WEBVTT 1 00:00:00.500 --> 00:00:03.500 Will have the months of May with a kind 2 00:00:03.500 --> 00:00:06.300 of mixed feeling of course a unique 3 00:00:06.300 --> 00:00:10.400 production cost was down which is by the way, they purpose 4 00:00:09.400 --> 00:00:12.900 the justification of our investment but 5 00:00:12.900 --> 00:00:16.100 is positive trend was not yet observed on 6 00:00:15.100 --> 00:00:18.600 the gross margin rate and the fans 7 00:00:18.600 --> 00:00:21.200 from operations where hardly positive. 8 00:00:22.200 --> 00:00:25.800 The months of June is going to be completely different. We 9 00:00:25.800 --> 00:00:28.400 are going to observe an increase in volume, 10 00:00:28.400 --> 00:00:31.500 which is going to generate economies of scale not 11 00:00:31.500 --> 00:00:34.200 only on the production cost and all the 12 00:00:34.200 --> 00:00:37.500 cost of goods all but also on the indirect cost. 13 00:00:38.300 --> 00:00:41.300 In addition to that there will be a stabilization in a 14 00:00:41.300 --> 00:00:44.700 calculation of the operating working capital requirement, which 15 00:00:44.700 --> 00:00:47.700 is going to significantly reduce its cash 16 00:00:47.700 --> 00:00:50.400 consumption as a conclusion. We are 17 00:00:50.400 --> 00:00:54.000 going to observe in June the full economic 18 00:00:53.800 --> 00:00:55.900 justification of the investment. 19 00:00:56.900 --> 00:01:00.100 What are the events in June sales are 20 00:00:59.100 --> 00:01:03.400 planned 2,900 units 21 00:01:02.400 --> 00:01:05.600 1,400 for 22 00:01:05.600 --> 00:01:08.600 b2c. 1,500 for B2B. 23 00:01:09.300 --> 00:01:14.200 We anticipate sales for July 3,000 24 00:01:12.200 --> 00:01:15.300 and 300 units. 25 00:01:16.200 --> 00:01:20.000 As we are cautious people we want to increase and 26 00:01:19.300 --> 00:01:22.800 inventory Target certified percent 27 00:01:22.800 --> 00:01:25.400 of July planned sales 28 00:01:25.400 --> 00:01:30.300 3,300. It's 1,155 units. 29 00:01:29.300 --> 00:01:32.100 We want to see in the warehouse at the 30 00:01:32.100 --> 00:01:32.600 end of the month. 31 00:01:33.400 --> 00:01:38.700 how many units should we produce in June 3,185 units 32 00:01:38.700 --> 00:01:41.400 which is a same calculation as in 33 00:01:41.400 --> 00:01:44.300 May 2900 units 34 00:01:44.300 --> 00:01:48.900 for sale 1155 units 35 00:01:48.900 --> 00:01:52.300 for inventory and of the month minus the 36 00:01:51.300 --> 00:01:54.500 inventory the number of units we 37 00:01:54.500 --> 00:01:57.500 already have in the warehouse 870 38 00:01:58.100 --> 00:02:01.500 Of course 3,000 and something is much more than the threshold 39 00:02:01.500 --> 00:02:04.800 of 2,500. We need six workers. 40 00:02:04.800 --> 00:02:07.800 Then we are going to observe no change 41 00:02:07.800 --> 00:02:10.500 in the organizational chart and the 42 00:02:10.500 --> 00:02:13.700 good news is we have no new accounting concept. 43 00:02:13.700 --> 00:02:17.700 It's going to be absolutely straightforward organizational 44 00:02:16.700 --> 00:02:20.600 chart management Administration sales 45 00:02:19.600 --> 00:02:22.400 and generate not yet 46 00:02:22.400 --> 00:02:25.800 R&D production one fals supervision six 47 00:02:25.800 --> 00:02:27.600 operators for the machine. 