Discuss in the Forum the following items:
1) Could you summarize Real Madrid’s strategy?
2) Is a team budget into the red an acceptable situation?
3) What is the objective of budgeting at Real Madrid?
4) Why is financial prudence so important at Real Madrid?
BUSINESS ANALYSIS
Johan Cruyff Institute
Before analysing the numbers, that is, the balance sheet and the income statement, you must first understand the business.
- Only in this case will we be able to analyse the financial statements
- Otherwise, we will come to the wrong conclusions
Which business aspects would it be good to analyse? Without this being an exhaustive list, the following aspects are all worthy of analysis.
BUSINESS ANALYSIS
Sales and customers:
- What does the company sell?
- How much does it sell?
- What size is the company?
- Are sales seasonal or uniform throughout the year?
- Are sales cyclical or stable in times of crisis?
- To whom does it sell?
- Customers: many or few?
- Customers: big or small?
BUSINESS ANALYSIS
Operations and production:
- Seasonal or uniform production throughout the year?
- Made-to-order or mass production?
- Short or long production processes?
BUSINESS ANALYSIS
Management/ownership
- Who is in charge?
- What experience do they have?
- Are they reliable as managers?
- Whom does the company belong to?
BUSINESS ANALYSIS
Strategy
- What are the competitive advantages of the company or the crucial points of its strategy?
- It’s important to know so that we can respect them at all times, since if we don’t do so,
we’ll have a strategic problem in our hands that can put the company in jeopardy.
BUSINESS ANALYSIS
Let’s look at two examples to illustrate the importance of analysing the business before the balance sheet and the income statement.
BUSINESS ANALYSIS
Seasonality Example
Let’s suppose we receive the balance sheet and income statement for a company that sells sports equipment. And the company gives us the balance sheet and income statement dated March 31st.
Suppose we don’t ask them anything else and we analyse the information provided. In this case, we would see that on the balance sheet, there is very little inventory and a lot of cash. It looks like a company that has a lot of liquidity, as a result of which we would feel driven to enter it as new shareholders or give it credit as suppliers.
However, suppose we ask ourselves what exactly they sell and what their market is, and the answer is ski equipment and only in Spain.
BUSINESS ANALYSIS
Seasonality Example
After receiving this information, our vision completely changes. We understand that sales are seasonal and that they are concentrated in the winter months of the northern hemisphere (from December to March).
Now we understand why there is so much cash and so little inventory, since the company has just made almost all of this year’s sales, just before the date on which they prepared these seasonal statements (March 31st)
This circumstance makes us see that we need the balance sheet on another date. For example, on November 30th, which is before the ski season has started.
BUSINESS ANALYSIS
Seasonality Example
The analysis of the financial statements dated November 30th shows the company in a completely different situation. During that part of the year, before the ski season has begun and, therefore, before they make their sales, the company has little cash and a lot of inventory.
Our impression of the company changes completely since at one time in the year the company has enviable liquidity
(December to March), but from then on it is gradually reduced until it’s in its worst moment at the end of November.
But all this has been possible because before we did the numbers, we performed the business analysis. Hence the importance of doing so.
Education in Sport Management, Sport Marketing, Football Business and Coaching
