[MUSIC] That was the brief recap of operational ratios. What did we learned about operational ratios? Did you recall, there was one important thing that we learned is that every day of delay in my collection has a financial impact in my balance sheet. For example, you remember that we said, today's sales were €8,000. Now if instead of collecting in 60 days, I collect in 61 days. That means that I need €8,000 extra of financing. So it's not negligible, so it does matter if I keep good policies or if I just be a little bit mismanaged. so the first idea was that for both for days of collection, days of inventory and also for days of payables. We need to know what is the effect in the balance sheet by looking at what is the extra finance he needed for an extra day of delay in inventory or in collection. The second thing we learn with operational ratios was that many times top management doesn't know about delay or difference between the operational ratio that is ideal or the policy. And the operational ratios that we are actually having in the company. So it is very important to understand that it is the middle management normally that makes decisions about that and then that effects the top management decisions, when they go to the bank to ask for credit or they won't go To ask for financing. Now, we move on analyzing the P&L and the balance sheet. But instead of looking at the past but doing a forecast, because we said look, it is very interesting, these [INAUDIBLE] operation, but at the end of the day I want to know if the company is being able to pay back. Now to understand if the company will be able to pay back we need to look at the forecast of the balance sheet and what is in the line of credit forecasted. Though we cannot start a forecast of the balance sheets if we don't do a forecast of the P&L because most of the items in the balance sheet actually depend On sales which is in the P&L. That's why we started with the forecast of the P&L. And we went directly with an example of Polypana which is if I'm able to forecast sales, I'm basically done with the forecast of the P&L because almost everything depends on sales. You'll remember with a Polypana we thought, for the next three years We agree that reasonable growth would be 25% per year which is what we agreed. Remember we have to be skeptical, and then we could do a sensitivity analysis to see whether our simulation actually changes with the different growth rate. For the other items in the P&L when we said, okay let's take for example Gross Margin. It was 70% over every year in the last four years, then let's keep 70% for the next three years. And then Opex, it was not the same for the last four years. It's been becoming lower and lower, right? It's been from 29% to 24. 21, 19, right now, what we said is that we will reaching that point of efficiency in which we're going to keeping 19. Now, once we did the forecast to the panel and we have all the panel forecasted, then we moved to the analysis of the balance sheet. And do a forecast on the balance sheet, and I showed you a little a very simple example not with Poly Pile in this case a very simple example would you forecast a very simple balance sheet with eight items. First things we forecast things that are related to sales, receivables, inventory and payables. Just taking operational ratios from last year and using the forecasted daily sales and daily costs. Second thing we do fixed assets and long term debt which is very simple using fixed assets from last year plus unit investments minus depreciation. And long term debt is just the long term debt from last year. Plus the new loan term that you asked for minus a repayment. Then we did equity, which is basically equity from last year plus the net income of this year minus dividends. And then lastly, the very last thing that we did in the forecast of the balance sheet was to fill in cash and credit. You know the cash and credit are fill just to balance the balance sheets, so we took this difference to A prime, L prime and what we did is if A prime is bigger than L prime then we need credit. And if A prime is smaller than L prime, we have extra cash. That's the way in which we balance the balance sheet with cash and credit. We did that for Poli panel and it turned out you see here the yellow boxes were you see the credit needed it's not enough with 500,000 Euros to keep running the company. Do you remember that we said that in about March 2009 we would be over. We'd have to call the bank again and say I'm sorry, I didn't realize that I would need more money. Can you actually give me extra 100, 200,000 euros? And this is exactly where we left it last time. So why do they need more and more credit every year? >> Okay guys, so after we hear the forecast >> It's clear, and I start to understand that this company needs more creative line, but I don't understand why they continuously need a creative line. Do you have any thoughts on this? >> Yeah, sure. To me, the main point here is that the costs are not at all under control. They are spending more money to distribute their product to the customers they are raising the salaries. The costs are not and this is why they need more cash. >> Okay, well, that's a very good point, John. Because I've been crunching a new numbers and I think the customers have been worse and the days of collection are getting longer. So >> Luis I think this is a good point but in my opinion it's that they're growing too much and they're not generating enough cash. So >> Actually they are not growing faster enough to be able to generate the amount of cash needed to finance the operations. Even worse and. Not only the collection period but also. So all the operational ratios are bad in this case. >> In this case. >> These could all be good ideas. But for me aside from them not growing enough, it's just they're also not profitable enough. So [MUSIC] Thank you so much for your input. All of the points make sense but I just got confused which points are most relevant in this case in making decision. Well, guys, I need another coffee. I'll be back. [LAUGH] [MUSIC]