48 00:02:28.600 --> 00:02:32.300 Production costs business as usual we anticipate 49 00:02:31.300 --> 00:02:35.200 July sales 3,300 and 50 00:02:34.200 --> 00:02:38.000 you remember we planned some production of 3000 51 00:02:37.800 --> 00:02:40.400 100 and 85 you multiply 52 00:02:40.400 --> 00:02:43.500 that by 16 dollars you get the purchase 53 00:02:43.500 --> 00:02:45.300 of consume raw materials. 54 00:02:45.900 --> 00:02:49.000 One person for supervision six workers 55 00:02:48.300 --> 00:02:51.900 and a depreciation of the machine which is definitely a 56 00:02:51.900 --> 00:02:54.300 fixed cost. So Total Protection cost is 57 00:02:54.300 --> 00:02:58.200 59,460 you 58 00:02:57.200 --> 00:03:00.100 divide these total cost by the 59 00:03:00.100 --> 00:03:04.000 production plan 3,185 and 60 00:03:03.200 --> 00:03:06.400 then you get quite good news. The production 61 00:03:06.400 --> 00:03:10.200 cost per unit is now 18.67 dollars, 62 00:03:09.200 --> 00:03:12.700 which is significantly less than the 63 00:03:12.700 --> 00:03:15.400 price we paid for puzzles when 64 00:03:15.400 --> 00:03:18.300 we use to buy them from the supplier you remember it 65 00:03:18.300 --> 00:03:21.800 was 20 now. We generate a significant gross 66 00:03:21.800 --> 00:03:22.100 margin. 67 00:03:23.300 --> 00:03:26.200 To calculate the actual gross. Margin we have to go through the 68 00:03:26.200 --> 00:03:27.500 inventory calculation. 69 00:03:28.400 --> 00:03:31.300 Beginning of the month 870 units 70 00:03:31.300 --> 00:03:35.500 will produce 3,185 available 71 00:03:34.500 --> 00:03:38.200 for sale 4,055. We 72 00:03:37.200 --> 00:03:40.800 set 2,900 units how 73 00:03:40.800 --> 00:03:45.000 many units are left in the warehouse 1,100 and 74 00:03:44.700 --> 00:03:48.000 55 units which are evaluated 75 00:03:47.300 --> 00:03:52.700 at the unit production cost 18.67 dollars. 76 00:03:53.500 --> 00:03:56.600 Though in terms of value we still 77 00:03:56.600 --> 00:04:00.400 use the first in first out method obviously beginning 78 00:03:59.400 --> 00:04:02.400 inventory. It was in the balance 79 00:04:02.400 --> 00:04:05.400 sheet at the end of May production costs. We just 80 00:04:05.400 --> 00:04:11.400 calculated it and inventory. Well, 1,155 81 00:04:08.400 --> 00:04:11.900 units 82 00:04:11.900 --> 00:04:15.800 multiplied by the unit production cost 18.67 83 00:04:14.800 --> 00:04:17.200 and we deduct from 84 00:04:17.200 --> 00:04:20.500 that the cost of sales. The average cost of sales 85 00:04:20.500 --> 00:04:24.300 is 54 700 and 86 00:04:23.300 --> 00:04:26.100 52 divided by the number of 87 00:04:26.100 --> 00:04:29.500 units sold, which is 2,000 900 and 88 00:04:29.500 --> 00:04:32.600 we get 18.88 and although 89 00:04:32.600 --> 00:04:36.100 the way to calculate the same figure is you need 90 00:04:35.100 --> 00:04:38.900 cost of goods sold beginning inventory 91 00:04:38.900 --> 00:04:41.400 19.37 as 92 00:04:41.400 --> 00:04:44.500 you need calls good produced in June 93 00:04:44.500 --> 00:04:48.100 and sold in June 2013 units 94 00:04:47.100 --> 00:04:51.100 so some of 870 and 95 00:04:50.100 --> 00:04:53.000 30 being 96 00:04:53.500 --> 00:04:56.200 Channel 900 the number of units we 97 00:04:56.200 --> 00:04:59.600 sold in June we calculated the total cost of goods 98 00:04:59.600 --> 00:05:02.100 sold. We have the unique cost. We have exactly the same 99 00:05:02.100 --> 00:05:05.100 calculation, which is absolutely no surprise. 