WEBVTT 1 00:00:00.385 --> 00:00:02.885 The purpose of the second module of this course, 2 00:00:02.885 --> 00:00:06.445 which is devoted to the consolidation of financial accounts, 3 00:00:07.065 --> 00:00:09.005 is to introduce the two companies. 4 00:00:09.005 --> 00:00:10.565 The two firms which are going to serve 5 00:00:10.865 --> 00:00:13.885 as a pedagogical support to the presentation 6 00:00:13.885 --> 00:00:16.525 of the different methods of consolidation. 7 00:00:17.625 --> 00:00:21.245 One of them is going to be the investor, the buyer, 8 00:00:21.705 --> 00:00:25.205 the other one, the target in which the buyer is going 9 00:00:25.205 --> 00:00:28.685 to take different levels of equity stake. 10 00:00:29.165 --> 00:00:31.005 I have four objectives in this module. 11 00:00:31.505 --> 00:00:34.925 The first one is to simply describe the companies, 12 00:00:35.345 --> 00:00:38.885 the investor and the target, where they stand at the end 13 00:00:38.885 --> 00:00:41.925 of year end the moment we take the decision 14 00:00:41.945 --> 00:00:44.525 of investing from the investor to the target, 15 00:00:45.145 --> 00:00:47.405 the second objective is to build the forecast 16 00:00:47.665 --> 00:00:49.285 for year end plus one. 17 00:00:49.795 --> 00:00:51.085 There's something which is going 18 00:00:51.085 --> 00:00:52.565 to happen in each and every company. 19 00:00:52.675 --> 00:00:54.005 They are going to run the business 20 00:00:54.105 --> 00:00:57.725 and it's important to transform assumptions into a reality 21 00:00:58.505 --> 00:01:02.525 so that we can describe these two companies with individual 22 00:01:03.165 --> 00:01:06.885 trajectories first, the second step is going 23 00:01:06.885 --> 00:01:08.885 to introduce the trajectory 24 00:01:09.065 --> 00:01:12.725 of the target into the trajectory of the investor. 25 00:01:13.725 --> 00:01:17.205 I have also a fourth objective, which is to give you a kind 26 00:01:17.205 --> 00:01:21.325 of reminder of key financial accounting concepts, 27 00:01:21.795 --> 00:01:26.005 capital employed, net financial resources, working capital, 28 00:01:26.195 --> 00:01:29.965 working capital requirements, and net cash position. 29 00:01:30.495 --> 00:01:32.925 Which content am I going to provide you 30 00:01:32.925 --> 00:01:34.245 for each and every company? 31 00:01:35.015 --> 00:01:38.965 First, obviously the opening balance sheet, which is the end 32 00:01:39.025 --> 00:01:41.965 of year end when we take the decision. 33 00:01:42.865 --> 00:01:46.525 Second, a few concepts about financial accounting. 34 00:01:47.335 --> 00:01:50.405 Third assumptions for your end plus one, 35 00:01:51.025 --> 00:01:54.125 and then we are going to be able to build the p 36 00:01:54.125 --> 00:01:57.485 and l of year N plus one, the cash flow statement, 37 00:01:57.485 --> 00:02:00.685 the evolution of the cash position for year n plus one, 38 00:02:01.105 --> 00:02:04.445 and of course build the financial balance sheet at the end 39 00:02:04.445 --> 00:02:06.205 of this year n plus one. 40 00:02:06.775 --> 00:02:08.925 Let's first start with the investor. 41 00:02:09.955 --> 00:02:12.045 When you look at the balance sheet at the end 42 00:02:12.145 --> 00:02:14.165 of year end, what do you observe? 43 00:02:14.675 --> 00:02:17.885 Traditionally assets on one side, equity 44 00:02:17.905 --> 00:02:19.685 and liabilities on the other side. 45 00:02:20.415 --> 00:02:21.885 Let's first start with the assets. 46 00:02:21.945 --> 00:02:24.765 We have a company in which we have property, plant 47 00:02:24.765 --> 00:02:27.205 and equipment, net tangible fixed assets, 48 00:02:27.975 --> 00:02:29.605 which is about the difference 49 00:02:29.605 --> 00:02:31.445 between gross tangible fixed assets, 50 00:02:31.505 --> 00:02:33.485 the price you paid when you bought the machines, 51 00:02:33.735 --> 00:02:35.845 minus AC accumulated depreciation, 52 00:02:36.385 --> 00:02:39.685 no intangible fixed assets, no financial fixed assets, 53 00:02:39.735 --> 00:02:42.165 which is a consequence of the past of the company. 54 00:02:42.825 --> 00:02:45.365 The non-current assets account for 800 55 00:02:45.785 --> 00:02:49.485 and we have the current assets traditionally inventories, 56 00:02:49.565 --> 00:02:52.885 accounts receivable, some other current operating assets, 57 00:02:53.485 --> 00:02:55.165 prepared expenses and cash. 58 00:02:55.305 --> 00:02:58.725 The sum is 1,800. On the other side 59 00:02:58.825 --> 00:02:59.965 We have the financial 60 00:03:00.025 --> 00:03:02.925 and operating resources shareholders equity first 61 00:03:03.555 --> 00:03:04.765 with equity capital 62 00:03:05.105 --> 00:03:07.565 and additional paid in capital that 63 00:03:07.565 --> 00:03:11.845 that the company made some equity issues accumulated, 64 00:03:12.065 --> 00:03:14.365 retain earnings, earnings generated by the company 65 00:03:14.465 --> 00:03:17.885 and not returned to shareholders through dividends 66 00:03:18.225 --> 00:03:20.765 and shareholders equity account for 900. 67 00:03:21.745 --> 00:03:25.805 In addition to that, we have long-term non-current financial 68 00:03:25.875 --> 00:03:29.685 debt whose maturity is more than one year for 400 69 00:03:29.945 --> 00:03:31.485 and the long-term resources. 70 00:03:31.525 --> 00:03:34.045 A permanent capital of the company is a sum 71 00:03:34.045 --> 00:03:35.645 of long-term equity 72 00:03:35.985 --> 00:03:39.845 and long term debt, which is 1,300 something very 73 00:03:40.205 --> 00:03:42.725 interesting when we have to calculate the working capital. 74 00:03:43.515 --> 00:03:45.125 Then we have the current liabilities. 75 00:03:45.475 --> 00:03:47.165 Some of them are financials such 76 00:03:47.165 --> 00:03:50.645 as a short term current financial debt for 200 77 00:03:51.305 --> 00:03:54.045 and some of them are operating accounts payable, 78 00:03:54.045 --> 00:03:56.685 which is a counterpart of the accounts receivable 79 00:03:57.025 --> 00:03:59.645 and other current operating liabilities such 80 00:03:59.645 --> 00:04:03.845 as taxes payable, sales tax payable, et cetera, et cetera. 