FINANCE FOR NON FINANCE

Agenda

1. FINANCIAL STATEMENTS
2. KEY PERFORMANCE INDICATORS (KPI)
3. PROFITABILITY ANALYSIS ("PA")
4. BUSINESS INFORMATION SYSTEM ("BIS")

Financial Statements: Elements

 Profit I Loss Account (P&L) =Income Statement
 Balance Sheet (BS)
 Cash Flow Statement (CFS)

Preparation and content depends on local law (at registered office of the Company) and/or on
the needs of its shareholders or parent Company (primarily if stock exchange listed) and on
the Accounting Principles or Rules according to which the Financial Statements are prepared
The Company prepares in a first step local statements and adjusts these ones according to
IFRS rules
Reporting is done only by means of IFRS statements
Local statements are however the basis for tax reports/payments
Financial Statements Income Statement

Volume in tons external 14.611

Gross Sales external 50.926
Gross COGS -44.994
Product Margin 6.286
Exchange gains/losses - operational -756
Margin 2 5.529
Supplier bonuses, cash discounts and claims 2.031
Margin 3 7.560
Bonuses, cash discounts and claims external -131
Selling costs -736
Gross margin 6.693
Gross margin in % of gross sales ext; 13,1%
Personnel costs
-2.592
Operating costs -2.034

Administration costs -2.203

Marketing costs -175
Distribution costs -1.317

Bad debt write off trade -2.807

IC Management & Logo Fees -432
Depreciation & Amortisation -833
 Operating profit (EBIT) -5.489
EBIT in % of gross sales -10,7%
Interest income 97
Interest expense -1.300
Exchange gains/losses - financial -1.979
Profit before tax -8.671
Tax on profit 818
Profit for the period -7.853

P&L is a structured detail of all revenues and expenses of a Company within a certain period
and finally resulting in the „profit for the period" (summary). Gives details about how the
Company has made its profit (or loss) during a period using all incomes and costs occurred for
this period

Financial Statements: What is a Balance Sheet?

 A Balance sheet shows all (bought) assets and liabilities of a company
 Comprises of Asset side and Debtor side
 Asset Side: shows what I have done with my available funds (equity + liability)
 Liability side: shows how I have financed my assets
Financial Statements: Balance Sheet I
ASSETS

Is >something you own (e.g. money, land, buildings, goods, machines, ... ) or

>something that is owed to you(often it is money e.g. receivables from customers or from public authorities)

LIABILITIES Is > anything you owe to someone else, or

> something you expect to have to hand over in due course (i.e. normally money)

EQUITY = SHAREHOLDERS' FUNDS = net worth = Assets – Liabilities (i.e. money the shareholder put into his

Company and profit retained within the Company)

 Financial Statements:
Balance Sheet II
Assets LIABILIATIES Actual

2.454 Issued share Capital 9.666

Tangible assets
2.30 Reserves -9.299
Deferred tax asset
Shareholders' equity 367
Non Current Assets
2
4.756 Long term borrowings 0
Inventories
4.671 Non Current Liabilities 0
Trade receivables
Trade payables 7.164
20.730
Bad debt provision
Other payables 977
-5.991
trade Short term borrowings 19.094
812
Other receivables Current liabilities 27.247
21 Total liabilisties 27.615
Current tax receivables
9
Cash & Loans given
2.417
Current Assets
22.858
Total Assets 27.815
KPI's

• Product Margin & product margin in %

• Gross Margin & gross margin in %
• Article Margin & article margin in % *) ProfitabiIity
• Customer Margin & customer margin in %
• Operating Profit (EBIT) & EBIT in 0/0

• Days Outstanding Receivables (DOR)

• Days Outstanding Payables (DOP) Working Capital
• Stock Rotation (SR) Management
• Working Capital &Working Capital in %

• Net Debts Value Creation

• Return on Capital Employed (ROCE)
Product Margin in %
Volume in tons external 14.611
Gross Sales external 50.926
Gross COGS -44.994
Product Margin 6.286
Exchange gains/losses - operational -756
Margin 2 5.529
Supplier bonuses, cash discounts and claims 2.031
Margin 3 7.560
Bonuses, cash discounts and claims external -131
Selling costs -736
Gross margin 6.693
Gross margin in % of gross sales ext; 13,1%
Personnel costs -2.592

