Capitalism 2 and Capitalism Lab Forum

FEBRUARY 2003 - FEBRUARY 2004
STOCK MARKET
We finished this period by succeeding in the sale of our apartment districts in Funk... at a nice premium!
Let´s provide some hindsights and a final estimate:

1- In February 2001 Sylvania´s investment bank launched our subsidiary´s IPO. The proceeds were used to buy land, and then 16 new apartments, plus the company´s HQ.
2- In April 2001 we offered our subsidiary 500 million in cash for the purchase of our 28 apartments, to be bought at the market price.
Their market value was 500 million, meaning 17,8 million per apartment.
Yearly net profits at the time were assumed to be 2,1 million (0,0042x500, data to be found at the Subprime Detective sheet).
3- In February 2004 we sold the last bit of our ownership to other corporations for a total of 850 million, sold at an average price of 9,71$/share
(data to be found at the Stock Market picture, at the bottom).
4- We estimate the income loss and the carrying of the liabilities on Tomahawk´s book at 50 million/year. For 2,83 years, meaning 142 million total.
5- 850-142 = 708 net profit ; 708/28 apartments = 25,3 million per apartment. A 42% premium.
6- To achieve a similar profit from the beginning, meaning selling all shares in April 2001 and not waiting 2,83 years, the sale price should have been 8,1$/share, 16,5% lower.
We take good note of that and maybe we´ll simulate such a sale in the future.
7- We used all the cash to pay the bank.

A final consideration:
Amazingly, it was during the 1st of February of 2004, just the day we stop the game to write a report, when the stock happened to be really "hot" and we could sell most of it. We thought we were going to have another year of waiting for the right time.
You can see in the Balance sheet that most our debt reduction was made YTD.

As we are playing with a hard difficulty level, public corporations are very often overvalued and harder to acquire.
So, we turned such an obstacle into an advantadge, and cashed in our subprime apartments by making them available to cash rich corporate investors.
Malinvestment turns rampant when money is abundant. We did it first, and will try to allocate our cash more carefully in the future.

R&D
We have now 18 research labs working in all cities. We made use of our off-road land to build them on it. Here´s a part of our current research. Most is due in February 2005. CITIES
I want to provide a picture of Lynden that shows that the city is currently a net exporter. All exports being in the food category.
We´ll look closely to try and see the improvements this small achievement brings attached to it.

SUBSIDIARIES
Buzzard Automotive.
Welcome Buzzard Automotive, our new automobile subsidiary. We created them in February 2003 to compete with Anlin, chose Edmond Hubbard as CEO and gave them 250 million to start their business. They´re already manufacturing cars and motorcycles, with all their production located in Glen Fork. Lulu&Lala:
We´re a bit dissapointed with Mrs Santanna.
The company looks very lame: we sold them our cosmetics technology, but they haven´t started producing anything and after 8 years they have just one lab and a retail store. We thought they could build a health care giant, but were wrong. They might be too conservative for our taste, so we have directed them to focus solely on the cosmetics area and changed their brand from corporate to ranged.
We´ll have to fabricate a proper health care corporation choosing an agressive CEO. Maybe next year.

Cotton Thread:
Mr Tanaka seems to be waiting for the right time: They´ve bought technology in the apparel, leather products and footwear sectors, so we´ll give them some time and see wether they engage in manufacturing or not. We prefer they start right away even if by doing so they lose money. Saratoga Mills:
With Mrs Iniguez we fell confident enough: they´re a recognized player in the beverage area and might start showing a profit soon, as they´ve just started selling their own wines.
We are researching all food technologies and will be finishing our first step next year, so we´ll be selling them our knowledge and let them decide about the feasibility to materialize it in the market.
We say that because there´s currently a price war in the food sector, with some corporations pricing their products at or below cost.
As you can see, most of their lifetime loss is because advertising their corporate brand. With range brand they´d be probably showing a profit already. Falcon Industries:
Poor Mr. Kaye is showing a loss of 200 million in their books because of their sponsoring our political party. That might compromise the future IPO, so we´ll have to merge with them and remake the subsidiary from ground zero. REAL ESTATE
This past year we constructed five apartment buildings and one office building. The supply in OUR cities is currently between 5 and 7, and shrinking fast as there´s an influx of about 100k new residents every year. In Glen Fork and Funk the supply remains above 10 so we probably won´t build anything there until we see that they´re picking up in growth. MAYORAL ELECTIONS
This year new elections were called in every city.
We´ll expand our party budget to 150 million as we´re feeling urged to take over both Glen Fork and Funk. The conservative party is really ruining the stage there. They have quite some money to spend, so, a stipendiary effort will be required to dethrone them.
In Lynden and Lambs Grove our position is strong as our policies are aimed at raising the standard of living and we´ve an ample support base in consequence.