81 00:04:04.355 --> 00:04:06.645 When we add the current liabilities, 500 82 00:04:07.105 --> 00:04:10.605 and the permanent capital, the long-term resources of 1,300 83 00:04:10.985 --> 00:04:13.845 who get 1,800 equity 84 00:04:13.945 --> 00:04:17.245 and liabilities on the one hand are matching with assets. 85 00:04:17.305 --> 00:04:20.045 On the other hand, this is a perfect definition 86 00:04:20.045 --> 00:04:21.565 of a balance sheet. 87 00:04:22.805 --> 00:04:24.165 A few comments to start with. 88 00:04:24.625 --> 00:04:28.085 It looks like an industrial company with manufacturing, 89 00:04:28.435 --> 00:04:32.605 with inventories, with receivables and payables and so on. 90 00:04:33.115 --> 00:04:35.165 There's no goodwill, no trademark 91 00:04:35.465 --> 00:04:39.845 or any other acquisition related assets which would show in 92 00:04:39.845 --> 00:04:41.085 the intangible assets. 93 00:04:41.695 --> 00:04:44.365 There are also no minority shareholdings, 94 00:04:44.455 --> 00:04:46.885 which would show in the financial fixed assets, 95 00:04:47.625 --> 00:04:50.765 so you don't have any acquisition in the balance sheet 96 00:04:50.825 --> 00:04:53.725 and you don't have any minority equity stake. 97 00:04:54.625 --> 00:04:57.885 If you look at the net financial debt, it's quite moderate, 98 00:04:58.155 --> 00:04:59.485 it's quite conservative. 99 00:05:00.035 --> 00:05:04.245 Long-term debt, 400 plus short debt, 200 net of cash, 100 00:05:04.475 --> 00:05:06.325 500 is 100 101 00:05:06.985 --> 00:05:09.605 and then the company shows some financial flexibility, 102 00:05:09.705 --> 00:05:11.525 the ability to make an acquisition 103 00:05:11.825 --> 00:05:14.645 and self-finance this acquisition, which is 104 00:05:14.645 --> 00:05:15.725 what is going to happen. 105 00:05:15.865 --> 00:05:19.805 Now let's go back to some key financial concepts, 106 00:05:20.475 --> 00:05:24.165 capital employed and net financial resources to start with. 107 00:05:24.905 --> 00:05:26.925 On the asset side of the balance sheet, 108 00:05:26.955 --> 00:05:28.525 they are mainly operating items, 109 00:05:28.865 --> 00:05:33.045 but there is a financial item which is cash on the equity 110 00:05:33.225 --> 00:05:35.605 and liabilities part of the balance sheet. 111 00:05:35.905 --> 00:05:39.605 You have financial resources, equity and financial debt 112 00:05:39.665 --> 00:05:42.605 and operating resources, operating liabilities. 113 00:05:43.505 --> 00:05:47.005 If you really want to calculate the net operating assets 114 00:05:47.525 --> 00:05:49.485 invested in business operations, you have 115 00:05:49.485 --> 00:05:52.245 to transfer cash from the asset side of the penalty 116 00:05:52.425 --> 00:05:53.765 to the other side of the penalty, 117 00:05:54.465 --> 00:05:57.565 but you also have to transfer the operating liabilities from 118 00:05:57.565 --> 00:06:00.925 the equity and liabilities back to the asset side 119 00:06:01.105 --> 00:06:04.165 and of course it's minus cash on one side it's minus 120 00:06:04.165 --> 00:06:06.085 operating liabilities on the other side. 121 00:06:06.955 --> 00:06:08.525 Then we have the capital employed, 122 00:06:08.525 --> 00:06:10.685 which is non-current asset, no change 123 00:06:10.985 --> 00:06:14.485 and the working capital requirement, which is made 124 00:06:14.485 --> 00:06:17.645 of current operating assets minus current 125 00:06:17.675 --> 00:06:18.805 operating liabilities. 126 00:06:19.825 --> 00:06:22.885 On the other side, we keep the shareholders equity as it is 127 00:06:23.265 --> 00:06:24.685 and net financial debt is 128 00:06:24.685 --> 00:06:27.525 what I calculated previously, which is 100. 129 00:06:28.275 --> 00:06:31.485 It's financial debt, long term plus short term net 130 00:06:31.545 --> 00:06:32.965 of minus cash. 131 00:06:34.065 --> 00:06:36.365 Now if you start with a book balance sheet, 132 00:06:36.365 --> 00:06:38.885 which comes from the accounting department with assets 133 00:06:39.145 --> 00:06:40.365 and equity and liabilities 134 00:06:40.945 --> 00:06:44.645 and this balance sheet is balancing the financial balance 135 00:06:44.645 --> 00:06:46.765 sheet, which is capital employed matches 136 00:06:46.795 --> 00:06:50.565 with net financial resources will also naturally balance. 137 00:06:52.215 --> 00:06:54.805 There is another concept which is quite important in 138 00:06:54.805 --> 00:06:56.245 financial accounting, which is 139 00:06:56.885 --> 00:06:59.445 permanent capital minus non-current asset 140 00:06:59.545 --> 00:07:01.045 and it's name working capital. 141 00:07:01.985 --> 00:07:05.005 The calculation of the working capital is absolutely crucial 142 00:07:05.345 --> 00:07:07.205 in the financial analysis of the firm. 143 00:07:07.745 --> 00:07:11.205 The non-current assets are the heart of the company 144 00:07:11.945 --> 00:07:15.205 and then the heart of the company is absolutely not liquid. 145 00:07:15.755 --> 00:07:19.245 This is why these non-car assets have to be financed 146 00:07:19.265 --> 00:07:20.725 by long-term resources 147 00:07:20.945 --> 00:07:23.525 and certainly not short-term resources 148 00:07:23.785 --> 00:07:25.565 for which there might be a liquidity risk. 149 00:07:25.785 --> 00:07:29.325 So when a company is showing a working capital which is 150 00:07:29.605 --> 00:07:32.365 positive and nicely positive, it means 151 00:07:32.515 --> 00:07:36.125 that it doesn't seem there any liquidity risk, at least 152 00:07:36.145 --> 00:07:38.845 for the short term for this company, which is fundamental. 153 00:07:40.145 --> 00:07:43.445 Now technically when you calculate the working capital, 154 00:07:43.445 --> 00:07:47.165 which is again permanent capital minus non-current asset 155 00:07:47.425 --> 00:07:51.525 and you deduct a working capital requirement, what is left? 156 00:07:51.915 --> 00:07:55.765 What is left is cash minus current financial debt 157 00:07:56.025 --> 00:07:58.525 and it's name the net cash position. 