Michael

We’ve already compared a paper manufacturing company and a TV manufacturing company under a static situation and saw how an industry’s overall situation affects individual company’s financials in the industry.

But industries are not static; they can undergo drastic changes in a relatively short period of time. How will the companies change with the changes of industries? Let’s look at the paper manufacturing company.

Here we list the financial data of three fixed time points – 1998, 2002, and 2012.

1998 is when the paper manufacturing company just started its business. In other words, it is the earliest financial data we can obtain. 2002 is the time we used for our previous comparison with the TV manufacturing company. In 2012, the paper manufacturer has been around 14 years into business. 

First, let’s compare 1998 and 2002.

1998 to 2002

Gross Profit Ratio

Let’s look at gross profit ratios first.

In 1998, the gross profit ratio of the paper manufacturer was 32%; however, it decreased to 28% in four years by 2002. 

What does this mean?

The overall competitiveness of the paper industry has probably intensified over the years, from 1998 to 2002. Gross profit ratio reflects an industry’s competitiveness. The more fierce the competition, the lower the profit margins. 

This is consistent with what we saw earlier about the overall development of this industry. In the past 60 years of the industry, the growth rate of investments never stopped increasing. As more and more investment got into the paper industry, the supply side grew significantly, leading to increased competition. On the other hand, demand has been increasing as well, and that was the reason that the gross profit ratio has only decreased by merely 4%, from 32% to 28%. Nonetheless, the decrease of the gross profit ratio does prove that competition began to emerge in the paper manufacturing industry.

Accounts Receivable and Inventory

As an industry becomes more and more competitive, products will not sell as fast as before. The outcome, more often than not, is the increase of inventory. Let’s take a look at the inventory of the company from 1998 to 2002.

What we see is a decrease, not increase, of inventory from 13% to 7%. At the same time, the company’s accounts receivable increased from 10% of total assets to 14%. This is not what we’ve expected.

When a company is facing more and more competition, what can it do to mitigate competition?

The decrease in gross profit ratio reflects a drop in prices. On the other hand, it seems that the paper manufacturing company made the decision to sell more on credit. Granting buyers more accounts receivables could sell products at a faster pace, as evidenced by the decrease of the company’s inventory level. Simultaneously, the drop in inventory coincides with an uptick in accounts receivable level. 

The adoption of agressive credit sales policy is a common practice in competitive markets. For every company, this may be the first strategy companies come up with when they face intense competitions. From a financial perspective, the strategy is actually one that transfers inventory into accounts receivable.

Is this a good thing or bad thing?

Some may think since this strategy helps sell products faster, it should be a good thing. If we can sell our products, we can benefit in many ways. For example, we can grab more market share fairly early. If the products’ market price would decrease in the future, I would have already sold my products.

There is also another direct benefit: Since inventory usually needs warehouses for storage, selling products at a faster pace would save us warehouse costs.

Now that I have sold my products, my inventory becomes accounts receivable, which is closer to becoming cash. Therefore, the overall turnover is also accerlerated.

All of the above are benefits of turning inventory into accounts receivable as fast as possible. However, doing so can also cause some potential problems.

Let’s say if I have sold the inventory, will all the accounts receivable be collectable? There is always risk that some of the accounts receivable will become bad debt. And once accounts receivable becomes bad debt, none of the above benefits will matter: my inventory can be sold for some money regardless of the prices, but my accounts receivable will go down to 0 if it becomes bad debt. It’s essentially the same as having the warehouse looted. 

Now that we’ve seen both these aspects, whether it’s a good or bad thing to turn inventory into accounts receivable is really contingent on whether accounts receivable can be collected. If we can collect the money, obviously turning inventory into accounts receivables will help the product’s sales. But if accounts receivable is not collectable, all benefits we’ve mentioned will be worth nothing.

2002 to 2012

Now let’s take a look at what happened from 2002 to 2012.

Gross Profit Ratio

In 2002, the gross profit ratio was 28%, but it decreased to 15% in 2012. Why was there such a drastic decrease?

Let’s recall what we discussed before about the competitive structure of the paper manufacturing industry. The year of 2008 was a watershed for the paper manufacturing industry, when the Chinese paper manufacturing industry entered the phase of excess capacity. In other words, after 2008 the competition within the industry became significantly more fierce than before. And because of this fierce competitive environment, the gross profit ratio of the paper manufacturing companies dropped significantly.

Accounts Receivable and Inventory

Let’s take a look at the accounts receivable and inventory.

From 2002 to 2012, the accounts receivable dropped from 14% of the company’s total assets to 8%. Inventory, on the other hand, increased from 7% of total assets to 9%. Why didn’t we see the same trend from 1998 to 2002, the trend that inventory decreased and accounts receivable increased?

The aggressive credit sales strategy that the paper manufacturer employed from 1998 to 2002 is a natural response when companies face fierce competitions. However, by adopting this strategy, companies would have to face the obstacle that some accounts receivable will never be collected. Overall, the credit sales policy is rather a temporary solution than a permanent solution.

As more and more companies adopt the same credit sales policies, the playing field is gradually leveled again, giving no particular company an advantage. At this point, adopting the credit sales policy is rather a passive method than a proactive method, eating out everybody’s profits along the way. And competition is much more fierce than ever. 

Once the phenomenon of granting credit sales to buyers becomes passive, more credit sales won’t necessarily decrease inventory anymore; but it definitely increases the company’s financial risks. The paper manufacturer, which realized this, stopped granting credits recklessly in an attempt to move inventory out. Instead, it switched to a more balanced strategy as a way to mitigate risks.

These are the financial situations of the paper manufactory company across different development stages in dozens of years.

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We have already grasped the basics of the paper manufacturing industry and the household appliance industry. Now, let’s look at individual companies from each industry respectively. We want to see if the company’s financial data and the condition of the industry are closely related.

First Look

In both industries, we will choose relatively large companies. Yet since there are lots of different household appliances in this industry, we will choose television as our target product. Now let’s take a look at the financial data of these two companies.

Before we get into the analysis, be aware that the time of the analysis is 2002, i.e. before competition in the paper manufacturing industry becomes too intense. 

Gross Profit Ratio

We can see at this time, the paper manufacturing company’s gross profit ratio is 28%. The TV manufacturing company, on the other hand, only enjoys a gross profit ratio of 15%, around half of the paper manufacturing company. (Forgot how to calculate gross profit ratio? read this.)

Why do the two companies have such different gross profit ratios?

Recall what we have discussed in the last episode, the competition within these two industries was quite different at that time. In 2002,

paper manufacturing industry was in a stage of rapid growth without intense competition. The household appliance industry at that time had

already entered the stage of fierce competition. The different competitive environments made a huge difference in the gross profit gratios in the two companies.

Next we are going to look at four financial numbers, all of which are from the balance sheet. They are accounts receivable, inventory, accounts payable and fixed assets.

By looking at these numbers, we notice that all of them are represented in percentages. These percentages are calculated by common size analysis, aka. structure analysis. Basically what common size analysis does is to help calculate the percentage each asset item occupies relative to the total assets. 

Accounts Receivable and Inventory

First of all, let’s look at the accounts receivable and inventory. The accounts receivable of the paper manufacturing company takes up 14% of its total assets. Inventory takes another 7%. For the TV manufacturing company, Its accounts receivable is 23% of total assets, while its inventory takes up 39% of total assets. The combination of accounts receivable and inventory of the paper manufacturing company is 21%, while that of the TV manufacturing company is 62%.