Operating costs -2.034

Administration costs -2.203
Marketing costs -175
Distribution costs -1.317
Bad debt write off trade -2.807
IC Management & Logo Fees
-432
Depreciation & Amortisation -833
Operating profit (EBIT) -5.489
EBIT in % of gross sales -10,7%
Interest income 97

Interest expense -1.300

Exchange gains/losses - -1.979

financial Profit before tax -8.671
Tax on profit 818
Profit for the period -7.853
Calculation: sales prices, sales mix, level of
material cost, ...)
Product Margin: 6.286 ■ 12,3% of the generated gross sales
= 12,3% are left to cover the remaining (fixed)
Gross Sales: 50.926 costs, financial expenses and taxes
■ Is very misleading, since
customer and supplier specific
Meaning: boni, sconti and other discounts
are not considered !!!
■ Determines the quality of the business (good/bad
■ The higher the better
Gross Margin in %

Volume in tons external 14.611 Calculation:

Gross Sales external 50.926
Gross COGS -44.994 Gross Margin: 6.693 =13.1%
Gros Sales: 50.926
Product Margin 6.286
Meaning:
Exchange gains/losses - operational -756 - Determines the quality of the business from sales point of view (granting
Margin 2 5.529 of boni and rebates to customers,additional income from suppliers…)
Supplier bonuses, cash discounts and claims 2.031 - 13.1% of the generated gross sales are left to cover the remaining (fixed)
costs, financial expenses and taxes
Margin 3 7.560 - Is already a much better indicator than product margin
Bonuses, cash discounts and claims external -131 -The higher the better
Selling costs -736
Gross margin 6.693
Gross margin in % of gross sales ext; 13,1%
Personnel costs
-2.592
Operating costs -2.034
Administration costs -2.203
Marketing costs -175
Distribution costs -1.317
Bad debt write off trade IC -2.807
Management & Logo Fees 432
Depreciation & Amortisation -833
Operating profit (E6IT) -5.489
EBIT in % of gross sales -10,7%
Interest income 97
Interest expense -1.300
Exchange gains/losses - financial -1.979
Profit before tax -8.671
Tax on profit 818
Profit for the period -7.853
Operating Profit (EBIT) in %
Volume in tons external 14.611
Gross Sales external 50.926
Gross COGS -44.994

Product Margin 6.286

Exchange gains/losses - operational -756
Margin 2 5.529
Supplier bonuses, cash discounts and claims 2.031
Margin 3 7.560
Bonuses, cash discounts and claims external -131
Selling costs -736
Gross margin 6.693
Gross margin in % of gross sales ext; 13,1%
Personnel costs
-2.592
Operating costs -2.034
Administration costs -2.203
Marketing costs -175
Distribution costs -1.317

Bad debt write off trade -2.807

IC Management & Logo -432
Fees Depreciation & -833
Amortisation Operating -5.489
EBIT in % of gross sales -10,7%
Interest income 97
Interest expense -1.300

Exchange gains/losses -financial -1.979

Profit before tax -8.671
Tax on profit 818
Profit for the period -7.853
Calculation: EBIT: -5.489
―――――――――――――――― = -10,8%
Gross Sales: 50.926
EBIT = Earnings before Interest and Tax

Meaning:
■ EBIT is the commonly used figure to measure the profitability of a company
■ After deducting all operating costs there are still -10,8% of gross sales left to cover (potential)
financial costs and corporate taxes
■ The higher the better
Day Outstanding Receivables (DOR)

Total trade receivables 20.730

-Bad debt -5.991

Trade receivables net 14.740

*91,25(=365 days / 12 * 3 months) 1.344.991

/(Iast 3 month gross sales: 14.114) 95 days

Meaning:
 Measures the average number of days that a company takes to collect revenue after a sale
has been made
 Showing also the age, in terms of days, of the accounts receivable
 Provides general information about the number of days on average that customers take to
pay invoices
 Is compared to industry and company averages, as well as company selling terms
 In average, the customers are paying after 95 days
 The lower the better
 Day Outstanding Payables (DOP)

Trade payables 7.164

*91,25(=365 days / 12 * 3 months) 653.734
/(Iast 3 months cost of goods sold: 11.908) = 55 days
Meaning:
 Indicator of how long it takes to pay the trade creditors (=
paper suppliers)
 In average, we are paying our suppliers after 55 days
 The higher the better
 Stock Rotation (SR)

