WEBVTT 1 00:00:00.200 --> 00:00:03.500 So the decision has been taken to buy the machine to purchase 2 00:00:03.500 --> 00:00:07.000 the machine so that we control our manufacturing and 3 00:00:06.700 --> 00:00:08.200 Industrial process. 4 00:00:09.200 --> 00:00:12.400 We have also decided to find out the machine for 5 00:00:12.400 --> 00:00:15.500 most of it by borrowings. So at the 6 00:00:15.500 --> 00:00:18.500 beginning of April, we buy the machine and we install 7 00:00:18.500 --> 00:00:21.200 the machine but it's quite reasonable to 8 00:00:21.200 --> 00:00:24.300 consider that it will take a month so that the machine 9 00:00:24.300 --> 00:00:26.100 is fully operational. 10 00:00:27.100 --> 00:00:31.100 Then we are going to keep on buying puzzles from our former 11 00:00:30.100 --> 00:00:33.500 supplier so that we can serve our 12 00:00:33.500 --> 00:00:36.100 clients. In the meantime. We are going 13 00:00:36.100 --> 00:00:39.600 to start producing by ourselves the number 14 00:00:39.600 --> 00:00:43.100 of pieces that we want to have in the inventories 15 00:00:42.100 --> 00:00:45.300 at the end of April so that we 16 00:00:45.300 --> 00:00:48.600 can serve our customers in May with the puzzles. 17 00:00:48.600 --> 00:00:50.600 We have manufactured by ourselves. 18 00:00:52.200 --> 00:00:55.500 On accounting point of view we are going to follow the traditional 19 00:00:55.500 --> 00:00:59.000 process first penal then Cash 20 00:00:58.700 --> 00:01:01.200 Cash budget change in 21 00:01:01.200 --> 00:01:04.300 cash and last but not least the picture at the 22 00:01:04.300 --> 00:01:06.000 end of the month the balance sheet. 23 00:01:06.800 --> 00:01:10.000 The p&l is going to be a little bit more sophisticated. 24 00:01:10.800 --> 00:01:13.500 Because we are moving from by to 25 00:01:13.500 --> 00:01:16.700 make so we have to purchase products to 26 00:01:16.700 --> 00:01:20.200 purchase puzzles for the April sales and 27 00:01:19.200 --> 00:01:22.600 we are starting production so that 28 00:01:22.600 --> 00:01:25.600 we can sell in May the production. 29 00:01:25.600 --> 00:01:28.200 Target will be the inventories. We 30 00:01:28.200 --> 00:01:31.500 want to have in the warehouse at the end of April so 31 00:01:31.500 --> 00:01:34.500 that we are quite comfortable to serve our customers in 32 00:01:34.500 --> 00:01:34.800 May. 33 00:01:36.600 --> 00:01:40.000 You remember that traditional Matrix without former 34 00:01:39.500 --> 00:01:42.100 supplier. We have a physical 35 00:01:42.100 --> 00:01:45.300 initial inventory of 400 units 36 00:01:45.300 --> 00:01:48.500 evaluated 8,000 units each and 37 00:01:48.500 --> 00:01:51.200 every puzzle was purchased for $20 38 00:01:51.200 --> 00:01:51.900 per unit. 39 00:01:52.600 --> 00:01:56.600 We plan sales in April for 1,900 40 00:01:55.600 --> 00:01:58.200 units. Let's assume that 41 00:01:58.200 --> 00:02:01.200 act will be the same as plan. So we 42 00:02:01.200 --> 00:02:03.000 have to purchase what we don't have. 43 00:02:04.100 --> 00:02:07.400 We are going to sell 1,900 units. We 44 00:02:07.400 --> 00:02:11.900 already have 400 units. We are going to buy 1,500 45 00:02:10.900 --> 00:02:13.400 units at the price 46 00:02:13.400 --> 00:02:15.400 of $20 per unit. 47 00:02:16.600 --> 00:02:19.700 The inventory at the end of April is going to be near 48 00:02:19.700 --> 00:02:22.600 zero no units and no doors 49 00:02:22.600 --> 00:02:25.600 for a very simple reason. We are going to 50 00:02:25.600 --> 00:02:29.200 sell all the puzzles. We have bought the 51 00:02:28.200 --> 00:02:32.200 cost of sales is going to be then $20 52 00:02:32.200 --> 00:02:35.600 per unit $20 for the 400. We 53 00:02:35.600 --> 00:02:39.600 already have and $20 for the 1,500. 54 00:02:38.600 --> 00:02:41.600 We are going to buy all of 55 00:02:41.600 --> 00:02:44.300 them are going to be sold in April. This 56 00:02:44.300 --> 00:02:47.800 is a purchase price of the puzzles which are sold 57 00:02:47.800 --> 00:02:48.600 in April. 58 00:02:49.400 --> 00:02:53.000 Then you understand that we have to keep two separate 59 00:02:52.900 --> 00:02:54.500 inventory accounts. 60 00:02:55.100 --> 00:02:58.800 One inventory account is going to look at the past. It's a 61 00:02:58.800 --> 00:03:01.400 puzzles. We purchased to be sold in 62 00:03:01.400 --> 00:03:02.000 April. 63 00:03:02.700 --> 00:03:05.500 And this inventory account will terminate at 64 00:03:05.500 --> 00:03:06.100 the end of the month? 65 00:03:07.300 --> 00:03:10.800 Future the puzzles we manufacture in April so 66 00:03:10.800 --> 00:03:13.900 that we can sell them starting from May 67 00:03:13.900 --> 00:03:16.300 inventories former supplier. 68 00:03:16.900 --> 00:03:19.400 No difficulty because we already discard that 69 00:03:19.400 --> 00:03:23.500 beginning inventory 400 plus 1500 70 00:03:22.500 --> 00:03:25.600 is 1900. We consume 71 00:03:25.600 --> 00:03:28.700 all of them and inventory Neil. 72 00:03:29.500 --> 00:03:32.500 So the Infantry which are already in the 73 00:03:32.500 --> 00:03:35.700 accounts. I evaluated at 8,000 we buy 74 00:03:35.700 --> 00:03:38.700 1500 at 20. It is 30,000. The 75 00:03:38.700 --> 00:03:41.200 sum is 38,000. We consume all 76 00:03:41.200 --> 00:03:44.300 of them. Then the cost of sales is going to 77 00:03:44.300 --> 00:03:47.500 be 38,000 which is quite important 78 00:03:47.500 --> 00:03:49.300 to calculate the gross margin. 79 00:03:50.800 --> 00:03:53.900 Units are going to be b2c cells 80 00:03:53.900 --> 00:03:58.100 at 30 dollars per unit 30,000 900 81 00:03:56.100 --> 00:04:00.300 units 25,000 and 82 00:03:59.300 --> 00:04:03.500 the sum is 52,500 cost 83 00:04:03.500 --> 00:04:06.600 of sales. Well twenty dollars multiplied by 84 00:04:06.600 --> 00:04:09.800 1900 units gross 85 00:04:09.800 --> 00:04:12.500 margin 14,000 and 500. No 86 00:04:12.500 --> 00:04:16.000 problem. Then we have to deduct the indirect 87 00:04:15.300 --> 00:04:18.300 cost and here I propose you an 88 00:04:18.300 --> 00:04:21.300 organizational chart because the company starts being 89 00:04:21.300 --> 00:04:23.100 a little bit more complex. 