100 00:05:05.900 --> 00:05:08.500 Now we can build the p&l. It starts 101 00:05:08.500 --> 00:05:12.100 with sales and revenues 2,900 units 102 00:05:11.100 --> 00:05:14.700 parties. B2c part is B2B 103 00:05:14.700 --> 00:05:17.500 cost of sales. We just calculated two 104 00:05:17.500 --> 00:05:20.800 ways to calculate the gross margin is provided 105 00:05:20.800 --> 00:05:23.900 by the difference same administrative expense 106 00:05:23.900 --> 00:05:26.800 same selling expense same engineering 107 00:05:26.800 --> 00:05:29.700 expense the operating profit before interest 108 00:05:29.700 --> 00:05:32.400 and taxes is now 16,000 and 109 00:05:32.400 --> 00:05:35.600 something we deduct interest expense. We deduct 110 00:05:35.600 --> 00:05:38.700 the tax same rate 20% the net 111 00:05:38.700 --> 00:05:41.700 earnings earnings after tax. The bottom line of the period is 112 00:05:41.700 --> 00:05:44.500 12,886. 113 00:05:45.400 --> 00:05:48.500 Business as usual that decision we now have to take 114 00:05:48.500 --> 00:05:51.900 is Which percentage is distributed Which percentage 115 00:05:51.900 --> 00:05:54.300 is reinvested and as our 116 00:05:54.300 --> 00:05:57.800 cash situation is quite lower the moment we decide 117 00:05:57.800 --> 00:06:00.300 to retain 100% of the earnings of 118 00:06:00.300 --> 00:06:03.100 the period dividend declared zero. 119 00:06:03.900 --> 00:06:06.100 That was for the p&l Now we move to 120 00:06:06.100 --> 00:06:09.300 cash no increase in finance all that in 121 00:06:09.300 --> 00:06:12.800 June same as in May because there is no purchase of 122 00:06:12.800 --> 00:06:15.900 any kind of exceptional Capital expenditures. So 123 00:06:15.900 --> 00:06:18.300 the cash we collect from sales is going 124 00:06:18.300 --> 00:06:21.300 to be the one and unique source of cash in flow. 125 00:06:22.100 --> 00:06:25.500 Building the accounts receivable accounts gives us 126 00:06:25.500 --> 00:06:27.400 the cash collection from sales. 127 00:06:28.400 --> 00:06:32.900 What was you by the customer was 27,500 we 128 00:06:32.900 --> 00:06:35.500 generate sales, but you remember that the 129 00:06:35.500 --> 00:06:38.500 B2B sales 1,500 units at 130 00:06:38.500 --> 00:06:41.400 25 dollars per unit are not going 131 00:06:41.400 --> 00:06:44.800 to be paid in June. But in July they show 132 00:06:44.800 --> 00:06:47.900 in the balance it as and accounts receivable 133 00:06:47.900 --> 00:06:50.700 and of June the cash 134 00:06:50.700 --> 00:06:53.600 collection from sales walls. Obviously the 135 00:06:53.600 --> 00:06:56.900 B2B sales in May plus 136 00:06:56.900 --> 00:06:59.200 the b2c sales in June 137 00:06:59.200 --> 00:07:02.800 69,500. This is 138 00:07:02.800 --> 00:07:05.400 a total cash inflows. Now, we can move to the cash 139 00:07:05.400 --> 00:07:08.000 outflows, which start with what we are going to 140 00:07:08.400 --> 00:07:09.300 pay to the suppliers. 141 00:07:10.300 --> 00:07:13.600 The purchases in June are 50,000 on 142 00:07:13.600 --> 00:07:16.700 something 50% is paid immediately 50% 143 00:07:16.700 --> 00:07:19.900 will be paid in July. So what 144 00:07:19.900 --> 00:07:22.300 we pay is what is due at the beginning of the month 145 00:07:22.300 --> 00:07:26.400 plus 50% of the purchases. It is 45,000 146 00:07:25.400 --> 00:07:27.800 640 147 00:07:28.700 --> 00:07:32.400 in addition to that we cash out for administration. We 148 00:07:31.400 --> 00:07:34.400 cash outfall sales experience and 149 00:07:34.400 --> 00:07:37.700 generating production supervision production workers. 