Live #4 financial analysis mooc

LIVE SESSION #4 WEDNESDAY MARCH 19TH 2014

FINANCIAL ANALYSIS MOOC WITH MARC BERTONECHE

INTRODUCTION



Attestation of Success to the MOOC Already more than 400 registrants Boston Medical Instruments

business case Synthesis to be performed Correction by peers $30 for students, $70 for

professionals

An average grade of 60% is required to obtain the Attestation of success. The weight is the following: 50% for the Week 1 to 4,

50% for the Week 5 (1 synthesis and 1 quiz)



Boston Medical Instruments (BMI) developed, manufactured and sold scientific medical instruments, needles and catheters which allowed rapid and less invasive access to a number of different organs and vessels.

BMI experienced extraordinary growth, fueled by heavy spending on research and development, necessary to maintain BMI’s competitive advantage and rapid expansion of its sales force.

BMI has reached the maximum level of debt ( Short term debt) which the banker is ready to provide. What should the company do now?

Week 5 - Boston Medical Instruments



What’s a Profitability Ratio?

« A profitability ratio is always computed with some profit over some capital used »

Net profit

Equity

Example :

Operating profit

sales

What is NOT a profitability ratio :



Return On Capital Employed (ROCE)and Return on Equity (ROE)

Economic profitability is the real business profitability. Financial profitability can be manipulated

ROCE: EconomicProfitability

Operating profit x ( 1 – tax rate)

Capital employed

ROE: FinancialProfitability

Net profit

Equity



The Leverage Effect

Leverage effect explains the breakdown of equity profitability: The profitability from business operations and the financial

profitability coming from debt

Financial leverage itself doesn’t create any value

Formula :

Leverage effect

ROE = ROCE + [ ( ROCE - i) x D/E ]



Fixed Assets

816

NWC602

Equity

2 514Net

Financialdebt

(1 095)

Tax rate : 35.5%

Capital employed = 1 419

Compte de résultat

Income Statement- 1996 In thousands of Euros

EBIT 1 873 Financial income 1 Financial expense 39

Income before exceptional items

1 911

Exceptional items - Income taxes 679 Net profit 1 232

=1 873 x (1 - 35.5%)

=1 41985%

=1 232

=2 51449%

ROCE

ROE



Fixedassets

1 738

NWC

2 244

Equity

5 489

NFD

(1 506)


Compte de résultat

Income Statement - 1997 In thousands of Euros

EBIT 2 235 Financial income 24 Financial expense 33


2 226

Exceptional items 74 Income taxes 712Net profit 1 440

=2 235 x (1 – 33.1%)

=3 98337.5%

=1 440

=5 48926.2%

Tax rate : 33.1%

ROCE

ROE



Fixed assets

2 408

NWC

7 338

Equity

6 939

NFD

2 807


Compte de résultat

Income Statement - 1998 In thousands of Euros

EBIT 2761 Financial income 87 Financial expense 27


2701

Exceptional items - Income taxes 804 Net profit 1897

=2 761 x (1 – 29.8%)

=9 74619.1%

=1 897

=6 939 27.3%

Tax rate : 29.8%

ROCE

ROE



1996 1997 1998

Operating margin after tax (1)X

Turnover (2)=

ROCE+

Leverage effect=

ROE

16.0 %

5.3

85.0 %

-36.0 %

49.0 %

15.0 %

2.5

37.5 %

-11.3 %

26.2 %

11.0 %

1.8

19.9 %

7.4 %

27.3 %

(1) Operating income x (1 – tax rate) Sales(2) Sales Capital employed



Forums Review



QUESTIONS



CONCLUSION

Live #4 financial analysis mooc

Documents

Transcript of Live #4 financial analysis mooc