158 00:07:59.585 --> 00:08:03.085 Now in a company, if the working capital is positive 159 00:08:03.425 --> 00:08:05.885 but it is positive enough to finance 160 00:08:06.565 --> 00:08:08.605 entirely the working capital requirement, 161 00:08:08.605 --> 00:08:12.205 then the net cash position is strictly positive, 162 00:08:12.215 --> 00:08:13.885 which is a case for this company. 163 00:08:14.565 --> 00:08:16.485 A few comments about these calculations. 164 00:08:16.855 --> 00:08:21.165 First, capital employed represents a net operating assets, 165 00:08:21.705 --> 00:08:25.285 the operating assets net of the operating liabilities. 166 00:08:26.225 --> 00:08:28.445 The working capital requirement 167 00:08:29.025 --> 00:08:33.125 inside the capital employed is current operating assets 168 00:08:33.535 --> 00:08:36.405 minus current operating liabilities 169 00:08:37.145 --> 00:08:38.765 and the working capital requirements 170 00:08:39.325 --> 00:08:40.845 represent the funds which are sleeping 171 00:08:40.875 --> 00:08:43.165 between quotes in the operating cycle, 172 00:08:43.805 --> 00:08:46.885 sleeping in a warehouse, sleeping in the bank account 173 00:08:47.025 --> 00:08:48.085 of the customers. 174 00:08:48.705 --> 00:08:51.725 Now what is very important with the capital employed is 175 00:08:51.725 --> 00:08:55.525 that it allows us to calculate the return on capital 176 00:08:56.165 --> 00:08:59.245 employed, which is operating income income 177 00:08:59.245 --> 00:09:00.485 from business operations. 178 00:09:00.875 --> 00:09:02.925 EBIT divided by amount of money 179 00:09:03.565 --> 00:09:07.205 invested in business operations capital employed the rose is 180 00:09:07.525 --> 00:09:09.245 absolutely fundamental the day you want 181 00:09:09.245 --> 00:09:11.165 to evaluate the performance of a company 182 00:09:12.165 --> 00:09:14.965 confronting return on capital and cost of capital. 183 00:09:16.185 --> 00:09:19.525 The other concept which is absolutely fundamental is net 184 00:09:19.675 --> 00:09:20.925 financial resources. 185 00:09:21.175 --> 00:09:24.285 These are the funds raised from capital markets, 186 00:09:24.825 --> 00:09:26.085 of course net of cash 187 00:09:26.155 --> 00:09:29.405 because cash is available to re deposit 188 00:09:29.705 --> 00:09:31.645 or return of cash to shareholders. 189 00:09:32.785 --> 00:09:35.525 Now the accounting balance sheet is balancing, 190 00:09:35.865 --> 00:09:39.365 the financial balance sheet is also balancing which is 191 00:09:39.925 --> 00:09:41.005 absolutely mechanical. 192 00:09:42.085 --> 00:09:44.445 Interestingly, you calculate the working capital, 193 00:09:44.635 --> 00:09:46.205 deducting the fixed assets 194 00:09:46.265 --> 00:09:49.005 and non-car assets from the permanent capital, 195 00:09:50.025 --> 00:09:52.725 but there is another way to calculate the working capital. 196 00:09:53.145 --> 00:09:54.845 It is simply current assets. 197 00:09:55.385 --> 00:09:59.285 All the current assets including cash net of current 198 00:09:59.885 --> 00:10:03.365 liabilities including the short term financial debt. 199 00:10:04.075 --> 00:10:05.565 It's interesting because you have two 200 00:10:06.205 --> 00:10:08.645 geographical perspective of the balance sheet. 201 00:10:08.905 --> 00:10:11.485 You can look at the upper side of the balance sheet 202 00:10:11.485 --> 00:10:14.805 with long-term resources and long-term assets 203 00:10:15.305 --> 00:10:18.205 or the lower part of the balance sheet, which is current 204 00:10:18.745 --> 00:10:20.445 assets versus liabilities. 205 00:10:20.745 --> 00:10:23.285 At the end of the day, it gives you the same figure 206 00:10:23.465 --> 00:10:25.765 and it is also about liquidity 207 00:10:26.315 --> 00:10:30.045 because either working capital is positive, it means that 208 00:10:30.045 --> 00:10:31.445 with your long-term resources, 209 00:10:31.465 --> 00:10:33.725 you entirely finance your fixed asset. 210 00:10:34.215 --> 00:10:35.805 Again, the heart of the company. 211 00:10:36.345 --> 00:10:39.405 Second perspective, if the working capital is positive, 212 00:10:39.585 --> 00:10:41.845 it means that the current assets exceed 213 00:10:41.905 --> 00:10:43.005 the current liabilities. 214 00:10:43.435 --> 00:10:45.445 Current liabilities is what you are going 215 00:10:45.445 --> 00:10:47.005 to pay within one year. 216 00:10:47.235 --> 00:10:50.885 Current asset is available or almost available. 217 00:10:51.365 --> 00:10:54.005 Accounts receivable is going to be transformed into cash. 218 00:10:54.315 --> 00:10:58.125 Cash is already available to pay the current liabilities. 219 00:10:59.065 --> 00:11:02.005 Now you understand that if the working capital is positive, 220 00:11:02.365 --> 00:11:06.485 whatever the method you use to calculate, you can conclude 221 00:11:06.595 --> 00:11:10.365 that the liquidity risk of the company is quite low. 222 00:11:11.515 --> 00:11:13.285 When you calculate the working capital 223 00:11:13.745 --> 00:11:16.005 and you deduct the working capital requirement, 224 00:11:16.305 --> 00:11:20.565 you get the net cash position which is named a static 225 00:11:21.075 --> 00:11:22.245 cash balance. 226 00:11:23.185 --> 00:11:26.285 Now at the end for financial accounting concepts, let's move 227 00:11:26.305 --> 00:11:29.725 to the assumptions, which kind of data do we have 228 00:11:29.785 --> 00:11:31.765 for year and plus one? 229 00:11:31.865 --> 00:11:35.245 As far as the investor is concerned, the company's going 230 00:11:35.245 --> 00:11:39.005 to generate sales, transforms in sales into cash operating 231 00:11:39.005 --> 00:11:41.005 profit, which is named a bda, 232 00:11:41.745 --> 00:11:43.925 but the company's also going to invest 233 00:11:44.265 --> 00:11:46.965 for his future capital expenditures account. 234 00:11:46.965 --> 00:11:49.525 For 200, the company's going 235 00:11:49.525 --> 00:11:52.645 to keep on depreciating their current and new fixed 236 00:11:52.645 --> 00:11:57.045 Assets 174 and the current operating assets. 