150 00:07:37.700 --> 00:07:41.400 No taxes later. No dividends declared 151 00:07:40.400 --> 00:07:43.100 purchase price of the machine. 152 00:07:43.100 --> 00:07:46.600 It was April. It's neither me nor Jude and 153 00:07:46.600 --> 00:07:49.300 we pay the interest. So the cash Outlet is 154 00:07:49.300 --> 00:07:53.000 61,000 700 and 80 which 155 00:07:52.200 --> 00:07:55.900 is significantly less than the 156 00:07:55.900 --> 00:07:58.700 total cash in flowers. So this 157 00:07:58.700 --> 00:08:03.800 month we generate cash of 7,720 and 158 00:08:03.800 --> 00:08:06.300 as at the beginning of the period of the cash account 159 00:08:06.300 --> 00:08:10.300 of the company was 2007 ad now 160 00:08:09.300 --> 00:08:12.200 we have some cash at the end of the period 161 00:08:12.200 --> 00:08:15.700 which is 10,500 and we feel much 162 00:08:15.700 --> 00:08:16.100 better. 163 00:08:16.900 --> 00:08:20.000 No surprise in the balance seed in factories 164 00:08:19.800 --> 00:08:22.400 calculated accounts receivable 165 00:08:22.400 --> 00:08:25.700 B2B sales cash. We just calculated 166 00:08:25.700 --> 00:08:28.500 and net property plant and 167 00:08:28.500 --> 00:08:32.500 Equipment same story as in May grows 168 00:08:31.500 --> 00:08:34.500 property plant and Equipment the historical 169 00:08:34.500 --> 00:08:37.900 purchasing prices of machine is 60,000. But 170 00:08:37.900 --> 00:08:40.700 now we have consumed the machine during three 171 00:08:40.700 --> 00:08:44.200 consecutive months. The consumption per 172 00:08:43.200 --> 00:08:46.500 month is 1000. We have consumed three 173 00:08:46.500 --> 00:08:49.200 thousand the net property plant and 174 00:08:49.200 --> 00:08:53.000 equipment is 57,000 total 175 00:08:52.400 --> 00:08:56.900 asset 1 26,562, which 176 00:08:56.900 --> 00:08:59.800 is obviously the same as a total equity 177 00:08:59.800 --> 00:09:03.400 and liabilities same Capital retain earnings 178 00:09:02.400 --> 00:09:05.700 incremented by the earnings 179 00:09:05.700 --> 00:09:08.900 of June fully reinvested 180 00:09:08.900 --> 00:09:11.600 in shareholders Equity. Same level 181 00:09:11.600 --> 00:09:15.100 of financial debt. No dividends payable accounts payable 182 00:09:14.100 --> 00:09:16.100 calculator. 183 00:09:16.900 --> 00:09:20.000 On tax payable the accumulated income 184 00:09:19.200 --> 00:09:22.500 tax payable at the end of May plus 185 00:09:22.500 --> 00:09:25.300 the tax liability. We generate in 186 00:09:25.300 --> 00:09:28.400 June as a consequence of our taxable income. 187 00:09:29.400 --> 00:09:32.500 Once the accounting job is done. We move 188 00:09:32.500 --> 00:09:35.600 to financial analysis. Same steps 189 00:09:35.600 --> 00:09:38.000 sales profit cash. 190 00:09:40.400 --> 00:09:43.500 Sales, they are growing and they are nicely growing in 191 00:09:43.500 --> 00:09:46.400 June so that we are sure now 192 00:09:46.400 --> 00:09:49.800 that the commercial success of our business is guaranteed. 193 00:09:50.600 --> 00:09:53.800 We are happy because we see the revenues growing 194 00:09:53.800 --> 00:09:56.600 which means that we have the right commercial model. 195 00:09:56.600 --> 00:09:59.300 We have the right products and we create value for 196 00:09:59.300 --> 00:10:02.500 our customers. But we also have to create value for 197 00:10:02.500 --> 00:10:06.000 our investors. We have to create value for our shareholders. 