90 00:04:24.200 --> 00:04:27.900 Inner child, what do we observe management and administration? 91 00:04:27.900 --> 00:04:30.400 No change sales. I want 92 00:04:30.400 --> 00:04:33.800 to develop sales because I have no more capacity. 93 00:04:33.800 --> 00:04:36.500 I'm Going To Hide A salesperson 94 00:04:36.500 --> 00:04:38.300 from two to three. 95 00:04:39.200 --> 00:04:42.500 And you remember in March? I said all we have two people working 96 00:04:42.500 --> 00:04:45.700 for R&D. It was not exactly R&D It 97 00:04:45.700 --> 00:04:48.200 Was preparing the machine preparing the 98 00:04:48.200 --> 00:04:51.800 engineering and the production then I decide 99 00:04:51.800 --> 00:04:54.500 to be a little bit more precise because later on we'll 100 00:04:54.500 --> 00:04:57.000 have some R&D expenses and investment. 101 00:04:57.900 --> 00:05:00.800 And one person is going to stay in and 102 00:05:00.800 --> 00:05:04.100 generating at large indirect cost one 103 00:05:03.100 --> 00:05:06.400 person is going to be the supervisor of 104 00:05:06.400 --> 00:05:10.200 the production process. We have three workers. I 105 00:05:09.200 --> 00:05:12.300 need somebody to supervise them. So I'm 106 00:05:12.300 --> 00:05:15.400 going to split the two R&D people. In fact 107 00:05:15.400 --> 00:05:19.600 in one engineering and one production indirect 108 00:05:18.600 --> 00:05:21.000 and direct cost. 109 00:05:22.500 --> 00:05:25.200 Now, what are the new metrics for production? 110 00:05:26.300 --> 00:05:31.400 We anticipate some sales in May 2,200 111 00:05:29.400 --> 00:05:32.100 units and we have 112 00:05:32.100 --> 00:05:35.500 an inventory Target. We want to have a finished 113 00:05:35.500 --> 00:05:38.600 goods inventory at the end of April which 114 00:05:38.600 --> 00:05:41.700 is about 25% of the sales. We 115 00:05:41.700 --> 00:05:45.400 anticipate for May 25% 1/4 116 00:05:44.400 --> 00:05:47.900 of 2,200 units. 117 00:05:47.900 --> 00:05:50.300 It's 515 units. This 118 00:05:50.300 --> 00:05:53.400 is what we want to manufacture in April with the 119 00:05:53.400 --> 00:05:53.700 new machine. 120 00:05:54.400 --> 00:05:57.200 Now that will be a production cost which is no more 121 00:05:57.200 --> 00:06:00.800 purchasing. It's about manufacturing to manufacture. 122 00:06:00.800 --> 00:06:02.900 What do you need raw materials? 123 00:06:03.600 --> 00:06:06.200 We are going to take an assumption to simplify the 124 00:06:06.200 --> 00:06:09.100 calculation in that the row materials which 125 00:06:09.100 --> 00:06:12.500 I purchase each on every month are consumed 126 00:06:12.500 --> 00:06:15.600 during the month. So there will be no inventory of 127 00:06:15.600 --> 00:06:18.600 raw materials on the end of the month. It's just 128 00:06:18.600 --> 00:06:19.300 a simplification. 129 00:06:20.300 --> 00:06:23.700 So second production cost item is about Labor 130 00:06:23.700 --> 00:06:26.600 supervision one person and three people 131 00:06:26.600 --> 00:06:29.900 in business operations three workers only three 132 00:06:29.900 --> 00:06:32.700 because 550 is much 133 00:06:32.700 --> 00:06:35.500 less than 2,500, which 134 00:06:35.500 --> 00:06:38.100 is you remember as a threshold and of course 135 00:06:38.100 --> 00:06:41.400 we have to take into account all the usages all 136 00:06:41.400 --> 00:06:44.500 the conceptions including the conception of 137 00:06:44.500 --> 00:06:47.700 the machine, which is named you remember the depreciation of 138 00:06:47.700 --> 00:06:48.200 the machine. 139 00:06:49.400 --> 00:06:52.100 Then I can build my cost sheet. I 140 00:06:52.100 --> 00:06:55.500 can calculate my production cost total and per 141 00:06:55.500 --> 00:06:55.700 unit. 142 00:06:56.400 --> 00:06:59.500 Again, we have the sales forecast. The production is 143 00:06:59.500 --> 00:07:01.500 planned at 550. 144 00:07:02.700 --> 00:07:06.900 purchase and consumption of raw materials 550 145 00:07:05.900 --> 00:07:09.300 units multiplied by 16 dollars 146 00:07:08.300 --> 00:07:10.200 per unit 147 00:07:10.800 --> 00:07:15.000 8,000 800 supervision an 148 00:07:14.300 --> 00:07:18.600 engineer three workers depreciation 1000 149 00:07:17.600 --> 00:07:20.400 the total cost is a sum of all these 150 00:07:20.400 --> 00:07:24.200 cost items which is 14,300 you 151 00:07:23.200 --> 00:07:26.400 divide that by 550 and 152 00:07:26.400 --> 00:07:28.200 you get 26 Stars. 153 00:07:29.500 --> 00:07:32.400 And it does not look very nice at First Sight because you remember 154 00:07:32.400 --> 00:07:35.700 we were purchasing a puzzles at $20 155 00:07:35.700 --> 00:07:38.700 per unit on the objective of the machine is to reduce the 156 00:07:38.700 --> 00:07:38.900 cost. 157 00:07:39.700 --> 00:07:43.000 Yes, of course, but here you understand that 26 158 00:07:42.500 --> 00:07:45.500 is quite High because the 159 00:07:45.500 --> 00:07:48.800 volume is extremely low. We anticipate much 160 00:07:48.800 --> 00:07:52.600 larger volumes and then we are going to generate economies 161 00:07:51.600 --> 00:07:53.100 of scales. 162 00:07:54.400 --> 00:07:57.400 The 26 DARPA unit is going to be used to 163 00:07:57.400 --> 00:08:01.300 evaluate the inventory at the end of April and 164 00:08:00.300 --> 00:08:04.000 the value of the inventor is going to be exactly by 165 00:08:03.100 --> 00:08:06.700 the way 14,000 and 300. 166 00:08:07.700 --> 00:08:10.800 Now we can build the account in voucheries 167 00:08:10.800 --> 00:08:14.000 of in-source production no inventory 168 00:08:13.200 --> 00:08:16.200 at the beginning of the month because we have not yet 169 00:08:16.200 --> 00:08:21.300 bought the machine production reproduce 550. 170 00:08:19.300 --> 00:08:22.400 We sell 171 00:08:22.400 --> 00:08:27.500 nothing because it's going to be sold in May and inventory 550 172 00:08:28.400 --> 00:08:31.900 in terms of values now, it's not simply multiply 173 00:08:31.900 --> 00:08:34.600 that by 20 dollars. It's much more surface the 174 00:08:34.600 --> 00:08:37.100 Gated zero at the beginning on zero in 175 00:08:37.100 --> 00:08:42.200 the cost of sales because we don't consume any production costs 14,300 176 00:08:40.200 --> 00:08:43.300 which is a value of 177 00:08:43.300 --> 00:08:44.900 the inventory at the end of the month. 