IntroductionAfter completing the business simulation at a competent level (a score above 0.000 for the cumulative total performance at the end of Q6), you will create a written report, using the attac

Running head: BUSINESS ANALYSIS REPORT 0

Business Analysis – YourCycle Co.

Lesline Abonwoh

Western Governors University

The simulation findings reveal that the operational strategies of YourCycle Co. were consistent with the corporate strategic thrusts. To meet increasing demand, the company focused on capacity building, increasing its capacity in Q2 (8 units), Q3 (32 units), and Q4 (48 units) to minimize missed sales opportunities (Velez & Alonso, 2025). Its technological leadership was also backed by innovation, as its technologies have been upgraded with features such as puncture-resistant tires, pedal-powered chargers, and aerodynamic handlebars, among others, making the brand stand out in competitive markets (Alhawamdeh & Alsmairat, 2019). The risk-taking tactics were reflected in the high marketing expenditures on regional media, SEO, and social media, aimed at achieving visibility and early market penetration (Melović et al., 2021). System improvements also promoted customer value, investments in quality control, and employee training, which enhanced reliability and satisfaction.

1. Expansion of Production Capacity: It is increasing steadily from 8 units in Q2 to 32 units in Q5, 48 units in Q6, 90 units in Q7, and 3,840 units in Q6.

2. Product Innovation: Introduced superior products that included carbon fiber handlebars and comfort accessories, which support product-market fit.

3. Aggressive Marketing Campaigns: Spend on promoting in Q4-Q6: $135,488 per quarter and social media to keep market share.

4. System Improvement and Employee Training: The investments in the workforce training, quality programs, and supply alliances increased the operational performance and dependability.

Several decisions were successful. Capacity growth helped meet the increased demand, which rose to 3,840 in Q6 and 90 in Q2, contributing to revenue growth and a reduction in unsold inventory (Lestari et al., 2023). The innovation of products used to support high pricing provided customers with a perceived value. The marketing activities maintained a presence in various market segments, while system enhancements were encouraged to facilitate efficiency and customer satisfaction.

Certain decisions had to be tightened. The Q6 (1,572 units) capacity was significantly lower than the demand (3,840 units), resulting in lost sales. Productive marketing costs were also high (exceeding $ 135,000 in Q4-Q6), which could be streamlined (Velez & Alonso, 2025). It was also high in terms of R&D investments (e.g., in Q5 and Q6 alone, it was $488,508 and $374,614), which put a strain on cash flow; distributing these expenses more evenly over quarters would not restrict innovation.

YourCycle Co. employed a discounted cash flow (DCF) technique to approximate firm value. This commonly used method attempts to predict a firm's future cash flows by discounting them to their present value (Damodaran, 2012). In Q6, the company has a negative operating cash flow of -378,675, and investing and financing activities are zero. It means that the costs of expansion and innovation are front-loaded, and there are no counterbalancing external funds.

Two scenarios were modeled to project valuation:

• Scenario 1 (Status Quo – losses continue): With a constant cash flow of -378,675 and a discount rate of 12, the valuation will give an approximation of -20.8 million, and this will mean that winding up of the firm value will occur should no turnaround be achieved.

• Scenario 2 (Recovery – modest growth): The valuation of the scenario, assuming that cash flows have improved in the growth rate of 10% and the same discount rate of 12%, will give approximately 4.41 million dollars as the valuation, as it will reflect the upside when investments in R&D, marketing, and capacity expansion start to generate revenue.

What underpins these projections is that the company is not generating profits, but its valuation is that of a company in an investment-intensive period. This is to be interpreted as a sign that stakeholders must undergo strategic adjustments and pay more attention to cost management; only in this case will profitability and sustainable growth be realized.

A3a. Valuation of Company (Market Capitalization Method)

The company’s valuation was calculated using the market capitalization method, which multiplies the fair market value per share by the total shares outstanding at the end of Quarter 6. This method reflects the total equity value perceived by investors.

Formula:

Inputs (from Stock History report):

• Fair Market Value per Share (Q6): $18.75

• Shares Outstanding (Q6): 80,000 shares

Calculation:

This valuation represents YourCycle Co.’s total market capitalization at the end of Q6, based on investor confidence and share performance. Using market capitalization aligns with WGU’s guidance for simulation-based valuation methods.

A3b. Estimated ROI (Aligned with Valuation)

The Return on Investment (ROI) assesses how efficiently the company generates returns on the equity invested. The same valuation from A3a is used here, ensuring consistency.

Formula:

Inputs:

• Valuation (from A3a): $1,500,000

• Initial Equity Invested (total raised through Q6): $500,000

Calculation:

Interpretation: YourCycle Co. achieved a 200% ROI on shareholder equity, reflecting significant value creation and market growth. This high ROI underscores investor confidence in the company’s innovation, marketing success, and capacity expansion strategies.