Why does the TV manufactory company have so many accounts receivable and inventory?

Well, on one hand, the competition in the industry is really intense. With so many companies competing for businesses from just a few buyers, these buyers have accumulated immense bargaining power. The buyers not only are able to press down prices, but they also require longer payment time. As a result, TV manufaturers’ gross profit ratio decrease and their accounts receivables increase, and our TV manufacturer is no exception. And because competition is really intense, the inventory holding period is longer. This is the reason why the company has such a high level of accounts receivable and inventory.

Generally speaking, companies don’t like accounts receivable and inventory, because they take up our cash positions. Having too much accounts receivable is like loaning money to the buyers for free. On the other hand, companies love accounts payables, for the reason that they can use other people’s cash for free with paying interest. 

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} #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow input { background-color: #ffffff !important; color: #333333 !important; border-color: #cccccc; border-radius: 4px !important; border-style: solid !important; border-width: 1px !important; font-family: ‘Lucida Sans Unicode’, ‘Lucida Grande’, sans-serif; font-size: 14px !important; height: auto; line-height: 21px !important; margin-bottom: 0; margin-top: 0; margin-left: 0; margin-right: 0; padding: 10px 10px !important; width: 100% !important; box-sizing: border-box !important; max-width: 100% !important; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow input::-webkit-input-placeholder, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow input::-webkit-input-placeholder { color: #333333; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow input::-moz-placeholder, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow input::-moz-placeholder { color: #333333; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow input:-ms-input-placeholder, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow input:-ms-input-placeholder { color: #333333; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow input:-moz-placeholder, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow input:-moz-placeholder { color: #333333; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow textarea, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow textarea { background-color: #ffffff !important; color: #333333 !important; border-color: #cccccc; border-radius: 4px !important; border-style: solid !important; border-width: 1px !important; font-family: ‘Lucida Sans Unicode’, ‘Lucida Grande’, sans-serif; font-size: 14px !important; height: auto; line-height: 21px !important; margin-bottom: 0; margin-top: 0; padding: 10px 10px !important; width: 100% !important; box-sizing: border-box !important; max-width: 100% !important; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow .custom-radio .custom-control-label::before, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow .custom-radio .custom-control-label::before, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow .custom-checkbox .custom-control-label::before, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow .custom-checkbox .custom-control-label::before, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-embedPermissions .ml-form-embedPermissionsOptionsCheckbox .label-description::before, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-interestGroupsRow .ml-form-interestGroupsRowCheckbox .label-description::before, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-checkboxRow .label-description::before { border-color: #cccccc!important; background-color: #ffffff!important; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow input.custom-control-input[type=”checkbox”]{ box-sizing: border-box; padding: 0; position: absolute; z-index: -1; opacity: 0; margin-top: 5px; margin-left: -1.5rem; overflow: visible; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow .custom-checkbox .custom-control-label::before, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow .custom-checkbox .custom-control-label::before, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-embedPermissions .ml-form-embedPermissionsOptionsCheckbox .label-description::before, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-interestGroupsRow .ml-form-interestGroupsRowCheckbox .label-description::before, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-checkboxRow .label-description::before { border-radius: 4px!important; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-checkboxRow input[type=checkbox]:checked~.label-description::after, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-embedPermissions .ml-form-embedPermissionsOptionsCheckbox input[type=checkbox]:checked~.label-description::after, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow .custom-checkbox .custom-control-input:checked~.custom-control-label::after, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow .custom-checkbox .custom-control-input:checked~.custom-control-label::after, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-interestGroupsRow .ml-form-interestGroupsRowCheckbox input[type=checkbox]:checked~.label-description::after { background-image: url(“data:image/svg+xml,%3csvg xmlns=’http://www.w3.org/2000/svg’ viewBox=’0 0 8 8’%3e%3cpath fill=’%23fff’ d=’M6.564.75l-3.59 3.612-1.538-1.55L0 4.26 2.974 7.25 8 2.193z’/%3e%3c/svg%3e”); } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow .custom-radio .custom-control-input:checked~.custom-control-label::after, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow .custom-radio .custom-control-input:checked~.custom-control-label::after { background-image: url(“data:image/svg+xml,%3csvg xmlns=’http://www.w3.org/2000/svg’ viewBox=’-4 -4 8 8’%3e%3ccircle r=’3′ fill=’%23fff’/%3e%3c/svg%3e”); } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow .custom-radio .custom-control-input:checked~.custom-control-label::before, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow .custom-radio .custom-control-input:checked~.custom-control-label::before, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow .custom-checkbox .custom-control-input:checked~.custom-control-label::before, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow .custom-checkbox .custom-control-input:checked~.custom-control-label::before, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-embedPermissions .ml-form-embedPermissionsOptionsCheckbox input[type=checkbox]:checked~.label-description::before, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-interestGroupsRow .ml-form-interestGroupsRowCheckbox input[type=checkbox]:checked~.label-description::before, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-checkboxRow input[type=checkbox]:checked~.label-description::before { border-color: #000000!important; background-color: #000000!important; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow .custom-radio .custom-control-label::before, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow .custom-radio .custom-control-label::before, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow .custom-radio .custom-control-label::after, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow .custom-radio .custom-control-label::after, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow .custom-checkbox .custom-control-label::before, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow .custom-checkbox .custom-control-label::after, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow .custom-checkbox .custom-control-label::before, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow .custom-checkbox .custom-control-label::after { top: 2px; box-sizing: border-box; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-embedPermissions .ml-form-embedPermissionsOptionsCheckbox .label-description::before, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-embedPermissions .ml-form-embedPermissionsOptionsCheckbox .label-description::after, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-checkboxRow .label-description::before, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-checkboxRow .label-description::after { top: 0px!important; box-sizing: border-box!important; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-checkboxRow .label-description::before, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-checkboxRow .label-description::after { top: 0px!important; box-sizing: border-box!important; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-interestGroupsRow .ml-form-interestGroupsRowCheckbox .label-description::after { top: 0px!important; box-sizing: border-box!important; position: absolute; left: -1.5rem; display: block; width: 1rem; height: 1rem; content: “”; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-interestGroupsRow .ml-form-interestGroupsRowCheckbox .label-description::before { top: 0px!important; box-sizing: border-box!important; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .custom-control-label::before { position: absolute; top: 4px; left: -1.5rem; display: block; width: 16px; height: 16px; pointer-events: none; content: “”; background-color: #ffffff; border: #adb5bd solid 1px; border-radius: 50%; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .custom-control-label::after { position: absolute; top: 2px!important; left: -1.5rem; display: block; width: 1rem; height: 1rem; content: “”; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-embedPermissions .ml-form-embedPermissionsOptionsCheckbox .label-description::before, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-interestGroupsRow .ml-form-interestGroupsRowCheckbox .label-description::before, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-checkboxRow .label-description::before { position: absolute; top: 4px; left: -1.5rem; display: block; width: 16px; height: 16px; pointer-events: none; content: “”; background-color: #ffffff; border: #adb5bd solid 1px; border-radius: 50%; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-embedPermissions .ml-form-embedPermissionsOptionsCheckbox .label-description::after { position: absolute; top: 0px!important; left: -1.5rem; display: block; width: 1rem; height: 1rem; content: “”; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-checkboxRow .label-description::after { position: absolute; top: 0px!important; left: -1.5rem; display: block; width: 1rem; height: 1rem; content: “”; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .custom-radio .custom-control-label::after { background: no-repeat 50%/50% 50%; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .custom-checkbox .custom-control-label::after, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-embedPermissions .ml-form-embedPermissionsOptionsCheckbox .label-description::after, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-interestGroupsRow .ml-form-interestGroupsRowCheckbox .label-description::after, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-checkboxRow .label-description::after { background: no-repeat 50%/50% 50%; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow .custom-control, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow .custom-control { position: relative; display: block; min-height: 1.5rem; padding-left: 1.5rem; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow .custom-radio .custom-control-input, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow .custom-radio .custom-control-input, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow .custom-checkbox .custom-control-input, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow .custom-checkbox .custom-control-input { position: absolute; z-index: -1; opacity: 0; box-sizing: border-box; padding: 0; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow .custom-radio .custom-control-label, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow .custom-radio .custom-control-label, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow .custom-checkbox .custom-control-label, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow .custom-checkbox .custom-control-label { color: #000000; font-size: 12px!important; font-family: ‘Open Sans’, Arial, Helvetica, sans-serif; line-height: 22px; margin-bottom: 0; position: relative; vertical-align: top; font-style: normal; font-weight: 700; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow .custom-select, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow .custom-select { background-color: #ffffff !important; color: #333333 !important; border-color: #cccccc; border-radius: 4px !important; border-style: solid !important; border-width: 1px !important; font-family: ‘Lucida Sans Unicode’, ‘Lucida Grande’, sans-serif; font-size: 14px !important; line-height: 20px !important; margin-bottom: 0; margin-top: 0; padding: 10px 28px 10px 12px !important; width: 100% !important; box-sizing: border-box !important; max-width: 100% !important; height: auto; display: inline-block; vertical-align: middle; background: url(‘https://assets.mlcdn.com/ml/images/default/dropdown.svg’) no-repeat right .75rem center/8px 10px; -webkit-appearance: none; -moz-appearance: none; appearance: none; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow { height: auto; width: 100%; float: left; } .ml-form-formContent.horozintalForm .ml-form-horizontalRow .ml-input-horizontal { width: 70%; float: left; } .ml-form-formContent.horozintalForm .ml-form-horizontalRow .ml-button-horizontal { width: 30%; float: left; } .ml-form-formContent.horozintalForm .ml-form-horizontalRow .ml-button-horizontal.labelsOn { padding-top: 25px; } .ml-form-formContent.horozintalForm .ml-form-horizontalRow .horizontal-fields { box-sizing: border-box; float: left; padding-right: 10px; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow input { background-color: #ffffff; color: #333333; border-color: #cccccc; border-radius: 4px; border-style: solid; border-width: 1px; font-family: ‘Lucida Sans Unicode’, ‘Lucida Grande’, sans-serif; font-size: 14px; line-height: 20px; margin-bottom: 0; margin-top: 0; padding: 10px 10px; width: 100%; box-sizing: border-box; overflow-y: initial; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow button { background-color: #000000 !important; border-color: #000000; border-style: solid; border-width: 1px; border-radius: 4px; box-shadow: none; color: #ffffff !important; cursor: pointer; font-family: ‘Lucida Sans Unicode’, ‘Lucida Grande’, sans-serif; font-size: 14px !important; font-weight: 700; line-height: 20px; margin: 0 !important; padding: 10px !important; width: 100%; height: auto; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow button:hover { background-color: #1F5014 !important; border-color: #1F5014 !important; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-checkboxRow input[type=”checkbox”] { box-sizing: border-box; padding: 0; position: absolute; z-index: -1; opacity: 0; margin-top: 5px; margin-left: -1.5rem; overflow: visible; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-checkboxRow .label-description { color: #000000; display: block; font-family: ‘Open Sans’, Arial, Helvetica, sans-serif; font-size: 12px; text-align: left; margin-bottom: 0; position: relative; vertical-align: top; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-checkboxRow label { font-weight: normal; margin: 0; padding: 0; position: relative; display: block; min-height: 24px; padding-left: 24px; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-checkboxRow label a { color: #000000; text-decoration: underline; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-checkboxRow label p { color: #000000 !important; font-family: ‘Open Sans’, Arial, Helvetica, sans-serif !important; font-size: 12px !important; font-weight: normal !important; line-height: 18px !important; padding: 0 !important; margin: 0 5px 0 0 !important; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-checkboxRow label p:last-child { margin: 0; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-embedSubmit { margin: 0 0 20px 0; float: left; width: 100%; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-embedSubmit button { background-color: #000000 !important; border: none !important; border-radius: 4px !important; box-shadow: none !important; color: #ffffff !important; cursor: pointer; font-family: ‘Lucida Sans Unicode’, ‘Lucida Grande’, sans-serif !important; font-size: 14px !important; font-weight: 700 !important; line-height: 21px !important; height: auto; padding: 10px !important; width: 100% !important; box-sizing: border-box !important; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-embedSubmit button.loading { display: none; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-embedSubmit button:hover { background-color: #1F5014 !important; } .ml-subscribe-close { width: 30px; height: 30px; background: url(‘https://assets.mlcdn.com/ml/images/default/modal_close.png’) no-repeat; background-size: 30px; cursor: pointer; margin-top: -10px; margin-right: -10px; position: absolute; top: 0; right: 0; } .ml-error input, .ml-error textarea, .ml-error select { border-color: red!important; } .ml-error .custom-checkbox-radio-list { border: 1px solid red !important; border-radius: 4px; padding: 10px; } .ml-error .label-description, .ml-error .label-description p, .ml-error .label-description p a, .ml-error label:first-child { color: #ff0000 !important; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-checkboxRow.ml-error .label-description p, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-checkboxRow.ml-error .label-description p:first-letter { color: #ff0000 !important; 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Accounts Payable

