FORAD Multinational Business Finance Simulation
Business School Course
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 Executive summary
 Why use this product?
 The FORAD simulation:
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FORAD company structure and details
Decisions process
Share price calculation
Simulation process
Reporting and reviews
 The FORAD company decisions - details
 Learning points
 The FORAD simulation – management and logistics
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The FORAD BUSINESS FINANCE SIMULATION is a computer based game designed to help the students,
usually in teams of 3 to 6, understand what it takes to manage the financial and operational challenges
of a multinational corporation. The company operates in a challenging market environment and
competes with the rest of the FORAD companies.
The management of the company involves DECISIONS in the areas of forecasting, operations and
budgeting, choice of financing options, risk management and international taxation strategies,
shareholders’ relationship. The focus is on corporate finance decisions.
The teams’ PERFORMANCE is measured by the company’s share price which depends on the earnings
per share achieved and a combination of a number of performance measures which include credit
rating, success in risk management, effective tax rate, quality of earnings, other.
The performance depends on the users’ ability to understand the key corporate finance concepts and
apply those lessons in managing a complex organization in competitive and unpredictable MARKET
ENVIRONMENT – subject to the simulation
The software provides the users with detailed REPORTING and a number of other DATA TOOLS to help
their decisions and review processes.
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The FORAD simulation makes the course more effective by teaching important lessons , further enhanced by
the way the learning is delivered:
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The simulation presents multiple key finance concepts (capital structure, capital costs
efficiency, operating analysis, capital budgeting, valuation are just examples) and therefore is
suitable for a wide range of traditional finance courses.
Regardless of the course focus, it allows the users to also see “the big picture” about
managing multinational corporation and examine how certain decisions affect multiple areas
of the company.
It challenges the users to address variety of trade-offs – equity vs debt financing; ST vs LT
debt; conservative versus aggressive risk management are just a few of many.
The game format replicates the real world and adds another layer of complexity to the
learning experience – unpredictability of the market and the competitors’ behavior.
It gives the users the chance to experiment with their decisions and try unlimited number
of combinations and iterations to test the lessons learned in the classroom.
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Additional benefits for the course instructor:
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The FORAD company structure and the simulation performance and results could be used as
semester-long case for class discussions.
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Adjustments to established course schedule are not a requirement and depend only on the
instructor’s preference – the FORAD simulation could be simply an addition to the class and the
learning points focus could be aligned with the class objectives.
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The addition of the FORAD simulation does not require major time investment to advise the
teams – the players’ manual includes all details needed. If requested, interpretation of the results
and other supporting materials can be provided by the Tower46 teams.
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The competition element increases the students’ engagement and interest in the class.
Performance in the simulation can be used as additional objective assessment of the students’
success in understanding the course material.
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The FORAD simulation – details
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Shareholders:
Equity;
Dividends
IC loans
and
dividends
Clients:
Domestic sales;
International sales
IC: Inter-company
ST: Short-term
LT: Long-term
Banks:
LT/ST loans;
FX hedging
instruments
U.S. Holding
Company
Japan
Operational
Subsidiary
Consolidated
FORAD
Company
IC trade
Banks:
LT/ST loans;
FX hedging instruments
IC loans
and
dividends
Germany
Operational
Subsidiary
Clients:
Domestic sales;
International sales
Banks:
LT/ST loans;
FX hedging instruments
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Multiple steps, but no formal flow or limit for the desired iterations
Preparation - analyze company’s results, study competitors results; forecast the
market data; set goals and plan the current period
Operations – decide capacity and production levels, looks for ways to improve
revenues and profitability
Financing and investing – review the company needs or excess resources; borrow
or repay debt, decide on maturity and currency, issue equity or buyback shares
Tax management – search for opportunities to lower corporate tax rate –
via IC loans, transfer pricing, IC dividends
FX management – review the exposures and decide on the hedging approach
Review – examine expected results, stress test for unexpected market data, think
for ways to increase EPS and/or PE score, adjust the decisions
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Team 1
Decision
Team 2
Decision
Team N
Decision
The teams submit their decisions files to the
Administrator
During the simulation, the teams’ predictions for
market data are replaced with the market
actuals and teams’ results are recalculated
SIMULATION
Team 1
Results
Team 2
Results
Industry
summary
The teams receive their final results with
complete detailed reporting package and can
proceed with the next period decisions
Team N
Results
