[MUSIC] For the example that we gave before of 100 euros a year and 80 COGS. If we use the formula we get exactly 180 days as our intuition told us before, right? Now let's move with this formula and with this intuition to the case of Polypanel now. Now you see that we have now instead of taking sales and taking COGS there, 2052 what 2,052,000 because it's in thousands, right? Inventory 452 and now the days of inventory 80 days if we compute it which means that we have a lot of inventory. We have inventory enough to sell for 80 days in the future, right? Now if we do it for the whole period as we did before what do we have? Look at this, 2004, 102 and then we went to 2005, 74, 77 and 80. Does it make sense to you first that we have 102 the first year? Because we said that the policy is about 60 days. We've never been in 60 days. Now, it makes sense that the first year is 102 because it is the year in which you start the business. So, when you start a business you are selling so little, you are Stocking a lot of stuff in the warehouse, right? And we have been increasing, right? Now again, as before, it does matter, it has a financial impact, right? Instead of taking the daily sales, now we're going to take the daily COGS. Now daily COGS is 5,600 euros. For each day that we have, each extra day that we have our stuff in the inventory that cost us money that we have a need of finance for that. And if the delay is 20 extra days and you remember the policy was 60 days and we are now in 80. So the difference between the theoretical policy that we've never actually complied with, and on the real one is 20 extra days, 20 days times 5.6, 112,000 euro's extra needed. This is a lot of money, if we were look at this in the balance sheet, it will change, right? Instead of 80 days, if we have 60 days, in the inventory instead of having 452, we would have 112 less. Do you agree with that? So instead of 452 we have 340. Now the asset part would decrease and then we would have 112 less in the credit or 112 less in the payable's, right, agree? So what is the learning here? Well, first is policy versus reality. This is a case in which the case says, my policy is 60 days. Do they actually know that they can never fulfill the policy. The lowest date of inventory has been 74 which is far away from 60. Second is that again, we should know what is the financial impact of each day extra of inventory which is 5,000 euros. And then if we compare it to the credit requested it's more than 20%, 112,000 euros needed. So if we were to complain with the policy, we wouldn't need to ask for so much extra credit. And then put a person behind the number. Is this a problem of the purchasing manager? Is it a problem of the supplier? Is it a problem of the manager? Who's problem is it, right? Now there is a specific term that use in operational financial in general that's called turn over. Now this is the first time we see it but it's important to know that it's exactly the inverse of days of the inventory. For example when someone tells you that hey, in my company my stock or my inventory turns over twice a year. What is the meaning of turns over twice a year? It means that the turnover is two, which means that every year the whole inventory is renewed twice, which means that the days of inventory would be 180. And with this, we are done with the operational ratios days of inventory. And we turn to the days of payment. [MUSIC]