3-months Sales (from Stock) in Tons 3.498

*4 13.992
/ (average 3-months Stock in Tons: 1.271) 11

 Shows how long it takes until an article on stock is

sold
 In average an article is sold 11 times per year
 The other way round => the articles are on average 33
days in our warehouse (365 / 11 )
 The higher the better
Working Capital in %
 ASSETS
Calculation:
Tangible assets
Deferred tax asset Non Inventories
Current Assets
Inventories 4.671
Trade receivables + Trade receivables
Bad debt provision trade
Other receivables 20.730
Current tax receivables - Bad debt provision -
Cash & Loans given 5.991
Current Assets - Trade payables_____________
TOTAL ASSETS -7.164

LIABILITIES ACTUAL W 12.247

Issued share capital 9.666
or
Reserves -9.299
Shareholders' equity 367 kin
Long term borrowings 0
Non Current Liabilities 0 g
Trade payables 7.164
ca
Other payables 977
Short term borrowings 19.094 p
Current liabilities 27.247
Wo
TOTAL LIABILITIES 27.61
5
rkin

cap
 trade debtors (trade creditors deducted) and
12.247 cannot be used immediately but only after a
Gross 50.926
certain period of time.
Sales
Meaning: Target given by the shareholder is under

This company has to finance 12,2 m RON of working capital for its normal business 19%!

24 % of the money generated through gross sales in one year is bound in stocks and

= 24%
NET DEBTS

Calculation:
Tangible assets Deferred tax 2.454
asset 2.302
Non Current Assets 4.756
Inventories 4.671 Short term borrowings 19.094
Trade receivables 20.730
+ Long term borrowings 0
Bad debt provision trade Other -5.991
receivables 812 - Cash & Loans given__________________-2.417
Current tax receivables Cash & 219
Loans given Current Assets 2417 Net debt 16.677
TOTAL ASSETS 22.858

LIABILITIES ACTUAL Meaning:

Issued share capital 9.666
-9.299
—►Equity (Shareholders funds)
Reserves
Shareholders' equity 367 Internal—►Profit (Retained earnings)
Long term borrowings ■ Financing:
0
Non Current Liabilities
0
Trade payables 7.164
Other payables 977
Short term borrowings 19.094 —► Short term (< 12 month)
Current liabilities 27.247 External —►Long term (> 12 month)
 ROCE: a) Capital Employed

ASSETS ACTUAL
Tangible assets 2.454
Deferred tax asset 2.302
Non Current Assets 4.756
Inventories 4.671
Trade receivables 20.730

Bad debt provision trade -5.991

Other receivables 812
Current tax receivables 219
Cash & Loans given 2417
Current Assets 22.858

CALCULATION
SHAREHOLDER's FUNDS 367
Issued share capital
+NET DEBT 16.677
Shareholders'
Reserves equity
Long term borrowings CAPITAL EMPLOYED 17.044
MEANING:
Non Current Liabilities
Trade payables  Money used in the company for which interest or
Other payables dividends have to be paid
 This company has 17 m RON of capital invested
Short term borrowings
 0.3 m HUF come from the shareholders and
Current liabilities
internal financing

Liabiliti  16.7 m HUF COME FROM OUTSIDE SOURCES

ROCE: b) Average capital employed

Non Current Liabilities
Trade payables
Other payables Short
term borrowings
Current liabilities

TOTAL LIABILITIES
Actual:
Shareholder's funds 367
+ Net debt 16.677
= Capital employed 17.04
4

Prior year:
Shareholder's funds 480
+ Net debt 20.111
Capital employed 20.591

Average Capital Employed

(CE Actual + CE PY)/2
= 18.818
Return on capital employed (ROCE) %

-
 Volume in tons external 14.611 EBIT YTD
Gross Sales external 50.926
Gross COGS -44.994
= -29%
Product Margin 6.286
Exchange gains/losses - operational -756
Average capital employed 18.818
Margin 2 5.529
Supplier bonuses, cash discounts and claims
Margin 3
2.031
7.560
Meaning:
Bonuses, cash discounts and claims external -131
Selling costs -736
■ Shows the operating profit
Gross margin 6.693 (profit before interest expenses
Gross margin in % of gross sales ext; 13,1% and taxation) in relation to the
Personnel costs
-2.592 capital employed (internal and
Operating costs -2.034
external financing)
Administration costs -2.203
Marketing costs -175 ■ Represents the efficiency with
Distribution costs -1.317 which capital is being utilized to
Bad debt write off trade -2.807 generate revenue
IC Management & Logo Fees -432 ■ Shows how much profit
Depreciation & Amortisation -833 shareholders earn from the
Operating profit (EBIT) -5.489
investments in a company
EBIT in % of gross sales -10,7%