Finally, our financial situation sheet and the subprime detective sheet.
As you might have noticed in the balance sheet, our debt now stands at 2 billion, from 3 billion last year.
We can see that such amount of debt is not risking the stability of our corporation: we have both 2 billion liabilities, but almost 4 billion in "saleable" assets.
If we´d sell just our public stock holdings and use all income to pay the bank, our final debt would stand at 138 million, beginning February 2005.
If we wouldn´t be selling Fusion corp stock, our favourite public subsidiary, our final debt would instead stand at 528 million.

We can see that our RE sector strongholds can withstand perfectly our current liabilities, at current money rates. But let´s play a bit and ask ourselves some questions, like:
1- How high should rates climb to make us bankrupt, with a 2 billion debt?
2- How high should rates climb to make us bankrupt, if our debt was 5,5 billion (about the max. available from the bank at the moment) instead of 2 billion?
Here´re the answers:
Q1- 32%
Q2- 12%

NEXT YEAR:
From now on we´ll report every two years, but we can provide somehow detailed plans for next year:

We want to create new subsidiaries and capitalize them properly, but we don´t want to increase too much our debt, so we´ll strike a balance.
To consider:
First of all, we don´t know future trends for inflation nor money rates. We must be cautious as things can move pretty fast.
Second, we´re paying a 3,3% RR and that means 66 million lost per year. At 5% RR we´d lose 100 million per year.

We´ll merge with both Lulu&Lala and Falcon Industries for the reasons stated before. We calculate we´d get 600 million.
We spent 1 billion in them and used 200 million to fund our political party, so we´ve lost 200 million, minus some low tech research property.
We´ll use the money, thus:
50m to party donations,
50m to stock picks as money-substitutes,
250m each for two new subsidiaries, and
0m for the bank.

We´ll use the income from our RE sectors to construct new buildings in OUR cities, and "save" the rest (250-300 million) to buy some land in Glen Fork and Funk once we win the mayoral elections.
We´ll then proceed to scuttle public office space there and build our own in their place.

Have a nice weekend.

FEBRUARY 2004 - FEBRUARY 2006

FINANCES
Real rates stand at about 3%, with nominal rates at 9% and inflation at about 6%. Pretty steady.
Our net assets increased by 1.1 billion to 8.3 billion in two years, by new RE construction and by a further increase in the value of our existing RE assets.

Our liabilities increased by 1 billion to 3 billion.
You might recall that our "saleable" assets were about 4 billion in 2004, so we considered carrying a 3 billion debt manageable.
We have subsidiaries worth 3 billion in our book, so we can think of all our liabilities being carried by them, even more knowing that we used the cash to set up new ventures and to better capitalize existing ones.
Our current income is about 720 million/year, of which:
180 million is used (automatically, by inflation) to repay principal, and
90 million is lost to the bank.
What leaves us with 450 million net to invest per year.
From now on we´ll be less focused in increasing the value of our assets as we were before, for two reasons:
First, we are not interested in having a high stock price, because we don´t need it to fund our expansion. We have suceeded in not using it and we don´t find a good reason to do so at the moment.
Second, we have enough "free" assets to monetize through the bank, in case we need the cash.
Instead, our focus will turn to income:
We´ll start using the small office building more often, as it´s the one that provides the max. rent per square of land, and we´ll find a time in the future where our commercial districts will have grown too far away from the cbd dot, meaning that the "supply" of the best land will shrink, so we have to start thinking of making the best use of it, the sooner the better.
Also related, about our land usage:
One can think of our old approach as to build one structure and use one side to build the next. We´ll now start leaving more areas "free" ("unclaimed" and "expensive") around our districts so the other corporations build their stores there, as we believe the benefits from doing so will accrue in the long run.