198 00:10:05.500 --> 00:10:08.900 We have to generate profits and 199 00:10:08.900 --> 00:10:12.000 transforms this customer value creation into 200 00:10:11.700 --> 00:10:15.000 investors value creation as well. The economics 201 00:10:14.700 --> 00:10:17.800 justification of the investment is shared 202 00:10:17.800 --> 00:10:20.500 in June when the growth margin 203 00:10:20.500 --> 00:10:23.800 and when the operating margin are both significantly 204 00:10:23.800 --> 00:10:26.800 up why both because we generate economies 205 00:10:26.800 --> 00:10:28.400 of scale at two levels. 206 00:10:29.400 --> 00:10:32.800 This amortization of fixed costs generates an 207 00:10:32.800 --> 00:10:35.300 increase in the gross margin of 7% 208 00:10:36.100 --> 00:10:39.200 but the operating margin is a by 11% 209 00:10:40.100 --> 00:10:43.100 So 7% come from the increase in 210 00:10:43.100 --> 00:10:46.700 the gross margin and an additional 4% comes 211 00:10:46.700 --> 00:10:49.700 from the amortization of indirect cost 212 00:10:49.700 --> 00:10:52.700 which here in this case are completely 213 00:10:52.700 --> 00:10:55.300 fixed. So we see the economic 214 00:10:55.300 --> 00:10:58.900 justification of the investment the ebit 215 00:10:58.900 --> 00:11:01.400 the operating margin is skyrocketing. 216 00:11:02.400 --> 00:11:05.600 But you remember that Prophet is one thing and cash 217 00:11:05.600 --> 00:11:08.500 is another thing because in May the 218 00:11:08.500 --> 00:11:11.500 operating working capital requirement increase was 219 00:11:11.500 --> 00:11:14.700 completely consuming the cash. We were generating from a 220 00:11:14.700 --> 00:11:15.100 bit. 221 00:11:15.800 --> 00:11:18.700 Now when we look at the operating working capital 222 00:11:18.700 --> 00:11:21.800 requirement, of course, it's up inventories are 223 00:11:21.800 --> 00:11:24.500 for exactly the same reasons as in 224 00:11:24.500 --> 00:11:28.400 May production is up first second. 225 00:11:27.400 --> 00:11:30.400 We increase the rate 226 00:11:30.400 --> 00:11:33.300 of inventories. We want to show at the end of June because we 227 00:11:33.300 --> 00:11:34.700 are cautious persons. 228 00:11:35.200 --> 00:11:38.800 Accounts receivable is because of sales grows 229 00:11:38.800 --> 00:11:41.700 that's normal and now accounts payable 230 00:11:41.700 --> 00:11:43.300 is significantly up. 231 00:11:43.800 --> 00:11:47.100 For a very good reason which is it's based 232 00:11:46.100 --> 00:11:50.300 on the same calculation. It's based 233 00:11:49.300 --> 00:11:52.900 on 50% of purchases which 234 00:11:52.900 --> 00:11:56.000 are made at 16 dollars per 235 00:11:55.900 --> 00:11:58.500 unit. Now. We see an 236 00:11:58.500 --> 00:12:02.000 increase in the accounts payable which is quite significant in 237 00:12:01.100 --> 00:12:04.500 June when it was stable in May as 238 00:12:04.500 --> 00:12:07.600 opposed to April as a consequence. There 239 00:12:07.600 --> 00:12:10.000 will be a reduction in the increase in 240 00:12:10.600 --> 00:12:13.500 the operating working capital requirement, which is 241 00:12:13.500 --> 00:12:16.900 going to be still 9,388. 