Fa PWP 22

U N I V E R S I T É S O R B O N N E PA R I S N O R D
001
FINANCIA
L
INSTITUT D'AMINISTRATION DES ENTREPRISES DE PARIS

ANALYSIS
LP MDE - SEPTEMBER 2022
E RWA N Q U E I N N E C
002
• Introduction
CONTENT
• Income Statement Analysis
• Balance Sheet Analysis
S
FINANCIAL ANALYSIS- 26h
FINANCIAL ANALYSIS 003
INTRODUCTION
Provides an assessment of the business financial situation

SOLVENCY
Assessing the business’s ability to pay off liabilities (honouring regular
payments)
PROFITABILITY
Assessing the business’s ability to create value
(make profits) over the long haul
PROCESS OF FINANCIAL ANALYSIS
AN ”INFORMATIONAL” INPUT : INCOME STATEMENT

004
AND BALANCE SHEET
INTRODUCTION
GENERAL ACCOUNTING

REPROCESSING OF ACCOUNTING STATEMENTS
FROM ACCOUNTING STATEMENTS TO FINANCIAL STATEMENTS
A MATERIAL READY FOR ANALYSIS

INDICATORS, FINANCIAL BENCHMARKS AND RATIOS
THE FINAL STEP : FINANCIAL DIAGNOSIS

A STATEMENT ABOUT BUSINESS’S SOLVENCY AND PROFITABILITY
INTRODUCTION
A MODEL OF (CONDENSED) INCOME STATEMENT 006

INCOME STATEMENT
ANALYSIS OF THE
EXPENSES and LOSSES (COSTS) REVENUES AND GAINS (INCOME)
Operating Operating
1. FINANCIAL
Procurement of materials and services 30 Merchandises sold 20

Operating Taxes 10 Products sold 140
Staff expenses 60 Sales revenue (turnover) 160
Depreciation and amortization 20

Financial 40 Financial 10

Extraordinary items (losses) 4 Extraordinary items (gains) 5
Income Tax 5
Total expenses 169 Total income 175
Net income 6
INTRODUCTION
006
INCOME STATEMENT
ANALYSIS OF THE
1. FINANCIAL
1-1. INTERMEDIATE BALANCES (steps of income)

1-2. TURNOVER ANALYSIS
1-3. MAIN RATIOS RELATED TO THE INCOME STATEMENT

1-1. INTERMEDIATE BALANCES (IB)
007
INCOME STATEMENT
ANALYSIS OF THE
In French financial textbooks, there are
1. FINANCIAL
7 standard IB

The first 4 deliver information about value creation
The last 3 deliver information about (mostly) value allocation

007
INCOME STATEMENT
ANALYSIS OF THE
1. SALES MARGIN
1. FINANCIAL

= SALES – PURCHASE OF MERCHANDISE (COMMODITIES)
This is an IB specific to trade operators (wholesale and retail)

007
INCOME STATEMENT
ANALYSIS OF THE
2. ADDED VALUE
1. FINANCIAL

= Sales margin + product sales - procurement of materials and services
OR
Annual turnover (all sales) –

(Cost of merchandise + procurement of materials and services)
007
INCOME STATEMENT
ANALYSIS OF THE
2. ADDED VALUE
1. FINANCIAL

So, of course (but better mentioning it…)
BIG TURNOVER SMALL TURNOVER
(100) (60)
BIG PROCUREMENTS AV = 60 (company B) AV = 20 (company C)

(40)
SMALL PROCUREMENTS AV= 90 (company A) AV = 50 (company D)

(10)
007
INCOME STATEMENT
ANALYSIS OF THE
2. ADDED VALUE
1. FINANCIAL

Based on the income statement only (without any other element of information)
There are basically two reasons why two companies A and B

may display significant levels of added value :
- The industry they are involved in

- The way they operate their production
2. ADDED VALUE 007

INCOME STATEMENT
ANALYSIS OF THE
1. FINANCIAL
Relation between AV and sector type is easy to figure out

Relation between AV and operating process is less easy.
So let’s focus on that :

Imagine two companies respectively named
YOUNG and OLD. They :
- Operate in the same industry (are competitors)

