[MUSIC] So say that you have done the first big block of analysis, I only gave you some hints and you know the methodology, but it's good that you sit down and start doing step by step that. Once you have understood everything and have done the numbers, you're in a very good position to look at what happens if we make this agreement with KTM. So that's the second question that we should ask ourselves, what is the financial effect of partnering with KTM? This is something you have to work out. Like what happens, the CEO came to you and said, hey, Coursera student as if you were the CFO, what would you advise me? What do we do? Should we partner with KTM or not? So, I don't know. It's up to you. But I can tell you, well, one of the things you should do is first, you should do a new forecast. If you partner with KTM, it's obvious that you're going to have much more sales, because you have one more client that is buying from you almost 10% of your sales. So that is going to increase your sales, but is that going to increase you margins as well? Do you need more people or more machinery to produce that? So, what about the operation expenses? Is your return sales going to be the same or not? So you have to do a forecast of what happens if we do partner with KTM and compare the P&L of partnering with KTM without partnering with the P&L without partnering with KTM, then you should do also a new forecast of the balance sheet taking into account these new changes. Is it going to improve our financial situation or not? Do we have more cash? Do we have less need of credit or more need of credit? How is our fixed assets going to look like? Do we need long term debt or not? Because these are important things when we give some advice to the CEO. Of course, you should compute again the NFO and working capital and see whether the working capital actually improves or gets worse. Now, another one is what happens also if we change the production of engines from Yamaha to KTM? If you remember from the case, it says that if you partner with KTM instead of buying the for engine, the engines from Yamaha, how you might change to KTM. What is the effect of that? That's going to affect the cost of goods so, but it's going to affect also the days of payment. How is that going to change the amount a day, NFO and the working capital? This is important and then at the end, I guess you should do a sensitivity analysis to say the what if question. This is very important, because we have some doubts as to what to do if you partner with KTM. Perhaps KTM later on in two years time, stops the partnership and starts selling its own trial bikes and we're left alone without that source of income. What's going to happen if that occurs? Or again, imagine that they changed the days of payables for the engines in KTM and then they require fewer days, how is that going to impact the balance sheet? And there are many other ifs that you should take into account, it's up to you to understand which are the variables that you should tweak to see the effect on the P&L and on the balance sheet. So now that you have done these analysis of what happen if we partner, then you need to make up your mind and see what do we recommend the CEO, which is what we going to do in the next clip [MUSIC]