237 00:11:57.195 --> 00:12:00.845 Current operating liabilities are going to grow by 10%, 238 00:12:00.845 --> 00:12:01.885 which basically means 239 00:12:01.885 --> 00:12:04.805 that the working capital requirement is going to grow 240 00:12:04.865 --> 00:12:08.685 by 10%, which is going to simplify the calculations. 241 00:12:09.635 --> 00:12:10.725 When you have debt 242 00:12:10.825 --> 00:12:13.325 and the balance sheet, you have to pay the interest 243 00:12:13.945 --> 00:12:17.485 and the interest rate of the debt is going to be 5%, 244 00:12:17.915 --> 00:12:20.525 same rate for long term and shortterm debt. 245 00:12:21.115 --> 00:12:23.165 When you make a profit, you pay taxes, 246 00:12:23.665 --> 00:12:26.765 the income tax rate is going to be 25%. 247 00:12:27.585 --> 00:12:30.085 Now, in order to build the financial statements 248 00:12:30.165 --> 00:12:32.445 for year end plus one, we need additional data. 249 00:12:33.425 --> 00:12:36.485 You remember we have debt, but we also have cash. 250 00:12:37.145 --> 00:12:39.045 As an assumption, we are going to consider 251 00:12:39.075 --> 00:12:42.645 that cash does not generate any financial income. 252 00:12:43.445 --> 00:12:45.405 I would say it's pure operating cash 253 00:12:45.705 --> 00:12:49.125 and it's not invested in long-term securities of any kind. 254 00:12:50.145 --> 00:12:53.645 In order also to simplify the calculation, we are going 255 00:12:53.645 --> 00:12:55.685 to assume that income tax is paid 256 00:12:55.955 --> 00:12:57.885 immediately when it's accrued. 257 00:12:57.885 --> 00:12:59.245 When it is generated, 258 00:13:00.265 --> 00:13:03.805 the investor does not pay any dividend to its shareholders 259 00:13:04.365 --> 00:13:05.885 distribution is N 260 00:13:06.745 --> 00:13:09.325 and we are also going to consider as an assumption 261 00:13:09.395 --> 00:13:11.885 that the financial debts, long-term 262 00:13:11.905 --> 00:13:14.805 and short-term are going to remain unchanged. 263 00:13:14.905 --> 00:13:18.045 So any change in a cash position, positive 264 00:13:18.045 --> 00:13:19.125 or negative increase 265 00:13:19.125 --> 00:13:20.685 or decrease is going to show 266 00:13:21.025 --> 00:13:24.325 as a consequence in the cash account of the company 267 00:13:24.505 --> 00:13:26.965 and it's not going to impact the financial debt. 268 00:13:27.385 --> 00:13:28.525 Now we can build a p 269 00:13:28.525 --> 00:13:32.045 and l for year end plus one for the investor sales, 270 00:13:32.305 --> 00:13:36.125 1000 cash operating profit EBITDA 300. 271 00:13:36.865 --> 00:13:39.085 Now EBITDA minus depreciation 272 00:13:39.105 --> 00:13:43.605 and ization gives you the ebit, the operating income 126. 273 00:13:44.425 --> 00:13:46.405 The interest expense is going to be 30. 274 00:13:47.065 --> 00:13:50.525 You have 400 of long-term debt, 200 of short-term debts. 275 00:13:50.525 --> 00:13:54.365 The sum is 600 multiplied by 5%, it is 30, 276 00:13:55.185 --> 00:13:59.485 so the earnings before tax, the taxable income is 96. 277 00:13:59.945 --> 00:14:02.565 You have to deduct 25% of that 278 00:14:03.185 --> 00:14:08.045 and 96 minus 25% minus 24 is the 279 00:14:08.045 --> 00:14:09.565 net earnings 72. 280 00:14:10.155 --> 00:14:11.445 Once we have built the p 281 00:14:11.445 --> 00:14:14.365 and l, we can build the cashflow statement. 282 00:14:14.625 --> 00:14:17.005 The cashflow statement starts with ebitda, 283 00:14:17.245 --> 00:14:19.405 EBITDA's potential cash 300 284 00:14:20.395 --> 00:14:22.445 from which you deduct the interest expense, 285 00:14:22.445 --> 00:14:23.445 which is cash out 286 00:14:23.785 --> 00:14:25.685 and the income tax, which is cash out 287 00:14:26.305 --> 00:14:27.565 of course no depreciation 288 00:14:27.565 --> 00:14:29.725 and monetization in the cashflow statement 289 00:14:29.725 --> 00:14:31.525 because it is a non-cash item. 290 00:14:32.435 --> 00:14:35.165 Then we get what is named the gross cash flow. 291 00:14:36.005 --> 00:14:38.685 Interestingly, some companies communicate on their gross 292 00:14:38.685 --> 00:14:43.005 cash flow calculating earnings after tax plus depreciation 293 00:14:43.005 --> 00:14:44.005 and monetization 294 00:14:44.625 --> 00:14:49.565 and obviously you get the same figure 300 minus 30 minus 24 295 00:14:49.685 --> 00:14:51.405 a 246 296 00:14:51.825 --> 00:14:53.765 And 246 is the same 297 00:14:53.785 --> 00:14:57.605 as 72 earnings plus 174 298 00:14:57.735 --> 00:14:59.365 deposition and amortization. 299 00:15:00.165 --> 00:15:02.965 I very much prefer the first presentation 300 00:15:03.515 --> 00:15:06.805 even though it gets exactly to the same endpoint, 301 00:15:07.225 --> 00:15:09.685 the same calculation for the gross cash flow 302 00:15:09.795 --> 00:15:12.765 because EBIT dies cash interest expenses, 303 00:15:12.995 --> 00:15:17.045 cash income tax is cash, earnings is not cash, 304 00:15:17.465 --> 00:15:20.805 but if you add depreciation to the earnings after tax, it's 305 00:15:20.805 --> 00:15:23.845 because you deduct a depreciation, which is a non-cash item, 306 00:15:24.095 --> 00:15:25.645 which is a little bit confusing. 307 00:15:25.925 --> 00:15:26.965 I very much prefer 308 00:15:26.965 --> 00:15:30.325 to calculate the gross cashflow with ebitda. 309 00:15:30.575 --> 00:15:33.685 Again, minus interest expense minus in income tax, 310 00:15:34.225 --> 00:15:36.445 but gross cashflow is potential cash. 311 00:15:36.875 --> 00:15:38.445 It's not yet actual cash 312 00:15:39.025 --> 00:15:40.045 and the transformation 313 00:15:40.045 --> 00:15:42.845 of profit into cash is the change in the working 314 00:15:42.955 --> 00:15:44.325 capital requirement. 315 00:15:44.795 --> 00:15:47.085 When the working capital requirement is up, 316 00:15:47.085 --> 00:15:49.645 which is a case here by 10%, 317 00:15:50.035 --> 00:15:52.805 then we have less cash in the bank account. 