- Do have the same turnover (100)
2. ADDED VALUE 007

INCOME STATEMENT
ANALYSIS OF THE
OLD YOUNG
(AV = 80) (AV = 40)
1. FINANCIAL

ASSUMPTION 1 : - At first glance, it seems but… - Who knows ?
OLD is more profitable
than YOUNG - Much too early to ascertain
ASSUMPTION 2 :
No need for special Launched a communication
OLD procured less than YOUNG for
conjonctural reasons procurement, this year campaign
(so procured services from an
advertisement agency)
ASSUMPTION 3 :
OLD procures less than YOUNG
- Owns capital goods - Leases capital goods
because of a different operating - Hires paid staff = - Hires temporary staff =
process INSOURCING OUTSOURCING
2. ADDED VALUE 007

INCOME STATEMENT
ANALYSIS OF THE
1. FINANCIAL
Yet, in case of a company

- Leases its material
- Hires temporary staff
- Subcontracts suppliers
SO IT OUTSOURCES ITS PRODUCTION
SO IT INCREASES PROCUREMENT EXPENSES
SO IT DECREASES ADDED VALUE

2. ADDED VALUE 007

INCOME STATEMENT
ANALYSIS OF THE
OLD YOUNG
(AV = 80) (AV = 40)
1. FINANCIAL
CAPITAL GOODS - Does not lease but… - Does procure (leasing) but…

- will NOT incur costs of
- will incur costs of ownership ownership such as
such as depreciation and depreciation and amortization
amortization
STAFF - Does not hire temporary staff - Does procure (services from
but… temporary work agencies)
but…
- will incur costs of hiring paid
staff (staff expenses) - Will NOT incur costs of hiring
paid staff (staff expenses)
2. ADDED VALUE 007

INCOME STATEMENT
ANALYSIS OF THE
INSOURCING OUTSOURCING
1. FINANCIAL
(MAKE) (BUY)

STRENGTHS - Availability - Flexibility
- Core competencies - Funding
- cost - High-skilled support
functions
WEAKNESSES - Funding - Cost

- Risk of idleness (rigidity) - Risk of shortage
- Low-skilled support - Core competencies
functions
007
INCOME STATEMENT
ANALYSIS OF THE
3. EBITDA
1. FINANCIAL

= Added Value –
(operating taxes + staff expenses)
EBITDA is a very usual financial indicator
It is a proxy for the annual cash-flow of the company since all income
and costs included in EBITDA do have a counterpart in cash.
007
INCOME STATEMENT
ANALYSIS OF THE
4. OPERATING INCOME
1. FINANCIAL

= EBITDA – depreciation and amortization
OR
OPERATING REVENUES – OPERATING COSTS

007
INCOME STATEMENT
ANALYSIS OF THE
4. OPERATING INCOME
1. FINANCIAL

Operating income displays the operating profitability of the firm. Put simply :
Does the company’s production return income ?
Is the company involved in a good industry ?
Is its way of operating the industry efficient ?

007
INCOME STATEMENT 4. OPERATING INCOME
ANALYSIS OF THE
1. FINANCIAL
A BRIEF CASE : EURODISNEY

MILLIONS EUROS 2014 2015 2016

Total sales 1 280 1 373 1 278
EBITDA 113 141 (34)
Operating income (66) (57) (242)

007
INCOME STATEMENT Let’s calculate AV, EBITDA and Operating income
ANALYSIS OF THE
1. FINANCIAL
(based on our model of income statement, slide 2)

AV : 130
EBITDA : 60
OI : 40
007
INCOME STATEMENT
ANALYSIS OF THE
5. INCOME BEFORE PROVISION FOR INCOME TAX
1. FINANCIAL

= Operating income + financial revenues –
financial expenses (interest expenses)
Here is a crucial step for profitability : admitting that operational income is

positive, the question is to know whether it is big enough to cover interest
charges paid on loans…
007
INCOME STATEMENT
ANALYSIS OF THE
6. EXTRAORDINARY INCOME
1. FINANCIAL