242 00:12:17.900 --> 00:12:20.500 Now funds from operation. Of course, we 243 00:12:20.500 --> 00:12:23.500 observe this cash consumption, but the operating income 244 00:12:23.500 --> 00:12:26.200 is 16,000 and something depreciation, which 245 00:12:26.200 --> 00:12:30.000 is added up to calculate. The ebida is 1000. So 246 00:12:29.200 --> 00:12:34.900 on the one hand they're a bit that is 17,348 247 00:12:32.900 --> 00:12:35.500 on the 248 00:12:35.500 --> 00:12:40.200 other hand. We consume 9,388 of 249 00:12:39.200 --> 00:12:45.600 that but how much is left is 7,960 250 00:12:42.600 --> 00:12:46.300 which 251 00:12:45.300 --> 00:12:48.700 is going to be a great consequence on 252 00:12:48.700 --> 00:12:51.300 the cash position. Why because we have 253 00:12:51.300 --> 00:12:54.200 no capex. We have no Capital increase. We have 254 00:12:54.200 --> 00:12:57.200 no increase in debt. We have no debt Redemption and 255 00:12:57.200 --> 00:13:00.300 we just have to pay for the interest expense of 256 00:13:00.300 --> 00:13:02.500 two hundred and forty. 257 00:13:03.300 --> 00:13:06.400 This is a reason why then they're changing cash position is going 258 00:13:06.400 --> 00:13:10.400 to be 7,720. Now 259 00:13:09.400 --> 00:13:12.400 the manufacturing process with the 260 00:13:12.400 --> 00:13:15.200 machine is stabilized. We now have 261 00:13:15.200 --> 00:13:18.600 to go back to the final short metrics. The reason 262 00:13:18.600 --> 00:13:21.800 why we decided to buy the machine you remember 263 00:13:21.800 --> 00:13:24.400 that we were purchasing the puzzles 264 00:13:24.400 --> 00:13:27.800 at 20. Now the unit cost price 265 00:13:27.800 --> 00:13:31.800 of goods. All is 18.88 which 266 00:13:31.800 --> 00:13:34.400 basically means that we generate savings per 267 00:13:34.400 --> 00:13:37.500 unit of 1.12 doors per unit. 268 00:13:37.500 --> 00:13:40.400 We multiply that by the volume of 269 00:13:40.400 --> 00:13:43.700 sales in June 2,900 and 270 00:13:43.700 --> 00:13:46.700 we anticipate that it's going to grow again. So 271 00:13:46.700 --> 00:13:50.400 the total savings are 2,900 times 272 00:13:50.400 --> 00:13:55.000 1.12, which is 3,000 248 273 00:13:53.000 --> 00:13:55.400 dollars. 274 00:13:56.300 --> 00:13:59.600 You remember that the cost of the machine was 60,000? 275 00:14:00.200 --> 00:14:03.700 So how many months of savings do 276 00:14:03.700 --> 00:14:06.500 we need to generate to have the possibility to 277 00:14:06.500 --> 00:14:09.400 repay to redeem the purchasing of 278 00:14:09.400 --> 00:14:12.700 the machine 18 months, which is a simple result 279 00:14:12.700 --> 00:14:15.600 of a calculation 60,000 how 280 00:14:15.600 --> 00:14:19.200 much we paid 3,248 how 281 00:14:18.200 --> 00:14:21.400 much we generate each and every month? 282 00:14:22.300 --> 00:14:25.300 The expected life of the machine is five years 283 00:14:25.300 --> 00:14:28.700 the payback. The number of months is 284 00:14:28.700 --> 00:14:31.700 18 months 1.5 years. So 285 00:14:31.700 --> 00:14:35.000 you understand that we are going to repair the 286 00:14:34.300 --> 00:14:37.100 machine without discounting the 287 00:14:37.100 --> 00:14:40.700 cash flows. Okay, but as a simple calculation, we 288 00:14:40.700 --> 00:14:43.500 are going to pay the machine in 1.5 years 289 00:14:43.500 --> 00:14:47.100 and we are going to generate plenty of profits Beyond 290 00:14:46.100 --> 00:14:49.700 this kind of Time Break Even, which 291 00:14:49.700 --> 00:14:52.000 is 1.5 years. We are going to 292 00:14:52.400 --> 00:14:56.200 generate 3.5 years of profit in 293 00:14:55.200 --> 00:14:58.600 addition to the cost of the machine as a 294 00:14:58.600 --> 00:15:01.700 conclusion in June. We observe the 295 00:15:01.700 --> 00:15:03.800 economic justification of the investment. 