But in the same industry, will larger sized companies or smaller sized companies more likely obtain more credits, i.e. taking up other companies’ cash for free? The answer is obvious – it must be the larger sized company. Large companies, because of their competitive positions in the value chain, can often command credits from both buyers and suppliers alike.

The paper manufacturing company we chose is the largest company in the industry at that time. The TV manufacturing company we chose is not a small company at all, but it is far from being the largest company in its industry. However, from the table above, we see that even the largest paper manufacturing company can only command 8% of cash from its supplier. Yet a relatively less dominant player in the household appliance industry can somehow command 15% cash from its suppliers. Why is this happening?

As we’ve covered in the previous episode, the Chinese paper manufacturing industry is short on raw materials. A lot of raw materials such as wood pulp must be imported. As a result, these companies, including the largest in the industry, lack bargaining power against their suppliers. In other words, suppliers are in a stronger position.

On one hand, the stronger position gives suppliers the ability to increase the price, and on the other hand, it impacts accounts payable. Suppliers are less willing to extend credits to paper manufacturers when they purchase raw materials. In the household appliance industry, however, we haven’t witnessed similar bargaining power from suppliers.

Fixed Assets

For the paper manufacturing company, 62% of total assets are fixed assets. For the TV manufacturer, however, only 14% are fixed assets. Even though both companies are in asset-heavy industries, the level of fixed asset investment is still vastly different.

What is the reason for such a big difference?

The paper manufacturing industry is a capital intensive industry. For every 10,000 tons of paper manufactured, it requires 14 million dollars of investment, which is mainly spent on equipment. This is why a large proportion of assets are fixed assets. 