A3c. Implications for Investors

A 200% ROI signals robust long-term value creation but also highlights the need for sustainable profitability. Investors can interpret this as a sign of growth momentum. Short-term losses may persist due to intensive research and development (R&D) and marketing expenditures; however, long-term returns are expected as economies of scale develop and revenues stabilize.

This can be undesirable to risk-averse investors.

Long-term investors, however, are subject to different implications. This increase in the number of production plants between Q2 and Q6, along with product differentiation and increased brand presence, is an indication that future revenues will increase the moment economies of scale and increased market shares come into play. The negative ROI, in this case, does not represent a permanent warning sign, but rather the growth-phase strategy of the company. Investors are thus supposed to wait before they can register returns, and there is a possibility that the value will increase after the revenues start surpassing the initial expenditures.

Four ratios calculated and compared to industry averages were used to measure financial health in Q6:

1. Liquidity Ratio – Current Ratio

YourCycle is currently operating with an effective current ratio of over 1.0, which is 1.5 times higher than the industry average, as it has no short-term debts and a healthy cash reserve to support its operations. This implies that the company has high liquidity and can afford debt without difficulty, despite still incurring net losses (Lestari et al., 2023).

1. Activity Ratio – Inventory Turnover

The firm has recorded an approximate turnover of 1.02 during Q6, which is significantly lower than the industry standard of 5.0. This indicates that inventory is moving too slowly, which can potentially indicate a holding up of working capital and may be an indicator of demand forecasting or production alignment issues (Lestari et al., 2023).

1. Leverage Ratio – Debt to Equity Ratio

Leverage stands at 0.0, which is lower than the industry average of 0.5 with no debt. This reduces the risk of financial losses, yet also indicates the opportunity costs of not achieving growth by acquiring finance externally (Lestari et al., 2023).

1. Profitability Ratio – Net Profit Margin

Negative net margin in Q6 was recorded in the firm, contrary to the industry average of 810. The intensive investment in R&D, marketing, and capacity expansion resulted in a short-term loss that will need to be compensated for by long-term profitability (Lestari et al., 2023).

Cash Flow Analysis (Q6 Totals)

This indicates that the company continues to incur operating losses but remains financially stable, thanks to its high liquidity, which enables it to sustain operations (Bach et al., 2023).

Overall Health

The overall financial well-being of this company is ambivalent. Liquidity and solvency are strong due to substantial cash reserves, whereas profitability is strained. Low inventory turnover is a warning sign of potential ineffectiveness in managing demand. Flexibility and a low risk of default are, however, offered by the lack of debt. It is also evident that the business is at a point of high investment, and the existing financial pressure is compensated by the luxury of future expansion (Melović et al., 2021).

Conscious Scorecard Decisions

Three major Q6 conscious scorecard decisions determined outcomes:

1. Expansion of Fixed Capacity: The investments made in the previous quarters led to the company producing and fulfilling the anticipated demand (3,840 units) in quarter 6 without facing any stockouts and, hence, loss of revenue.

2. Aggressive Marketing Campaigns: It used more funds in the media and social sites to establish brand awareness and market share at the cost of profitability.

3. Product R&D and System Improvements: The investments into the field of innovation (e.g., puncture-proof tires, aerodynamic handlebars) and the quality campaigns contributed to the increased reliability of the brand and made it look technologically advanced, which also helped it be further differentiated in the long run.

References

Alhawamdeh, H. M., & Alsmairat, M. A. K. (2019). Strategic decision making and organization performance: A literature review. International Review of Management and Marketing, 9(4), 95–99. https://doi.org/10.32479/irmm.8161

Bach, M. P., Ćurlin, T., Stjepić, A. M., & Meško, M. (2023). Quo Vadis Business Simulation Games in the 21st century? Information, 14(3), 178. https://doi.org/10.3390/info14030178

Lestari, E., Setyawati, Y., & Paulina Maria Try Kabora. (2023). Financial Performance Assessment based on financial ratio analysis. PENANOMICS: International Journal of Economics, 2(3). https://doi.org/10.56107/penanomics.v2i3.148

Melović, B., Dabić, M., Vukčević, M., Ćirović, D., & Backović, T. (2021). Strategic Business Decision making: The use and relevance of marketing metrics and Knowledge Management. Journal of Knowledge Management, 25(11), 175–202. https://doi.org/10.1108/jkm-10-2020-0764

Velez, A., & Alonso, R. K. (2025). Business simulation games for the development of decision making: Systematic review. Education Sciences, 15(2), 168. https://doi.org/10.3390/educsci15020168