
Is doable a situation with a negative cash flow? never, because we are insolvent and have no liquidity for
the day to day operations

Which are two methods to improve our negative cash/liquidity? this I'm not really sure but I would say
asking for financing or trying to bargain harder with suppliers to have lower costs, or even better work on
days payables and receivables, so we are paid sooner and pay later

interest expenses le calcoli sul debito o sull’equity? Interest expenses are the part of financial cash flow
Interest expense is a non-operating expense shown on the income statement. It represents interest payable
on any borrowings – bonds, loans, convertible debt or lines of credit. It is essentially calculated as
the interest rate times the outstanding principal amount of the debt.
Equity = shareholders equity + reserves

perché nel IC abbiamo assets-non financial liabilities(i.e. trade payables)? Subtracting liabilities from
assets shows the net worth of the business. Net of the present time

when a business plan is sustainable/feasible (thresholds for cash flow statement and income statement)

how Ke and Kd change and affect EVA. Ke is the cost of equity. Kd is the cost of debt. They are the main
components of WACC that weighes the invested capital with the terms of risks

how the occupancy rate of pizza Italia affects the sensibility analysis (lol) the best scenario was when
occupancy was 70% and income statement and cash flow were positive. With 60 % income statement was
positive and cash flow negative but acceptable. The worst scenario with 50% occupancy when income
statement and cash flow were significantly negative.

Variable costs affect more a low or high operating leverage company?
HIGH LEVERAGE DEGREE → High sensitivity of EBIT as production and sales vary → FOCUS ON
VOLUMES. Fixed cost are spread on the volume of production
LOW LEVERAGE DEGREE → Low sensitivity of EBIT as production and sales vary → FOCUS ON
MARGINS
 High operating leverage businesses have higher sensitivity of EBIT to changes in sales.
 This is due to a more rigid cost structure, with higher proportion of fixed costs and lower proportion of
variable costs.
 Hence, operating leverage degree is a measure of Operating Risk (EBIT volatility), meaning a higher
income-generating capacity in sales increasing situations, but also higher income reductions when sales
decrease.
 These conclusions are true if:

there are no changes in cost structure and business efficiency (i.e. no changes in fixed costs
amount and variable costs percentage on sales);


there are no changes in production capacity (not to have steps in the fixed costs).
DPO e DSO
Days payables outstanding (DPO): accounts payables / COGS * 365 Days payable outstanding is an
efficiency ratio that measures the average number of days a company takes to pay its suppliers.
Days sales outstanding (DSO): accounts receivables / sales * 365 Days sales outstanding (DSO) is the
average number of days that receivables remain outstanding before they are collected. It is used to
determine the effectiveness of a company's credit and collection efforts in allowing credit to customers, as
well as its ability to collect from them.

What does it mean if DSO increases? Could be due to an overestimation?
Typically, days sales outstanding is calculated monthly. Generally speaking, higher DSO ratio can indicate
a customer base with credit problems and/or a company that is deficient in its collections activity. A low
ratio may indicate the firm's credit policy is too rigorous, which may be hampering sales.

Is a ROE of 7% good?
If company is very risky its good. If company is very risky it is not
Whether ROE is deemed good or bad will depend on what is normal among a stock’s peers. For example,
utilities have many assets and debt on the balance sheet compared to a relatively small amount of net
income. A normal ROE in the utility sector could be 10% or less. A technology or retail firm with smaller
balance sheet accounts relative to net income may have normal ROE levels of 18% or more.
A good rule of thumb is to target an ROE that is equal to or just above the average for the peer group. For
example, assume a company, TechCo, has maintained a steady ROE of 18% over the last few years
compared to the average of its peers, which was 15%. An investor could conclude that TechCo’s
management is above average at using the company’s assets to create profits. Relatively high or low ROE
ratios will vary significantly from one industry group or sector to another. When used to evaluate one
company to another similar company, the comparison will be more meaningful. A common shortcut for
investors is to consider a return on equity near the long-term average of the S&P 500 (14%) as an
acceptable ratio and anything less than 10% as poor.

does ROE take risk into account
To establish if net profits are satisfactory or not, it is necessary to evaluate the risks of the business and the
return on risk-free assets.
Fair ROE is the opportunity cost of equity capital for shareholders.
Below a Fair ROE, the company is underperforming. It does not create value for shareholders nor attract
equity capital financing.
Above a Fair ROE, the company is creating value for shareholders, giving them a return they couldn’t find
elsewhere.

negative EVA and positive profit EVA is negative In this position means there no additional economic
value added or the company can’t meet shareholders and creditors (investors) expectation.
if EVA is negative it means we are destroying the resources invested in the company, I think it happens
because the cost of capital is too high and is not remunerative

revenue forecasting

How does the variable costs change looking at unit. In TOTAL, varies directly and proportionately with
volume of activity. Variable cost PER UNIT of activity remains constant.