178 00:08:46.500 --> 00:08:51.000 We have calculated the gross margin 14,500. Then 179 00:08:50.300 --> 00:08:53.100 we can deduct the indirect calls in 180 00:08:53.100 --> 00:08:56.600 the indirect costs administrative expense myself and 181 00:08:56.600 --> 00:08:57.200 my assistant. 182 00:08:57.900 --> 00:09:00.900 Three people in selling and one person 183 00:09:00.900 --> 00:09:04.300 in engineering 1,500 then 184 00:09:03.300 --> 00:09:06.400 we have calculated the operating income 185 00:09:06.400 --> 00:09:09.500 and we have not yet taken into account the 186 00:09:09.500 --> 00:09:12.700 interest expense. This is why these operating income 187 00:09:12.700 --> 00:09:16.300 before we account for interest isn't 188 00:09:15.300 --> 00:09:18.900 the earnings before interest and 189 00:09:18.900 --> 00:09:22.200 taxes. It's a very well known a 190 00:09:21.200 --> 00:09:24.500 bit 6,000 100. 191 00:09:25.200 --> 00:09:28.600 Now we have to take into account that we are fine 192 00:09:28.600 --> 00:09:31.900 on seeing 80% of the machine with 193 00:09:31.900 --> 00:09:34.800 some financial debt. You remember the characteristics of 194 00:09:34.800 --> 00:09:38.100 the Dead the amount 48,000 the 195 00:09:37.100 --> 00:09:40.600 interest rate six cents per 196 00:09:40.600 --> 00:09:44.700 dollar per year the Redemption profile infinite 197 00:09:43.700 --> 00:09:47.000 bullet infinite 100% infinite 198 00:09:46.400 --> 00:09:49.800 and the monthly interest which is 6% 199 00:09:49.800 --> 00:09:53.000 times 48,000 divided by 12 months 200 00:09:52.700 --> 00:09:55.400 per year. The monthly interest is to 201 00:09:55.400 --> 00:09:57.200 hundred and forty dollars. 202 00:09:58.200 --> 00:10:01.900 We have to complement the 48,000 by 12,000 in 203 00:10:01.900 --> 00:10:04.900 cash coming from the cash account of the company so 204 00:10:04.900 --> 00:10:07.500 that we can entirely Finance the 205 00:10:07.500 --> 00:10:07.900 machine. 206 00:10:09.200 --> 00:10:12.700 Before we look at accounting. Let's have a small discussion 207 00:10:12.700 --> 00:10:15.200 about the financial debt itself and the 208 00:10:15.200 --> 00:10:17.000 bankers rationality. 209 00:10:17.900 --> 00:10:20.500 That is about funds provided by 210 00:10:20.500 --> 00:10:23.100 the banker provided by the bone holder for 211 00:10:23.100 --> 00:10:26.600 a limited period of time you remember five 212 00:10:26.600 --> 00:10:26.700 years. 213 00:10:27.500 --> 00:10:30.500 But the bank all the Bold holder can invest 214 00:10:30.500 --> 00:10:33.400 it's cash in government bonds. There's 215 00:10:33.400 --> 00:10:36.400 absolutely no risk or incorporate that 216 00:10:36.400 --> 00:10:39.200 there is a little bit of risk and why is there 217 00:10:39.200 --> 00:10:42.500 any risk because a debt is a contract which 218 00:10:42.500 --> 00:10:45.200 is signed by the borrower and by the 219 00:10:45.200 --> 00:10:48.200 lender then the risk is what the risk 220 00:10:48.200 --> 00:10:51.400 is that the person who got the phone is not able to honor 221 00:10:51.400 --> 00:10:54.700 the contract when you can't do what is written in 222 00:10:54.700 --> 00:10:58.300 the contract and which you have signed you are in default. 223 00:10:57.300 --> 00:11:00.400 So you understand that for the 224 00:11:00.400 --> 00:11:03.400 bank for the investor with buying bones. 225 00:11:03.400 --> 00:11:06.700 What is absolutely fundamental is to be able to estimate 226 00:11:06.700 --> 00:11:08.500 the probability of 227 00:11:08.700 --> 00:11:11.700 It found its names a score for banks 228 00:11:11.700 --> 00:11:14.800 and it's provided by professionals one 229 00:11:14.800 --> 00:11:18.100 in rating agencies these indefinite 230 00:11:17.100 --> 00:11:20.600 advisors. They provide a rating which 231 00:11:20.600 --> 00:11:23.000 is a probability of default. 232 00:11:23.800 --> 00:11:26.600 You understand that my banker is a little bit cautious 233 00:11:26.600 --> 00:11:30.200 and has decided to limit the ineptidness of 234 00:11:30.200 --> 00:11:33.700 the project on the 80% of the machine purchase 235 00:11:33.700 --> 00:11:37.100 price is going to be funds by debt. So 20% is 236 00:11:36.100 --> 00:11:39.000 going to be financed by myself. 237 00:11:39.800 --> 00:11:42.700 Once a bank as estimated the risk, 238 00:11:42.700 --> 00:11:45.800 the bank is calculating a risk premium which 239 00:11:45.800 --> 00:11:48.400 pays for the risk and the interest rate, 240 00:11:48.400 --> 00:11:51.300 which is 6% in my case is a sum 241 00:11:51.300 --> 00:11:54.900 of the risk-free government bond rate plus the 242 00:11:54.900 --> 00:11:57.500 risk premium as it is estimated and 243 00:11:57.500 --> 00:12:00.400 calculated by the bank. Now the question 244 00:12:00.400 --> 00:12:03.900 is, how are we going to introduce in your 245 00:12:03.900 --> 00:12:06.700 account? The fact that we erased funds 246 00:12:06.700 --> 00:12:10.000 and we have to pay a remuneration to the Creditor 247 00:12:09.800 --> 00:12:11.500 the interest expense. 248 00:12:12.500 --> 00:12:16.000 To understand what an interest rate is about you 249 00:12:15.300 --> 00:12:18.700 have to make the link with the rent 250 00:12:18.700 --> 00:12:20.500 you pay for Real Estate. 251 00:12:21.200 --> 00:12:24.300 Why do you pay a rent because you want to 252 00:12:24.300 --> 00:12:27.300 have the right to use the premise? 253 00:12:27.800 --> 00:12:30.900 The premise is used in business operations. 