Live session 05.05.2014 FINAL

LIVE SESSION #2 WEDNESDAY MARCH 5TH 2014

FINANCIAL ANALYSIS MOOC WITH MARC BERTONECHE

INTRODUCTION



AGENDA OF THE LIVE SESSION



3 500 participants

Of which 64% are professionals and 36% are students

50% participation to the « Get to know you better » quiz

67 different nationalities represented mainly in France, United-States, North Africa and Asia:

CountriesEurope 26.1 %

United-States 14.2 %Tunisia 6.4 %China 6.0 %

Morocco 5.9 %India 4.2 %

A few statistics on the MOOC

Source: “Get to know you better” quiz



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GREMLIN CASE STUDY



REMINDERS ON FIXED ASSETS

Definition Any kind of asset that can’t be easily converted into cash (in theory!!) Or better assets which are used on several operating cycles e.g. factories, office buildings, computer servers

The following questions should guide investment analysis:

What is the state of the company’s plant and equipment? What is the company’s capital expenditure policy? What are the cash flows generated by these investments?



Fixed Asset Turnover Ratio

In thousands of Euros 1 996 1 997 1 998

Intangibles 0 0 193

Net plant and equipment 816 1 738 2 215

Net fixed assets 816 1 738 2 408

Inventories at manufacturing stage 539 2 009 4 283

Finished goods inventories 430 603 852

Total inventories 969 2 612 5 135

Accounts receivable 919 1 306 5 567

Other receivables 50 351 567

Short-term investments 1 000 2 000 -

Cash and equivalents 95 50 5

Total assets 3 849 8 057 13 682

AssetsIn thousands of Euros 1996 1997 1998Sales 7 545 9 995 17 738Cost of goods sold 3 247 4 480 9 637Gross Margin 4 298 5 515 8 101Distribution and marketing expenses 798 961 2 427Administrative expenses 1 627 2 319 2 913Operating Income 1 873 2 235 2 761Financial income 39 24 27Financial expenses 1 33 87Income before Exceptional Items 1 911 2 226 2 701Exceptional income - 74 -Income taxes 679 712 804Net Income 1 232 1 440 1 897Dividends 440 496 496Net Income Available to CommonStockholders

Income Statement

792 944 1 401

1996 1997 1998Sales 7 545 9 995 17 738Net fixed assets 816 1 738 2 408Fixed asset turnover ratio 9.25 5.75 7.37

Ratio Sales x 365

Net Fixed Assets

Source: GREMLIN case



CAPEX to Depreciation Ratio

1996 1997 1998Capital expenditure 397 1 515 (1 628 – 113) 1 323Depreciation 207 519 653CAPEX to depreciation ratio 1.92 2.92 2.03

Ratio CAPEX

DepreciationGremlin Consolidated Cash Flow Statement

In thousands Euros 1996 1997 1998 Net Profit 1 232 1 440 1 897+ Depreciation 207 519 653

+/- Gains or losses on Fixed Asset disposals - 74 -= Internally Generated Funds (1) 1 439 2 033 2 550 Change in Inventories 672 1 643 2 523+ Change in Receivables 19 688 4 477- Change in Payables and other Accruals 679 689 1 906= Change in Net Working Capital (2) 12 1 642 5 094 Cash Flow from Operations (1)–(2) = (3) 1 427 391 -2 544+ Asset disposals 113 - Capital Investments 397 1 628 1 323= Cash Flow from Investing Activities (4) -397 -1 515 -1 323 Free Cash Flow before Financing Activities (3)+(4) 1 030 -1 124 -3 867+ Share issue - 1 975 49- Dividends 400 440 496= Decrease (Increase) of Net Financial Debt 630 411 -4 313 Net Financial debt beginning of the year -465 -1 095 -1 506 Net Financial Debt end of the year -1 095 -1 506 2 807




REMINDERS ON NET WORKING CAPITAL

The concept Difference between the cyclical needs and the cyclical resources e.g., when do I pay my suppliers ? When do I get paid by my clients ?

Characteristics of the Net Working Capital

Sensitive to the activity of the company Liquid and permanent Often seasonal Sensitive to the closing period Function of the company bargaining position vs its customers / suppliers



Assets Liabilities 1996 1996

Intangible fixed assets 0 Capital 1 000Tangible fixed assets 816 Share premium 500Net fixed assets 816 Réserves 181Stocks of products being manufactured 539 Retained earnings 832

Stocks of finished goods 430 Total shareholders’ equity 2 513Total inventories 969 Accounts payable 557Accounts receivable 919 Other Payables 779

Other receivables 50 Bank debt due within one year -

Short-term investments 1 000 Long term debt -Cash and equivalents 95 Leasing -Total assets 3 849 Total debts 1 336 Total liabilities and equity 3 849

Inventories 969+ Accounts Receivable + 969 - Accounts Payable - 1 336= Net Working Capital 602

Net Working Capital Ratio




Assets Liabilities

1997 1998 1997 1998

Intangible fixed assets 0 193 Capital 1 200 1 202

Tangible fixed assets 1 738 2 215 Share premium 2 275 2 322

Net fixed assets 1 738 2 408 Réserves 1 573 2 815

Stocks of products being manufactured 2 009 4 283 Retained earnings 440 600

Stocks of finished goods 603 852 Total shareholders’ equity 5 488 6 939

Total inventories 2 612 5 135 Accounts payable 603 2 327

Accounts receivable 1 306 5 567 Other Payables 1 422 1 604

Other receivables 351 567 Bank debt due within one year 44 2 247

Short-term investments 2 000 - Long term debt 500 500

Cash and equivalents 50 5 Leasing - 65

Total assets 8 057 13 682 Total debts 2 569 6 743

Total liabilities and equity 8 057 13 682

1997 1998Inventories 2 612 5 135+ Accounts Receivable 1 657 6 134 - Accounts Payable - 2 025 - 3 931= Net Working Capital 2 244 7 338

Net Working Capital Ratios




Working Capital Turnover Ratio

1996 1997 1998 Net working capital 602 2 244 7 338 Sales 7 545 9 995 17 738 Working capital turnover ratio 29 days 82 days 151 days

RatioNet Working capital x 365

Sales




RatioAccounts receivable x 365

Sales

Days of Sales Outstanding (DSO)

1996 1997 1998Account Receivables 919 1 306 5 567Sales 7 545 9 995 17 738DSO 45 days 48 days 115 days




Accounts payable x 365Annual purchases (or cost of sales)

Ratio

Days’ payables outstanding (DPO)

1996 1997 1998Payables 1 336 2 025 3 931Cost of sales 3 247 4 480 9 637DPO 150 days 165 days 140 days




Total Inventory x 365Annual cost of salesDSI =

Days of Sales in Inventory (DSI)

1996 1997 1998

Total inventories 969 2 612 5 135

Cost of sales 3 247 4 480 9 637

DSI 109 days 213 days 194 days




(In thousand of Euros) 1996 1997 1998Semi-finished products or WIP 539 2 009 4 283Finished goods 430 603 852Total Inventory 969 2 612 5 135

Focus on the evolution of the inventory




Recap of the ratios

1996 1997 1998

Working capitalX 365 days 29 days 82 days 151 days

Sales Receivables

X 365 days 45 days 48 days 115 days Sales Payables

X 365 days 150 days 165 days 140 days

Cost of sales

Inventory

X 365 days 109 days 213 days 194 days

Cost of sales


DSO

DSI

DPO

NWCTurnover



QUESTIONS ABOUT GREMLIN CASE



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Live session 05.05.2014 FINAL