318 00:15:52.995 --> 00:15:55.045 When the working capital requirement is down, 319 00:15:55.185 --> 00:15:56.445 we have more cash. 320 00:15:57.145 --> 00:16:01.485 The impact is perfectly negative on the cash of the company, 321 00:16:02.185 --> 00:16:05.005 so potentially we have generated 246, 322 00:16:05.505 --> 00:16:08.085 but the actual cash which is going to be generated 323 00:16:08.145 --> 00:16:11.485 by business operations is only 226 324 00:16:11.485 --> 00:16:12.485 because in the meantime, 325 00:16:12.785 --> 00:16:16.405 the working capital requirement has increased by 10%. 326 00:16:16.865 --> 00:16:18.925 10% of 200 is 20. 327 00:16:19.985 --> 00:16:21.725 The operating cash flow is positive, 328 00:16:21.725 --> 00:16:22.845 which is quite good news 329 00:16:23.105 --> 00:16:26.805 and it's high enough to finance the capital expenditures, 330 00:16:27.385 --> 00:16:30.085 so the free cashflow, the cashflow available 331 00:16:30.265 --> 00:16:34.085 before strategic financial decisions such as equity issues 332 00:16:34.385 --> 00:16:36.525 or dividend payment or shares, buyback 333 00:16:36.585 --> 00:16:38.925 or repayment of the debt is 26. 334 00:16:39.985 --> 00:16:42.205 As there is no equity issue of any kind, 335 00:16:42.345 --> 00:16:44.405 as the financial debt is not only going to change, 336 00:16:44.705 --> 00:16:47.085 the free cash flow is entirely going 337 00:16:47.085 --> 00:16:50.925 to increment their cash position of the company by 26. 338 00:16:51.465 --> 00:16:52.845 Now, once we have built a p 339 00:16:52.845 --> 00:16:54.125 and l for your l plus one, 340 00:16:54.425 --> 00:16:56.245 we have also built a cash flow statement 341 00:16:56.245 --> 00:16:57.365 for your L plus one. 342 00:16:57.945 --> 00:16:59.725 We know the balance sheet beginning 343 00:16:59.725 --> 00:17:02.325 of the year we can build a balance sheet end of the year 344 00:17:03.455 --> 00:17:06.685 gross tangible fixed assets have been incremented 345 00:17:06.745 --> 00:17:07.965 by capital expenditures. 346 00:17:08.715 --> 00:17:11.725 Accumulated depreciation has been incremented 347 00:17:11.745 --> 00:17:13.125 by the depreciation of the year, 348 00:17:13.185 --> 00:17:14.845 so the net tangible fixed assets. 349 00:17:15.865 --> 00:17:18.645 Now the net tangible fixed assets have been increased 350 00:17:19.025 --> 00:17:21.005 by the difference between 200 351 00:17:21.185 --> 00:17:24.045 and 174, which is 26. 352 00:17:25.025 --> 00:17:26.925 No change in the intangible fixed assets, 353 00:17:27.025 --> 00:17:28.565 no change in the financial fixed assets, 354 00:17:28.625 --> 00:17:31.885 so the total non-current asset is 826. 355 00:17:33.145 --> 00:17:34.965 As current operating assets 356 00:17:35.025 --> 00:17:39.005 and current operating liabilities have increased by 10%, 357 00:17:39.595 --> 00:17:42.525 inventories is up from 200 to 220. 358 00:17:43.085 --> 00:17:46.485 Accounts receivable is up from 100 to 110. 359 00:17:47.095 --> 00:17:48.725 Other current operating assets 360 00:17:49.145 --> 00:17:51.285 Are up from 200 to 220 361 00:17:51.905 --> 00:17:54.685 and cash is incremented by the free cash flow, 362 00:17:54.685 --> 00:17:58.845 which is entirely going to be impacting the cash position. 363 00:17:59.305 --> 00:18:04.285 So 500 plus 26 is 526 total current assets plus 364 00:18:04.285 --> 00:18:07.885 total non-current assets is a total assets which is 365 00:18:07.885 --> 00:18:09.845 1,902. 366 00:18:10.195 --> 00:18:13.365 Once we've built the balance sheet asset side, we move 367 00:18:13.365 --> 00:18:15.205 to the equity and liability side. 368 00:18:15.985 --> 00:18:19.405 No change in capital, no change in additional paying capital 369 00:18:19.405 --> 00:18:21.045 because there was no equity issue. 370 00:18:21.785 --> 00:18:23.685 The retain earnings have been incremented 371 00:18:23.785 --> 00:18:26.405 by the profit generated by the company during the year 372 00:18:27.265 --> 00:18:29.005 and by 100% of the profit 373 00:18:29.005 --> 00:18:31.805 because 100% of the profit is retained. 374 00:18:31.805 --> 00:18:34.005 The company you remember pay no dividend 375 00:18:34.005 --> 00:18:38.925 to its shareholders, 600 plus 72 minus zero 376 00:18:39.305 --> 00:18:41.845 is exactly 607 two. 377 00:18:42.505 --> 00:18:46.205 So shareholders equity now accounts for 972, 378 00:18:46.755 --> 00:18:48.605 same long-term financial debt, 379 00:18:48.915 --> 00:18:50.685 same short-term financial debt 380 00:18:51.205 --> 00:18:53.205 accounts payable is served by 10%. 381 00:18:53.535 --> 00:18:56.565 Other current operating liabilities are owe by 10%, 382 00:18:56.905 --> 00:19:00.565 so total current liabilities plus their permanent capital is 383 00:19:00.785 --> 00:19:04.245 equity and liabilities 1,902 384 00:19:04.985 --> 00:19:06.605 and it's extremely good news 385 00:19:06.605 --> 00:19:09.765 because assets are matching with equity 386 00:19:09.865 --> 00:19:13.685 and liabilities, which is absolutely the mechanical balance 387 00:19:13.755 --> 00:19:16.205 between users and sources of funds. 388 00:19:16.585 --> 00:19:18.605 Now it is very interesting to observe 389 00:19:18.605 --> 00:19:22.285 that the increase in the retain earnings, 72 390 00:19:22.905 --> 00:19:25.245 100% of the bottom line of the company 391 00:19:25.905 --> 00:19:27.085 has been used in order 392 00:19:27.105 --> 00:19:30.085 to finance the increase in the non-car assets. 393 00:19:30.705 --> 00:19:33.325 You remember a capital expenditures minus the position 394 00:19:33.325 --> 00:19:34.405 of the year 26 395 00:19:35.305 --> 00:19:39.005 and also the increase in the working capital requirement 20 396 00:19:39.785 --> 00:19:42.805 and as the increase in the retainer earnings was financing 397 00:19:43.605 --> 00:19:45.965 entirely the evolution of the capital employed. 398 00:19:46.145 --> 00:19:50.165 The net between these two is now showing in the change in 399 00:19:50.165 --> 00:19:52.165 the cash position, which is 26. 400 00:19:52.515 --> 00:19:55.645 This is basically the consequence of a profitability 401 00:19:55.665 --> 00:19:58.685 of the company 72 completely 402 00:19:59.245 --> 00:20:00.685 reinvested in the company. 