[MUSIC] The fifth thing we can look at is operational expenses. If you see the structure of the P&L in most companies is the same. First we have sales, then we have COGS. Then operational expenses that are normally fixed costs. And then afterwards some financial expenses and the profit. Now in this specific company, what are the operational expenses? Well, operational expenses in a company that is distribution is basically the costs of light, of salaries of the people, and overheads, right? So those operational expenses, again, as absolute number tells us not much. But when we look at them as a percentage of sales, we can see that they went from 29 and then to 24, to 20 and 19. I asked you, does it make sense to half at the beginning, higher operational expenses over sales? And then lowering down to 19 or not? If you think for a second you would say it does make sense, right. Because I started with the same employees with one truck and at the beginning I sold less than a million and then with the same employees and the same track and the same warehouse. I am able to sell now, in 2007, three million. So with the same stuff I'm able to sell more. It means as a percentage of sales the Opex are lower, right. But as you see, the first year we were able to lower the Opex from 29 to 24, which is five points. Then from 24 to 20, which is four points. And then from 20 to 19, which is one point. What is your guess about next year? Do you think we're going to be able to lower it to 18 or 17? My guess is no, because you've already reached some thing that we call the ECONOMIES OF SCALE. Which is with this fixed costs, with this track, with these people working for us we're able to maximize efficiency in the company. So it seems like we've reached this efficiency. Right. In this part, OPEX, we have the number goes down and is stable and it should be decreasing once sales go up. Now, the next thing and we're getting to the end of this part, is EBITDA. Now many companies, actually, ask the managers for EBITDA, because managers are responsible for what happens above the EBITDA. How to manage yourself, how to manage the costs, and how to manage the OPEX? But below the EBITDA you have depreciation which sometimes does not depend on the manager, and you have financial expenses, that many times do not depend on the manager of that division, right. And EBITDA, in this case, is -6%, 0, 4 and 4, which is tells you more or less how efficient you are. Takes into account both the gross margin and the OPEX together, right? Now let's talk briefly about financial expenses, financial results. So this part, In the P&L, tells you the interest that you are paying the bank for the debt that you have. Imagine that you ask the bank for 100 Euros and you have to pay an interest. That interest that you have to pay as in the previous course told you, goes into the P&L as a financial expense. Now, how do we know if this financial expense is high or low? Well I tell you normally the ratio that banks use is EBIT over financial expenses, which is how much earnings before interest and taxes have you produced compared to the financial expenses that you have? And they normally asked to have at least to 2.5 EBIT for each financial expense. And as you see 88 over 30 is around three. So it's about what the bank normally ask for. Now let's go into the last two parts which is the income. Let's look at the income, Net Income. As we saw at the beginning where we started analyzing the P&L, we saw that the first two years we have negative Net Income and the following two years we have positive Net Income. Now, Net income as such doesn't tell us much. We know that there's, okay there's 44,000 euros of Net Income but we don't know where his coming from. So it's good to compare it with sales again. That's what we look at, return on sales. The return on sales goes from minus seven percent up to 1.5. Now, you see that it is pretty low, right? It is pretty low, but it's positive. It makes sense that is low because distribution companies normally tend to have very low return on sales. Because as we said at the beginning in the business analyses, the value added is very small. But it's also interesting to look at the Net Income not just as a percentage of sales, but to look at the net income of the whole amount. See that 44,000 is the profit. With map idea you understood that CASH FLOW is, in a very general and simple formula, is profit plus depreciation because depreciation you don't lose money from depreciation. Okay, so, 44,000 plus depreciation which is 31, you get 75,000. Now this gives you roughly an idea of how long it will take you to give back that credit of half hundred thousand that you're asking the bank. If each year, you're making 44,000 plus depreciation 75,000, it might take you eight, seven to eight years to pay back that loan. So, it's good to look at the Net Income compare to the debt that you were asking for. [MUSIC]