= Gains – losses
Extraordinary revenues – extraordinary costs
Such a source of income mainly stems from the disposition of assets sold by
the company (sale price – purchase price). It occurs rarely –that is why it is
« extraordinary »- but may reach significant amounts of money
007
INCOME STATEMENT
ANALYSIS OF THE
7. NET INCOME
1. FINANCIAL

= Income before provision for income tax + Extraordinary income
-
Income tax
OR
All annual income – all annual costs

007
INCOME STATEMENT
ANALYSIS OF THE
7. NET INCOME
1. FINANCIAL

This the bottom line of the income statement, that tells the analyst if the
business is profitable or not.
Shareholders pay a special attention to this figure since net income is value
(money) that eventually amounts to them (after all costs incurred)
007
INCOME STATEMENT 7. NET INCOME
ANALYSIS OF THE
1. FINANCIAL
A BRIEF CASE : EURODISNEY

MILLIONS EUROS 2014 2015 2016
Total sales 1 280 1 373 1 278
EBITDA 113 141 (34)
Operating income (66) (57) (242)
Net income (114) (102) (858)

A CASE : KORIAN 2012
EXPENSES and LOSSES (COSTS) in millions euros REVENUES AND GAINS (INCOME)
006
INCOME STATEMENT Operating Operating
ANALYSIS OF THE
1. FINANCIAL
Operating Taxes 44 Products sold 1 108

Staff expenses 531 Sales revenue 1 108
Depreciation and amortization. 51


Income Tax 27
Total expenses 1 083 Total income 1 108
Net income 25
A CASE : ORPÉA 2012
EXPENSES and LOSSES (COSTS) in millions euros REVENUES AND GAINS (INCOME)
006
INCOME STATEMENT Operating Operating
ANALYSIS OF THE
1. FINANCIAL
Operating Taxes 68 Products sold 1 439

Staff expenses 716 Sales revenue 1 439
Depreciation and amortization 67


Income Tax 52
Total expenses 1 691 Total income 1 792
Net income 101

KORIAN and ORPÉA IB, 2012
KORIAN ORPÉA 006

INCOME STATEMENT
ANALYSIS OF THE
Sales margin 0 0
1. FINANCIAL
Added value (1 108 – 396) = 712 (1 439 – 388) = 1 051

EBITDA (712 – 44 – 531) = 137 (1 051 – 68 - 716) = 267
Operating income (137 – 51) = 86 (267 – 67) = 200
Income before provision for income tax (86 - 34) = 52 (200 + 17 – 90) = 127
Extraordinay income 0 (336 – 310)= 26
Net income (52 – 27) = 25 (127 + 26 – 52) = 101

007
INCOME STATEMENT
ANALYSIS OF THE
INTRODUCTION
1. FINANCIAL

As we saw when calculating added value,
turnover (annual sales) is the most important
(even only) source of income for any business. It assesses the value it creates
That’s why turnover call for a special attention.
In the following, we pay special attention to turnover’s trend through years
Turnover = Qi x Pi
007
INCOME STATEMENT
ANALYSIS OF THE
1. TURNOVER’S TREND
1. FINANCIAL
Over a certain period of time (N years), a company is facing

either of the three following cases regarding its turnover :
a). Decreasing turnover over time :

is it because of a declining market or a defective supply ?
b). Steady turnover over time (1-5% per year)

Is it temporary or is the supply saturated ?
c). Growing turnover (> 5% per year)

This signals a good strategic positioning but what about competitors ?
007
INCOME STATEMENT
ANALYSIS OF THE
1. FINANCIAL
How to calculate a growth rate over a period of N years ?

An example : HARIBO
Turnover in 2013 2014 2015 2016 2017
France
Sales (million 221 234 246 255 259

euros)
Growth rate per (234-221)/221 = (246-234)/234 = (255-246)/246= (259-255)/255 =

year 0,059  x 100 = 0,051  x 100= 0,044  x100 = 0,016  x100 =
5,9% 5,1% 4,4% 1,6%
Average annual 4,04% 4,04% 4,04% 4,04%
growth rate
007
INCOME STATEMENT
ANALYSIS OF THE
1. FINANCIAL
How to calculate a growth rate over a period of N years ?

