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sditto writes:

The formula used by the ranker calculates the average Cash-to-Debt by adding up the cash and debts for each company and then dividing the sums to calculate the ratio. This approach "weights" each of the numbers so a company with a very low result will drag down the average of all companies as MOT did in this example bringing the average down to .71 despite a 7.97 result for ADI.

Hey all,

The cash-to-debt logic in the Monopoly Status section of the Ranker was *definitely* a challenge to sort out when I put the thing together last year! Lance did a terrific job (in post 6279) of explaining how the spreadsheet arrives at the correct point total. Here's a little additional explanation from the "criteria" page of the Excel 95 Ranker:
`Net Cash LogicCompared to the competition, Net Cash (measured as Cash minus Debt) is:  4 points:  5x more cash than competition  2 points:  2x more cash than competition  0 points:  less than 2x more cash than competitionIf any of the companies have negative Net Cash, but none have no debt, then:  4 points:  Cash-to-Debt is 25% higher than competition  2 points:  Cash-to-Debt is higher but not by 25%  0 points:  Cash-to-Debt is lower than competitionFinally, the last possibilities are:  4 points:  Company has no debt, while competition has negative net cash  0 points:  Company has negative net cash, while competition has no debt`

But on to the meat of this post... When I built the Ranker, I intentionally "weighted" the cash and debt quantities when arriving at the average cash-to-debt ratio for the competition. The reason I chose the weighted method is because, IMO, monopoly power belongs to the company with the largest war chest of cash less debt. By averaging all of the competitors' cash and debt components, we get a better idea of the total war chest power of the competition as a whole. In contrast, by averaging the individual cash-to-debt ratios, we would be blind to the potentially enormous cash savings or debt load of a major competitor. Of course, arguments can be made for both methods -- and sditto makes a good argument -- but I just wanted to voice that I had indeed considered both methods, and purposely chose the weighted version.

Best,
Matt