Here´s a summary of the idea:
1- We ´ll take advantadge of cheap land at first to create new "isolated" RE strongholds.
2- We´ll use the Mayor to build services close.
3- The land around our new district will appreciate in value, and become "retail friendly": We won´t be buying the extra land as we did before.
4- The AI will pay a premium to set up their stores there, thus the city budget will get an extra income (out of nothing).
5- Sales volume in each city will increase, as selling will become easier. So will tax revenues. The money will thus circulate at higher speeds.
6- Competition will increase as good retail land will become accesible to all, as opposed to having just a few good spots in the hands of a few corporations. So, more jobs will become available in every line and category of business, as the last stage of operations (retail) will find any potential bottlenecks removed.
7- Inflation will stay high as we like it.

So goes our reasoning. The health of our corporation is too attached to the health of the nation, so we have to take care of it if we want to keep doing good.

STOCK MARKET
We sold our whole position in Global Link at about 60$/share (about 20 million shares) in the period up till February 2005, and used the proceeds to set up new subsidiaries.
One year later the price has moved to 80$/share, so in retrospective, another mistake. We could have cashed in about 400 million extra in just one year´s time (about our yearly net income).
So far, so good, sold out.

We have no public company holdings and we don´t plan to acquire any, as they are really expensive (even the ones opearting at a loss are priced sometimes at 2:1 book value).
We might change our prospects if we detect some hidden value.

SUBSIDIARIES
Just a descriptive summary:

February 2004
We merged with Falcon Industries for the reasons stated in our last post, and created New Falcon Industries, choosing Mr. Kaye again as CEO.
Also, we created Tidy-Mart Corp. to compete with Shining Star in the Household Products category.
February 2005
We created Bantam Pharma to focus on the Heath Care category, after scuttling our failed project "Lulu&Lala". We had some drug technologies researched, which were "transfered" to them at market price. They´re already engaged in manufacturing.
We created Gold Stream to compete with Global Link, focused in the Luxuries category (jewelry & watches). They´re also engaged in manufacturing.
February 2006, (present time... )
We finally merged with Cotton Thread, our Apparel subsidiary, after realizing Mr. Tanaka wouldn´t use the cash we entrusted him to engage in manufacturing. We then procceeded to create New Cotton Thread and chose Mr. Fowler as CEO.

To recap. We have at present 8 subsidiaries, one of them public, covering:

Food mega class: Saratoga Mills. CEO: Mrs. Iniguez, with expertise in manufacture & R&D (30) and Beverage (40). Corporate brand. 8yrs life.
Health Care mega class: Bantam Pharma. CEO Mrs. Marie, with expertise in R&D (80) and Body Care Products (70). Corporate brand.
Luxuries mega class: Gold Stream. CEO Mrs. Suri, with expertise in manufacture & R&D (30) and Jewelry (70). Corp. brand.
Fashion mega class: New Cotton Thread, CEO Mr. Fowler, with expertise in marketing (80) and Apparel (60). Corp. brand.
Furniture stand-alone class: Fusion corp. CEO: Mr. Parets, with expertise in R&D (60) and Furniture (70). Range brand. PUBLIC. 16 yrs life.
Household stand-alone class: Tidy-Mart, CEO: Mr. Baker, with expertise in manufacture & marketing (20) and Household Products (60). Range brand. 2yrs life.
Auto-makers stand-alone class: Buzzard Automotive, CEO Mr. Hubbard, with expertise in retailing & training (30) and automobile (40). Range brand. 3yrs life.
Home Appliances sub-class: New Falcon industries, CEO: Mr. Kaye, with expertise in manufacture & R&D (40) and home appliances (50). Range brand. 2yrs life.

Which ones are making money? None has yet shown a lifetime profit except Fusion Corp. which has been engaged in retailing imports since 1990, for a total of 170m.
When it comes to last year profits, Saratoga Mills shows a modest 1.5m in profits (grape juice sales mostly).
When it comes to last month, we include with the two above Bantam Pharma (a tiny 70k) (just selling bath lotion products with no competitors).

How much have we spent in these? Private ones have been capitalized each with 500 million.

I´ll be posting screenshots as they mature, and also by reader´s request.

CITIES.

In January 2005 our party candidates won the elections in all cities, so we have ordered our minions (public servants) in Funk and Glen Fork to get to work.
First of all, we privatized public office buildings there (by demolishing the ones owned by the city and then granting Tomahawk Corp. the rights to develop the CBD).
We also demolished some residential buildings in the periphery that lacked access to services and ruined the city´s life ratings.