- Count the number of periods (n-1 years = 4)
- Take the last number of the set and report it to the first = 259/221 = 1,1719
- Make 4✅ 1,1719 = 1,1719(1/4) 4
- In Excel = 1,1719 ^(1/4)
- (Result – 1) x 100 = Annual growth rate

2. MARKET SHARE 007

INCOME STATEMENT
ANALYSIS OF THE
Once you have calculated a growth rate,

1. FINANCIAL
it can be interesting to compare it to « your » industry

(the kind of supply -the sector- your product is part to)
For instance, here is the overall turnover of confectionary, in France,

between 2011 and 2015
2. MARKET SHARE 007

INCOME STATEMENT
ANALYSIS OF THE
Turnover 2011 2012 2013 2014 2015
(million euros)
1. FINANCIAL

Market for 1,011 1,054 1,070 0,974 1,019
confectionary,
France
Haribo 221 234 246 255 259
Haribo’s 22% 22% 23% 26% 25%

market share
2. MARKET SHARE 007

INCOME STATEMENT
ANALYSIS OF THE
1. FINANCIAL
HARIBO performs better than its industry (so, its competitors)

In the early 2010s
This is due to innovation (🍋🥝🍎)
But is confectionary still a promising market ?
😒 🤔
3. PROFITABILITY 007
INCOME STATEMENT
ANALYSIS OF THE
It is good that a company sees its turnover growing up
and all the more its market share
1. FINANCIAL

It is a sign of good supply and promising market,
so a good strategic management
(to keep up through time and against competitive attacks)
But does turnover’s growth relate to profitability’s growth ?

INCOME STATEMENT
ANALYSIS OF THE
Another example : LUSH FRANCE
1. FINANCIAL
Figures in 2015 2016 2017 2018

millions euros

Annual sales 29,7 35,1 38,4 39,2
(turnover)
Operating 26,6 35,2 37,9 40,9
costs (OC)
Operating
income 3,1
(0,1) 0,5 (1,7)
Average =(39,2/29,7)(1/3 9,7% 9,7% 9,7%

growth rate
(turnover)
Average 15,4% 15,4% 15,4%
growth rate
(OC)
INCOME STATEMENT
ANALYSIS OF THE
Another example : LUSH FRANCE
1. FINANCIAL

45
40
35
30
25
annual turnover
operating costs
20
15
10
0
2015 2016 2017 2018
4. BCG MATRIX
TURNOVER GROWTH 007
INCOME STATEMENT
ANALYSIS OF THE
QUESTIO
1. FINANCIAL
HIGH
N
STARS

MARKS=
?
CASH
DOGS
COWS
LOW HIGH
PROFITABILITY
4. BCG MATRIX (the case of APPLE)
TURNOVER GROWTH 007
INCOME STATEMENT
ANALYSIS OF THE
1. FINANCIAL
HIGH
Apple Iphone,

TV Ipad
McBoo
Ipod
k
LOW HIGH
PROFITABILITY
4. BCG MATRIX (some companies)
TURNOVER GROWTH 007
INCOME STATEMENT
ANALYSIS OF THE
1. FINANCIAL
HIGH
Blablacar, Apple,
Hermes,

Lush
Disney
Eurodisney, Procter &

Toys R Us Gamble
(Pampers
Kodak )
LOW HIGH
PROFITABILITY
1-3. MAIN RATIOS FROM THE INCOME STATEMENT
INTRODUCTION 007
INCOME STATEMENT
ANALYSIS OF THE
Profitability ratios are derived from the income statement
1. FINANCIAL
They are figures related to each other (X/Y), so that to allow

comparison and benchmarking of financial performance :
- Through time (how does the ratio evolve ?)
- Between companies of the same industry (competitors)
- Between companies of different industries

INTRODUCTION 007
INCOME STATEMENT
ANALYSIS OF THE
Profitability ratios are potentially numerous
(as many as the analyst needs)
1. FINANCIAL

But WE focus on 6 of them only -presumably the most important-
that can be broken down into the two following categories :
a). Operating ratios
B). Profitability ratios

OPERATING RATIOS 007

INCOME STATEMENT
ANALYSIS OF THE
- Added value/annual sales (turnover)

