[MUSIC] Hello and welcome back to the operation and finance course here. The first thing we're going to do this week is do a brief recap of the previous week. Now afterwards as you saw in the first outline, what we are about to see this week is basically computing the operational ratios which is related to the days of collection days of payment days of inventory. Once we have the operational ratios we will move on to the forecast. First of profit and losses statement and then of the balance sheet. In the balance sheet, first we will look at the theory part, and then we will do the application for the Polypanel case. And then we will wrap up the session. So let me start first with a brief recap from last week so that you refresh a little bit your mind on what we did last week. So if you remember what we are doing here in this course is basically understand the basic financial tools to make decisions. Now it turns out that the best thing to look at this decisions is to make an example. And what we did is take a case that we call Polypanel, which is a very brief case, in which there is a guy that runs a company and is going to the bank to ask for a credit of half a million Euros. We actually went to the bank, and then the chief of the bank, the guy that was in charge, asked us to help him out. Decide whether to give the credit to this guy, because actually the guys in the bank didn't know exactly what to do. As you remember, they were saying, some of them were saying, look. Yes, I think we should give the credit to these people because they are profitable. But then, some of them were saying, no, I think they are not profitable enough. Another was saying, well, I don't know if they are going to be able to pay it back in the future. But then the others were saying, well, the costs are very well controlled. So then we should remember there was a little bit of dispute between the three of them as to whether we should give the credit to these guy or not. Now these we thought that he's a little bit all over the place, there are reasons for the yes, reasons for the no, but he's not clear whether we should give the credit or not. We said well what we are here for is to learn a methodology. So what we'll going to do is follow a methodology in which we can analyze these kind of problems. So the will of analyzing the problems was this stupid or quick question that I would ask my mom when I told her, look mom, I started a business. And then we said, well, what are the questions that she would ask me? Well the first question would be what are you selling son? And this is what the business analysis was about. A brief recap on the business analysis from Polypanel. What is this business about? So what do they sell? They sell panel for construction to end consumers and then to constructors. And those sales, as we said, they are not pretty cyclical because they are for repairs as well as for new construction, and the area is the vicinity of Munich, right? Now who are our clients? We said that we have a very diversified pool of clients, 2,000 of them, and we said this is good and bad. Good because it diversified. If we lose one, no big deal. But at the same time, it's probably not very good in the sense of management because managing 2,000 people ordering stuff from us all over the place, it might be difficult, right? And then we have one big supplier which is the one that is giving us all. Again, good things and bad things, all the eggs in the same basket. But at the same time we can get some discounts, right? Now what was the strategy of Polypanel? If you remember there was three important points why clients buy from this company. First it was low prices, we get better prices than the competition. Second if you remember, it was that it was good and quick service. And third one was that we actually have a pretty wide range of references compared to the competition we have 200 against 10 of competition, so pretty well placed in this industry. And then lastly we thought in the business analysis that the last part would be host behind, a host management. As we said, this is important in every company, but even more important in a company like this. Precisely because it is very small, and is a one man show basically, so we are not as you member, we are not considering given the credit to a company, but actually, giving the credit to Mr. Lichstein. To a guy, right? And we thought look, this guy is 41 years old, has experience in the industry, is trustworthy. We asked the suppliers and the bank and they say, well, we like this guy, he's hard working and he's committed. Now, we did this thing of the business analysis because by doing this we would expect some stuff from the numbers. It was not a good idea to jump into the numbers. And then some of the things we expected looking at the business analysis was that first it's a distribution company. Which means that margins are going to be low. And then because it's distributing which is buying and selling the stuff it's intense in inventory right. So those are Two of the things that we would expect from the numbers, right, low margins, intense in inventory, and pretty low fixed assets, no machinery, right. [MUSIC]