BUDGETS:
To us a balanced budget means a small surplus, but that surplus should not be generated by land sales. Isn´t land an asset that the city´s shedding?
By that criteria only Lambs Grove can show a lifetime balanced budget and the rest are in the red, so we´ll have to change that. The good thing is that Lynden (also) shows a YoY profit since we raised taxes when we took over, and so the city´s steadily closing up the gap between total surplus vs total land sales. Both cities show a "net" surplus of about 100-150 million per year. If we turn our attention to Funk, it has lost 900 million since 1990, and last year alone it lost 240 million. In Glen Fork the situation is even worse, as the city has been living off land sales for the entire game, showing a lifetime "net" loss of 1790 million. Last year´s numbers are worrying as the loss was about 307 million. Not only that, but cash flow projections in 2005 were negative... Notice you can see each city´s cash levels in the screenshot, at the bottom.

MUNI-BOND EQUIVALENTS:
As cash flow projections in Glen Fork were negative and the cash levels in the city were low, Tomahawk´s CEO decided to step in and swap land for cash for a few hundred million as a short-term loan to prevent the city from falling prey to muni-bond investor-speculators. The land will be gradually re-sold at market prices when the city budget sees positive cash flows. You can see a huge land sale registered in the budget for last year.

TAXES & WAGES:
We have chosen a generic 10-25-20 (+/-) tax for all cities so there are no strong tax incentives to do business in any particular place:
1- If we´d see nice budget surpluses we´d reconsider the VAT.
2- As we did in Lambs Grove and Lynden, Income tax goes to 25% to balance the city budget (and will probably stay there too), esp. in Glen Fork.
3- Corp. taxes in Glen Fork and Funk were a minuscule 10%, so that 20% nation wide rate will hopefully level a bit future industrial developement across cities.

Funk has a 22% corporate tax (move the damn factory tax).
And, by the way, such a tax scheme didn´t succeed much in creating jobs in Glen Fork, but a 20% rate did in Lynden.

Wages are steadily rising & leveling across cities. Currently:
Lynden: 83
Lambs Grove: 78
Glen Fork & Funk: 73

LAND-USE PLANNING:
We re-zoned the land in all 4 cities following this pattern: used a "generic" not-for-sale zone for the whole city, then zoned some big mixed residential-commercial areas where services are available, and then chose an area in the periphery to "all-purpose" (for industrial and agriculture).
In Lynden we have specified an area for farming as that city is the nation´s food hub and we want to make it easier to farming corporations by offering cheap agro-land.
Lambs Grove and Lynden show a clone-ish zoning pattern, with the land (east?) above the river dedicated to commercial-residential use and below it to all-purpose. In Glen Fork we zoned a big square in the center as mixed commercial-residential to include the land with services and apartments below the river. The all-purpose land lying to the south-west. In Funk we left the area already urbanized and surrounded by factories zoned to a mixed commercial-residential, and chose one spot in the north-west to build New-Funk. The all-purpose quadrant is also in the south-west...

NEW FUNK:
Funk has been the typical cheap-labor, low-tax city that we usually find in most games, and so it has developed since 1990 an unhealthy industrial belt very close to the urban core. As a result, any new expansion of that core finds very acute land constraints.
It would be very expensive to relocate every factory further away from the living quarters, as with each "eviction" the Town Hall has to compensate the obliging corporation from the difference lost in land value. Such a transfer of wealth from the city´s coffers to the previously-tax-subsidized corporations is something we want to avoid, by all means available. We then decided to clear the area with less industries, in the NW, and home New Funk in there (we´ll "move" the city and not the industries). FUNK COMMERCIAL DISTRICT:
Finally! The CBD dot has appeared about where we were guessing it would.
The mayor has been busy this past year closing deals to move the firms doing business in the area to other locations, so that Tomahawk Corp. can step in and develop this treasure trove with new prime office space.
The hand in the screenshot shows where the dot is, just about the difficult to see cosmetics store below it. UNIVERSITIES & COMPETITIVENESS:
Somehow Sylvania is carving herself a place in the global market with her own brands...
It seems universities are the real kick-off for competitiveness. Following our heavy investment in these we have strong ratings as follows: (0-100)
Lambs Grove: Luxuries (jewelry & watches) above 70.
Lynden: Food (food & beverage) above 80.
Funk: Drugs above 70.
Glen Fork: Autos, at a modest 38.