Interest income 97
■ Is used for assessing whether a
Interest expense -1.300 business generates enough
Exchange gains/losses - financial -1.979 returns to pay for its cost of
Profit before tax -8.671 capital
Tax on profit 818;
Profit for the period -7.853
■ ROCE must be above long-term
interest rates one can get at the
bank
■ The company achieved a yearly

Calculation: return on its capital employed of

-29% !!
PA Profitability Analysis I

" .... is a SAP tool to evaluate the profitability of our

a) Customers
b) Articles
c) Target groups"

PA is a management tool and not a financial tool/statement

PA calculates with calculatory cost and process costs and not only
with financial income/expenses and book-entry vouchers!
 Allocation of Business Processes by Cost Drivers
 Examples for Cost Drivers: BP_030 Order Processing Number of invoice positions BP
070 Distribution Weight of order I distance BP_110 Customer Manag. Customer Attention
minutes
PA PROFITABILITY Analysis II
PRODUCT GROUP REPORT► PRODUCT MARGIN►PROFITABILITY ANALYSIS

Article profitability (Article Margin II)

Customer profitability (Customer Margin)
Target group profitability (Target Group M.)

PA Data Sources I
PA consists of a table with hundreds of thousands lines, which is filled
from several sources as follows:

 SD (= Sales & Distribution) Invoice conditions ► PA

 FI (= financial accounting) Directly from FI to PA
 External Interface
Calculatory financing cost, Customer Attention Minutes
 CO (= Controlling)
FI ► Cost Centers (CO) ► Business Processes ► CO-PA
COPA „at length"
Net weight Distribution costs Adj. notional costs Prov.f.
Extra charged distri nonmov. Art. Bad debt Dividends
Gross sales Financing cost stock write-off Client's bonus Interest income
IC Gross Sales ARTICLE MARGIN II pag. Client's sconto pag. Interest Expense
Client's bonus Supplier's bonus pag Financial Exchange Non
Client's sconto Financing costs cust Supplier's sconto pa Rec Items Fin.
Other reductions Order processing Supplier's other pag Exceptional Items
Claims Customer management Subtotal: Adjustment
Subtotal: Net Sales Income from def. int EBT
CUSTOMER MARGIN Finance & Reporting HR
Customer Acquisition & Managment
Cost of goods sold Income and def. tax
Offering Over/Underabs. Proc.
IC COGS
Claims management Subtotal: Overhead
Suppliers bonus Net income
Marketing
Supplier's sconto
Warehouse management Other op. Income
Supplier's other
Purchase
Subtotal: Net COGS
Subtotal: offer.+cla Other Cost of Sales
ARTICLE MARGIN I TARGET GROUP MARGIN Operative exchange
Shutdown & Restr.

EBIT
 Values and Key Figures l/VIII
Net weight
Gross sales
IC Gross Sales Subtotal: Net Sales
Client's bonus
Client's sconto Subtotal: Net Sales
Other reductions = Gross Sales + IC Gross Sales - Client's bonus- Client's
Claims
sconto + Other reductions + Claims
Cost of goods sold Subtotal: Net COGS
IC COGS
= Cost of goods sold + IC COGS -
Supplier's bonus
Supplier's bonus - Supplier's sconto +
Supplier's sconto
Supplier's other Supplier's other
Subtotal: Net COGS
Article margin I
ARTICLE MARGIN I
= SUBTOTAL: NET SALES- SUBTOTAL: NET COGS
■
Values and Key Figures ll/VIII

Article margin II
= Article Margin I -Distribution costs+Extra charged
ARTICLE MARGIN I distribution – Financing cost stock
Distribution costs
Extra charged distribution
Financing cost stock
ARTICLE MARGIN II
Values and Key Figur
E- ' 'CO
esIII/VIII
COMPANY
C