254 00:12:30.900 --> 00:12:33.600 This is why the rent is an expense which 255 00:12:33.600 --> 00:12:36.200 is accounted in the p&l in a p&l. 256 00:12:36.200 --> 00:12:39.300 You have all the usages you use the 257 00:12:39.300 --> 00:12:41.600 premise and you pay for that. This is a rent. 258 00:12:42.300 --> 00:12:45.000 Now if you increase the size of 259 00:12:45.600 --> 00:12:48.800 your operations, if you have more or less space 260 00:12:48.800 --> 00:12:51.300 What will be the consequence in a p&l? 261 00:12:51.300 --> 00:12:54.600 The rent will be higher or lower and 262 00:12:54.600 --> 00:12:57.900 at the end of the day it's the same treatment for financial 263 00:12:57.900 --> 00:13:00.900 debt the interest expense you 264 00:13:00.900 --> 00:13:03.200 remember the 240 dollars per month 265 00:13:03.200 --> 00:13:06.800 is the rent you pay to have the 266 00:13:06.800 --> 00:13:10.200 right to use the 48,000 to finance 267 00:13:09.200 --> 00:13:13.000 a very significant part of the purchase price 268 00:13:12.300 --> 00:13:15.300 of the machine. The interest expense is 269 00:13:15.300 --> 00:13:18.600 then going to be a usage. It's a cost in a p&l 270 00:13:18.600 --> 00:13:21.600 now if you raise that or if 271 00:13:21.600 --> 00:13:24.300 you're redeem that of course, there is an impact 272 00:13:24.300 --> 00:13:27.600 a very significant impact on the cash position. 273 00:13:28.700 --> 00:13:31.000 That change in debt is not going to 274 00:13:31.300 --> 00:13:35.000 be in a p&l the same as if you take additional square 275 00:13:34.400 --> 00:13:37.400 feet for the premise. It's not 276 00:13:37.400 --> 00:13:40.300 going to show in a p&l what will show in the p&l is 277 00:13:40.300 --> 00:13:43.700 the additional rent or for the debt the 278 00:13:43.700 --> 00:13:44.900 additional interest expense? 279 00:13:45.900 --> 00:13:48.300 Now as the change in debt 280 00:13:48.300 --> 00:13:51.100 as an impact on cash more cash if you 281 00:13:51.100 --> 00:13:54.500 raise less cash, if you redeem then it's 282 00:13:54.500 --> 00:13:58.000 going to be introduced in the statement which describes 283 00:13:57.300 --> 00:13:59.400 the change in cash. 284 00:14:00.400 --> 00:14:03.500 You remember I named that cash budget or 285 00:14:03.500 --> 00:14:06.400 something like that. But the true name of this 286 00:14:06.400 --> 00:14:09.200 statement which incorporates not only the 287 00:14:09.200 --> 00:14:12.800 funds from operations, but also borrowing or Redeeming 288 00:14:12.800 --> 00:14:15.400 the data and buying a machine. It's 289 00:14:15.400 --> 00:14:18.800 named the cash flow statement. Then the 290 00:14:18.800 --> 00:14:21.200 funds from operations we have calculated so far 291 00:14:21.200 --> 00:14:24.600 has to be completed with a change in debt. 292 00:14:25.400 --> 00:14:28.800 Now we are ready to complete the p&l. You 293 00:14:28.800 --> 00:14:31.700 remember the operating income the operating profit. The 294 00:14:31.700 --> 00:14:34.800 ebit was 6,000 and 100. I 295 00:14:34.800 --> 00:14:37.400 have to deduct from that the cost of 296 00:14:37.400 --> 00:14:40.300 using that the interest expense which is the 297 00:14:40.300 --> 00:14:41.800 eye in ebit. 298 00:14:42.300 --> 00:14:45.500 240 now the earnings before 299 00:14:45.500 --> 00:14:50.300 tax, but after interest is 5,860 300 00:14:48.300 --> 00:14:51.500 20% of 301 00:14:51.500 --> 00:14:54.700 income tax net earnings earnings after 302 00:14:54.700 --> 00:14:57.400 tax 4,688. 303 00:14:58.100 --> 00:15:01.800 As everyone's I have to decide how I allocate 304 00:15:01.800 --> 00:15:05.100 my income Which percentage is distributed 305 00:15:04.100 --> 00:15:07.900 Which percentage is reinvested in 306 00:15:07.900 --> 00:15:10.300 the retained earnings. I am a quite 307 00:15:10.300 --> 00:15:13.600 cautious person because you remember I am cashing out 308 00:15:13.600 --> 00:15:16.900 12,000. So I decide to distribute 309 00:15:16.900 --> 00:15:19.200 0% of the net income of 310 00:15:19.200 --> 00:15:23.300 the period so I retain 100% all 311 00:15:22.300 --> 00:15:25.900 the earnings of the period that was 312 00:15:25.900 --> 00:15:28.900 for the p&l. Now. Let's move to cash cash budget 313 00:15:28.900 --> 00:15:31.500 cash flow statement. Let's start 314 00:15:31.500 --> 00:15:34.400 with a cash inflows cash in 315 00:15:34.400 --> 00:15:37.600 flow starts with cash from sales. You remember 316 00:15:37.600 --> 00:15:40.300 accounts receivable. What is due by 317 00:15:40.300 --> 00:15:43.700 the customers at the beginning of the month is a B2B sales 318 00:15:43.700 --> 00:15:46.500 in March on a generated revenues of 319 00:15:46.500 --> 00:15:50.100 52,500 at the 320 00:15:50.100 --> 00:15:54.200 end of the month of April the April. B2B sales 321 00:15:53.200 --> 00:15:56.500 are not yet paid, which means 322 00:15:56.500 --> 00:15:57.800 that I cash. 323 00:15:58.100 --> 00:16:02.000 From sales 47,500 which 324 00:16:01.100 --> 00:16:04.800 is a sum of March B2B sales 325 00:16:04.800 --> 00:16:07.900 and April b2c cells. No 326 00:16:07.900 --> 00:16:10.800 problem, but there is an additional cash 327 00:16:10.800 --> 00:16:13.400 inflow. It's not limited to cash from sales 328 00:16:13.400 --> 00:16:16.400 because I negotiated some debt from 329 00:16:16.400 --> 00:16:19.300 my banker. The banker is going to put the 330 00:16:19.300 --> 00:16:22.400 amount of money in my bank account. So total cash 331 00:16:22.400 --> 00:16:25.500 inflows is a sum of two figures one is 332 00:16:25.500 --> 00:16:28.400 cash from sales and the increase in the 333 00:16:28.400 --> 00:16:32.800 financial debt, which is a sum of 95,000 334 00:16:31.800 --> 00:16:33.800 and 500. 335 00:16:34.700 --> 00:16:38.000 That's for cash in now. Let's go for cash out. 336 00:16:39.100 --> 00:16:42.500 Cash Out is about what we pair to the suppliers 337 00:16:42.500 --> 00:16:43.000 first. 338 00:16:43.800 --> 00:16:46.900 But you remember we have to purchase row materials 339 00:16:46.900 --> 00:16:49.200 to manufacture. We are consuming 340 00:16:49.200 --> 00:16:53.000 them but we purchasing for 8,000 800. 341 00:16:53.700 --> 00:16:56.500 But we also buy some puzzles from our 342 00:16:56.500 --> 00:17:01.000 former supplier. It is about 1,500 puzzles 343 00:17:00.500 --> 00:17:04.000 at 20 dollars. So Sami 344 00:17:03.500 --> 00:17:06.700 3000. So at the end of the there's a total purchases 345 00:17:06.700 --> 00:17:09.700 is a sum of Rome materials plus puzzles. 346 00:17:09.700 --> 00:17:14.600 8,800 30,000 38,800. 