Total Asset Turnover Ratio

At a high percentage level of 62%, the paper manufacturing company’s assets are mainly fixed assets. The TV manufacturing company’s largest asset category, on the other hand, is current asset; when we combine accounts receivable and inventory, we get the total percentage of current asset for the TV manufacturer at 62%. Of these two companies, which one do you think have a faster asset turnover?

Apparently, it should be the TV manufacturer, since current assets have faster turnover than fixed assets. In other words, we’d expect that the asset turnover ratio of the TV manufacturer to be much higher than that of the paper manufacturer. But if we look at the two companies’ actual asset turnover ratios, we will find that the differences are not so significant. 

What’s the reason that the household appliance company didn’t show higher assets turnover ratio like what we’ve expected?

A likely reason is that the current assets of the household appliance manufacturer have similar asset turnover ratio as the fixed assets of the paper manufacturing industry. In other words, the turnover of its current assets – accounts receivable and inventory – is really slow. 

This could mean its accounts receivable may not be collected for a long period of time. Its inventory may not be sold for a long time, and just stays in the warehouses.

This could be bad news for the TV manufacturer. Since TVs are products that update really fast, the value of the inventory could easily depreciate. On the other hand, if its accounts receivable cannot be collected for a really long time, it’s quite possible that it may become a bad debt.

Another look

Now let’s go back and take another look.

The six financial numbers and their respective ratios clearly describe the industry characteristic of the two industries. 

Gross profit rate reflects the competitiveness of the industries.

Accounts receivable and inventory reflect the bargaining power between the companies and their downstream partners, i.e. the buyers.

Accounts payable reflects the bargaining power between the companies and their upstream partners, i.e. the suppliers.

The proportion of fixed assets reflects the demand on cash of the industry.

And last but not least, asset turnover ratio helps us get a basic understanding of how companies are managed. 

We can see that financial data is a really efficient language. With just some simple financial data, we can clearly have a birds-eye view on an industry’s condition. We can also see how any company in a certain industry sort of carries characteristics of that industry. The financial statements will inevitably reflect such traits. 

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What we see now is just a static situation. However, industries are changing all the time, and the internal and external environments of industries vary dramatically across different timeframes. How are these changes reflected on companies’ financial statements in different industries? We will further explore in the next several episodes. Stay tuned. 

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Previously we’ve talked about Porter’s Five Forces and how they impact industry profitabilities. In this episode, let’s pick two completely different industries and see how the different industry dynamics impact financial performances of companies in each industry.

The two industries we chose are paper manufacturing industry and household appliance industry. To facilitate a better understanding of our discussion, let’s first establish some basic understandings of these two industries.

Paper Manufacturing Industry

The paper manufacturing industry is not unfamiliar with most people. Almost everybody is a consumer of the paper manufacturing industry. For example, we may read newspaper, use notebooks, read magzines, etc., all of which are different kinds of paper products. In our daily lives, we may also use tissue, toilet paper, etc., and both belong to the household paper products. In addition, every day we buy all kinds of products, and they usually come in packaging, which of course is a type of paper. Therefore, everyone is a consumer of the paper manufacturing industry, but generally speaking, we don’t go to a paper manufactory to buy paper ourselves. By purchasing other kinds of products, we become consumers of paper indirectly. This may also be the reason why we don’t know that much about the paper manufacturing industry.

Put it in another way, the paper manufacturing industry has several different customer bases, i.e. buyers, such as newspaper and press, individual consumers, manufacturing companies, etc. 

Where do the raw materials of paper manufacturing come from? A really important material is wood. Most paper is produced using wood pulp. One example is toilet paper. We always see on toilet paper packaging saying “made of 100% original wood pulp”. This means the raw material of the toilet paper is wood pulp, which comes from wood.

As we know, forest resources are pretty limited worldwide. Therefore, sometimes we may not only use original wood pulp, but also recycled wood pulp, like recycled paper. It also matches the concept of being environmentally friendly. Additionally, the paper manufacturing industry worldwide also uses straw pulp or other non-wood pulp in production. 

The paper manufacturing industry is a capital-intensive industry. To build a paper manufacturing factory, every 10,000 tons of paper production capacity requires about 14 million dollars of investment. For a typical paper factory, the industry standard can reach hundreds of thousands of tonnage, resulting in a total investment of several hundreds of millions of dollars. This is why the paper manufacturing industry needs large amounts of capital.

Now let’s use the five forces model to check the paper manufacturing industry’s overall environment. 

First, we are going to look at two things, the competitiveness of the industry and the threat of new entrants. The threat of substitute products will be discussed later.

Now let’s look at this graph, which describes how the paper manufacturing industry progresses in the past 60 years in China. From this graph, we can see that the output is relatively stable from 1950 to 1990, but starts to climb really fast from 1990 to 2008, especially between 2000 and 2008. After 2008, the growth rate starts to slow down.

Even though this graph is about output in the paper manufacturing industry, it actually also shows a similar trend of investment into the industry for the reason that output comes from additional investment. So investment in the paper manufacturing industry is really hot between 1990 and 2010.

But why is there a turning point in 2008?

Well in 2008, Chinese paper manufacturing entered the phase of excess capacity. Excess capacity happens when the production capacity of the industry exceeds its demands, and when it happenss, the competition will be brutal.

Now let’s take a look at this table. The table lists the cost structure of raw materials and labor to produce one ton of paper in different area in the world. 

Producing one ton of paper in different areas across the world can have drastically different costs. In some areas, raw materials are relatively more expensive, and labors in some others. Remarkably, China is a rare exception. We can see that the labor cost in China is really low; but this is consistent with our commonsense – China is still developing and labor costs are relatively low compared with other developed countries. However, raw material cost is really high in China, or about three to four times the price of those of other developed countries. 

Why is that?

Well we mentioned which raw materials the paper manufacturing industry need. First of all, we need wood. Forest resources in China are relatively scarce compared to a lot of countries. For example, the forest coverage rate in certain countries can reach 80%. But in China, it’s less than 30%. Because of this, the Chinese paper manufactory companies have to import wood pulp from other countries.

On the other hand, companies also try to use some substitute materials, such as non-wood plants, or straw pulp. However, producing straw pulp is a serious cause for pollution, and the government has put down serious restrictions on such method. Another source is recycled papers. Since recycled paper are from waste paper, and the paper manufacturers in China have to rely on waste paper import from other developed countries, which will inevitably increase prices. 

Knowing all these, we can come to the conclusion that Chinese paper manufactories have to face suppliers with stronger bargaining power. For a really long period, competition in the industry wasn’t intense. However, it lacks bargaining power against its suppliers, or its upstream.

Household Appliance Industry

The household appliance industry refers to house appliance manufacturers for things like TV, air conditioner, or washing machine, etc. It is one of the first industries to enter into intense competition in China. As competition becomes more and more fierce, we can imgaine that profit margins will become lower and lower. Therefore, the household appliance industry possesses relatively weak bargaining power against its buyers.

Another feature for the Chinese household appliance industry is that for a very long time, the industry has a really specialized sales channel. This channel is centralized under two or three companies’ control, aka. a high market concentration. This gives buyers even stronger bargaining power. Therefore, the household appliance industry is very different from the paper manufacturing industry, as it lacks bargaining power against its buyers, or downstream.

These are the basic conditions of the paper manufacturing industry and the household appliance industry. Understanding this, we will further explore how companies in these two industries perform financially.

