www.CoachingAssembly.com
For additional materials to on www.CoachingAssembly.com
Main Operating Model Mechanics Click to edit Master title style
CoachingAssembly. All rights reserved.
Any unauthorised copying, duplication, reproduction, reselling, distribution or other commercial use will constitute an infringement of copyright
Main Operating Model Mechanics
For additional materials go on www.CoachingAssembly.com
Structure of the 3 financial statements Balance Sheet
P&L
Current assets Cash, Accounts Receivables
Sales Cost of goods sold (COGS) excl. D&A
Long term assets PP&E, Intangibles
Short term liabilities Short term debt, Accounts Payables Long term liabilities Long term debt
Cash flow from Operations Performance of the period, Variation in working capital etc…
Gross profit/ margin
Operating costs/ SG&A excl. D&A Personnel, marketing, others
Cash flow from investing activities Capital expenditure, Addition of intangible, Acquisitions etc…
EBITDA Depreciation and amortization (D&A) Operating profit/ EBIT
Equity
Cash Flow Statement
Cash flow from financing activities Dividends paid, Interests paid, Principal on debt paid, debt raised, equity raised etc…
Net interest expenses/ income Tax Net Income
CoachingAssembly. All rights reserved. Any unauthorised copying, duplication, reproduction, re-selling, distribution or other commercial use will constitute an infringement of copyright
3
Key relationships It is absolutely vital to understand these relationships before any analysis and modelling exercise Opening balance sheet
P&L / Income Statement
Cash flow statement
Closing balance sheet
Current + long term assets
Revenue
EBIT
Current + long term assets
+ Cash
- COGS
+ D&A
+ Cash
+ Inventory
= Gross profit
+ other non-cash charges
+ Inventory
+ Accounts receivable
- Costs of personnel
- Increase in inventories
+ Accounts receivable
+ PP&E
- Marketing expenses
- Increase in receivable
+ PP&E
+ Intangible assets
- Other SG&A (excl. D&A)
+ Increase in payable
+ Intangible assets
+ Others
= EBITDA
= Operating cash flow
+ Others
= Total Assets
- D&A
- Net interest paid
= Total Assets
= EBIT
- Tax paid
Liabilities
- Non-recurring items
= Net operating cash flow
Liabilities
+ Accounts payable
- Net interest expenses
- Capital expenditure
+ Accounts payable
+ Short term debt
= Profit before taxes
- Dividends
+ Short term debt
+ Long term debt
- Taxes
+/- change in equity
+ Long term debt
+ Others
= Net Income
+/- change in debt
+ Others
= Total liabilities
- Dividends
= Movement in cash
= Total liabilities
Equity = assets - liabilities
= Retained earnings
CoachingAssembly. All rights reserved. Any unauthorised copying, duplication, reproduction, re-selling, distribution or other commercial use will constitute an infringement of copyright
Equity = assets - liabilities
4
Topline - drivers Macro-economic environment
Sector
Volume
Geography
Price
Sales
COGS as % of sales
Gross profit
CoachingAssembly. All rights reserved. Any unauthorised copying, duplication, reproduction, re-selling, distribution or other commercial use will constitute an infringement of copyright
5
Costs - drivers Macro environment (inflation)
Company stage
Fixed costs
Sales
Variable costs as % of sales
Evolution of fixed costs
Cost base
EBITDA
CoachingAssembly. All rights reserved. Any unauthorised copying, duplication, reproduction, re-selling, distribution or other commercial use will constitute an infringement of copyright
6
Main cash flow items - drivers
Working capital
Capital expenditure
Inventories
Accounts Receivable
Account Payable
Others
Driven by sales, in # of days of sales
Driven by sales, in # of days of sales
Driven by cost base, in # of days of cost base
How much inventories does the company need to cover its sales?
How long do clients take to pay the company?
How long does the company take to pay its suppliers?
Include other current assets and liabilities – driven as a % of sales
Maintenance
Growth
Capital expenditure in order to maintain assets base and current activities – driven in % of sales
Capital expenditure in order grow the company and its assets base and expand activities – driven in % of sales
Sales implicitly integrate the company run rate
Sales is a good growth proxy
Principal
Interests
Debt repayments according to debt contract
Cash and non-cash interests calculated on remaining debt principal
Debt repayment
CoachingAssembly. All rights reserved. Any unauthorised copying, duplication, reproduction, re-selling, distribution or other commercial use will constitute an infringement of copyright
Non-cash items should not be included in cash flow!
7
Depreciation & PP&E - drivers
- Depreciation
+ Capital expenditure
Opening
Closing PP&E
PP&E
Look at depreciation period of PP&E in financial reports (annex) If data is not available, depending on type of assets, assume Depreciation of existing PP&E Depreciation + Depreciation of new PP&E (capital expenditure)
depreciation period and linear depreciation (i.e. same amount each year) PP&E of $100m, depreciated over 10 years, depreciation of $10m per year
Assume same depreciation period for capital expenditure If capex of $10m in year 0 and depreciation period of 10 years,
there will be $1m depreciation per year, related to this capex over the next 10 years Do the same for each year
CoachingAssembly. All rights reserved. Any unauthorised copying, duplication, reproduction, re-selling, distribution or other commercial use will constitute an infringement of copyright
8