FC Porto Harvard Case Solution & Analysis

FC Porto Case Solution 

EBITDA means

EBITDA (Earnings before Interest, Tax, Depreciation and Amortization) is basically a financial tool to analyze the performance of the company. EBITDA discovered in 1990 for LBO (Leverage Buyout) method.It also determines the profitability with respect to competitors and industry. It describes cash flows from the company’s operations and merger and acquisition of SMEs (Small and medium Enterprises).  It is helpful for large companies that have greater number of assets with significant debt financing.

In FC Porto financial Account, the operating cash flows have increased by 12.18% from previous (2002-2003) to current year 2003-2004 which means that,the EBITDA disclose the improvement in company performance due to UEFA champion league. Therefore the total cash flow has increased from €i.8 million to €43.9 million. Due to this, the income has increased by 117%. The income has increased by different aspects including transfer and loan 44%, ticketing 13%, TV 5% and so on.

 Low net profit, depreciation and amortization lead to high EBITDA which is significant for the company. Moreover, positive EBITDA tells the operating cash flow has positive value which means that has good financial performance. Financially strong companies contain the optimum ratio in debt and equity financing. Negative EBITDA depicts the financial difficulties in generating cash from non-operating assets. Negative cash flow does not mean that the company has bad financial performance, but it is an alarming situation that company needs to take steps to for managing cash.

Distribution of operating Income

The income of FC Porto is generated from many sources,which are as follows;

Transfer and loans (44%)

The income has increased from € 13.9 million to €49.8 million in the current year and from sales of sporting rights to 11 different players in contribution of football players’ fund. The profit is also generated from players who are lent out in other national and foreign team.

UEFA competition (21%)

The outstanding performance in European football competition has increased the company’s net income. The victory of UEFA champion League generated income from € 8.8 million to € 25.1 million in current year (2003-2004).The company has won this championship in last 20 years and became a leader in international football panorama.

Sponsorship and Advertising (7%)

The income has slightly decreased from previous to current year, which is 7% due to commercial partnership.The Porto commercial is another diversified business of FC Porto. The partners include Nike, Revigres and Bes. The income has reduced from €10.4 million to €8.5 million.Sponsorship can be used for awareness, building brand image and to purchase royalty, as well as it is different from advertising.

Ticketing (13%)

The contribution of ticketing plays a role in increasing income. In football matches, about 65% of the tickets are sold out to reserve seats in order to attend football match. The commercial areas including parking and event also contributed in income. The income has increased by selling tickets for new stadium, which is 95%. Seasonal ticket is also a contributor for income increasing in which the matches are arranged in different months for trial or tournament. In seasonal matches, the tickets are already sold out to reserve seats for specific matches.Moreover, the tickets on parking and functions also contribute in generating revenue.

TV (5%)

The TV Marketing has decreased the profit slightly from €6.4 million to €6.2 million. The €6.4 million is highest value from last three years. The income has decreased as the contract has signed to broadcast live Portuguese matches. TV media plays a vital role in adverting and promotion of specific task for awareness. The company has created awareness of Championship league to create awareness and increase profitability.....................

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