347 00:17:15.300 --> 00:17:18.700 Assuming that I keep the same payment profile 348 00:17:18.700 --> 00:17:21.500 50% to day 50% in 30 349 00:17:21.500 --> 00:17:21.700 days. 350 00:17:22.600 --> 00:17:27.100 The accounts payable which was 17,500 is 351 00:17:26.100 --> 00:17:29.700 incremented by the purchases 352 00:17:29.700 --> 00:17:32.400 of the month. What is left at 353 00:17:32.400 --> 00:17:36.900 the end of the month is 50% of 38,800 which 354 00:17:36.900 --> 00:17:39.600 is 1900 and 400 the 355 00:17:39.600 --> 00:17:42.400 cash Outlet the cash paid to the 356 00:17:42.400 --> 00:17:45.700 suppliers is 32,900. 357 00:17:46.400 --> 00:17:50.000 I have to compliment the cash to suppliers by 358 00:17:49.300 --> 00:17:53.200 the indirect cost Administration. The three 359 00:17:52.200 --> 00:17:55.600 sales people one person in engineering 360 00:17:55.600 --> 00:17:58.600 one person to supervise production and the 361 00:17:58.600 --> 00:18:01.300 production workers, but I have also 362 00:18:01.300 --> 00:18:04.700 two cash outlays not only the interest expense 363 00:18:04.700 --> 00:18:07.700 which he sped each and every month to the banker but although 364 00:18:07.700 --> 00:18:11.800 the purchase price of the machine 60,000 which 365 00:18:11.800 --> 00:18:14.500 is a very significant figure. So the 366 00:18:14.500 --> 00:18:18.700 total cash Outlets are more than 100 and 367 00:18:17.700 --> 00:18:21.200 6,000 and 40 dollars 368 00:18:20.200 --> 00:18:23.600 the net change in cash position is 369 00:18:23.600 --> 00:18:26.700 then cash in minus cash out and 370 00:18:26.700 --> 00:18:29.300 my cash situation is deteriorating by 371 00:18:29.300 --> 00:18:31.900 10,540. 372 00:18:32.600 --> 00:18:37.200 The cash at the beginning of the period was 13,520. How 373 00:18:36.200 --> 00:18:39.500 much is left in my pocket at 374 00:18:39.500 --> 00:18:42.400 the end of the period about $3,000 375 00:18:42.400 --> 00:18:45.900 and then you can question was it 376 00:18:45.900 --> 00:18:48.500 a good decision to pay a dividend in 377 00:18:48.500 --> 00:18:51.300 January based on the profit. We had 378 00:18:51.300 --> 00:18:54.800 generated during the first year of operation. That's a 379 00:18:54.800 --> 00:18:55.300 real question. 380 00:18:56.300 --> 00:18:59.300 We have completed the p&l and the cash budget. Now, we 381 00:18:59.300 --> 00:19:03.000 have to take the picture at the end of the period the balance 382 00:19:02.000 --> 00:19:03.200 sheet. 383 00:19:04.300 --> 00:19:07.400 No surprise in the balance sheet. We start with the assets 384 00:19:07.400 --> 00:19:11.300 the inventories 550 units 385 00:19:11.300 --> 00:19:15.000 which we produced at 14,300 accounts receivable. 386 00:19:14.700 --> 00:19:17.600 It's calculated. It's a 387 00:19:17.600 --> 00:19:20.600 B2B sales of the months cash. 388 00:19:20.600 --> 00:19:23.500 It comes from the cash budget, but there's something 389 00:19:23.500 --> 00:19:26.300 new in the balancy because we have 390 00:19:26.300 --> 00:19:30.000 purchased a machine and the Machine is not consumed at 391 00:19:29.100 --> 00:19:32.600 the rate of the operating cycle. We have 392 00:19:32.600 --> 00:19:35.300 purchased the machine for 60,000 which 393 00:19:35.300 --> 00:19:38.800 is going to show in the balance sheet as property plant and 394 00:19:38.800 --> 00:19:41.700 Equipment tangible asset grows value 395 00:19:41.700 --> 00:19:44.000 grows value means it's a price we 396 00:19:44.400 --> 00:19:45.500 pad when we bought the machine. 397 00:19:46.300 --> 00:19:49.600 But the machine has been progressively consumed and 398 00:19:49.600 --> 00:19:52.300 we started with one month of consumption. 399 00:19:53.200 --> 00:19:56.500 When you consume an asset, it gets out 400 00:19:56.500 --> 00:19:57.700 of the balance it. 401 00:19:58.300 --> 00:20:01.500 Now the machine is going to get out of the balance 402 00:20:01.500 --> 00:20:04.800 sheet, but step by step months after 403 00:20:04.800 --> 00:20:07.400 months and it's going to take 60 months. 404 00:20:07.400 --> 00:20:10.300 So what do we observe we observe that 405 00:20:10.300 --> 00:20:13.600 we have consumed one out of 60 months 406 00:20:13.600 --> 00:20:16.700 of the purchasing price of the machine. How 407 00:20:16.700 --> 00:20:19.700 much is left in the balance sheet just 408 00:20:19.700 --> 00:20:22.900 59,000 which is property 409 00:20:22.900 --> 00:20:25.600 plant and Equipment growth value history called 410 00:20:25.600 --> 00:20:29.000 purchasing price minus this month of depreciation. 411 00:20:28.600 --> 00:20:31.400 This is their property plant and Equipment 412 00:20:31.400 --> 00:20:34.900 net of depreciation. We calculate 413 00:20:34.900 --> 00:20:38.500 a total I said 98,780 and 414 00:20:38.500 --> 00:20:41.600 then we have to look at the equity and liabilities. No 415 00:20:41.600 --> 00:20:45.900 dividends payable. We arrange this 100% accounts 416 00:20:44.900 --> 00:20:47.900 payable. We already calculated you 417 00:20:47.900 --> 00:20:50.500 remember it's 50% of our purchases 418 00:20:50.500 --> 00:20:53.300 income tax payable. That's not difficult. It is 419 00:20:53.300 --> 00:20:56.200 the accumulated income tax payable at the 420 00:20:56.200 --> 00:20:57.700 end of March Plus. 421 00:20:58.100 --> 00:21:01.900 Income tax we generate in April and 422 00:21:01.900 --> 00:21:05.000 it's going to be paid later. What about shareholders 423 00:21:04.300 --> 00:21:07.600 Equity no change in capital 10,000 what 424 00:21:07.600 --> 00:21:10.500 about retained earnings? It is a retain 425 00:21:10.500 --> 00:21:13.100 earnings at the end of March plus 100% of the 426 00:21:13.100 --> 00:21:16.300 net profit. I generated in April because I decided to 427 00:21:16.300 --> 00:21:19.500 pay no dividend and there's a new item in the 428 00:21:19.500 --> 00:21:22.100 equity and liabilities because we have a new 429 00:21:22.100 --> 00:21:25.300 resource to finance our operations to 430 00:21:25.300 --> 00:21:29.100 finance our assets, which is a Bank debt. 431 00:21:29.800 --> 00:21:33.900 How much is due to the bank 48,000 now, 432 00:21:33.900 --> 00:21:36.400 we can calculate the sum