Live2 #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: Economic
Profitability
Operating profit x ( 1 – tax rate)
Capital employed
ROE: Financial
Profitability
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
NWC
602
Equity
2 514
Net
Financial
debt
(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%)
=1 419
85%
=
1 232
=
2 514
49%
ROCE
ROE

Fixed
assets
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
items
2 226
Exceptional items 74
Income taxes 712
Net profit 1 440
=
2 235 x (1 – 33.1%)
=
3 983
37.5%
=
1 440
=
5 489
26.2%
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
items
2701
Exceptional items -
Income taxes 804
Net profit 1897
=
2 761 x (1 – 29.8%)
=9 746
19.1%
=
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
85.1 %
-36.1 %
49.0 %
15.0 %
2.5
37.5 %
-11.3 %
26.2 %
10.9 %
1.8
19.9 %
7.4 %
27.3 %
(1) Operating income x (1 – tax rate)  Sales
(2) Sales  Capital employed

Forums Review

QUESTIONS

CONCLUSION

Live2 #4 financial analysis mooc

Recommended

Recommended

More Related Content

Similar to Live2 #4 financial analysis mooc

Similar to Live2 #4 financial analysis mooc (20)

More from FIRST FINANCE INSTITUTE

More from FIRST FINANCE INSTITUTE (13)

Live2 #4 financial analysis mooc