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} #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-embedContent ol ol ol, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-successBody .ml-form-successContent ol ol ol { list-style-type: lower-roman; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-embedContent p a, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-successBody .ml-form-successContent p a { color: #000000; text-decoration: underline; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-block-form .ml-field-group { text-align: left!important; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-block-form .ml-field-group label { margin-bottom: 5px; color: #333333; font-size: 14px; font-family: ‘Open Sans’, Arial, Helvetica, sans-serif; font-weight: bold; font-style: normal; text-decoration: none;; display: inline-block; line-height: 20px; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-embedContent p:last-child, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-successBody .ml-form-successContent p:last-child { margin: 0; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody form { margin: 0; width: 100%; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-formContent, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-checkboxRow { margin: 0 0 20px 0; width: 100%; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-checkboxRow { float: left; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-formContent.horozintalForm { margin: 0; padding: 0 0 20px 0; width: 100%; height: auto; float: left; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow { margin: 0 0 10px 0; width: 100%; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow.ml-last-item { margin: 0; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow.ml-formfieldHorizintal { margin: 0; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow input { background-color: #ffffff !important; color: #333333 !important; border-color: #cccccc; border-radius: 4px !important; border-style: solid !important; border-width: 1px !important; font-family: ‘Lucida Sans Unicode’, ‘Lucida Grande’, sans-serif; font-size: 14px !important; height: auto; line-height: 21px !important; margin-bottom: 0; margin-top: 0; margin-left: 0; margin-right: 0; padding: 10px 10px !important; width: 100% !important; box-sizing: border-box !important; max-width: 100% !important; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow input::-webkit-input-placeholder, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow input::-webkit-input-placeholder { color: #333333; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow input::-moz-placeholder, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow input::-moz-placeholder { color: #333333; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow input:-ms-input-placeholder, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow input:-ms-input-placeholder { color: #333333; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow input:-moz-placeholder, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow input:-moz-placeholder { color: #333333; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow textarea, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow textarea { background-color: #ffffff !important; color: #333333 !important; border-color: #cccccc; border-radius: 4px !important; border-style: solid !important; border-width: 1px !important; font-family: ‘Lucida Sans Unicode’, ‘Lucida Grande’, sans-serif; font-size: 14px !important; height: auto; line-height: 21px !important; margin-bottom: 0; margin-top: 0; padding: 10px 10px !important; width: 100% !important; box-sizing: border-box !important; max-width: 100% !important; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow .custom-radio .custom-control-label::before, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow .custom-radio .custom-control-label::before, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow .custom-checkbox .custom-control-label::before, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow .custom-checkbox .custom-control-label::before, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-embedPermissions .ml-form-embedPermissionsOptionsCheckbox .label-description::before, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-interestGroupsRow .ml-form-interestGroupsRowCheckbox .label-description::before, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-checkboxRow .label-description::before { border-color: #cccccc!important; background-color: #ffffff!important; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow input.custom-control-input[type=”checkbox”]{ box-sizing: border-box; padding: 0; position: absolute; z-index: -1; opacity: 0; margin-top: 5px; margin-left: -1.5rem; overflow: visible; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow .custom-checkbox .custom-control-label::before, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow .custom-checkbox .custom-control-label::before, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-embedPermissions .ml-form-embedPermissionsOptionsCheckbox .label-description::before, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-interestGroupsRow .ml-form-interestGroupsRowCheckbox .label-description::before, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-checkboxRow .label-description::before { border-radius: 4px!important; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-checkboxRow input[type=checkbox]:checked~.label-description::after, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-embedPermissions .ml-form-embedPermissionsOptionsCheckbox input[type=checkbox]:checked~.label-description::after, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow .custom-checkbox .custom-control-input:checked~.custom-control-label::after, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow .custom-checkbox .custom-control-input:checked~.custom-control-label::after, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-interestGroupsRow .ml-form-interestGroupsRowCheckbox input[type=checkbox]:checked~.label-description::after { background-image: url(“data:image/svg+xml,%3csvg xmlns=’http://www.w3.org/2000/svg’ viewBox=’0 0 8 8’%3e%3cpath fill=’%23fff’ d=’M6.564.75l-3.59 3.612-1.538-1.55L0 4.26 2.974 7.25 8 2.193z’/%3e%3c/svg%3e”); } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow .custom-radio .custom-control-input:checked~.custom-control-label::after, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow .custom-radio .custom-control-input:checked~.custom-control-label::after { background-image: url(“data:image/svg+xml,%3csvg xmlns=’http://www.w3.org/2000/svg’ viewBox=’-4 -4 8 8’%3e%3ccircle r=’3′ fill=’%23fff’/%3e%3c/svg%3e”); } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow .custom-radio .custom-control-input:checked~.custom-control-label::before, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow .custom-radio .custom-control-input:checked~.custom-control-label::before, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow .custom-checkbox .custom-control-input:checked~.custom-control-label::before, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow .custom-checkbox .custom-control-input:checked~.custom-control-label::before, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-embedPermissions .ml-form-embedPermissionsOptionsCheckbox input[type=checkbox]:checked~.label-description::before, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-interestGroupsRow .ml-form-interestGroupsRowCheckbox input[type=checkbox]:checked~.label-description::before, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-checkboxRow input[type=checkbox]:checked~.label-description::before { border-color: #000000!important; background-color: #000000!important; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow .custom-radio .custom-control-label::before, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow .custom-radio .custom-control-label::before, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow .custom-radio .custom-control-label::after, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow .custom-radio .custom-control-label::after, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow .custom-checkbox .custom-control-label::before, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow .custom-checkbox .custom-control-label::after, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow .custom-checkbox .custom-control-label::before, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow .custom-checkbox .custom-control-label::after { top: 2px; box-sizing: border-box; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-embedPermissions .ml-form-embedPermissionsOptionsCheckbox .label-description::before, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-embedPermissions .ml-form-embedPermissionsOptionsCheckbox .label-description::after, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-checkboxRow .label-description::before, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-checkboxRow .label-description::after { top: 0px!important; box-sizing: border-box!important; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-checkboxRow .label-description::before, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-checkboxRow .label-description::after { top: 0px!important; box-sizing: border-box!important; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-interestGroupsRow .ml-form-interestGroupsRowCheckbox .label-description::after { top: 0px!important; box-sizing: border-box!important; position: absolute; left: -1.5rem; display: block; width: 1rem; height: 1rem; content: “”; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-interestGroupsRow .ml-form-interestGroupsRowCheckbox .label-description::before { top: 0px!important; box-sizing: border-box!important; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .custom-control-label::before { position: absolute; top: 4px; left: -1.5rem; display: block; width: 16px; height: 16px; pointer-events: none; content: “”; background-color: #ffffff; border: #adb5bd solid 1px; border-radius: 50%; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .custom-control-label::after { position: absolute; top: 2px!important; left: -1.5rem; display: block; width: 1rem; height: 1rem; content: “”; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-embedPermissions .ml-form-embedPermissionsOptionsCheckbox .label-description::before, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-interestGroupsRow .ml-form-interestGroupsRowCheckbox .label-description::before, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-checkboxRow .label-description::before { position: absolute; top: 4px; left: -1.5rem; display: block; width: 16px; height: 16px; pointer-events: none; content: “”; background-color: #ffffff; border: #adb5bd solid 1px; border-radius: 50%; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-embedPermissions .ml-form-embedPermissionsOptionsCheckbox .label-description::after { position: absolute; top: 0px!important; left: -1.5rem; display: block; width: 1rem; height: 1rem; content: “”; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-checkboxRow .label-description::after { position: absolute; top: 0px!important; left: -1.5rem; display: block; width: 1rem; height: 1rem; content: “”; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .custom-radio .custom-control-label::after { background: no-repeat 50%/50% 50%; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .custom-checkbox .custom-control-label::after, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-embedPermissions .ml-form-embedPermissionsOptionsCheckbox .label-description::after, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-interestGroupsRow .ml-form-interestGroupsRowCheckbox .label-description::after, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-checkboxRow .label-description::after { background: no-repeat 50%/50% 50%; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow .custom-control, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow .custom-control { position: relative; display: block; min-height: 1.5rem; padding-left: 1.5rem; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow .custom-radio .custom-control-input, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow .custom-radio .custom-control-input, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow .custom-checkbox .custom-control-input, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow .custom-checkbox .custom-control-input { position: absolute; z-index: -1; opacity: 0; box-sizing: border-box; padding: 0; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow .custom-radio .custom-control-label, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow .custom-radio .custom-control-label, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow .custom-checkbox .custom-control-label, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow .custom-checkbox .custom-control-label { color: #000000; font-size: 12px!important; font-family: ‘Open Sans’, Arial, Helvetica, sans-serif; line-height: 22px; margin-bottom: 0; position: relative; vertical-align: top; font-style: normal; font-weight: 700; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow .custom-select, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow .custom-select { background-color: #ffffff !important; color: #333333 !important; border-color: #cccccc; border-radius: 4px !important; border-style: solid !important; border-width: 1px !important; font-family: ‘Lucida Sans Unicode’, ‘Lucida Grande’, sans-serif; font-size: 14px !important; line-height: 20px !important; margin-bottom: 0; margin-top: 0; padding: 10px 28px 10px 12px !important; width: 100% !important; box-sizing: border-box !important; max-width: 100% !important; height: auto; display: inline-block; vertical-align: middle; background: url(‘https://assets.mlcdn.com/ml/images/default/dropdown.svg’) no-repeat right .75rem center/8px 10px; -webkit-appearance: none; -moz-appearance: none; appearance: none; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow { height: auto; width: 100%; float: left; } .ml-form-formContent.horozintalForm .ml-form-horizontalRow .ml-input-horizontal { width: 70%; float: left; } .ml-form-formContent.horozintalForm .ml-form-horizontalRow .ml-button-horizontal { width: 30%; float: left; } .ml-form-formContent.horozintalForm .ml-form-horizontalRow .ml-button-horizontal.labelsOn { padding-top: 25px; } .ml-form-formContent.horozintalForm .ml-form-horizontalRow .horizontal-fields { box-sizing: border-box; float: left; padding-right: 10px; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow input { background-color: #ffffff; color: #333333; border-color: #cccccc; border-radius: 4px; border-style: solid; border-width: 1px; font-family: ‘Lucida Sans Unicode’, ‘Lucida Grande’, sans-serif; font-size: 14px; 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We already learned how to make basic financial analysis. However, financial analysis is only a means to an end; what we want to do is to apply the basic financial analysis to the process of our decision making. 

