2. Application exercise, vertical modules
Module 2 : The PNL
The objective is to analyze the Facebook income statement (P&L) for 2017 and 2018.
Start by building the P&L.
For that purpose, I give you the figures out of order and you build the P&L following the two different methods: differentiating the operating expenses by destination or by their cash impact.
In the first case, you identify the gross margin, SG&A (administrative expenses and sales and marketing expenses) and R&D; in the second case, you identify the EBITDA.
Please note: Facebook does not pay any financial fees, because the company is not in debt, on the contrary, it generates financial income by investing its cash. You will calculate the EBITDA from the EBIT and deduct the cash operating expenses from it.
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Question 1 of 7
1. Question
Calculate the gross margin in 2017 and 2018
CorrectIncorrectHint
Gross margin is calculated deducting cost of sales from sales and demonstrates the ability of the firm to generate a ‘manufacturing’ profit.
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Question 2 of 7
2. Question
Calculate the EBIT (or operating income) from the gross margin and indirect expenses.
CorrectIncorrectHint
Indirect expenses consist in SG&A (administrative, marketing and sales expenses) and R&D (even though R&D is more an investment than an expense…)
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Question 3 of 7
3. Question
Deduct EBITDA from the calculation of EBIT (see question 2) in 2017 and 2018.
CorrectIncorrectHint
EBITDA represents the ‘cash’ operating profit generated by the firm ; if you have no data on cash operating expenses, you calculate EBITDA from EBIT and Depreciation & Amortization
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Question 4 of 7
4. Question
Calculate the profit before tax (EBT)
CorrectIncorrectHint
EBIT means ‘before interest’; then, once you calculated the operating income (EBIT), the only remaining expenses are interests and taxes.
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Question 5 of 7
5. Question
Calculate the net earnings
CorrectIncorrectHint
The famous ‘bottom line’!
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Question 6 of 7
6. Question
Calculated the sales growth rate using the ‘xx.x%’ format
CorrectIncorrect -
Question 7 of 7
7. Question
Here are a few ratios which describe the evolution of Facebook from 2017 to 2018:
Which sentence best describes the evolution of Facebook between 2017 and 2018?
- Facebook growth gets to maturity, which penalizes its profitability
- The company is fast growing, but an increasing customer acquisition costs penalizes the operating income
- The company reduced its R&D expenses, anticipating a lower performance
- In order to compensate a drop in the gross margin, Facebook reduced its indirect expenses
- Facebook is on the verge of bankruptcy 🙂🙂🙂!
CorrectIncorrect