 Hey guys, it's MJ the student's act tree and this is episode 2 of the financing model that I am busy building so in the first video we looked at Just in the normal case where a business would finance itself In order to increase its sales and profit. So that's what was represented by the green line So they would make some money and then they'd purchase a bar or a new asset It would dip down would increase, but then their profits would also jump as it sell more Now we asked the question. Well instead of the the business financing itself. What would happen if it took out a loan and the loan is going to give it the advantage of Getting that ball getting that asset in earlier, which means if we can see here It's grows slowly at a higher rate than then the normal one without the loan The profit is a little bit suppressed due to the interest repayments, but after the interest repayments I mean it does jump up and it is greater than the normal profit so first thing I'm going to show you is or What what the model does is it first tells you if the loan is possible and if the loan is better So if we add a charge say a very high interest rate say 10% or something like that You're going to see the profit is it gets smacked and the bank doesn't ever recover from it So straight away it's just going to say no it's going to say no so the loans not possible because the interest payments are greater than the profit is going to make and It's the loans not better because The amount at the end is less than the amounts of the bank when you just go the normal financing But 10% a month is quite quite heavy More with more adjusted just to see like what would happen on say 2% so in 2% we can see that the loan is not better So look at that. So a single percentage Does change it? Let's see if we change the term The term doesn't really change the outcome. It just shows how the loan gets spread out And I mean we can even do it say although say in five months if the loan is too short Then the loan is not going to be possible. So that's important when deciding. Well, how long should we do the loan? There will be Sorry, I should be showing that There will be some constraints so term in loan of loan is monthly You want to spread that out to 30 And then you can see on the graphs how it changes what's also quite cool is We can also show instead of just saying one asset what happens when there are two assets so then you get that loan right in the beginning and There we can see okay under these conditions The the loan is not possible, but let's say we're being very optimistic and that We're gonna sell our assets, but instead of just getting 2000 extra beers a month. We're gonna get 3000. How does that do it and bam? There we see the loan is now possible and the loan is now better so the loan is going to be very much dependent on You know this extra monthly sales Also the profit So what what this tool does is it's kind of saying What under what conditions is it better to get a loan and well under what conditions is possible to get a loan and under what conditions is it better to get a loan and By playing with various figures. You can see how that results I mean if extra monthly sales, we're only expecting say 500 units or the product just in this case We've been using beer you can see it goes no no But I mean with 5000 it's yes. Yes A number of new assets. I mean if we go three, let's see what happens You can see visually what is happening with the graphs and I've also showing the actual values over here So what's also nice is let's say we're gonna be expecting this generous amount of monthly sales I say 5000 we can then also see well, how much of the interest rate are we prepared to pay? So 2% we're still all good 3%. Oh 3% we're no longer possible But wait once if we extend the loan time. Oh, bam. We're back in business 4% Oh, we can still take on 4% 5%. Oh 5% doesn't help us But less if we extend the loan. Okay, even if we extend the loan we're kind of seeing that 5% is our limit What about four and a half? Well, then the loan is possible. Well, this is interesting the loan is possible, but it's not better And you can see Over there what is happening graphically? So that's all I wanted to show you guys for episode 2 of the model I've called her Clara and there's a little picture or icon of what you'll look like. I want to give every model I make A new picture and a new name just so that I can remember them better Because yeah as Actress you are going to be making lots of these things and the cool thing is that you can Reuse your models for different purposes So this could be used for a beer company and then it could be used for a chocolate company It could even be used for Apple selling our phones and all that type of stuff So these models are very flexible. They are very generic and they can be reused because it's good to recycle But thanks so much for watching in the next episode. I will be looking at how equity what happens if we introduce that option and Whether you know is equity better than just normal bank and is equity better than the loan So subscribe as I will be I still have to build the model before I can film it and show it to you guys But otherwise, thanks for watching guys. Cheers