What are transfer prices and tell at least one of the disadvantages to have variable costs as internal transfer
price
A transfer price is an internally-set transaction price to account for the transfer of goods or services
between divisions of the same firm. Transfer prices are used to coordinate the work flow of independent
organization units that are each held accountable for the financial performance.
Variable cost typically include materials, labor, and other direct costs of production. Administrativr
overheads incurred in the producing division as part of doing business are not included in the transfer price.
Advantages:
-
Simple
-
Allows pure marginal-cost decision analysis
Disadvantages:
-
Arbitrarily shifts profits from selling divisions to purchasing divisions
-
Provides no incentives for the upstream division to manage overheads efficiently or for the
downstream division to look elsewhere for sources of supply because of high costs at the upstream
division
-
Marginal cost may vary over a range of output levels due to economies of larger-scale production
-
May limit profit of firm when selling division is at full capacity and is forced to sell its output to
its downstream sister division
-
Takes no account of capacity issues relating to long-term investment in productive resources
necessary to fund production
-
The upstream division may refuse to sell to downstream division in favor of sales to outside
parties at prices that include overhead and margin for profit
-
May cause purchasing division to underprice products that are ultimately sold final customer
markets

product mix
Product mix describes the percentage of total sales that is generated by each product in a business’s product
line.

what is the product mix variance and what is its impact on a business( product mix increase/ decrease effect
and its interpretation)
To isolate the effect of product mix variances on profit, we must work with standard contribution margins.
Contribution margin is defined as selling price minus variable costs.

what is a full cost and then once given the definition speaks about the overheads with some examples. THE
FULL COST OF A COST OBJECT IS THE SUM OF ITS DIRECT COSTS PLUS A FAIR SHARE OF
APPLICABLE INDIRECT COSTS. Includes: Direct production costs; Indirect production costs; Selling
cost; General and administrative cost.

Which is bigger between EBTDA and EBIT. EBITDA takes in the account Depreciation and
Amortizatiaon, that are not cash flow. EBITDA – potential Cash Flow. EBIT includes interests and taxes,
which are cash flows, but they are not operating. EBITDA is a rough measure that ignores any changes in
working capital needed to operate the business

if i have an EBITDA of 100 and a operating cash flow of 80 what does it mean. If EBITDA is 100 and
Operating Cash Flow is 80 so Net Operating Working Capital is 20. EBITDA is higher than operating Cash
Flow, NOWC increases during the year for minus 20. So changes in inventory, trade receivables, trade
payables and others liabilities is minus 20

why I use tax rate and not tax in the income statement for the NOPAT because we would double-counting.
In WACC we already counted (1-t). In income statement taxes are counted according to interest expenses

what is sensitivity analysis, an example. Taking one variable and make assumption with different scenarios
(worst, normal, best). The objective of a sensitivity analysis is to estimate how profit might change when
underlying assumptions about the competitive environment or other predictions embedded in the base
profit plan prove to be under- or overstated. Managers often develop three different scenarios: worst-case
scenario, most likely scenario, and best-case scenario. Sales, operating expenditures, and capital acquisition
plans are estimated for each scenario. For example, utility companies usually project at least three
scenarios. The most likely scenario is an average winter based on typical temperatures for the region. The
other two scenarios are based on the effects of an unusually mild winter and an unusually cold winter. For
each scenario, utility companies build a profit plan, test its viability, and prepare actions base on predicted
outcomes of that scenario.

occupancy rate will have a higher effect when there is a higher or lower operating leverage

WACC: debt or equity which is usually higher? why? which is more risky? Equity, because with high debt
you company is more risky. More risk – higher fair ROE. A question of Financial Leverage Ratio

what does NOWC include? Net Operating Working Capital includes Inventory plus Client (trade)
receivable minus Supplier (trade) payable

Difference between leading and lagging? Which instrument uses these kind of targets? Question of cause
and effect. Leading indicator is non-financial and lagging is financial. Leading comes first, it’s a cause –
i.e. customer satisfaction.

4 perspectives of balance scorecard. Measure a set of value drivers: combination-of-measures systems.
BSC includes 1. financial measures that tell the results of actions already taken, and complements the
financial measures with operational measures on 2. customer satisfaction, 3. internal processes, and the
firm’s 4. innovation and improvement activities
1. Financial perspective
2. Customer perspective
3. Internal perspective
4. Learning and growth Perspective