of all the items and 433 00:21:36.400 --> 00:21:39.700 obviously we get balance sheet which balances 434 00:21:39.700 --> 00:21:44.700 total equity and liabilities is 98,700 435 00:21:42.700 --> 00:21:45.800 and 80 436 00:21:45.800 --> 00:21:49.300 but now we have three kinds of equity and 437 00:21:49.300 --> 00:21:52.900 liabilities. We have shareholders equity, which is the investment 438 00:21:52.900 --> 00:21:55.400 made by the shareholders. We have 439 00:21:55.400 --> 00:21:58.400 a financial liability, which is a financial debt 440 00:21:58.400 --> 00:22:01.800 and we have plenty of operating liabilities dividend 441 00:22:01.800 --> 00:22:04.200 payable accounts payable income tax 442 00:22:04.200 --> 00:22:07.800 payable. So we have three main items in 443 00:22:07.800 --> 00:22:10.200 the sources side of the 444 00:22:10.200 --> 00:22:13.500 balance sheet once accounting is over. Let's move 445 00:22:13.500 --> 00:22:16.600 to financial analysis. We start with revenues 446 00:22:16.600 --> 00:22:19.000 and sales. We move to profit and we look at 447 00:22:19.500 --> 00:22:22.600 Cash sales are up revenues are up. It 448 00:22:22.600 --> 00:22:25.400 is a consequence of the success of our commercial 449 00:22:25.400 --> 00:22:29.200 policy. We have hard sales people the consequence 450 00:22:28.200 --> 00:22:29.500 is 451 00:22:29.700 --> 00:22:32.500 Reason our revenues and that's very good news because 452 00:22:32.500 --> 00:22:35.700 now we have plenty of capacity and we want to saturate the 453 00:22:35.700 --> 00:22:38.200 capacity and generate economies of scale. 454 00:22:38.700 --> 00:22:41.300 We have a little bit of a surprise when you look 455 00:22:41.300 --> 00:22:45.100 at the margins generated by operations. The 456 00:22:44.100 --> 00:22:47.900 gross margin is absolutely stable. 457 00:22:47.900 --> 00:22:50.300 And the operating margin is up. The 458 00:22:50.300 --> 00:22:54.500 operating arginine is why because our indirect costs 459 00:22:53.500 --> 00:22:57.000 are are more sized by 460 00:22:56.700 --> 00:22:59.100 increased revenues. This is 461 00:22:59.100 --> 00:23:00.800 name economy is a scale. 462 00:23:01.400 --> 00:23:04.200 But what might be surprising at First Sight is 463 00:23:04.200 --> 00:23:07.100 that the gross margin is constant while we have 464 00:23:07.100 --> 00:23:10.900 produced at 26 dollars and beforehand 465 00:23:10.900 --> 00:23:12.900 we were buying at $20. 466 00:23:13.700 --> 00:23:16.200 I suggest you pose a minute to try to 467 00:23:16.200 --> 00:23:19.600 think about why the gross margin is stable while 468 00:23:19.600 --> 00:23:21.600 we are producing at a high cost. 469 00:23:22.400 --> 00:23:25.700 The answer comes from the difference between cost of 470 00:23:25.700 --> 00:23:28.000 goods sold and production cost. 471 00:23:29.500 --> 00:23:32.300 The products we have sold during the month of April where 472 00:23:32.300 --> 00:23:35.700 all purchased from the former supplier at $20 473 00:23:35.700 --> 00:23:36.600 per unit. 474 00:23:37.400 --> 00:23:41.300 In April, we have started manufacturing by 475 00:23:40.300 --> 00:23:43.700 ourselves with the machine and at 476 00:23:43.700 --> 00:23:46.500 a high production price why the volume was 477 00:23:46.500 --> 00:23:49.800 low. We already discussed that 26 dollars. 478 00:23:49.800 --> 00:23:52.300 Now these products are going 479 00:23:52.300 --> 00:23:55.300 to be sold in May so they are going to show in the 480 00:23:55.300 --> 00:23:58.400 cost of sales of May but in the course of sales 481 00:23:58.400 --> 00:24:01.100 of April, it's still $20 482 00:24:01.100 --> 00:24:05.300 per unit. This is why we observe a constant gross 483 00:24:04.300 --> 00:24:07.400 margin. Obviously, there will 484 00:24:07.400 --> 00:24:10.400 be a difference in the gross margin in May because of 485 00:24:10.400 --> 00:24:13.500 the consequence of this production cost of 26 dollars. 486 00:24:14.300 --> 00:24:17.500 Profit is sales Minus cost 487 00:24:17.500 --> 00:24:20.500 of goods sold. The last 488 00:24:20.500 --> 00:24:24.000 part of the financial analysis is about cash. 489 00:24:24.800 --> 00:24:28.400 Working capital requirement inventories Plus 490 00:24:27.400 --> 00:24:30.900 accounts receivable minus accounts payable. 491 00:24:31.700 --> 00:24:34.500 The inventories at the end of April is a 492 00:24:34.500 --> 00:24:37.300 manufacturing course of all these Goods which we 493 00:24:37.300 --> 00:24:41.000 manufactured with the new machine accounts receivable. 494 00:24:40.400 --> 00:24:43.400 It's up because revenues are up 495 00:24:43.400 --> 00:24:46.600 and accounts payable is quite significantly up because 496 00:24:46.600 --> 00:24:49.800 now we have not only the products 497 00:24:49.800 --> 00:24:52.500 we both from the former supplier, but also the 498 00:24:52.500 --> 00:24:55.700 raw materials we bold in order to be able to manufacture 499 00:24:55.700 --> 00:24:59.100 during the months with the new machine. There's significant 500 00:24:58.100 --> 00:25:01.800 increase in the operating working 501 00:25:01.800 --> 00:25:04.100 capital requirement as a consequence of 502 00:25:04.100 --> 00:25:05.400 growth in the revenues. 503 00:25:06.300 --> 00:25:09.800 Now, let's have a look. There's a kind of detail analysis. 504 00:25:10.400 --> 00:25:13.400 And the change in a cash position from the beginning 505 00:25:13.400 --> 00:25:16.900 to the end of the month, you'll remember we always 506 00:25:16.900 --> 00:25:19.400 calculated the current change in operating 507 00:25:19.400 --> 00:25:22.200 working capital requirements former slide, 508 00:25:22.200 --> 00:25:25.800 which is a cash consumption 5,400. 