LS4 STEP 3 Lecturer’s Script

LS4 STEP 3 Lecturer's Script

OK, now we can make a short summary of our group's work.

For the beginning, a Quick Challenge -- Look at the table and look at the scale of these 5 companies: Which company do you think has the largest Balance Sheet (meaning Total Equity and Liabilities)? And before we drag the red slider to the right -- how big do you think the gap is between the #1 giant and the second-largest company on this list?

Did you already know this, or are you surprised? (Look at the class)

This example teaches us an important lesson: before you dive into the details, always look at the big picture first.

You shouldn't narrow your focus only to solving specific technical tasks -- you must always understand the broader context.

In fact, this is a very common mistake among young professionals: they try so hard to do their tasks perfectly that they lose sight of the overall situation.

Now look at next chart—how these companies fund themselves (green is Equity, blue is Debt). We can see three clear models here:

At the top: CD PROJEKT (94% Equity, zero bank loans).

Explanation: Making a big game takes 5 years, so taking on bank debt is just too risky.

In the middle: ORLEN, Amazon, and Puig (around 50% Equity / 50% Debt). They safely mix their own money with long-term debt to fund refineries, AI servers, or brand acquisitions.

And At the bottom: Biedronka / JM (only 21% Equity, 79% Debt).

Why so much debt? It’s not bank loans—it’s mostly store leases and free credit from food suppliers, whom they pay after 60 days!

Now Look at Chart 3. In Module 3, we saw that these five companies are in completely different industries, yet their Left Side (Assets) looks almost identical -- about two-thirds (62% to 72%) are long-term assets.

The real strategic difference is here in Module 4 on the Right Side -- how they choose to fund their business, ranging from 94% Equity at CD PROJEKT down to only 21% Equity at Biedronka!

Look at Chart 4 -- here we break the Right Side into three layers: Equity (green) plus Long-Term Debt (blue) together form Permanent Capital (KS), while the red bar is Short-Term Debt (ZK, due within 12 months).

Notice why ORLEN, Amazon, and Puig are so stable despite having around 50% total debt: half of their debt is long-term, so their Permanent Capital (green plus blue) reaches 73% to 77% of all funding!

Only Biedronka has a huge red bar (53% short-term debt) -- because it funds itself with interest-free 60-day invoices from food suppliers.

Look at Chart 5 -- our final verdict on the Golden Rule (1:1, where Equity is at least 100% of Debt) and the Silver Rule of Financing (1:2, where Equity is at least 50% of Debt, or one-third of the Balance Sheet).

Notice the three tiers: CD PROJEKT (1541%), ORLEN (120%), and Amazon (101%) pass both the Golden and Silver Rules. Puig Brands (84%) misses the strict Golden Rule because of its acquisition loans, but comfortably passes the Silver Rule! And even though Biedronka (26%) fails both rules, it doesn't mean something is wrong with it -- you always have to understand how its specific industry works.

NEXT QUICK DEBATE (tylko jeżeli jest 13.30-14.45, jeżeli po 14.45 to odpuszczamy sobie!)

And now a short debate. All together now. Please try to answer the following questions:

Question 1: THE BIEDRONKA PARADOX (79% DEBT, KW/KO = 26%)

Prompt: Jeronimo Martins (Biedronka) has 79% Liabilities (21% Equity), giving an Equity-to-Debt ratio (KW/KO) of just 26% -- failing both the Golden Rule (>=100%) and Silver Rule of Financing (>=50%). Why do banks still consider it financially safe?

Comment: "C, because shoppers pay cash immediately while suppliers wait up to two months, creating free financing."

(PL: C, bo klienci płacą od ręki, a dostawcy czekają do dwóch miesięcy, co daje darmowe finansowanie.)

Question 2: CD PROJEKT'S 94% EQUITY FORTRESS (KW/KO = 1541%)

Prompt: Why does CD PROJEKT fund 94% of its Balance Sheet with Equity (zero bank debt, Permanent Capital KS = 95%, KW/KO = 1541%), whereas ORLEN, Amazon, and Puig use 45%-54% debt?

Comment: "B, because making games takes years of risky cash burn, so bank debt could easily bankrupt them."

(PL: B, bo tworzenie gier to lata ryzykownego przepalania gotówki, więc raty kredytu mogłyby ich wykończyć.)

Question 3: GOLDEN (1:1) vs. SILVER RULE OF FINANCING (1:2) IN PUIG BRANDS

Prompt: Puig Brands has 46% Equity (KW) and 54% Liabilities (KO), giving an Equity-to-Debt ratio (KW/KO) of 84% and Permanent Capital (KS) of 74%. How do we evaluate Puig under the Golden (>=100%) and Silver (>=50%) Rules of Financing?

Comment: "B, because although M&A debt puts Puig slightly below the 1:1 Golden Rule, 84% easily passes the 1:2 Silver Rule (>=50%) and keeps 74% in Permanent Capital."

(PL: B, bo choć dług na przejęcia marek daje wynik tuż poniżej Złotej Reguły 1:1, to 84% z zapasem zdaje Srebrną Regułę 1:2 przy 74% Kapitału Stałego.)

Question 4: LAYOUT TRAPS -- US GAAP (AMAZON) vs. IFRS

Prompt: How does the right side of Amazon's US GAAP Balance Sheet differ from European IFRS filings, and how did its KW/KO ratio evolve in 2025?

Comment: "A, because US GAAP lists short-term debt first, puts Equity at the bottom, omits liability subtotals, and in 2025 Amazon's Equity overtook Debt (KW/KO rose from 84% to 101%)!"