Before getting into this, let’s think about another question: why do financial data demonstrate differently across different countries and different industries? 

We can easily realize that it is because the environment where the businesses reside will affect each business’ decision-making. And these decisions further affect its final performance.

If we think about how we make decisions, we will find the most important factor affecting our decisions is the environment we are in. This environment could be the whole world’s economic development, or it could be the economic situation of the country. We know that the economic developments in the world are drastically different from one another, and different industries are different as well. 

For example, for companies within the same industry, what competition are they facing? What kind of customers are they dealing with? Is their supply of raw materials in shortage or surplus? Where do their workforces come from? Where does the capital come from? How is their tax situation? Are there any special governmental restrictions? All of these things will influence an enterprise’s decision-making.

But, obviously, given the same environment, not all the enterprises will make the same decisions. For example, within the same country, the same industry, and even the same region, companies face similar environments. But we don’t see all companies doing the same thing. Why? It is because every company makes its own strategic choice. This strategy may include whether it wants to have a diversified business or to focus on only one area. It could also include how the company wants to compete with competitors on every business line. Because of this, companies vary widely even if they are in the same environment.

Let’s dig a step deeper. Within the same industry, the same region, and a similar environment, we can find two companies which adopt similar strategies. However, when we come back to check these two companies a couple of years later, we may find that one company succeeded while the other failed. We see this happening all around the world. 

Why does it happen all the time? Well, even though the two companies choose the same strategy, their abilities to execute that strategy are not the same. Their differences in execution capabilities make the final difference.

This makes companies across the world differ. The differences are caused by at least three levels of factors: the first level is the external environment; the second level is the strategic positioning; and the last level is the strategic execution.

We’ve already known that environments can make big differences in a company’s performance. However, let’s not go all the way into the macros such as worldwide economy or even the macroeconomic development of a certain country. Let’s focus on environment on the industry level first. After that, we can take a look at how strategy positioning affects a company’s financial data. And last, strategic execution.

Porter’s Five Forces

To demonstrate how industry factors affect a company’s financial data, we need to first learn, in this industry as a whole, which factors are crucial for the company’s operations. 

Here we will use a famous model called Porter’s Five Forces, created by the Harvard Business School’s Michael Porter. In any industry, five forces determine an industry’s profitability. 

Existing and Potential Competitions

Let’s look at the three forces at the top. 

The first is the competitive rivalry within an industry. The second is if there are new entrants threatening the industry. The last is if there are threats of substitute products or services in the industry. All three forces will create immense competition to industry incumbents.

Competitors may enter the industry in different ways. So, what will be the impact of intense competition on the company’s financial data?

We can think in this way. As we know, when competition we are facing becomes more and more intense, our company’s profit might get competed out. For example, when originally only our company was selling a specific product, our customers don’t even have another company to compare prices, leaving much more pricing power to us. However, as more and more companies enter the field with similar products, acquiring customers become more and more competitive. We will have to lower the price in order to sell more products. 

After dropping the price, will my cost of goods sold decrease proportionally? 

The truth is, not really. Why? 

Because among our costs, some of them are non-flexible, meaning that costs will not decrease with the decrease of the price at the same rate. In other words, at certain stages, you will find that your cost will basically stop changing, although prices may continue to decrease with intensified competition. As a result, the first thing to drop will be gross profit.

In general, gross profit is the most sensitive factor to changes in the external environment.

Bargaining Powers of Buyers and Suppliers

Now let’s move on to the bottom half of the Five Forces, which are bargaining powers of buyers and suppliers. Normally, Buyers are called downstream because they purchase products from us, and suppliers are called upstream because we purchase products from them. In other words, it indicates the situation of the industrial chain where our company is involved. 

Let’s assume that our industry has really intense competition, and many companies are selling the same product. To acquire customers, not only do we have to ower our prices, but we also need to offer customers credits, i.e. grant them longer payment terms. This is where accounts receivables come in. Of course, if I don’t want to grant credits to customers, I probably will have to suffer longer inventory holding period. 

What determines who is in a stronger position, us or the customers?

