[MUSIC] Now so far, we've seen how a company looks like assuming that sales are pretty constant over the year. Specifically, the case of Polypanel and to begin in the week one. Do you remember when we did that business analysis, we asked ourselves, is this company seasonal? We said, well, not very seasonal, because 55% of sales actually happen over six months. So 55, 45 not very seasonal. It turns out that when you have a seasonal company, there are two small things that you have to take into account that are very important. That's why I want to spend four minutes on this right now. So, seasonal companies. For example, so far, we have assumed that sales are pretty stable over the year. Now, you have seasonal companies. There are companies, whose sales are very high in some month of year and very low in other months of a year, examples are very simple as we said before. One is ice creams. Ice creams are sold, specifically during summer, depending on where you live exactly. Another one is skin. Skin is like a winter season. From last week or two weeks ago until next December, ski resorts in the North Hemisphere are closed. And then the last one would be, perhaps you didn't know that fragrances and perfumes are very seasonal business, because they are around Christmas, around December as well. Now, there are two important things that you should know when you do an analysis of a seasonal business. The first one and very important is that when you look at the balance sheet of a seasonal business, the closing of year. So the closing, the fiscal year end like looking at December for Polypanel. December 7, December 8, December of 9, December 2010 is not enough, because that picture of the company is taken in one moment where sales are very high or sales are very low. So it turns out that always, when you have a seasonal business and you want to understand what happens with the financial statements, don't look just at the fiscal year end of the company. You have to take at least two different months. One month where you have maximum level of cash and the other month when you have maximum level of credit. So, the two extremes to understand what is the situation. Could you might look at the company when the ski resort is close? For example, it's June. The balance sheet looks very nice and you are asking for a million euros of credit only. And it turns out that, for example, in December or in January, you might need 16 or 17 or 18 millions of credits. You wouldn't realize that, if you were to look only at one month. So, two months. The second thing that is important when you do a business analysis of a seasonal company is that you cannot use the same formulas for operational ratios. And you remember, these operational ratios that you computed days of collection is receivables over daily sales. Now we are assuming that those daily sales are constant throughout the year, so you take the whole year sales over 365. Now it happens that a seasonal business have a lot of sales in some months, have very little sales in other months. So you cannot actually compute the days of collection using the formula, you have to do it in a way manually. Let me put an example, a super simple example. A company that goes from January to June and sales are seasonal. So it sells only 100 the first 3 months and says, 400 the other 4 months. Now if I tell you, days of collection are 30 days. What are you going to have in receivables? Think for a second. If you have 30 days of collections and you sell 100 in January, you're going to have the month of January still not received the cash yet. So you're going to have 100 in January, you're going to have 100 in February and you're going to have 100 in March. But in the April, because you're selling 400, you're going to have 400 in April. Do you agree with me or not? It makes sense. If days of collection are 30, then you're going to have basically the same. 100, 100, 100 and 400 the last 3 months. Now imagine that instead of days of collection being 30 days, they are 45 days. Now the first month, it doesn't apply. Now, what's going to happen in the second month? Imagine in February. In February, if you collect in 45 days, you're going to have the whole month of February. So, 100 plus 15 days of January. So, 50 in this case. So, you're going to have 150. In March, you are going to have again, the whole month of March plus 15 days of February. So 150, but look at the April 1. You're going to have the whole month of April, so 400 plus 15 days of the month of March. So 450 and then in May, you are going to have the whole month of May plus 15 days of April. So it is 400 plus 200, now 600. So see, you have to do it manually and the same applies for 90 days, for 60 and 90 days. If you were to look at it in a different way. So instead of telling you date of collection and you telling me what we have in receivables, I ask you the opposite, which is imagine you don't know that left-hand side of the number of data and I tell you, what are the days of collection? If I observed receivables of 450 in April, you have to go backwards. If you look at the April sales and then you say that is 400. So if I have 415 receivables, that means that at least I have 30 days. Now, I look at the month before. So I look at March and in March I sell 100 and I have 15, I have 450. 400 for the month of April and those 50 are going to be for the month of March. If I sell a 100 in March and I have 50 from March, it means that I have 15 days of March. So, I'm going to have 45 days. Now this is pretty simple and standard, but it's a small thing that is very important for you to know when you do an analysis of a seasonal business. [MUSIC]
