Brisa Accounting Analysis

CASE 4 – INCOME STATEMENT ANALYSIS

Brisa – Auto-Estradas de Portugal –

Consolidated Income Statement 2007 & 2008

Income Statement

Structure of Operational Revenues and Operational Expenses

Brisa accounts for the majority of its revenues through services rendered in the form of motorway tolls, the service being the use of the motorway. This represents over 90% of its revenues. A much smaller fraction is accounted for by other operating incomes such as right of usage to service stations, products such as electronic identifiers, etc. Adjustments and reversals of amortizations account for an insignificant value of revenues.

Operating costs represented a constant proportion of around 30% of Operational revenues throughout 2007 and 2008. The majority of these costs are related with personnel costs and maintenance and motorway servicing costs.

Impact of Financial Earnings on Net Income

Financial earnings represent 3% of the total operating income and in regards of net income have a smaller proportionate effect than the investment income or more so the operating profit. Brisa’s core business and source of income does not come through hard line financial income.

Profitability Ratios

Brisa presents strong profitability ratios indicating a healthy operation overall.

The earnings before income and tax over the operating income is a healthy 40%. However, given the nature of its business, the high value of the long-term assets and the consequent depreciation and amortization of these, the same earnings before income and tax but also depreciation and amortization are then quite high at a rate of 70%.

The margin exempt of any interest expenses or income taxes is proportionately high at 55% but as expected, high income taxes and interest expenses of the high value of the contrived loans reduce this margin to 26%.

Most relevantly, the net profit margin is approximately 20% concluding that Brisa is generating healthy returns although of a lesser...