success of a company. During

the first and second quarters, my main focus was on generating more cash flow and net income for the

organization, which resulted in limited investments during those periods. However, I may have

underestimated the impact of R & D on the company's overall progress. Had I invested in all projects

alongside engineering earlier, Hisco could have released new and better-quality products, gaining an

edge over competitors. While it is impossible to go back in time, it is still possible for Hisco to increase

its investment in R&D in the coming years, which can lead to the realization of new ideas and their

successful implementation. Proper investments in R&D can pave the way for the future success and

growth of the company.

“Growing Your Business” – A Management

Simulation

Our Educational Objectives to Growing a Business,

while not Exhaustive, Necessitates that Future Leaders can:

• Derive a Strategy from an Understanding of SWOT and Porter’s Five Forces in Uncertain,

Ambiguous and Complex Global Environments,

• Convert that Strategy into an Executable Plan in the Short Term while Investing and Creating

Options for the Long Term,

• Make Decisions under Time Pressure, Scarce Resources, Limited Information and Divergent

Opinions,

• Communicate and Negotiate with Internal and External Constituencies for Win-Wins,

• Manage the Interdependencies across Functions,

• Measure, Interpret and Explain the Financial Impact of Decisions in an FP&A Methodology of

Variance Analysis

• Have a responsible mindset in Meeting Commitments within an Ethical Framework, and

• Be a Coach and Teacher to everyone within their sphere of influence.

All in the Context of Creating Shareholder Value !

To:New Management

From:Stanley Sloane

Welcome to Hisco Welcome to the Hisco Corporation! We're delighted to have you join us. I promise you two things: A lot of

hard work to turn this company into a profitable enterprise, and an opportunity to achieve the goals and

objectives that you set for yourself.

You can catch up on the history of Hisco when you have time to read the enclosed materials. The important

facts are clear. We've been in business for 2 years, and we're not doing well. Losses exceeded $130,000 last

year and all our cash is gone. We have used our entire credit line, and we are concerned about our ability

to stay in business. We have a good product and a market with tremendous potential. We currently have

excessive manufacturing capacity in place; we need to grow sales to stay afloat.

We know engineering; this is probably one of our strengths. We need to develop our skills in manufacturing

and marketing to become more competitive and learn where and when to invest our resources for results.

Most important, as we face the next year of operation, we need a new business plan. We need a set of goals

and objectives, a strategy to get us there, and a system to monitor and measure our progress.

Our two competitors are not sitting still. They are also re-organizing and building their ability to compete

in the same market with similar products. Redex has been good in manufacturing, and Matek has an edge

in marketing. We need to offset their advantages without losing our own engineering strengths. The

business environment is excellent. Our product is in the infancy phase of the life cycle, and we believe that

exponential growth is possible. We need to compete with a quality product at an attractive price, and we

need to let people know how good we are. We must invest in our future now and continuously. Pricing will

be critical for our success, and I do not want you to move price more than +/- 20% per quarter. We cannot

afford to sacrifice earnings for market share; I will be watching product margins closely and expect to see

significant improvement next year. Do not forget about the product quality. Our products help nurses

improve the quality of care at the hospital, and we cannot afford to jeopardize our reputation in the

marketplace.

I have assembled some memoranda to fill you in on where we have been and where we are now. The

information is mostly historical, yet it gives you a starting point. I am more concerned with where you take

the company rather than where it has been. I assume you will share that concern.

The primary reason the prior management team is no longer with us was their inability to plan and budget

for growth. The prior management team submitted a plan with approximately $240,000 of Net Income. This

target is unacceptable. Your net income commitment for the coming year needs to be between $300,000

and $400,000 to convince me that you can truly grow this business. Executing on this plan is fundamental

to our value of meeting commitments.

The Board and I wish you well. We will monitor your progress.

Regards,

Stanley Sloane

Chairman

To:Functional Managers

From:William Sellums (Marketing Manager)

Product & Industry Background We are developing an advertising theme, which will focus on the history of our product, its labor-saving

and productivity features, and its high degree of reliability. We will be asking each of you for your input as

we develop the advertising plan.

Most of you are aware of the background of our product and our industry. To summarize:

• Three companies entered the Reader technology business in 2021 and began selling products

in the first quarter of 2022. The Reader was developed to satisfy a need to reduce the time

hospital nurses devote to paperwork and administration. Several independent studies revealed

that approximately 40% of a nurse's time was consumed in non-patient activities. Trial

installations of standard computer terminals at nurse's stations have not solved the problem

because data entry and computer training requirements placed resource demands on the

hospital staffs that were unattainable.

• Hamada, Ltd., a Japanese electronics producer, developed a pick-up cell constructed as a solid-

state magnetic sensor using tunnel diodes and special ceramics. This pick-up cell detects marks

made with magnetic ink and records their position on a predesigned form. The cell is extremely

tolerant of registration errors and allows the remainder of the Reader device to be relatively

simple and inexpensive to build using off-the-shelf materials. The Reader is an input peripheral

that can be programmed to work with virtually all hospital computer systems. Each Reader

requires one pick up-cell.

• When installed, a Reader system includes a Reader, a special pen containing magnetic ink, and

preprinted, computer-generated patient forms. These forms are coated with a special chemical

compound similar to that used on heat-sensitive paper for fax machines. Using the pen

provided, a nurse marks the form to indicate procedures, drugs, dosages administered, and other

information relating to the patient. The form is inserted into the Reader, which converts the

marks to computer sensible form for transmission to a database.

Like our competitors, we sell Readers to hospital equipment distributors who package the Reader and its

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