The teams also receive companies’ rankings,
selected data for the competitors and economic
commentary forecast for the next period
Next period
forecast
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Share Price = Annualized Earnings per Share x Current PE score
PE score elements, description and weights:
Credit worthiness
Debt/Assets ratio; debt maturity;
credit rating; interest expense
Currency hedging
FX gain or loss compared to
conservative hedging approach
Planning skills
Ability to predict market data and
company's results
Tax management
Effective tax rate for the
consolidated company
Dividend management
Corporate dividend compared to
earnings; consistency
Quality of earnings
Size of non-core earnings; total
earnings volatility; dilution effect
Quality of
earnings, 10%
Dividend
management,
10%
Credit
worthiness,
30%
Tax
management,
20%
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Planning skills,
10%
Currency
hedging, 20%
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The model automatically generates multiple reports:
PE scores by team by period
For the competitors and the industry:
• Share prices, EPS, PE scores by company
• Operations and production highlights
• Consolidated financials of the competitors
• Market data and forecasts
18.00
T1
15.00
T2
12.00
T3
T4
9.00
T5
6.00
P1
Individual teams’ detailed results:
• Financial statements by subsidiary in local
currency and in USD
• All current and historical decisions and results by
position – FX exposures and results, borrowings
and investments, productions data, tax
management
• All reports are downloadable in Excel
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P2
P3
P4
T6
Share prices by team by period
$200
T1
T2
$150
T3
$100
T4
T5
$50
P1
P2
P3
P4
T6
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The model offers multiple tools for the users to review their results to enhance the
learning experience
Includes operations,
financing, hedging, taxes, PE
score elements, financial
statements by subsidiary
and consolidated
The users can enter extreme
values for market inputs to
explore the effects and test
the decisions’ quality in such
cases
Decisions
Details
Stress
Tests
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Historical
Reports
At any time - access to the
team’s historical decisions
and results with all details
included
Excel
Downloads
All reports can be
downloaded in Excel and
analyzed as desired or be a
base for other independent
modeling and reviews
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The FORAD company decisions
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Even though the FORAD teams have limited opportunities to influence the sales levels, operations
decisions are crucial for the company’s profitability.
Some decisions affect the company’s performance over long-term, others have immediate effect.
Long-Term
effect
Develop long-term strategy for capacity investments – given the
trade off between having enough capacity on time and the cost
of funds to purchase it
Mid- Term
effect
Decide how much to produce the current period to meet the
demand, but also whether to build inventory for the near future to
minimize the costs
Short-Term
effect
Decide on each period’s collection and payment terms to optimize
the revenues and the cash needs. Decide on the collection currency
and Inter-company trade details.
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Cash needs: Based on the operational decisions and predictions, the model estimates the cash needs by
subsidiary on a few key days within the period – day 0, 30, 45, 60 and 90.
Available capital and investments:
• Debt - fixed and floating rate Long-term (LT) loans in the subsidiary local currency; Short-term (ST)
loans in all three currencies; Inter-company (IC) loans in USD
• Equity - the Holding company can issue equity from the shareholders and repurchase shares
• Swaps - the teams can enter into plain vanilla interest rate swaps for their LT debt positions
• Marketable debt securities – the teams can invest excess cash in marketable debt securities
Equity; LT/ST loans; Swaps;
Marketable securities
LT/ST loans; Swaps;
Marketable securities
Japanese subsidiary
IC loans
US Holding Company
LT/ST loans; Swaps;
Marketable securities
IC loans
German subsidiary
Effects: These decisions affect corporate structure and credit worthiness, interest rates management
results, FX exposures and effective corporate tax rate.
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Foreign Exchange
Exposures
Given the operational
decisions, the teams can
review the FX exposures
by type, by subsidiary
and by currency:
• Trade exposures –
receivables and
payables
• Financial exposures
– ST and IC loans
• Exposures from IC
dividends
Foreign Exchange
Hedging Instruments
Hedging instruments
available:
• Forward contracts
• Options contracts
• Operational and
finance decisions to
adjust the
exposures
Both hedging and
speculative positions
are allowed.
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Foreign Exchange
Results
The model calculates
expected FX gains and
losses by position:
• From the underlying
exposures
• From the hedging and
speculative positions
The gains and losses are
based on the teams’
predictions for the period
end FX rates.
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To optimize the corporate effective tax rates, the FORAD teams take decisions on three main items:
Transfer Pricing
Influence the profitability of the two operational subsidiaries
with different income tax rates by changing the transfer price
for the Inter-company trade relationship, the currency of
invoice and the pay terms.
Inter-company Dividends
Minimize the subsidiaries income tax rate by paying Intercompany dividend to the US Holding company at the optimal
payout ratio. Minimize the net foreign tax credits and deficits.
Inter-company Loans
Another way to influence the subsidiaries’ profitability – by
using Inter-company loans to transfer funds within the
company and charge the best from tax perspective rate.
