[MUSIC] Hey Cos. >> Hey Miguel, no way? >> How are you? No way, long Long time no see. >> How are things man? >> Good, good. How are you? >> It's been a long time since I last talked to you. Four years ago, right? >> I know. I moved to Munich now. I'm a branch manager of the bank in Munich. >> Nice. >> Yeah. >> And how is it going? Is it good, like do you have a lot of work, many hours, or not? A lot. Is it as sunny as here or not? >> No, no, no. Beer, but it is not sunny. >> At least you have good beer, right? >> Yeah beer, of course. >> Nice, nice. >> Business is busy. Even today I have this application. We have to review but the team is divided and >> The application of what? >> The application of credit line. >> Of a credit line? Okay. >> Yes, yes. Nice. This is what you are doing now. Yeah exactly. >> Like managing applications of credit lines. >> Yeah. We have to review and we have to make adjustment but then the team is divided, so I don't know. >> And you have a team? You have a team? >> Yes. >> Of how many people? >> Three people. >> Okay. So they are helping you out, making these decisions. >> Exactly. >> Nice. >> Exactly. But they didn't come to a conclusion so I'm kind of confused what to do for now. >> But wait, why are they, why didn't you get to a conclusion with this guy? >> Because they have a different opinions towards reviewing the company. >> Really? >> Yeah. >> Wow. But it's the same company, right? >> It's the same company but. >> Did you have the financial statements of the company? Here? >> Yes, yes. Here. I was just reviewing it. >> Show me, show me, show me. >> You've been teaching so maybe you could help us out? >> Well the thing is actually I'm doing a Coursera course for ESA right now. >> Uh-huh. About finance. >> Really? >> So if you have the financial statements here, what we can do is you come with me and then we can make the decision much better because you have a team that is a little divided right? Come with me and I'll show you. >> Please, please, please let's do that. Now, as we just saw, in the bank that we went in, the bank manager just asked us for some advice on what to do. Because they cannot agree as you saw there, they cannot agree on whether to give them the credit or not. One of the guys was actually saying yes, give the credit because the company is actually growing. But then the other guy said no, the returns are low. And then, one said, yes, I actually like the guy because the guys seems a pretty nice guy and then I trust him. But then the other one starts to say, no but wait because the profits of the company are low and I don't know if he should be good to give the credit to this guy >> The other one is saying, well actually, but how do you follow the costs? This guy is very good at controlling the costs. So because costs are controlled, we should give the credit. But then the other was saying, no, but the profitability is low and then they kept on saying things like yes, it's profitable, but no it's not profitable enough, or well, no they cannot pay back if we give them so much money. And the other one saying, yes, we should give them the credit because they actually need it or yes, they are making money, right? Or the other one is saying, no they have too much debt. Mm-hm, my question to you, would you give the credit to Mr. Lichstein? We don't know what the bank is doing but we have to help them to understand whether to give the credit to this guy. Would you give the credit to this guy or no? Where would you base your decision? Now, the thing is it turns out that all the reasons they gave, they are actually somehow true. The company is profitable. They make money. We do not know if they are going to be able to pay back in the future. He is controlling the costs, but at the same time, the company is growing >> They don't know exactly if they need that much or not. So both reasons for the yes and for the no are reasonable. Then what do we do? What is the correct answer? Now, this is why we're here, to have a little order or systematic approach to these kind of problems. So, we need some framework in which we have an ordered way to look at things. So, you would say, well, in order to answer this question of whether to give the credit to this guy, I don't know. What do you guys want? Should we jump through the numbers? Because we can go straight to the balance sheet and the PNL and then just start looking at the numbers. Now some of you might say, yes let's go into the numbers and see what the numbers are. And then try to understand the numbers and then make the decision. Now I tell you, I don't know if this is the best idea. Now I tell you why, because if you look up numbers without a context, you might miss some things. And you don't know what to expect. Now before looking in to the numbers, to be able to understand what to expect, it's very good to look at the context. The context in this case would be the business analysis. Like what is this company doing? Because this guy came to the bank as we just saw and then he says I want a credit. And the bank managers, the first thing they have to say is like who are you? What are you doing? What is your business about? [MUSIC]