296 00:15:04.900 --> 00:15:07.200 What it will learn during this month. 297 00:15:08.400 --> 00:15:11.500 Not many New Concept we are rainfalls this 298 00:15:11.500 --> 00:15:14.100 concept of production cost as opposed to 299 00:15:14.100 --> 00:15:17.700 cost price of goods sold, but 300 00:15:17.700 --> 00:15:20.900 no New Concept in addition. We've 301 00:15:20.900 --> 00:15:23.300 been able to Deep dive a little bit in a different 302 00:15:23.300 --> 00:15:26.600 items elements of the operating working capital 303 00:15:26.600 --> 00:15:29.300 requirement to understand what happened to the 304 00:15:29.300 --> 00:15:32.300 casparable in June as opposed to 305 00:15:32.300 --> 00:15:35.300 May again. We observe the 306 00:15:35.300 --> 00:15:38.700 sequence of building the accounts starting with p&l 307 00:15:38.700 --> 00:15:41.300 and cash to end with the balance sheet 308 00:15:41.300 --> 00:15:42.600 the picture at the end of the month. 309 00:15:43.400 --> 00:15:47.000 Last but not least for both cost categories 310 00:15:46.100 --> 00:15:49.800 fixed costs where fixed so 311 00:15:49.800 --> 00:15:52.700 we were able to observe actual economies 312 00:15:52.700 --> 00:15:53.400 of scale. 313 00:15:54.100 --> 00:15:57.300 Let's make a quick wrap-up for this module 3. 314 00:15:58.200 --> 00:16:02.100 The objective was to observe the economic justification 315 00:16:01.100 --> 00:16:03.900 of an investment project. 316 00:16:04.800 --> 00:16:07.700 We want to grow we want capacity. We want 317 00:16:07.700 --> 00:16:10.600 to control manufacturing. We invest we're 318 00:16:10.600 --> 00:16:13.800 buying machine. We buy today we generate profits 319 00:16:13.800 --> 00:16:16.600 tomorrow. This is a definition of an investment. What 320 00:16:16.600 --> 00:16:18.700 is the economic justification? 321 00:16:19.500 --> 00:16:22.300 We also introduced during the module the concept 322 00:16:22.300 --> 00:16:24.100 of financing with debt. 323 00:16:24.700 --> 00:16:27.800 We had to observe where that is introduced 324 00:16:27.800 --> 00:16:28.700 in the accounts. 325 00:16:29.400 --> 00:16:32.400 In the cash budget in a cash flow statement, but also 326 00:16:32.400 --> 00:16:34.600 in the balance sheet as a financial liability. 327 00:16:35.500 --> 00:16:38.400 We had to observe how to account for interest 328 00:16:38.400 --> 00:16:41.600 expense. It's a use it. It's a rant you 329 00:16:41.600 --> 00:16:43.600 pay on debt and it is in a p&l. 330 00:16:44.500 --> 00:16:48.000 We have an extensive discussion on costs 331 00:16:47.600 --> 00:16:50.400 and invent arrays the cost 332 00:16:50.400 --> 00:16:53.600 of goods all was quite simple in module 2. 333 00:16:53.600 --> 00:16:56.600 It was a purchasing price of the puzzle. Now, we 334 00:16:56.600 --> 00:16:59.700 had to get into production cost calculations and 335 00:16:59.700 --> 00:17:03.300 inventory calculation inventory valuation 336 00:17:03.300 --> 00:17:05.200 is a little bit more complex. 337 00:17:06.300 --> 00:17:09.300 And of course, it's about Grouse and grows and 338 00:17:09.300 --> 00:17:10.000 grows. 