It is related to how intense the competition is in my product’s market. The more intense competition my product is facing, the stronger bargaining power my customers have. The bargaining power not only brings them lower prices but also lets them hold my cash longer. Therefore, I will get more accounts receivable. Of course, from another aspect, the bargaining power between my customers and I may also be determined by how many customers I have. We can imagine the situations that I have only one customer versus that I have thousands of customers. The situations are very different. When I have thousands of customers, I will have more choices. If one customer threatens to stop buying my product, I can tell him to EFF OFF. But if I only have one customer, which means that my entire business relies on him, he will get strong bargaining power against me – he probably can do whatever he wants to do then. So customers’ bargaining power is not only determined by the competition in my product’s market but also related to the level of concentration of my customers.

Now let’s have a look at our upstream – the suppliers. One would assume that as a customer, you would always have more power over your supplier. 

But not so fast. Let’s look at what determines who is in a stronger position between a supplier and the company.

Similar to the relationship between our customer and our company, if my raw material market is a market where demand exceeds supply, it will be difficult to purchase the goods. For example, a company that commands over Microsoft, Google, Meta, and OpenAI these days is Nvidia, which is a supplier to all of them. How could some of the most valuable and powerful companies in the world bow down to Nvidia? Well, there is one thing that every single one of them trying to secure from Nvidia: their powerful chips. As all these companies are marching into the AI war, they all want to most powerful GPU chips from Nvidia. And there is no other company that can manufacture anything close to what Nvidia provides.

At this time, we can tell that a supplier such as Nvidia is going to have really strong power. What will he do when he gets to this strong position? He may raise the price, which will increase my costs. Depending on the competitiveness of my market, I may or may not be able to raise prices for my products, and if I don’t, my gross profit ratio will decrease. 

On top of raising prices, a powerful supplier can also make other moves. He may not grant our company any credit on purchase, and may require cash payment to buy goods. He may even demand advance payment and send us the supplies later, occupying the cash that is supposed to be on our bank account for a couple of months. 

Similar to the customers’ bargaininig power, suppliers’ bargaining power is also determined by the demand and supply relation of my raw material market and how many suppliers I have, i.e. the level of concentration of my suppliersw. If I only have one supplier, I will be afraid of losing the supplier, which puts the supplier in a stronger position. On the contrary, if I have thousands of suppliers, I can always buy from someone else should one supplier makes excessive demands. 

Next, we are going to pick two completely different industries to see how the competitiveness affect financials.

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In the previous episode, we looked at a company’s capacity to repay short term debts. Next let’s look at how to evaluate a company’s capacity to repay long term debts. 

If you recall, we measure the capacity to pay back short term debts by dividing current assets by current liabilities. In this sense, it seems plausible that we should divide long term asset by long term liabilities to measure the capacity to repay long term debts. 

Wrong. Big time wrong.

When we do calculate the capacity to pay back short term debts, we assume that all our current assets will turn into cash instantly, i.e. getting liquidated, so we can pay with such cash from the current assets after liquidation. 

But if we do the same for long term debts, what would happen? 

Long-term assets consist of non-current assets such as fixed assets, intangible assets, and long-term investments, etc. If we cash out long-term assets, meaning that we will sell all subsidiary companies, manufacturing plants, properties and equipment, etc., do you consider this an act to pay back long-term debt? 

Not at all. The company is about to close doors and cease operations. So the assumption is wrong.

Long-term Solvency

Long-term liabilities usually consist of two parts: one is interest payment and the other one is principal payment. Let’s talk about interest payment first.

Long-term debt interest repayment

How will the company pay interest to its debt? Naturally, you may considering paying back the bank from money we earn, which is net profit of the company. It seems that we should divide the net profit by interests to see if profit can cover interest.

However, this ratio will not be found anywhere. If you recall on the income statement, there is one item called financial expenses which refer to interest payment. In other words, bank interests are actually paid BEFORE we get to net profit. If we use the above method of dividing net profit by interests, we will have paid the interest twice, which doesn’t make any sense.

Which number should we use then? We’ve already understood that we should use the number before we pay the interests, so let’s start from there. 

Since we know the net profit, it is easy to understand that net profit plus interest is the money I earn before paying the interests. However, there is one more thing – income tax. If we look at the income statement, we know that it is after we deduct the financial expense that we deduct income tax. If the company pays a lot interest, it may have no profit for income tax deduction. As a result, it may NOT need to pay for the tax anymore.

By now we are ready to come up with the result for evaluating a company’s ability to repay long-term debt interest. We can use profit before deducting interests and income tax, or earnings before interest and taxes (EBIT) as the basis. 

But we shouldn’t stop there. Remember that we start out to find the ratio to evaluate a company’s ability to repay long-term debt interest. 

Therefore, what we want to do is to divide EBIT by interests to get interest coverage ratio. 

What interest coverage ratio stands for is the number of times that we can pay interests with EBIT. The higher the ratio, the more capable we can pay for the interests. 

If we look at our fictional company, Its net profit is 5.2 million dollars, income tax 1 million dollars, and financial expense 1.3 million dollars. 

Normally if we are unsure about the interest expenses, we can use financial expense as its substitute. By combining 5.2 million, 1 million, and 1.3 million, we got our EBIT value at 7.5 million dollars. If we divide EBIT by interests, which is 1.3 million dollars, we will get an interest coverage ratio of 5.8. This means what the company earns can pay interests 5.8 times. In this sense, it has strong capacity of interest payment. 

Long-term debt principal repayment

Now let’s look at a company’s ability to pay principal. 

The payment of principal is a long term incremental process, and we won’t have a special fund set up just for the long term debt principal payment. Therefore, the measurement of the ability won’t be accurate. 

In reality, there are different ways for such evaluation but none of them are accurate. Here I would like to introduce a very rudimentary method called debt asset ratio, which is dividing total liabilities by total assets.

We can see that we are using not just long term liability but the total liability. Why can debt asset ratio help us measure our ability to repay debt principals? 

The concept is fairly simple and intuitive actually. The more I borrow, the less likely I can pay for it. This ratio is quite useful in reality, and it has another name called financial leverage. 

The reason we call debt asset ratio the financial leverage is that similar to how an actual leverage, it has a magnifying effect. It magnifies the fund of a company. Now what I mean by that?

If a shareholder of a company has 1 million dollars and invests that into the company without borrowing anything, that 1 million dollars will be all he has to invest and thus generate more money from business operations. However, if he borrows another 1 million dollars, he can earn money with two millions dollars instead of one. From the perspective of the shareholder, he would definitely hope that the leverage can be higher. The best scenario is that he doesn’t need to use his own money at all, and all 100% of funding comes from banks. Of course this will never happen in reality, but you get the idea.

So financial leverage is the result of compromise between the two sides, i.e. shareholders and creditors, and the result won’t be too high or too low, but somewhere in the middle. It will vary for different industries; for example, asset intensive industry will likely have higher financial leverage because companies in this industry need a large amount of money to purchase lands and fixed assets, etc. They also have larger asset base to put up as mortgage, giving them stronger borrowing powers. One such example is the airline companies. It is common that many airline companies havea debt ratio of over 80%. 

What type of companies have lower ratios? Normally companies with sufficient cash flow because they don’t need to borrow lots of money. For instance, some distribution companies and asset-light companies, etc.

If we calculate the debt asset ratio of the fictional company, we can see that total asset is 99.2 million, and total liability is 63 million. By dividing 63 million by 99.2 million will get a debt ratio of 63.5%. Of course you can argue that the company doesn’t actually have long term debt at all, so our method might be inaccurate for measuring the ability to pay long term debt. This is a very good question; however, for the time being, this is still an imperfect but valid method to evaluate the company’s overall ability to repay debts.

