[MUSIC] Second part we saw last week was the second question is the business working son? Like is it actually working? Is economically viable or not? Are you making money or not? And then what we did is like, look at the PNO, and see well, there are many lines here, which one should we look at first. And then some of you might think well, we look at the bottom line first, because it's the profit. And we see that the last two years we got positive profit, and then others said, well papers the important thing is how much we sell, right? What we did, if you remember, is to have an analysis. A methodological analysis in which we look at the concept, number and opinion. Now the concept in this case the most important one would be sales, and we thought look this company has been selling about 3 million euros which is a pretty small company. And it's been growing over the last 40 years, at the beginning a lot of growth and later slower growth. Then well gross margin it's pretty good and stable, it's 23%. The ideal [INAUDIBLE] would be to compare it with the competition but we don't know what is the margin with the competition. But if you remember what we concluded is that a 23% margin, stable, is pretty good. Because we've been able to achieve that without sacrificing margin. Then OPEX started from 29% of sales and then went down to 19% of sales. We thought that, because he was like with this path we're reaching the efficiency in the sense that we would not expect to get lower than 19%. Then we actually looked at two different measures. Here one is EBITDA over sales, which is something that managers sometimes look at, because this would take a kind of control in their P&Ls. In other words, after the EBITDA, you have interest expenses and depreciation which is many times those of that managers do not control off their own area or division. Now we talked about financial expenses. Many many banks look at this. To decide whether to give a credit or not, many of them look at this ratio of EBIT over financial expenses, which this case is about 3. And they ask in general to be at least 2.5, so we're good in that sense. And then, we looked at the ROS, the return on sales is how much income per sale you have. At the beginning, it was -7%, we were not profitable. And the last two years, we've been good, right, 1 and 1.5%. Now we concluded, look, this company is pretty profitable. But it's not a money machine like it's been making money but it's not like really big. Now the last thing we did last week was to look at analysis of the balance sheets. Analyzing the balance sheets is you have it here again many lines assets side liabilities side. We suggest you a methodology which is very simple, which is divide the analogies in three steps. The step would be like look at the big numbers. When you look at the balance sheet. It instead of looking at all the numbers, just group them into big numbers and try to understand. For example, in this case we thought let's look at current assets versus non-current assets, and we thought that it made sense. Most of it is current assets, and almost less than 10% in fixed assets, precisely because it's a distribution company. And so what we concluded is that. There is a box of receivables, invoices that are not paid, and a box full of inventory. And that, that kind of answers has been financed with equity 15%, long term debt 12% and current liabilities the other 73%. So a little bit all over the place right. And then the second step we mentioned was, let's look at the evolution of the numbers of the balance sheet of over the years. Now the evolution what we see here is that, we almost from the 2007 to 2004, we almost more than doubled right, almost tripled right? And we said, well We have increased our assets and our liabilities by 742,000 euros. Now why did we increase that so much? Well mainly because of receivables and inventory. And then we actually financed that through payables, through credit, and long term debt, right? And then we finished last week with this question, right? We have their promissory notes that's, our supplies are getting a little angry. That's what they're asking these promissory notes we have if you remember we'd have a strong legal implications right. And we have these promissory notes because the payments to the suppliers have been increasing. And the reason behind that is what we are here to discuss today which is why did we increase receivables from 04 to 188 to 07 to 649. And then we conclude, there's only two reasons why we increase receivables or inventory for the same One is that sales have increased. If I increase my sales I'm going to have more invoices and pay. And the second reason is I might be collecting worse, right? By looking at that number sand said it's not enough. We don't know each of the two reasons it's in place. So we have to do this compute your operational ratios. And this is what we are going to do exactly in the next clip. [MUSIC]