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Learning points
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The FORAD simulation allows the users to build skills in multiple areas of corporate
finance – very helpful for any well rounded finance professional, and therefore, crucial
for success at the work place
Risk management
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Corporate structure
and
capital markets
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Identify, understand and manage risk exposures – those resulting from
volatility in the foreign exchange rates, interest rates, commodity pricing
Use economic commentaries to develop market forecasting process
Learn how to use various hedging instruments and structures
Define corporate structure and manage credit worthiness
Choose between multiple sources of capital available – equity capital,
short-term and long-term fixed and floating rate debt
Refine the details – currency, duration, type, risk profile
Learn to evaluate the strategy and how to adjust, if needed
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Financial
planning
and analysis
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Use market data to forecast the sales and structure company’s operations
accordingly
Manage the company budget for long-term assets (capacity) and med-term
assets (inventory)
Understand the long-term effects and plan beyond the current period
International
taxation
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Learn about the differences in the local tax rules ad rates
Test the various tools available to a multinational corporation to achieve
better tax efficiency
Financial
statements
analysis
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Learn how to read and explain the numbers after they have been already
generated
Get the opportunity to review the historical results and examine the trends
Competitors’
analysis
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Learn how to use limited publicly available data for the competitors to
draw conclusions for their strategy ad make adjustments to be more
competitive
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The FORAD simulation also allows the users to build skills in areas outside of corporate
finance – to complete the overall training experience
Management
Skills
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Organizational
Skills
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See the big picture about managing a complex organization and how certain
decisions effect other areas too
Acknowledge and manage trade-offs and learn to prioritize and focus
Learn to evaluate performance, identify mistakes and recover
Accountability – take ownership of the decisions and defend them to the
public, develop and follow internal rules
Time management – deadlines in FORAD are similar to the deadlines in the
real world and require tight organization
Team dynamics – success in FORAD is nearly impossible without effective team
with quality discussions and team commitments
Communication skills – learn to communicate and negotiate within the team,
but also when presenting the company’s decisions and results
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The FORAD simulation – management and logistics
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The competition gives the instructor multiple tools to objectively rank and evaluate the
students’ performance. All are optional and could be customized.
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2
+
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Highest share price at the end of the simulation:
• Highlights a team with solid profit and also success in the majority of the PE score
elements. Other benchmark are an option too – market cap, specific element of the PE
score, FX results, only operating profit or only non-operating profit, others.
Written reports:
• Allows the teams to review and analyze their performance again and reflect on the
lessons learned. Could be structured similarly to US public company regular filings to
practice reporting skills .
Presentation and Q&A session with a panel of judges (other instructors, professionals):
• Further enhances the learning power of the game; the event could be open for
everybody interested and increase the course popularity and the students’ visibility.
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FORAD simulation game could be run along side a semester-long course:
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Stage 1 - pre-game and first decision (2-3 weeks) – form teams, distribute the players manual and
allow the teams to get to used to the software and the rules when preparing their 1st period decision
Stage 2 – core game (6-7 weeks) – allow a week for each period decision
Stage 3 – final results and debrief (2-3 weeks) – distribute the final results; allow the teams to prepare
their final reports, presentations and decisions defenses, if used
Stage 1
Prior to the game
Stage 2
Week 1 of game
Week 2 of game
Ongoing….
Teams work on
period 1 decision
Period 1 results and
commentary
Teams work on
period 2 decision
Stage 3
Last week of game
After the game
Priod period results
and commentary
Teams work on last
period decision
Final results and
debrief
Form teams,
distribute manual,
install model
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Tower46 team provides interpretation of the results, answer questions, other finance or techincal support
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Class Instructor:
Tower46 team:
 Primary contact for the students - form
 Technical support
 Support for all financial calculations
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teams, distribute the materials, answer
questions
Post each period results
Evaluate the teams’ overall
performance
Incorporate the learning points in the
course goals
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
and assumptions used in the model
Training for the instructor and
administrator manual if used
Help with the students’ questions, if
needed
Recommendations and best practices
Class Instructor or Tower46 team:
Instructor’s
choice
 Administer the simulation process
 Create scenario for the simulation and the supporting

market commentaries
Interpretation of each period results
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Possible game formats:
• Semester-long course with decisions due weekly
• Intense short course with decisions taken each day (usually for executive education)
Teams and users - no fixed requirement for the number of teams or team members. 3 to 5-member
teams offer good balance between work load and efficiency and 5 to 10 teams provide the best
competitive environment.
Length – the simulation could continue between three and 20 periods, ideal results are achieved
between 5 and 8 periods.
Location - the learning experience is most effective when teams discuss their decisions and results
together, but they do not need to be physically at the same location and could work remotely.
Administration – could be administered by the course instructor (brief training would be needed) or
remotely by Tower46 member. In all cases – interpretation of the results and help with any questions
from the users will be provided by the Tower46 team. No specific technology requirements.
Documentation:
• Manual for the users with all details to play the game; no additional training required
• Manual for the Administrator, if needed
• Ready to use market scenarios with economic commentary packages; customization of the
scenarios is an option
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