TOTAL Coated Paper Woodfree Paper Cardboard

Euro %GS Euro % GS Euro %GS Euro %GS

Net Weight in tons 7.929 1.695 1.768 347

Gross Sales 6.561 ; 100,0% I 100,0% 1.432 100,0% 261 100,0%
Customer Bonus & Sconto 36l 0,6% 1.408 11 0,8% 9 0,6% 1 0,2%
Subtotal: Net Sales 6.525 99,4% 1.397 99,2% 1.424 99,4% 261 99,8%
COGS 5.706 87,0% 1.179 83,7% 1.269 88,6% 225 86,3%
Supplier Bonus & Sconto 267 4,1% 17 1,2% 83 5,8% 3 1,3%
Subtotal: Net COGS 5.439 82,9% 1.162 82,5% 1.185 82,8% 222 85,0%
Article margin I 1086 16.5% 235 16.7% 238 16.6% 39 14.8%

Distribution Cost 174 2,7% 37 2,7% 36 2,5% 9 3,3%

Financing Cost Stock 1101 1,7% 36 2,6% 22 1,6% 7 2,8
Article Margin II 802 12.2% 161 11.5% 180 12.6% 23 8.7%
SPECIAL PGI OTHERS
EURO OFFICE
%GS EURO
COMPANY PAPERS
(EURO) %GS %GS
Net Weight in tons 6| 652 3.460
Gross Sales 7 • 100% 534 100,0% 2.919 100,0%
Customer Bonus & Sconto 0 0,2% 2 0,3% 15 0,5%
Subtotal: Net Sales 7 99,8% 532 99,7% 2.904 99,5%
COGS 5 76,3% 459 86,0% 2.568 88,0%
Supplier Bonus & Sconto 0 0,3% 11 2,0% 153 5,2%
Subtotal: Net COGS 5 76,0% 449 84,0% 2.416 82,8%
15.7%
ARTICLE MARGIN I 2 23.8% 84 489 16.7%
Distribution Cost 0 4,2% 12 2,2% 80 2,7% 1
Financing Cost Stock 1 13,3% 15 2,9% 28 0,9%
Article Margin II 0 6.2% 57 10.6% 381 13,0%
Values and
KeyFiguresIV/VIII
Article Margin II
Financing costs cust
Order Processing
Customer manag Customer Margin II= Article Margin II- Financing
Income from def int Cost Customer Order Processing- Customer
Customer Margin Management + Income From Default Interests
PRINCIPLES
Values and Key Figures VI/VIII

Articles I Family I Product Classes I Business Type I etc.

MUST be evaluated by analyzing the ARTICLE MARGIN II
Customers I Corporate Groups I Customer Class
MUST be evaluated by using the CUSTOMER MARGIN
EBIT is only a financial KPI for a company as a whole and cannot be
seriously judged for articles and customers

ATTENTION: the company as a whole can still be negative, even if all

customer margins are positive (company overheads must be considered)
=> Minimum Customer Margin on a company level needed!
Values and Key Figures VIII/VIII

Customer margin
 Subtotal: offer
+ claims
= =Customer
Acquisition
Warehouse management
+Offering
s + Claims
management
+ Marketing
+ Warehouse
management
+
PurchaseTarget
group margin
 Target
group margin
= Customer
margin
- Subtotal:
offer +claims
 !!!!!

Needed Tool:

Daily Sales Report - see structure of BIS Reports as

follows.

Accessable by all Sales Reps, Comercial Managers to

support their current and strategic business decisions.
BIS Sales Report
Available Key Figures

-Cost of Goods Sold

-Purchase Price /1 00 kg
-Price per 100 kg
-Key Figures in %
-No. of Customers
-Deviation
-Deviation in %

Available Periods
-Actual 1
-Prior Year
-Plan
-Actual 2
 BIS Daily Sales Report

 Combines Invoices and Open Orders

 Available Key Figures

 -Sales Volume
 -Gross Sales
 -COGS -Product Margin & in %
 -Article Margin II (excl. Financing Cost Stock) & in %

 Periods
-Actual
-Plan Aliquot
-Plan (Full) Month

 Restricted Characteristics
-External (1) I IG (4) ~ only External (1) in the InfoCube (database)