[MUSIC] Now, once we have this, and you know the structure of the balance sheet in one year, let's move on to the second step. Now the second step would be just to look at the evolution over the years to see what happened to the balance sheet over the last few years, to have an idea of the evolution and to start to infer what would happen in the future. Now recall that we have this balance sheet and I just added one more column to this table, which is basically the difference between the year 2007 and the year 2004. That difference is this column here. Now again, to understand what happened, see first that we have more than doubled the total size of our balance sheet as you can see here. We went from 483 to 1,225 here, so we increased 742, which is a big amount, right? Now, why did the asset side increase so much? Well, you can see that it's coming basically from two sides. One, is the receivables that went from 188 to 649, so it increased 461. And then the other one is the inventory that increased to 60. I don't want to comment on the other numbers because they are small numbers, and we said at the beginning it's better to focus on the big numbers. So mostly the increase in the asset side is coming from receivables and inventory. Now how are we financing those extra 700,000 euros? Where is all that money coming from? Well, you can see that some of it is coming from the payables. You can sum the two of them and the payables is 562 the last year. And then is coming as well from the credit, which increased to 200, and is coming as well from some long-term debt which didn't increase that much, which is just only 50. Once we have this, we want to understand what is this line here? Well, as you can see, there is this line of payables, and then there is the line of promissory notes to suppliers. Now that line of promissory notes was empty the first year, the second year, the third year. What about the fourth year? Why do we have there 162 here? What do you think that is? What does it mean? Is it supplier as well? Well, I can tell you it is suppliers. It's money that we owe our suppliers. But then you could say, then if it's money that you owe your suppliers, what is the difference between the normal payables, suppliers and the promissory notes. Well, the difference is subtle, but it is very important. The difference is that the promissory notes have a strong legal implications, which means that if you don't pay your bill on due date, you can go to court for not paying that. Let's say, for example, that you owe some money to your suppliers, and you have to pay in 60 days, for example. Now, day 60 comes and you say, I have no money here, so you call your supplier and say, hey, Sam, I'm sorry, I couldn't pay you today, but if you give me three or four more days, I will get some more cash in and I will be able to pay you. He might say, yeah, no problem, so take three or four days, that's fine. That's for the suppliers. For the promissory note says, in a note that is signed and that has a strong legal implication it says you have to pay in 60 days. So if I don't pay in 60 days, a phone call does nothing, you have to pay in 60 days. If you don't do it, you can go to court and they can sue you and you might have to liquidate. I'm being a little extreme, but this is what it is, right? Now the question that you probably have is, why do we have promissory notes in the last year and we didn't have it before? Why is asking us for some strong legal document, didn't ask before. Well, perhaps he's getting a little angry at us. Why can he get angry at us? You can answer that question. A supplier gets angry when probably he's not paid on time. Do we see here if they are paid on time or not?. We don't see it there, yet. So let's keep this in mind for the next part. Just bear that in mind. Now if we go back to the understanding of the evolution and we go a little bit deeply in understanding what's happening, I asked you the wrong question. What is the reason behind the receivables, for example, changing to the first year from 188 to 649. So why do the receivables increase? There is basically two reasons, right? One reason is I have increased my sales. So the more sales, the more invoices, so the more receivables. But it could be the case that even with the same level of sales we might have receivables that are increasing and this could be due to the fact that customers are paying each time later and later. So the invoices in your box of invoices are being accumulated there. So your collection period is extended. But by looking at those two numbers, can you distinguish which part of the increase comes from an increase in sales and which part of that increase comes from a deterioration of the collection date? Can you? No, we can't, right. because there is just one number. We don't know what the collection day is. That's why we need to look into the operational ratios, which is the way we call the collection days, to understand why the increase is happening, in other words to understand why there is such a big need of financing. To be in need of finance comes from the increasing assets and the increasing assets comes from either higher sales or worse collection. [MUSIC]