509 00:25:26.400 --> 00:25:29.400 I used to take their current profit generated by 510 00:25:29.400 --> 00:25:32.700 the business operation 6,100. So the 511 00:25:32.700 --> 00:25:35.600 Cameron font from operations. There is absolutely no 512 00:25:35.600 --> 00:25:38.400 exceptional items 700 now there is 513 00:25:38.400 --> 00:25:41.100 no tax payment but there's an interest expense which 514 00:25:41.100 --> 00:25:45.100 is paid for the bank. So the cash which is generated by 515 00:25:44.100 --> 00:25:47.900 my business operations internally generated 516 00:25:47.900 --> 00:25:49.700 phones is 460 517 00:25:50.200 --> 00:25:54.100 A big cash out. The purchase was a machine and when 518 00:25:53.100 --> 00:25:56.400 you calculate the internal Legend generated 519 00:25:56.400 --> 00:25:59.400 fonts operating cash flow and you deduct 520 00:25:59.400 --> 00:26:02.300 the capital expenditures you get to something which is 521 00:26:02.300 --> 00:26:05.600 named that free cash flow, which is strongly negative 522 00:26:05.600 --> 00:26:08.400 when it is strongly negative. It means that we have to find 523 00:26:08.400 --> 00:26:11.400 additional Financial Resources so that we 524 00:26:11.400 --> 00:26:14.700 can close the accounts on a cash point of view. The 525 00:26:14.700 --> 00:26:17.800 change in financial debt is in fact raising cash 526 00:26:17.800 --> 00:26:20.900 from the bank 48,000. No dividend 527 00:26:20.900 --> 00:26:23.300 payment of any kind and the change in cash 528 00:26:23.300 --> 00:26:28.600 then should be minus 11,540 529 00:26:26.600 --> 00:26:29.400 but then 530 00:26:29.400 --> 00:26:32.500 we observe that we made a mistake because the cash 531 00:26:32.500 --> 00:26:35.200 budget calculated a change in cash 532 00:26:35.200 --> 00:26:38.900 of minus 10,000 500 and 40. 533 00:26:38.900 --> 00:26:42.500 So it's a mistake of 1000. Where 534 00:26:41.500 --> 00:26:43.100 does it come from? 535 00:26:43.900 --> 00:26:47.400 Let's have a look at the items operating 536 00:26:46.400 --> 00:26:50.200 income. It is about revenues. 537 00:26:49.200 --> 00:26:52.600 It's about cash and course. 538 00:26:52.600 --> 00:26:56.200 It's about wages. It's about salaries. It's 539 00:26:55.200 --> 00:26:58.600 about puzzles which we buy it's 540 00:26:58.600 --> 00:26:59.000 cash. 541 00:26:59.700 --> 00:27:02.900 Interest expense is Cash purchasing. The 542 00:27:02.900 --> 00:27:05.600 machine is Cash raising debt. 543 00:27:05.600 --> 00:27:08.800 It's cash. So everything looks like cash. 544 00:27:09.700 --> 00:27:12.500 All the items, which we have used 545 00:27:12.500 --> 00:27:15.400 in a calculation are more or less linked with 546 00:27:15.400 --> 00:27:18.700 cash flows. It's an immediate cash flow or it 547 00:27:18.700 --> 00:27:21.900 might be a delayed cash flow, but it's about cash except 548 00:27:21.900 --> 00:27:24.200 one, which is in the 549 00:27:24.200 --> 00:27:27.300 production cost. We evaluate the 550 00:27:27.300 --> 00:27:30.100 Finish Goods inventories, but to evaluate the 551 00:27:30.100 --> 00:27:33.100 Finish good inventories. We took the production costs and the production 552 00:27:33.100 --> 00:27:36.500 causes wages and salaries labor related expenses 553 00:27:36.500 --> 00:27:40.000 row materials. This is about cash and depreciation 554 00:27:39.500 --> 00:27:43.800 and depreciation is a non-cash item. 555 00:27:44.700 --> 00:27:47.400 So when we deduct the change in 556 00:27:47.400 --> 00:27:50.800 a working capital requirement in the calculation of 557 00:27:50.800 --> 00:27:53.100 the funds from operations, what do we 558 00:27:53.100 --> 00:27:56.900 do? We in fact deduct a non-cash item 559 00:27:56.900 --> 00:28:00.000 from the cash generation. And 560 00:27:59.600 --> 00:28:02.100 this non-cash item is the amount 561 00:28:02.100 --> 00:28:05.800 of depreciation. It should not have been deducted 562 00:28:05.800 --> 00:28:08.200 the day you want to calculate a change in 563 00:28:08.200 --> 00:28:11.500 cash. So we need to make a correction in 564 00:28:11.500 --> 00:28:14.400 a calculation as with the doctor. We 565 00:28:14.400 --> 00:28:17.800 have to add back the amount of depreciation 566 00:28:17.800 --> 00:28:20.400 of the fixed assets of the property 567 00:28:20.400 --> 00:28:22.400 plants and Equipment of the machine. 568 00:28:23.200 --> 00:28:26.800 But interestingly the day we want to neutralize this 569 00:28:26.800 --> 00:28:29.100 depreciation to calculate the funds from 570 00:28:29.100 --> 00:28:32.600 operation. We have two ways to do it fans from 571 00:28:32.600 --> 00:28:35.500 operation is a bit minus change 572 00:28:35.500 --> 00:28:39.200 in working capital requirement so we can deduct 573 00:28:38.200 --> 00:28:41.200 depreciation from the value of 574 00:28:41.200 --> 00:28:44.600 the finished goods inventory, then from the 575 00:28:44.600 --> 00:28:48.100 operating working capital requirement. We 576 00:28:47.100 --> 00:28:50.600 reduce the cost of 577 00:28:50.600 --> 00:28:54.000 production of the finished goods inventories by 578 00:28:53.100 --> 00:28:56.800 the depreciation, then we reduce the 579 00:28:56.800 --> 00:28:59.600 working capital requirement change, which 580 00:28:59.600 --> 00:29:02.300 is the same as adding back the depreciation. 581 00:29:03.600 --> 00:29:06.300 There's a circle on the way which is to add the Precision 582 00:29:06.300 --> 00:29:08.300 to the operating income. 583 00:29:08.900 --> 00:29:11.900 And at the end of the day, this is what is used by 584 00:29:11.900 --> 00:29:14.300 companies depreciation is 585 00:29:14.300 --> 00:29:18.600 a consumption of fixed assets when they are tangible. There 586 00:29:17.600 --> 00:29:20.700 is and also name for intangible fixed 587 00:29:20.700 --> 00:29:23.500 assets, which is named amortization, but it 588 00:29:23.500 --> 00:29:26.600 is exactly the same principle. You are more ties the 589 00:29:26.600 --> 00:29:29.900 software you depreciate a machine. So these 590 00:29:29.900 --> 00:29:32.500 are the same Concepts but apply to different 591 00:29:32.500 --> 00:29:35.500 types of fixed assets d and a d 592 00:29:35.500 --> 00:29:38.200 a is depreciation and amortization. When you 593 00:29:38.200 --> 00:29:41.900 add depreciation in amortization to ebit 594 00:29:41.900 --> 00:29:44.200 you get very widely used 595 00:29:44.200 --> 00:29:49.300 Concept in accounting and finance, which is name ebda earnings 596 00:29:48.300 --> 00:29:52.500 before interest taxes depreciation 597 00:29:51.500 --> 00:29:53.900 and amortization. 