403 00:20:00.995 --> 00:20:04.245 72 is financing not only the growth 404 00:20:04.385 --> 00:20:05.765 of the net operating assets, 405 00:20:06.385 --> 00:20:07.885 but he's also contributing 406 00:20:07.885 --> 00:20:10.965 to the increase in the cash position when the profitability 407 00:20:11.185 --> 00:20:14.245 is exceeding what you need to finance your growth. 408 00:20:14.745 --> 00:20:16.645 Now you can build a financial balance sheet 409 00:20:17.195 --> 00:20:19.165 capital employed non-current assets 410 00:20:19.225 --> 00:20:23.485 and working capital requirement non-current assets 826, 411 00:20:23.485 --> 00:20:25.765 which is 800 plus 26. 412 00:20:26.345 --> 00:20:29.685 The working capital requirement has increased by 10%. 413 00:20:29.785 --> 00:20:33.525 Now the new capital employed net operating assets is 1046. 414 00:20:34.545 --> 00:20:37.045 On the other side, whether do you have shareholders equity 415 00:20:37.045 --> 00:20:39.765 which has been incremented by 72 416 00:20:40.385 --> 00:20:43.685 and the net financial debt has decreased not 417 00:20:43.685 --> 00:20:45.445 because we have repaired the debt but 418 00:20:45.445 --> 00:20:46.925 because we have increased cash 419 00:20:47.545 --> 00:20:51.085 and now the net financial debt which was 100 is 100 420 00:20:51.615 --> 00:20:56.605 minus 26, which is 74 net financial resources account 421 00:20:56.605 --> 00:20:58.725 for 1046 422 00:20:59.105 --> 00:21:02.405 and capital employed net financial resources are matching. 423 00:21:02.625 --> 00:21:06.805 The financial balance sheet is balancing the working capital 424 00:21:07.025 --> 00:21:09.285 has been reinforced by the evolution 425 00:21:09.285 --> 00:21:10.965 of the long-term resources 426 00:21:11.265 --> 00:21:13.605 and the evolution of the long-term resources is 427 00:21:13.605 --> 00:21:14.685 the increase in the equity. 428 00:21:15.505 --> 00:21:18.125 So of course there is an increase in the non-current asset 429 00:21:18.125 --> 00:21:21.205 because CapEx are exceeding the depreciation of the year, 430 00:21:21.205 --> 00:21:24.805 but the working capital is now 546 431 00:21:25.505 --> 00:21:28.285 and even though the working capital requirement has 432 00:21:28.285 --> 00:21:31.645 increased by 10% from 200 to 220, 433 00:21:32.265 --> 00:21:35.845 the net cash position is stronger by 26. 434 00:21:36.425 --> 00:21:38.565 The cash is now 526 435 00:21:38.825 --> 00:21:43.605 and it exceeds the current financial debt 200 by 326, 436 00:21:43.655 --> 00:21:46.405 which is a perfect definition of the net cash position. 437 00:21:46.985 --> 00:21:48.325 Now what about the target? 438 00:21:49.115 --> 00:21:51.365 Basically we have the same kind of company. 439 00:21:52.305 --> 00:21:54.285 We have a company which looks industrial 440 00:21:54.755 --> 00:21:56.565 with net tangible fixed assets. 441 00:21:56.955 --> 00:21:58.245 It's much smaller. 442 00:21:58.775 --> 00:22:02.085 There is no intangibles, no financial fixed assets. 443 00:22:02.335 --> 00:22:05.565 Total non-Current asset is net property plant 444 00:22:05.565 --> 00:22:09.445 and equipment with current assets including cash of 60 445 00:22:10.065 --> 00:22:14.805 and the total assets account for 170 capital five, 446 00:22:14.805 --> 00:22:17.525 additional paid in capital and retain earnings. 447 00:22:17.525 --> 00:22:19.925 Shareholders equity account for 60 448 00:22:20.595 --> 00:22:24.605 long-term financial debt 40, so the permanent capital, 449 00:22:24.705 --> 00:22:26.965 the long-term resources account for 100 450 00:22:27.575 --> 00:22:29.725 which exceed the non-current asset. 451 00:22:29.725 --> 00:22:32.285 Good news, the working capital is going to be positive 452 00:22:33.145 --> 00:22:36.365 and the Shortterm financial debt plus accounts payable plus 453 00:22:36.375 --> 00:22:38.445 other current operating liabilities 454 00:22:39.035 --> 00:22:40.525 give you the current liabilities. 455 00:22:40.595 --> 00:22:43.765 70 plus 100. It is 170. 456 00:22:44.705 --> 00:22:46.405 As far as the target is concerned, 457 00:22:46.425 --> 00:22:50.125 the comments are quite the same as for the buyer. 458 00:22:50.265 --> 00:22:52.045 As for the investing company, 459 00:22:52.585 --> 00:22:54.245 it looks like an industrial company. 460 00:22:55.095 --> 00:22:56.285 There is no goodwill 461 00:22:56.285 --> 00:22:59.725 or trademarks on any other acquisition related assets. 462 00:23:00.505 --> 00:23:03.285 No minority shareholding, no financial fixed asset 463 00:23:03.905 --> 00:23:06.925 and again the net financial debt looks quite conservative. 464 00:23:07.695 --> 00:23:10.045 There is some financial debt, 40 plus 40, 465 00:23:10.395 --> 00:23:11.485 long term plus short term, 466 00:23:11.825 --> 00:23:16.085 but the cash is 60, so the net financial debt is 20. 467 00:23:17.425 --> 00:23:19.445 So if we look at the capital employed, 468 00:23:19.785 --> 00:23:23.245 we have non-car asset plus working capital requirement which 469 00:23:23.245 --> 00:23:25.605 account for 80 shareholders. 470 00:23:25.665 --> 00:23:29.125 Equity is 60 financial debt, net of cash is 20 471 00:23:29.305 --> 00:23:31.965 and the net financial resources account for 80. 472 00:23:32.465 --> 00:23:36.805 The financial balance sheet is balancing permanent capital 473 00:23:37.555 --> 00:23:39.765 exceeds non-current assets by 30. 474 00:23:40.025 --> 00:23:42.165 You remember what I said a minute ago. 475 00:23:42.465 --> 00:23:44.365 So the working capital is positive 476 00:23:44.785 --> 00:23:47.845 and as a working capital requirement is 477 00:23:47.845 --> 00:23:49.085 less than a working capital. 478 00:23:49.545 --> 00:23:51.245 The net cash position is 20. 479 00:23:51.825 --> 00:23:55.165 We can demonstrate it calculating working capital minus 480 00:23:55.165 --> 00:23:56.605 working capital requirement. 481 00:23:57.345 --> 00:24:00.165 We can also calculate the net cash position deducting the 482 00:24:00.165 --> 00:24:01.645 current financial debt. 483 00:24:01.815 --> 00:24:05.285 40 from the cash account of the company, which is 60, 484 00:24:05.775 --> 00:24:07.445 60 minus 40 is 20. 