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By now we have covered common size analysis, profitability analysis, asset turnover ratios, short-term solvency analysis, and long-term solvency analysis. Because cash flow analysis has different issues from the other types of analyses, we will leave it to the last session. If you want to have a full picture recap of all the terminologies we have covered, you can find them here.

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font-size: 12px!important; font-family: ‘Open Sans’, Arial, Helvetica, sans-serif; line-height: 22px; margin-bottom: 0; position: relative; vertical-align: top; font-style: normal; font-weight: 700; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-fieldRow .custom-select, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow .custom-select { background-color: #ffffff !important; color: #333333 !important; border-color: #cccccc; border-radius: 4px !important; border-style: solid !important; border-width: 1px !important; font-family: ‘Lucida Sans Unicode’, ‘Lucida Grande’, sans-serif; font-size: 14px !important; line-height: 20px !important; margin-bottom: 0; margin-top: 0; padding: 10px 28px 10px 12px !important; width: 100% !important; box-sizing: border-box !important; max-width: 100% !important; height: auto; display: inline-block; vertical-align: middle; background: url(‘https://assets.mlcdn.com/ml/images/default/dropdown.svg’) no-repeat right .75rem center/8px 10px; -webkit-appearance: none; -moz-appearance: none; appearance: none; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow { height: auto; width: 100%; float: left; } .ml-form-formContent.horozintalForm .ml-form-horizontalRow .ml-input-horizontal { width: 70%; float: left; } .ml-form-formContent.horozintalForm .ml-form-horizontalRow .ml-button-horizontal { width: 30%; float: left; } .ml-form-formContent.horozintalForm .ml-form-horizontalRow .ml-button-horizontal.labelsOn { padding-top: 25px; } .ml-form-formContent.horozintalForm .ml-form-horizontalRow .horizontal-fields { box-sizing: border-box; float: left; padding-right: 10px; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow input { background-color: #ffffff; color: #333333; border-color: #cccccc; border-radius: 4px; border-style: solid; border-width: 1px; font-family: ‘Lucida Sans Unicode’, ‘Lucida Grande’, sans-serif; font-size: 14px; line-height: 20px; margin-bottom: 0; margin-top: 0; padding: 10px 10px; width: 100%; box-sizing: border-box; overflow-y: initial; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow button { background-color: #000000 !important; border-color: #000000; border-style: solid; border-width: 1px; border-radius: 4px; box-shadow: none; color: #ffffff !important; cursor: pointer; font-family: ‘Lucida Sans Unicode’, ‘Lucida Grande’, sans-serif; font-size: 14px !important; font-weight: 700; line-height: 20px; margin: 0 !important; padding: 10px !important; width: 100%; height: auto; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-horizontalRow button:hover { background-color: #1F5014 !important; border-color: #1F5014 !important; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-checkboxRow input[type=”checkbox”] { box-sizing: border-box; padding: 0; position: absolute; z-index: -1; opacity: 0; margin-top: 5px; margin-left: -1.5rem; overflow: visible; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-checkboxRow .label-description { color: #000000; display: block; font-family: ‘Open Sans’, Arial, Helvetica, sans-serif; font-size: 12px; text-align: left; margin-bottom: 0; position: relative; vertical-align: top; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-checkboxRow label { font-weight: normal; margin: 0; padding: 0; position: relative; display: block; min-height: 24px; padding-left: 24px; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-checkboxRow label a { color: #000000; text-decoration: underline; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-checkboxRow label p { color: #000000 !important; font-family: ‘Open Sans’, Arial, Helvetica, sans-serif !important; font-size: 12px !important; font-weight: normal !important; line-height: 18px !important; padding: 0 !important; margin: 0 5px 0 0 !important; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-checkboxRow label p:last-child { margin: 0; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-embedSubmit { margin: 0 0 20px 0; float: left; width: 100%; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-embedSubmit button { background-color: #000000 !important; border: none !important; border-radius: 4px !important; box-shadow: none !important; color: #ffffff !important; cursor: pointer; font-family: ‘Lucida Sans Unicode’, ‘Lucida Grande’, sans-serif !important; font-size: 14px !important; font-weight: 700 !important; line-height: 21px !important; height: auto; padding: 10px !important; width: 100% !important; box-sizing: border-box !important; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-embedSubmit button.loading { display: none; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-embedSubmit button:hover { background-color: #1F5014 !important; } .ml-subscribe-close { width: 30px; height: 30px; background: url(‘https://assets.mlcdn.com/ml/images/default/modal_close.png’) no-repeat; background-size: 30px; cursor: pointer; margin-top: -10px; margin-right: -10px; position: absolute; top: 0; right: 0; } .ml-error input, .ml-error textarea, .ml-error select { border-color: red!important; } .ml-error .custom-checkbox-radio-list { border: 1px solid red !important; border-radius: 4px; padding: 10px; } .ml-error .label-description, .ml-error .label-description p, .ml-error .label-description p a, .ml-error label:first-child { color: #ff0000 !important; } #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-checkboxRow.ml-error .label-description p, #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-checkboxRow.ml-error .label-description p:first-letter { color: #ff0000 !important; } @media only screen and (max-width: 400px){ .ml-form-embedWrapper.embedDefault, .ml-form-embedWrapper.embedPopup { width: 100%!important; } .ml-form-formContent.horozintalForm { float: left!important; } .ml-form-formContent.horozintalForm .ml-form-horizontalRow { height: auto!important; width: 100%!important; float: left!important; } .ml-form-formContent.horozintalForm .ml-form-horizontalRow .ml-input-horizontal { width: 100%!important; } .ml-form-formContent.horozintalForm .ml-form-horizontalRow .ml-input-horizontal > div { padding-right: 0px!important; padding-bottom: 10px; } .ml-form-formContent.horozintalForm .ml-button-horizontal { width: 100%!important; } .ml-form-formContent.horozintalForm .ml-button-horizontal.labelsOn { padding-top: 0px!important; } } .ml-mobileButton-horizontal { display: none; } #mlb2-14362251 .ml-mobileButton-horizontal button { background-color: #000000 !important; border-color: #000000 !important; border-style: solid !important; border-width: 1px !important; border-radius: 4px !important; box-shadow: none !important; color: #ffffff !important; cursor: pointer; font-family: ‘Lucida Sans Unicode’, ‘Lucida Grande’, sans-serif !important; font-size: 14px !important; font-weight: 700 !important; line-height: 20px !important; padding: 10px !important; width: 100% !important; } @media only screen and (max-width: 400px) { #mlb2-14362251.ml-form-embedContainer .ml-form-embedWrapper .ml-form-embedBody .ml-form-formContent.horozintalForm { padding: 0 0 10px 0 !important; } .ml-hide-horizontal { display: none !important; } .ml-form-formContent.horozintalForm .ml-button-horizontal { display: none!important; } .ml-mobileButton-horizontal { display: inline-block !important; margin-bottom: 20px;width:100%; } .ml-form-formContent.horozintalForm .ml-form-horizontalRow .ml-input-horizontal > div { padding-bottom: 0px !important; } } @media only screen and (max-width: 400px) { .ml-form-formContent.horozintalForm .ml-form-horizontalRow .horizontal-fields { margin-bottom: 10px !important; width: 100% !important; } }

function ml_webform_success_14362251() { var $ = ml_jQuery || jQuery; $(‘.ml-subscribe-form-14362251 .row-success’).show(); $(‘.ml-subscribe-form-14362251 .row-form’).hide(); } fetch(“https://assets.mailerlite.com/jsonp/918262/forms/119753320103413631/takel”)