598 00:29:55.300 --> 00:29:58.800 And this is what is used even though here you 599 00:29:58.800 --> 00:30:02.100 understand that there might be a surprise to add depreciation 600 00:30:01.100 --> 00:30:04.100 to inhibit in which 601 00:30:04.100 --> 00:30:06.000 you just have cash items. 602 00:30:06.600 --> 00:30:09.900 But they're relevance of this solution of 603 00:30:09.900 --> 00:30:12.600 this neutralization is going to show during 604 00:30:12.600 --> 00:30:15.600 the next month. Now I can recompute my 605 00:30:15.600 --> 00:30:18.100 change in cash with new funds from 606 00:30:18.100 --> 00:30:21.700 operations current change in operating working capital 607 00:30:21.700 --> 00:30:25.800 requirement. No change operating income ebit 6,100 608 00:30:24.800 --> 00:30:28.500 and I add back depreciation 609 00:30:27.500 --> 00:30:30.700 1000 it be 610 00:30:30.700 --> 00:30:34.200 done 7,100. The current 611 00:30:33.200 --> 00:30:36.100 funds from operations is a 612 00:30:36.100 --> 00:30:39.900 difference between 7,100 minus the 613 00:30:39.900 --> 00:30:42.800 cash consumption due to the operating working capital requirement. 614 00:30:42.800 --> 00:30:45.600 It's 1,700. I 615 00:30:45.600 --> 00:30:48.200 have to cash out the interest expense. I have to 616 00:30:48.200 --> 00:30:51.300 cash out for the purchase of the machine. I cash in 617 00:30:51.300 --> 00:30:54.800 the increase in the financial debt and I cash out 618 00:30:54.800 --> 00:30:59.100 from my cash account 10,540. There's 619 00:30:58.100 --> 00:31:01.400 no mistake anymore. But you understand that here. 620 00:31:01.400 --> 00:31:04.900 I have introduced a very important New Concept 621 00:31:04.900 --> 00:31:06.200 it down. 622 00:31:06.500 --> 00:31:10.100 Now, let's conclude the month of April with some knowledge. 623 00:31:11.200 --> 00:31:14.700 We have calculated a production cost when it 624 00:31:14.700 --> 00:31:17.600 was about purchasing puzzles from the supplier. 625 00:31:17.600 --> 00:31:20.500 It was quite simple. It was a purchase 626 00:31:20.500 --> 00:31:23.300 price now we manufacture and it's 627 00:31:23.300 --> 00:31:27.000 much more sophisticated because it's about raw materials, 628 00:31:26.100 --> 00:31:29.600 which you transform into fitness Goods. It's about Labor 629 00:31:29.600 --> 00:31:32.600 related expenses supervision and operators 630 00:31:32.600 --> 00:31:35.900 and it's about the consumption of the machine, 631 00:31:35.900 --> 00:31:39.500 which is depreciation. We have a sophisticated production 632 00:31:39.500 --> 00:31:41.300 cost to calculate 633 00:31:42.300 --> 00:31:45.100 We have also observed that in a month 634 00:31:45.100 --> 00:31:48.700 of April, even though we manufacture at 26 635 00:31:48.700 --> 00:31:51.300 we sell Goods which we are 636 00:31:51.300 --> 00:31:54.800 purchased at 20. So this is a cost of goods sold 637 00:31:54.800 --> 00:31:58.000 During the period which is completely different 638 00:31:57.300 --> 00:32:01.000 from the production cost of 639 00:32:00.300 --> 00:32:03.600 the period but obviously as 640 00:32:03.600 --> 00:32:06.400 I said the production cost of 641 00:32:06.400 --> 00:32:09.400 what you manufactured in April will show 642 00:32:09.400 --> 00:32:12.900 in the course of good salt in May during 643 00:32:12.900 --> 00:32:15.400 this month in the cash flow statement. 644 00:32:15.400 --> 00:32:18.400 I have introduced a fundamental concept which 645 00:32:18.400 --> 00:32:18.900 is a bit. 646 00:32:20.600 --> 00:32:24.300 It better for your culture is used in business operations. Maybe 647 00:32:23.300 --> 00:32:26.300 you have a kpi which is based on 648 00:32:26.300 --> 00:32:29.800 a bit. It's also used in investment banking 649 00:32:29.800 --> 00:32:32.600 on to price value on eBay is 650 00:32:32.600 --> 00:32:35.900 a multiple, which is widely used by Bankers to evaluate 651 00:32:35.900 --> 00:32:36.400 companies. 652 00:32:37.100 --> 00:32:40.900 So it be that is extremely important to know even 653 00:32:40.900 --> 00:32:43.700 those are some difficulties related with 654 00:32:43.700 --> 00:32:46.600 the kpi which we are going to discuss later. 655 00:32:47.900 --> 00:32:50.600 Vida was quite useful to 656 00:32:50.600 --> 00:32:53.800 now calculate the funds from operations which were 657 00:32:53.800 --> 00:32:56.200 a bitter minus change in 658 00:32:56.200 --> 00:32:58.700 the operating working capital requirement. 659 00:32:59.600 --> 00:33:02.300 We also learned during the months how to account 660 00:33:02.300 --> 00:33:03.200 for debt. 661 00:33:03.800 --> 00:33:06.800 The amount of debt in the balance sheet the change 662 00:33:06.800 --> 00:33:09.500 in debt in a cash flow statement and to 663 00:33:09.500 --> 00:33:12.200 account for the interest expense the rent you 664 00:33:12.200 --> 00:33:15.600 pay on the debt, which is a cost an interest expense in the 665 00:33:15.600 --> 00:33:16.300 p&l. 666 00:33:17.500 --> 00:33:20.400 Last but not least you have observed a cash budget, 667 00:33:20.400 --> 00:33:23.700 which is progressively transformed into a complete 668 00:33:23.700 --> 00:33:26.400 cash flow statement. It's not 669 00:33:26.400 --> 00:33:30.200 only funds from operations or internal generated 670 00:33:29.200 --> 00:33:32.300 fun such as operating cash flow. It's about 671 00:33:32.300 --> 00:33:36.200 free cash flow taking into account Capital expenditures how 672 00:33:35.200 --> 00:33:38.300 much you invest to create a future for your 673 00:33:38.300 --> 00:33:41.300 company and the strategy financing of the company, 674 00:33:41.300 --> 00:33:44.600 which is about paying a dividend or Raising Dead 675 00:33:44.600 --> 00:33:47.700 or repaying dead or issuing shares. 676 00:33:47.700 --> 00:33:51.200 So you understand that we are progressively moving towards 677 00:33:50.200 --> 00:33:53.700 a true complete cash flow statement. 678 00:33:54.700 --> 00:33:57.400 Now in may we are going to generate our first 679 00:33:57.400 --> 00:34:00.500 sales and revenues with a product 680 00:34:00.500 --> 00:34:03.400 we have manufactured with the new machine.