485 00:24:08.115 --> 00:24:11.445 Some quick comments about the financial balance aid 486 00:24:12.205 --> 00:24:14.565 positive working capital conservative company. 487 00:24:15.265 --> 00:24:18.045 The working capital requirement looks quite low. 488 00:24:18.705 --> 00:24:20.725 The net cash position is positive 489 00:24:21.305 --> 00:24:23.685 and it seems that the campaign is liquidity risk 490 00:24:23.825 --> 00:24:25.365 is quite limited. 491 00:24:25.975 --> 00:24:29.845 Again, we need some assumptions in order to build the p 492 00:24:29.845 --> 00:24:31.765 and l and the cashflow statement of the company 493 00:24:31.905 --> 00:24:35.085 for the year N plus one, we have the sales figure. 494 00:24:35.225 --> 00:24:40.005 We have the A bid D, CapEx and depreciation 15 minus 10. 495 00:24:40.395 --> 00:24:41.805 Current operating assets 496 00:24:41.825 --> 00:24:46.085 and current operating liabilities are going to grow by 20%, 497 00:24:46.535 --> 00:24:47.725 which basically mean 498 00:24:47.725 --> 00:24:50.005 that the working capital requirement is going 499 00:24:50.005 --> 00:24:51.485 to grow by 20%. 500 00:24:52.275 --> 00:24:54.365 Same interest rate for that long-term 501 00:24:54.365 --> 00:24:57.725 and short term 5% same in income tax rate, 25%, 502 00:24:57.745 --> 00:24:59.245 but the big difference it 503 00:24:59.445 --> 00:25:01.845 that the company is paying a dividend to its shareholders 504 00:25:02.345 --> 00:25:07.085 and in fact it's distributing two thirds of its net income. 505 00:25:07.695 --> 00:25:11.365 66 point 67% is exactly two thirds. 506 00:25:11.505 --> 00:25:14.805 You also need some additional data, same assumptions. 507 00:25:15.035 --> 00:25:17.765 Cash does not generate any financial income. 508 00:25:18.345 --> 00:25:20.245 Income taxes paid immediately. 509 00:25:20.555 --> 00:25:24.605 Financial debts long term and short term remain unchanged. 510 00:25:25.505 --> 00:25:28.125 But now we pay dividend which has an impact on 511 00:25:28.125 --> 00:25:29.165 the cashflow statement. 512 00:25:29.655 --> 00:25:31.445 Let's now build the p and l. 513 00:25:31.765 --> 00:25:34.285 P and L is about sales transform into cash. 514 00:25:34.355 --> 00:25:37.325 Operating profit EBITDA minus depreciation, 515 00:25:37.375 --> 00:25:41.525 which is about 10 94 minus 10 is 84. 516 00:25:42.065 --> 00:25:44.845 The interest expense is 5% of the total debt. 517 00:25:45.935 --> 00:25:49.485 40 plus 40 is 80, which is multiplied by 5% 518 00:25:49.485 --> 00:25:52.405 to give the interest expense of four earnings 519 00:25:52.405 --> 00:25:56.965 before tax is 80, income tax is 25% 520 00:25:56.965 --> 00:25:59.005 of the taxable income, which is 20 521 00:25:59.545 --> 00:26:01.445 now the net earnings are 60 522 00:26:01.585 --> 00:26:05.125 and the company is distributing two thirds of its net income 523 00:26:05.125 --> 00:26:06.805 of its bottom line to its shareholders. 524 00:26:07.265 --> 00:26:10.285 So the dividend which is going to be distributed is 40. 525 00:26:11.225 --> 00:26:14.285 Now let's move to the financing to the cashflow statement. 526 00:26:15.045 --> 00:26:17.965 EBDA minus interest minus in income tax is gross 527 00:26:17.965 --> 00:26:19.005 cashflow, which is 70. 528 00:26:19.625 --> 00:26:22.125 You remember. You can also calculate the gross cashflow 529 00:26:22.345 --> 00:26:25.365 as earnings plus depreciation 60 plus 10. 530 00:26:25.805 --> 00:26:27.805 I very much prefer the first presentation 531 00:26:28.465 --> 00:26:32.325 as a working capital requirement is uh, by 20%. 532 00:26:32.945 --> 00:26:35.885 10 is transforming to 12. It consumes two. 533 00:26:36.145 --> 00:26:39.045 So 70 is potential cash 534 00:26:39.825 --> 00:26:42.365 and 68 is actual cash. 535 00:26:42.865 --> 00:26:45.325 The difference is the increase in the working capital 536 00:26:45.325 --> 00:26:48.525 requirement, which is consuming part of the profitability 537 00:26:49.535 --> 00:26:53.645 CapEx account for 15 and so the free cash flow is very high. 538 00:26:54.015 --> 00:26:57.365 53. This is why the company is generating plenty 539 00:26:57.365 --> 00:27:01.045 of cash in excess and can distribute a very significant part 540 00:27:01.045 --> 00:27:03.325 of its net income 40. 541 00:27:03.825 --> 00:27:07.405 How much is left now changing the cash position as 13, 542 00:27:08.155 --> 00:27:11.165 even though the company is distributing two thirds 543 00:27:11.185 --> 00:27:13.525 of its net income, the company is going 544 00:27:13.525 --> 00:27:16.085 to increment its cash position by 13. 545 00:27:16.795 --> 00:27:18.245 Once we have the p and l 546 00:27:18.245 --> 00:27:19.525 and the cash flow statement, 547 00:27:19.865 --> 00:27:22.765 we can build the balance sheet at the end of the year. 548 00:27:23.355 --> 00:27:24.605 Balance sheet at the beginning 549 00:27:24.605 --> 00:27:29.525 of the year is 100 in tangible fixed assets, gross plus 15, 550 00:27:29.875 --> 00:27:32.805 accumulated depreciation 30 plus 10. 551 00:27:33.305 --> 00:27:35.965 So the net tangible fixed asset property plant 552 00:27:35.965 --> 00:27:38.085 and equipment are now 75. 553 00:27:38.825 --> 00:27:41.325 No intangibles, no financial fixed asset. 554 00:27:41.775 --> 00:27:44.125 Total non-Current asset is 75 555 00:27:45.035 --> 00:27:47.045 inventories are earned by 20%. 556 00:27:47.165 --> 00:27:49.285 Accounts receivable, uh, by 20%. 557 00:27:49.655 --> 00:27:52.445 Other current operating assets, uh, by 20% 558 00:27:52.545 --> 00:27:56.605 and cash is earned by 13, which is a bottom line 559 00:27:56.605 --> 00:27:58.085 of the cashflow statement. 560 00:27:58.215 --> 00:28:02.645 Total assets 196. What about equity and liabilities? 561 00:28:03.105 --> 00:28:04.125 No equity issue. 562 00:28:04.355 --> 00:28:08.045 Capital and additional paying capital remain unchanged. 563 00:28:08.425 --> 00:28:09.965 Retain earnings are incremented 564 00:28:10.105 --> 00:28:13.645 by the net earnings minus the dividend of the year. 565 00:28:14.345 --> 00:28:16.205 The starting point was 20. 