1. FINANCIAL

- Turnover/staff (number of employees)
OR
turnover/number of products sold

KORIAN and ORPÉA, operating ratios, 2012
KORIAN ORPÉA comments

006
INCOME STATEMENT
ANALYSIS OF THE
1. FINANCIAL
AV/Sales (712/1108) (1051/1439) Usually

= 64% = 73%
50%<AV<90%
Sales/ About About

number of 45 000 euros 35 000 euros
« operated beds »
Sales/ About
number of full-time 65 000 euros
employees
PROFITABILITY RATIOS 007

INCOME STATEMENT
ANALYSIS OF THE
- Financial costs/Financial debt

1. FINANCIAL
- Operating income/annual turnover

- Net income/annual turnover
- Net income/equity
KORIAN and ORPÉA, profitability ratios, 2012
KORIAN ORPÉA comments

006
INCOME STATEMENT
ANALYSIS OF THE
Financial costs/ 4,7% 4,1% Usually

1. FINANCIAL
financial debt 1%<AV<10%

Operating income/ = (86/1 108) = = (200/1 439) = Can be negative
Annual turnover= 7,9% 13,9%
(10%<GM<20%
GM (gross margin) is deemed good)
Net income/ = (25/1 108) = = (101/1 439) = About 5% is

2,3% 7% deemed OK
annual turnover =
NM (net margin)
Net income/Equity = 3,4% 7,9% 10% or more is
deemed good
ROE (Return on Equity)
INTRODUCTION
ANALYSIS OF THE A MODEL OF (CONDENSED) BALANCE SHEET 006
BALANCE SHEET ASSETS (owns and operates) LIABILITIES (collects and owes)
2. FINANCIAL
Fixed assets 3 500 Equity 1 000
Intangible 1 000 Long term liabilities 2 100

Tangible 2 000 Financial debt 1 800
Financial 500 Payables 300
Current assets 600 Short term liabilities 1 000
Inventories 150 Financial debt 400

Receivables 300 Payables 600
Cash and marketable securities 150

TOTAL ASSETS 4 100 TOTAL LIABILITIES 4 100
INTRODUCTION
ANALYSIS OF THE 007
BALANCE SHEET
A business collects funds (liabilities)
2. FINANCIAL

For investing in assets
In order to be operated and return income
At minimum costs
INTRODUCTION
ANALYSIS OF THE
1. ASSETS
007
BALANCE SHEET
2. FINANCIAL
- Fixed = investment goods and rights, either

immaterial (intangibles), material (tangibles) or
financial.
- Current = assets inherent to the course of
operations
INTRODUCTION
ANALYSIS OF THE
2. LIABILITIES
007
BALANCE SHEET
2. FINANCIAL
- Equity = funds provided by the owners of the company, in

exchange for shares.
Shareholders expect the company to return net income
- Debt = funds provided by creditors, to be refunded within a

short (< 1 year) or long (> 1 year) period of time.
Creditors expect the company to return an annual interest.
INTRODUCTION
ANALYSIS OF THE
2. LIABILITIES
007
BALANCE SHEET
2. FINANCIAL
One specific word about EQUITY

1. A company writes off statutes and issues shares
( 100 000 shares x 10 euros)
2. Shareholders subscribe for issued shares and provide funds

(1 000 000 euros) in exchange
3. So the company gets equity (shareholder’s funds). And shareholders get

stocks that grant them voting rights and entitlement to the company’s
benefits
2-1. THREE INDICATORS FROM THE BALANCE SHEET
ANALYSIS OF THE
A). WORKING CAPITAL (WC)
007
BALANCE SHEET
= (Equity + long term debt) – fixed assets (FA)
2. FINANCIAL

Long term funding (LTF)
- LTF and FA should broadly match so that WC should stand near 0
- But its amount depends on the working capital requirement…

ANALYSIS OF THE
B). WORKING CAPITAL REQUIREMENT (WCR)
007
BALANCE SHEET
= (Inventories + Receivables) - short term payables
2. FINANCIAL

