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PostPosted: Fri Jul 08, 2016 3:09 pm 

Joined: Sep 15, 2014
Posts: 23
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User avatarBFN Corp.
 
Hello,
This might seem trivial to some, but I'm not very familiar with economics and many of it concepts.

1)Expenses due to buying land, expanding, etc... are not accounted into the income sheet, so are not part of the net income; is this correct?
2)We can find a certain correlation that we should follow if we look at the assets/share and cash/share, except if we buy big amounts of inventory...

So my question would be, how should I find the proper balance so that I don't expand more than I can afford...
And also what ratio of cash to fixed assets should one have? A 1:1 would be good?

Thank you.


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PostPosted: Fri Jul 08, 2016 3:28 pm 

Joined: Jun 2, 2015
Posts: 110
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joker20008
Buying land becomes an asset. Expanding becomes a small portion an asset but the majority is an expense. Depending on your expansion speed.


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PostPosted: Fri Jul 08, 2016 10:53 pm 
EcoSim Editor

Joined: Jan 19, 2011
Posts: 4623
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User avatarAindala Holdings
Bottled Water Genius
BFN Corp. CEO wrote:
Hello,
This might seem trivial to some, but I'm not very familiar with economics and many of it concepts.

1)Expenses due to buying land, expanding, etc... are not accounted into the income sheet, so are not part of the net income; is this correct?
2)We can find a certain correlation that we should follow if we look at the assets/share and cash/share, except if we buy big amounts of inventory...

So my question would be, how should I find the proper balance so that I don't expand more than I can afford...
And also what ratio of cash to fixed assets should one have? A 1:1 would be good?

Thank you.

1) Expenses due to buying land and expanding are not really expenses, but an investment.
Say you buy a notebook for 5€. You lost 5€, but you have a notebook worth 5€, so your overall position is the same.

But you use your notebook, and it gets more and more worn out - meaning, it loses value over time, because of the use. That loss is called depreciation. Amortization is the same thing, but with things like Patents.

2) There are no miracle ratios. Just keep enough cash on hand to meet your immediate expenses and you should be fine.

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PostPosted: Thu Jul 14, 2016 12:44 am 
Developer

Joined: Feb 8, 2008
Posts: 2888
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User avatarCommit to Excellence
Bellerive Chamber of Commerce
BFN Corp. CEO wrote:
Hello,
This might seem trivial to some, but I'm not very familiar with economics and many of it concepts.

1)Expenses due to buying land, expanding, etc... are not accounted into the income sheet, so are not part of the net income; is this correct?
2)We can find a certain correlation that we should follow if we look at the assets/share and cash/share, except if we buy big amounts of inventory...

So my question would be, how should I find the proper balance so that I don't expand more than I can afford...
And also what ratio of cash to fixed assets should one have? A 1:1 would be good?

Thank you.

You know, I was just sitting here wondering what to write for the Level 7 "Level Up" alert and I think you've given me a good idea. (For those who aren't new, we've recently rewritten the first 5 Level Up alerts with more functional information, including how more about Simunomics functions and a real-world Economics lesson. I've done 6 and will get to the rest eventually.)

The first thing I would point out that any per-share ratio is meaningless except in the context of stock price. Shares are just how your total company's valuation is divided up. If you are worth :beta: 1 billion then there could be :beta: 100 million shares worth :beta: 10 each, or 10 million shares worth :beta: 100 each. And it would not make the slightest difference in how your company runs. All that matters is whether an investor with :beta: 500 to spend bought 50 shares or 5.

So all the per-share ratios work like that. If your company has :beta: 200 million in cash, that's :beta: 2 per share over 100 million or :beta: 20 per share over 10 million. Either way, someone who invests :beta: 500 is represented by :beta: 100 of cash in your company.

(If they bought 50 shares at :beta: 10 then the cash is 50 x 2 = :beta: 100.
If they bought 5 shares at :beta: 100 then the cash is 5 x 20 = :beta: 100.)

So really it's just color at the bottom of the accounting sheets. Eventually if you get to issue shares then it's the kind of thing investors would care about.

I would suggest the ratio you pay attention to is Return on Assets (RoA). Your July 11 weekly statement is 6.45%, which is good but has room for improvement. If you go to the Collected Rankings (Office -> Player Ranks) and click on Return on Assets you will see that you are rank 173 of current players. I'd encourage you to shoot for the top 100, which means 16.7%. You probably won't get there instantly, but it's a good goal.

The key to having a good Return on Assets is making sure your money is working for you. A million in cash isn't earning a profit. A million bucks worth of build kits isn't either. But a million-buck store that's running a sale is making a profit. So to improve your company's function, try to minimize how much of the first kind you have and maximize the second.

And let me just say that expanding buildings is necessary for growth, but doesn't earn you profit while you're doing them. So keep in mind that all things are relative. At full operation maybe you could earn 20% Return on Assets. But if you have to close some buildings for expansion, a smaller number (or even negative) may be perfectly reasonable.

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PostPosted: Fri Jul 15, 2016 11:37 am 

Joined: Sep 15, 2014
Posts: 23
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User avatarBFN Corp.
 
thanks everyone :grin:


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