Simulating Scenarios for Financial Statement Analysis Page 342 - Developments in Business Simulation and Experiential Learning, volume 39, 2012 ABSTRACT Valuing the firm in business simulations is of utmost im- portance since it is the traditional way in which total or partial student performance is evaluated in most simula- tions. We propose a valuation model based on the methods used in traditional valuation. The model, which can be em- bedded in the simulation code, forecasts cash flows based on historical data and performs valuation using the Dis- counted Cash Flows method (DCF). The terminal value of the firm is estimated using either DCF or EBITDA multi- ples, depending on the instructor’s choice. Short-term sales growth is estimated on historical growth using regression analysis while long-term growth is based on a growth rate decided by the instructor within a certain range. Cash flows are built using four value drivers: sales growth, prof- it margin, assets requirement, and cost of capital. The for- mer three simplifies the valuation of the firm at the begin- ning of the simulation when no historical data is available. The cost of capital is arbitrarily selected by the instructor according to guidelines summarizing the most important financial theories regarding this variable. A VALUATION MODEL OF THE SIMULATED FIRM Fernando Arellano University of Dallas farellano@udallas.edu Carlos Serrano EGADE Instituto Tecnológico y de Estudios Superiores de Monterrey, Mexico cserrano@itesm.mx mailto:farellano@udallas.edu mailto:cserrano@itesm.mx Table of Contents Volume 39, 2012 Designing the Training Challenge Follow The Leader: Are we Teaching our Students to be Thinkers or Followers? Two Free-Rider-Accepting Methods of Organizing Groups for a Business Game Additional Benefit Through Competency Models Assessing Brand Portfolio Normative Consistency & Trends With The Normative Position of Brands & Trends Package Modeling the Impact of Marketing Mix on the Diffusion of Innovation in the Generalized Bass Model of Firm Demand Play it Forward! The Design and Development of a Forward Contract Simulation Positioning the Company: Increasing Profits in Social Networks Merger of Companies in Business Game Exercise Towards a Knowledge-Based Approach for Autonomouse Trading Agent An Exploratory Study of the Impact of a Simulation Exercise on the Managerial and Personality Traits and the Decision Making Styles of Marketing Students Should the Concept of Potential Customers be the Foundation of Demand Theory in Business Simulations? Teaching Sustainability Experientially Drawing Upon Experience and Research to Improve Future Communications Improving Assessments of Student Learning Outcomes (SLO) Over Time The Effect of Affective Domain Characteristics on Behavioral or Psychomotor Outcomes Gossip? No, Not Me! An Experiential Exercise Student Advisement Using Gantt Charts: An Experiential Exercise in Management Theory Practicing Teachers as Digital Game Creators: A Study of the Design Considerations Designing and Solving Crossword Puzzles: Examining Efficacy in a Classroom Exercise Difficult Times Call for Innovative Measures: Microfinance as Experiential Learning in Higher Education Catalysts, Client Services, and Community Change: Interdisciplinary Collaboration in a Nascent Microfinance Initiative Build A Business . . . In An Hour or Less: Getting Closer to Reality into the Classroom Smart Goals: How the Application of SMART Goals can contribute to achievement of Student Learning Outcomes The Use of Data in "Live" Cases to Encourage Systems Thinking and Integrative Analysis: An Exercise Linking Human Resource Programs and Financial Outcomes in Real Organizations Experiential Education as a Process of Changing Mental Frames by Inducing Insight Learning Process and Content Integration in an Experiential Learning Guided Internship Program Good-bye Discussion Thread: Creating a Community of Inquiry in an Online Master's Program Fiction as a Constructivist Tool for Learning Process Consultation in an Online Environment: Shaping the Context, Introducing the Dialogue Can Simulations Provide a Better Experience? A Capstone Application Modeling a Modest Proposal for Increasing the Efficiency of Academic Reserarch Dissemination Experience GEO: A Massively Multiplayer Game SysTeamsGames Three Games for Management Simulation SimVenture - A Start-Up Business Simulation Stellarbucks Simulation Developing Games Using Strategy Maps and Balanced Scorecards Strategy Dynamics Models - Powerful But Simple In-Class Games Simulating Scenarios for Financial Statement Analysis A Valuation Model of the Simulated Firm Writing the Land: An Interdisciplinary Experiential Approach On the Estimation of the Probability of Meeting Financial Commitments: A Behavioraial Finance Perspective Using Business Simulations