566 00:28:16.425 --> 00:28:18.525 As far as return earnings are concerned, 567 00:28:18.945 --> 00:28:22.805 return earnings are incremented by 60 earnings of the year, 568 00:28:23.265 --> 00:28:27.525 but reduced by 40, which is a cash return to shareholders 569 00:28:28.715 --> 00:28:30.125 long term financial debt. 570 00:28:30.125 --> 00:28:31.845 Short term financial debt, no change. 571 00:28:31.885 --> 00:28:34.765 Accounts payable are by 20% 572 00:28:35.345 --> 00:28:37.605 and the other current operating liabilities are 573 00:28:37.605 --> 00:28:38.925 earned by 20%. 574 00:28:38.925 --> 00:28:42.285 Current liabilities, 76 total equity 575 00:28:42.465 --> 00:28:45.045 and liabilities 196. 576 00:28:45.345 --> 00:28:48.005 The good news again is that assets are matching 577 00:28:48.005 --> 00:28:49.285 with equity and liabilities. 578 00:28:49.795 --> 00:28:51.725 There's no miracle in there. 579 00:28:51.865 --> 00:28:54.845 It is just mechanical calculations. 580 00:28:55.475 --> 00:28:57.285 Same observation for the target. 581 00:28:58.385 --> 00:29:00.125 We have observed an increase in the 582 00:29:00.125 --> 00:29:01.605 retain earnings, which is 20. 583 00:29:02.505 --> 00:29:05.085 The increase in the retain earnings is used in order 584 00:29:05.185 --> 00:29:08.045 to finance the increase in the non-current assets. 585 00:29:08.435 --> 00:29:11.885 Five. And finance the increase in the working capital 586 00:29:11.915 --> 00:29:13.045 requirement two, 587 00:29:13.825 --> 00:29:17.805 but as the company is generating earnings net of dividends 588 00:29:17.825 --> 00:29:20.565 of 20, it's much more than what you need 589 00:29:20.565 --> 00:29:23.805 to reinvest in financing the growth of the capital employed. 590 00:29:24.175 --> 00:29:25.805 Seven. How much is left? 591 00:29:26.445 --> 00:29:29.045 13, which is the increase in the cash 592 00:29:29.045 --> 00:29:30.125 account of the company. 593 00:29:30.545 --> 00:29:33.125 No major comment to make about the financial 594 00:29:33.125 --> 00:29:34.205 benefit of the target. 595 00:29:35.065 --> 00:29:37.125 The non-current asset have increased. 596 00:29:37.665 --> 00:29:40.885 The working capital requirement has increased by 20%. 597 00:29:41.065 --> 00:29:43.645 Now the capital employed is 87 598 00:29:44.205 --> 00:29:47.525 Shareholders equity have been increment by 20 599 00:29:48.185 --> 00:29:51.885 and as net financial debt is down by 13 600 00:29:52.505 --> 00:29:55.965 Now the net financial resources are 80 plus seven, 601 00:29:55.965 --> 00:29:57.045 which is 87. 602 00:29:57.595 --> 00:30:00.445 It's matching with capital employed. There is no surprise. 603 00:30:01.265 --> 00:30:03.965 The permanent capital is up to 120 604 00:30:04.785 --> 00:30:07.685 and by far its finances and non-car assets. 605 00:30:07.765 --> 00:30:10.805 A working capital is up to 45 606 00:30:11.745 --> 00:30:15.325 and as a working capital requirement is up by only too. 607 00:30:15.385 --> 00:30:19.205 Now the net cash position has been incremented by 13. 608 00:30:19.835 --> 00:30:21.685 Cash is now 73. 609 00:30:22.075 --> 00:30:25.485 Current financial debt is on lead between quotes 40 610 00:30:25.785 --> 00:30:28.205 and the net cash position is 33. 611 00:30:28.825 --> 00:30:32.165 So in this second module we have been able 612 00:30:32.165 --> 00:30:34.965 to discuss a little bit about the investor 613 00:30:35.505 --> 00:30:38.245 and the target, the buyer, and the target. 614 00:30:38.825 --> 00:30:41.565 We have been able to observe a little bit the financial 615 00:30:42.045 --> 00:30:43.925 situation of these two companies. 616 00:30:44.385 --> 00:30:47.325 We also had the opportunity to do a little bit 617 00:30:47.325 --> 00:30:50.485 of financial forecast from assumptions 618 00:30:51.065 --> 00:30:54.765 and from the beginning balance sheet we can build the P, 619 00:30:55.225 --> 00:30:56.325 the cash flow statement 620 00:30:56.425 --> 00:30:58.365 and the balance sheet At the end of the year, 621 00:30:59.195 --> 00:31:02.485 calculate capital employed match capital employed 622 00:31:02.485 --> 00:31:05.885 with a net financial resources, a financial resources net 623 00:31:05.885 --> 00:31:08.645 of cash, calculate the working capital 624 00:31:08.945 --> 00:31:10.485 and comment the working capital, 625 00:31:11.235 --> 00:31:13.925 calculate the working capital requirement 626 00:31:13.985 --> 00:31:17.765 and observe that if the working capital is positive 627 00:31:18.265 --> 00:31:21.365 and is financing 100% of the working capital requirement, 628 00:31:21.365 --> 00:31:23.965 then the net cash position is positive. 629 00:31:24.785 --> 00:31:27.405 We have been able to observe this static cash balance 630 00:31:27.865 --> 00:31:31.845 but also this balance moving from one year to the other. 631 00:31:32.785 --> 00:31:35.405 And then this cash balance has been affected by 632 00:31:36.185 --> 00:31:40.405 the incremental accumulated retain earnings 633 00:31:41.135 --> 00:31:43.805 which are used to finance the growth of the company. 634 00:31:44.235 --> 00:31:47.125 Non-car assets and working capital requirement. 635 00:31:47.585 --> 00:31:51.045 But if we make more profit than what we need 636 00:31:51.345 --> 00:31:53.885 to reinvest in financing the growth of the company, 637 00:31:54.155 --> 00:31:56.845 then there is cash in excess which is going 638 00:31:56.845 --> 00:31:59.245 to increment the cash account of the company. 639 00:32:00.155 --> 00:32:02.285 This is the end of the presentation of the firms. 640 00:32:03.225 --> 00:32:07.245 The first step of this presentation of the method is going 641 00:32:07.245 --> 00:32:08.645 to consider that the target 642 00:32:09.185 --> 00:32:12.365 is a very simple ME financial investment. 643 00:32:12.945 --> 00:32:15.605 We are going to take an equity stake, which is not 644 00:32:15.875 --> 00:32:18.965 that significant and there will be an impact on the method 645 00:32:19.065 --> 00:32:21.525 we are going to use to consolidate the accounts.