As the budget allowed it and the demand was strong, we built a new university in both Lambs Grove and Lynden, so these have two now, ready to research new inventions and register new patents.
We´ll try to support our subsidiaries by researching their specialties, esp. in Lynden, furniture, where Fusion Corp. has two R&D labs.

Love the write-up! Any updates on the progress of the subsidiaries?

jckceric wrote: Fri Oct 19, 2018 12:45 am Love the write-up! Any updates on the progress of the subsidiaries?

Which ones would you like to know about? they´re getting a bit out of hand

FEBRUARY 2006 - FEBRUARY 2008

FINANCES.

Real rates stand at 3.5%. Inflation still at 6%. So money is becoming a bit more expensive.
Looking at the Balance sheet we can see that our assets grew by 2 billion (net) in the interim and our debt shrunk by almost 400 million. We have channeled part of our surplus income to build new RE firms, as well as to the setting up of new ventures, as part of our investment plan, as usual.
We still follow the policy of maintaining low cash levels as we still have the option of expanding the line of credit already opened with the commercial bank.
Also of notice is the growth of our intangible assets, that for a second time appear in our book. This time a modest 50 million. As you might see in the income statement our related expenses have been 230 million to date (R&D labs and salaries), so there´s still way to go... We believe the gap will keep closing as our R&D department works in close proximity with the universities. In terms of income we derive now 936 million each year from our RE firms (a 30% increase since 2006). All of the construction work for the period was done in 2006, so the new buildings are already filling our corporate chest. STOCK MARKET.
We did detect some value in a few public companies.
Pur Treasury and Radiate Star are two tech companies engaged in leather&footwear. As you can see they don´t make a lot of money (1 million/month each), but their research capabilities make them very attractive. We have a very aggressive player in our private venture -New Cotton Thread- and we believe we could establish a cartel some time in the future in the textile industry. By acquiring a sizable share in these two rather small companies we could lay the foundation for that.
The creation of such a cartel will have the objective of selling our private company for a high price. After that we´d create new competition against it.
Meet the foe: Moon Harp (Mkt cap 1.57b). They are a big sized corporation engaged in the apparel class. We´ll start looking to buy them once they become a direct target of New Cotton Thread (when the skirmishes wither and the battle begins) and their stock price (hopefully) drops.
Meet the contenders: (and yes, a small collage bereft of relevant information. I´ll expand in the future or by reader´s request).

Platinum Coil is another company with some value we have been purchasing cheap (avg price 5,2$). They are selling compact cameras and we have no muscle in that area. We believe their price will increase very soon so we´ll act with diligence. Our first objective will be to acquire 50% of the stock so we can make a bid for their technology.

Funk apartment Holdings. Their "floating" stock is below 5% and they are still and exclusively renters (they are a pure RE corporation, and "frozen"). Our position there is just a monitoring one.
NEW VENTURES.

Maybe we´re rushing this a bit but we want to see our brand new technologies applied to the market, right now, so we have created these two 250 million corporations just for that.
Plastic Pills Ltd. (drugs)
Sylvanian Watchmakers Ltd. (watches)

We already have two other ventures with aims in these two classes but they are too slow in deploying other product classes than the ones in their field. Shame.

And finally:
Rock Smelters Ltd. (metals mining).
With this one we´ll make room in our policy of non-intervention and mess with them a bit. We found around a few available resources cheap and just built three mines (gold, aluminum, iron ore) to provide acceptable priced raw metals to our other subsidiaries. We might go as far as to produce steel but we´ll probably go no further.
They are selling gold to our subsidiary Gold Standard (to bypass Global Link´s outrageous monopoly prices) and aluminum to Falcon Industries (to make refrigerators). Hopefully the aluminum will also reach Saratoga Mill´s canning factories, in time.
I´m posting the save file (v 5.1.33) in case someone wanted to take a peek. As you know, any comments or suggestions will be welcome, article or gameplay.
I´ll post the rest of the period soon.
Thanks for reading.

Thank you for continuing the updates. I have enjoyed following your progress.

smith121362 wrote: Fri Oct 26, 2018 1:02 am Thank you for continuing the updates. I have enjoyed following your progress.

TY!