WCR can be negative or positive
- If positive, it underlines a need of funding the

operating cycle
(expenses predate receipts)
- If negative, it underlines a capacity of funding drawn from the

operating cycle
(receipts predate expenses)
ANALYSIS OF THE
007
BALANCE SHEET
WCR is usually positive because
2. FINANCIAL

OPERATIN
G
CURRENT RECEIPTS
OPERATIN ASSETS • Cash from
G • Inventories sales
EXPENSES • Receivables
• inputs
• Staff costs
ANALYSIS OF THE
007
BALANCE SHEET
It is always better to have a CAPACITY rather than a NEED :
2. FINANCIAL

- If WCR is positive, the business needs to borrow cash
(unwelcome)
- If WCR is negative, the business can invest cash

(welcome)
ANALYSIS OF THE
007
BALANCE SHEET
But be careful :
2. FINANCIAL

- A weak WCR (at first glance, a good thing) 
little inventories and receivables, big payables
- Yet, little current assets may indicate low operations
- And significant payables may indicate bad financial situation…
That is why WCR is to be judged in relation

with the annual turnover
(that provides evidence for good or bad operations)
ANALYSIS OF THE
C). TREASURY
007
BALANCE SHEET
= WC – WCR
2. FINANCIAL

Or
Cash – short term financial debt
It should hover around 0 (being slightly positive or negative)

since
WC and WCR are expected to equate each other
007
WCR = 100 WCR = (100)
ANALYSIS OF THE
BALANCE SHEET
2. FINANCIAL

WC = 100 T=0 T = 200
(perfect) (too secure)
WC = (100) T = (200) T=0

(too risky) (perfect)
2-2. MAIN RATIOS DERIVED FROM THE BALANCE SHEET
Accordingly to what we saw regarding the ratios derived from the

ANALYSIS OF THE 007
BALANCE SHEET income statement, there are two categories derived from the
balance sheet :
2. FINANCIAL

- Management ratios
- Financial structure ratios
These ratios contribute to the solvency analysis of the business

ANALYSIS OF THE
MANAGEMENT RATIO
007
BALANCE SHEET
- WCR / turnover (x 360 days)
2. FINANCIAL

Good if negative (or slightly positive).
It is advised to follow-up its trend through years and

monitor it gets lower through time
ANALYSIS OF THE
FINANCIAL STRUCTURE RATIOS
007
BALANCE SHEET
We can break them down into two sets of ratios :
2. FINANCIAL

- LIQUIDITY
- SOLVENCY
006
INCOME STATEMENT
FINANCIAL STRUCTURE RATIOS : LIQUIDITY
ANALYSIS OF THE
YEAR 2012 KORIAN ORPÉA comments
1. FINANCIAL
Fixed assets/ 79% 85% Usually

Total assets 70%<R<90%
Current assets/ 81% 55% Should hover

around 1
Short term liabilities= (100%)
CR (current ratio)
Cash + marketable 29% 27% Usually weak
securities/ 10%<ILR<50%
Short term liabilities =
ILR
(immediate liquidity ratio)
006
INCOME STATEMENT
FINANCIAL STRUCTURE RATIOS : SOLVENCY
ANALYSIS OF THE
YEAR 2012 KORIAN ORPÉA comments
1. FINANCIAL
Equity/ 33% 25% Usually

Total liabilities =

20%<R<40%
financial independence
ratio
(Equity + long-term debt)/ 75% 73% Usually

Total liabilities 50%<R<80%
Financial debt / EBITDA 5,29 8,45 Should lie

in the range
3<R<6
APPENDIX
BACK TO THE ROE

007
3. A FOCUS ON A ROE
Return on Equity is a profitability ratio =

NET INCOME / EQUITY
In order for ROE to be high :
- Net income must be high
- And/or Equity must be low
So, low equity is good with respect to PROFITABILITY

but hazardous with regard to SOLVENCY
APPENDIX
AN HANDBOOK EXAMPLE
007
3. A FOCUS ON A ROE
Let’s see the case of a goldmine

You chase funding for
THE GOLDMINE
REQUESTED LIABILITIES 20 000 000
Equity 20 000 000 007
3. A FOCUS ON A ROE
Debt 0
PROJECTED NET INCOME 1 000 000
PROJECTED ROE 5%