339 00:17:10.500 --> 00:17:13.200 Gross is about creating value for the 340 00:17:13.200 --> 00:17:17.100 customers. It's a purpose of the firm gross is 341 00:17:17.100 --> 00:17:20.600 also great because you can generate economies of scale 342 00:17:20.600 --> 00:17:24.100 you remember in June. It was absolutely fantastic seven 343 00:17:23.100 --> 00:17:26.800 percent on the gross margin 4% on 344 00:17:26.800 --> 00:17:29.600 the indirect cost and it is the economic performance 345 00:17:29.600 --> 00:17:30.200 of the company. 346 00:17:31.500 --> 00:17:34.900 Of course, but gross is also consuming cash. We 347 00:17:34.900 --> 00:17:37.300 had to buy a machine. This is an 348 00:17:37.300 --> 00:17:41.300 investment. This is cash out and we have observed each 349 00:17:40.300 --> 00:17:43.400 and every month the conception of 350 00:17:43.400 --> 00:17:46.400 cash, which is a consequence of an increase in 351 00:17:46.400 --> 00:17:48.400 the operating working capital requirement. 352 00:17:49.100 --> 00:17:52.700 So you understand that grows is absolutely great because 353 00:17:52.700 --> 00:17:56.200 it demonstrates that you have the right product under right 354 00:17:55.200 --> 00:17:58.500 price. It's great because it 355 00:17:58.500 --> 00:18:01.500 boosts economic performance when you can amortize your 356 00:18:01.500 --> 00:18:04.400 fixed cost but it is consuming cash on 357 00:18:04.400 --> 00:18:07.700 the asset side of the balance sheet property plant and 358 00:18:07.700 --> 00:18:10.200 equipment and working capital requirement. 359 00:18:11.100 --> 00:18:15.100 So gross is always a kind of ambiguous process. 360 00:18:16.400 --> 00:18:19.700 That was a rapid for module 3 but there 361 00:18:19.700 --> 00:18:22.800 is a common wrapper for module 1 and 2 362 00:18:22.800 --> 00:18:25.400 and 3. What is a purpose of 363 00:18:25.400 --> 00:18:27.200 financial accounting? 364 00:18:27.800 --> 00:18:29.200 Not to build the accounts. 365 00:18:29.900 --> 00:18:33.200 But to support operating decisions 366 00:18:32.200 --> 00:18:35.300 we take a decision which is 367 00:18:35.300 --> 00:18:38.900 to buy machine. We have to support that with financial 368 00:18:38.900 --> 00:18:41.700 accounting measuring the performance 369 00:18:41.700 --> 00:18:44.100 and evaluating the performance which is 370 00:18:44.100 --> 00:18:47.300 a consequence of these decisions. This is why 371 00:18:47.300 --> 00:18:51.400 financial accounting is so important incorporate life 372 00:18:51.400 --> 00:18:54.400 and should be absolutely Mastered by 373 00:18:54.400 --> 00:18:57.100 each and every operating manager. 374 00:18:57.900 --> 00:19:00.800 This three module trip was quite 375 00:19:00.800 --> 00:19:03.900 substantial quite significant. We learned 376 00:19:03.900 --> 00:19:06.800 plenty of things during these three modules 377 00:19:06.800 --> 00:19:09.800 and I think that it's important now we 378 00:19:09.800 --> 00:19:12.400 reach a step a level in 379 00:19:12.400 --> 00:19:15.700 accounting knowledge to make a kind of progress report 380 00:19:15.700 --> 00:19:18.800 and to review all these Concepts 381 00:19:18.800 --> 00:19:21.900 and to put them into perspective after 382 00:19:21.900 --> 00:19:24.400 this first part of the course. 383 00:19:24.400 --> 00:19:27.400 It will be also for me an opportunity 384 00:19:27.400 --> 00:19:30.600 to introduce module 4 and module 5