One month later…
REQUESTED LIABILITIES 20 000 000
Equity 5 000 000
Debt 15 000 000
Projected financial cost (3%) 450 000

PROJECTED NET INCOME 550 000
PROJECTED ROE 11%

Fa PWP 22

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U N I V E R S I T É S O R B O N N E PA R I S N O R D

INSTITUT D'AMINISTRATION DES ENTREPRISES DE PARIS

• Balance Sheet Analysis

INSTITUT D'AMINISTRATION DES ENTREPRISES DE PARIS

AN ”INFORMATIONAL” INPUT : INCOME STATEMENT

INSTITUT D'AMINISTRATION DES ENTREPRISES DE PARIS

A MATERIAL READY FOR ANALYSIS

THE FINAL STEP : FINANCIAL DIAGNOSIS

A MODEL OF (CONDENSED) INCOME STATEMENT 006

Procurement of materials and services 30 Merchandises sold 20

INSTITUT D'AMINISTRATION DES ENTREPRISES DE PARIS

Staff expenses 60 Sales revenue (turnover) 160

Depreciation and amortization 20

1-1. INTERMEDIATE BALANCES (steps of income)

INSTITUT D'AMINISTRATION DES ENTREPRISES DE PARIS

1-3. MAIN RATIOS RELATED TO THE INCOME STATEMENT

INSTITUT D'AMINISTRATION DES ENTREPRISES DE PARIS

The last 3 deliver information about (mostly) value allocation

INSTITUT D'AMINISTRATION DES ENTREPRISES DE PARIS

This is an IB specific to trade operators (wholesale and retail)

INSTITUT D'AMINISTRATION DES ENTREPRISES DE PARIS

Annual turnover (all sales) –

INSTITUT D'AMINISTRATION DES ENTREPRISES DE PARIS

BIG PROCUREMENTS AV = 60 (company B) AV = 20 (company C)

SMALL PROCUREMENTS AV= 90 (company A) AV = 50 (company D)

INSTITUT D'AMINISTRATION DES ENTREPRISES DE PARIS

There are basically two reasons why two companies A and B

- The industry they are involved in

2. ADDED VALUE 007

Relation between AV and sector type is easy to figure out

INSTITUT D'AMINISTRATION DES ENTREPRISES DE PARIS

So let’s focus on that :

- Operate in the same industry (are competitors)

2. ADDED VALUE 007

INSTITUT D'AMINISTRATION DES ENTREPRISES DE PARIS

2. ADDED VALUE 007

Yet, in case of a company

INSTITUT D'AMINISTRATION DES ENTREPRISES DE PARIS

SO IT OUTSOURCES ITS PRODUCTION

SO IT INCREASES PROCUREMENT EXPENSES

SO IT DECREASES ADDED VALUE

2. ADDED VALUE 007

INSTITUT D'AMINISTRATION DES ENTREPRISES DE PARIS

2. ADDED VALUE 007

INSTITUT D'AMINISTRATION DES ENTREPRISES DE PARIS

WEAKNESSES - Funding - Cost

INSTITUT D'AMINISTRATION DES ENTREPRISES DE PARIS

EBITDA is a very usual financial indicator

INSTITUT D'AMINISTRATION DES ENTREPRISES DE PARIS

OPERATING REVENUES – OPERATING COSTS

INSTITUT D'AMINISTRATION DES ENTREPRISES DE PARIS

Does the company’s production return income ?

Is the company involved in a good industry ?

Is its way of operating the industry efficient ?

A BRIEF CASE : EURODISNEY

INSTITUT D'AMINISTRATION DES ENTREPRISES DE PARIS

EBITDA 113 141 (34)

Operating income (66) (57) (242)

(based on our model of income statement, slide 2)

INSTITUT D'AMINISTRATION DES ENTREPRISES DE PARIS

INSTITUT D'AMINISTRATION DES ENTREPRISES DE PARIS

Here is a crucial step for profitability : admitting that operational income is

INSTITUT D'AMINISTRATION DES ENTREPRISES DE PARIS