(PL: A, bo w US GAAP zobowiązania bieżące są na górze, kapitał własny na dole, brakuje podsumowań, a w 2025 r. KW Amazona przebił dług, dając 101%!)

Question 5: WHERE DOES EQUITY STRENGTH COME FROM?

Prompt: Across CD PROJEKT, ORLEN, Puig, and Amazon, the single largest item inside Shareholders' Equity is Retained Earnings (accumulated profits). What is the key lesson?

Comment: "A, because the strongest way to build Equity is simply keeping your net profits in the company."

(PL: A, bo najsilniejszy kapitał własny buduje się po prostu zostawiając wypracowane zyski w firmie.)

Full set of questions

Question 1 of 5: THE BIEDRONKA PARADOX (79% DEBT, KW/KO = 26%)

A) Because food inventories on shelves are counted as Shareholders' Equity.

B) Because governments legally guarantee all supermarket debts.

[X] C) Because shoppers pay cash immediately while suppliers are paid 30-60 days later (EUR 7.6B of interest-free supplier trade credit), and JM holds more cash than bank debt.

D) Because IFRS 16 lease liabilities never require cash rent payments.

E) Because the 79% liabilities are misclassified net profits.

Explanation (Why C is correct): SPOT-ON! Food retailers collect cash daily at the checkout while paying suppliers 30-60 days later. This permanent EUR 7.6B river of interest-free supplier credit safely funds the business!

Question 2 of 5: CD PROJEKT'S 94% EQUITY FORTRESS (KW/KO = 1541%)

Prompt: Why does CD PROJEKT fund 94% of its Balance Sheet with Equity (zero bank debt, Permanent Capital KS = 95%, KW/KO = 1541%), whereas ORLEN, Amazon, and Puig use 45%-54% debt?

A) Because banking laws prohibit loans to video game studios.

[X] B) Because building an AAA game takes 4-6 years of cash burn with hit-driven risk -- if a launch is delayed, fixed bank loan payments could bankrupt the studio.

C) Because CD PROJEKT has 0% Non-current assets.

D) Because the studio is unprofitable and banks refused to lend.

E) Because 90%+ Equity exempts a company from corporate tax.

Explanation (Why B is correct): SPOT-ON! High business risk (4-6 years of R&D before launch day) must be paired with low financial risk (zero debt). CD PROJEKT self-funds future games using retained profits.

Question 3 of 5: GOLDEN (1:1) vs. SILVER RULE OF FINANCING (1:2) IN PUIG BRANDS

A) Puig fails both rules and faces immediate insolvency.

[X] B) Puig falls just short of the strict 1:1 Golden Rule (84% < 100% due to M&A acquisition debt), but comfortably passes the 1:2 Silver Rule of Financing (84% >= 50%, keeping Equity well above the 33.3% minimum), backed by 74% Permanent Capital!

C) The Silver Rule requires 0% debt.

D) Long-term debt must be repaid within 14 days.

E) 84% means Short-Term Liabilities are 84% of the balance sheet.

Explanation (Why B is correct): SPOT-ON! The 1:2 Silver Rule of Financing (KW/KO >= 50%, min. 33.3% Equity) allows growing companies to use financial leverage for M&A acquisitions while maintaining a strong owner buffer (46% Equity) and 74% Permanent Capital.

Question 4 of 5: LAYOUT TRAPS -- US GAAP (AMAZON) vs. IFRS

Prompt: How does the right side of Amazon's US GAAP Balance Sheet differ from European IFRS filings, and how did its KW/KO ratio evolve in 2025?

[X] A) US GAAP starts with Current Liabilities at the top and puts Stockholders' Equity at the bottom (omitting subtotals for Non-current and Total liabilities); in 2025, a +44% surge in Equity pushed Amazon across the 1:1 Golden Rule threshold (KW/KO rose from 84% to 101%)!

B) Under US GAAP, Total Assets do not equal Liabilities + Equity.

C) European IFRS prohibits showing Shareholders' Equity.

D) Amazon reports its 10-K in Euros.

E) Every Balance Sheet in the world prints a 'Total Liabilities' line.

Explanation (Why A is correct): SPOT-ON! US GAAP orders items by maturity (Current Liabilities at the top -> Equity at the bottom). And in 2025, Amazon's Stockholders' Equity ($411B) officially overtook Total Debt ($407B), reaching 101% and passing the 1:1 Golden Rule!

Question 5 of 5: WHERE DOES EQUITY STRENGTH COME FROM?

Prompt: Across CD PROJEKT, ORLEN, Puig, and Amazon, the single largest item inside Shareholders' Equity is Retained Earnings (accumulated profits). What is the key lesson?

[X] A) The most powerful engine for building a strong Equity cushion (high KW share and passing the Golden/Silver Rules) is generating net profits and retaining them inside the business to fund future growth.

B) Retained earnings mean the company has never made a profit.

C) Retained earnings are 30-day invoices owed to suppliers.

D) Shareholders' Equity must be repaid to banks every 12 months.

E) High Equity means a company owns zero physical assets.

Explanation (Why A is correct): SPOT-ON! That is the ultimate takeaway of Module 4: profitable companies build financial strength organically by retaining net earnings inside Shareholders' Equity, boosting Permanent Capital (KS) and their Equity-to-Debt ratio (KW/KO)!

Szybka ściągawka klucza odpowiedzi (Quick Key): Question #1: C | Question #2: B | Question #3: B | Question #4: A | Question #5: A

Our final tab (Part 3: Balance Sheet Simulator) lets you play around with different capital structure scenarios for our companies -- such as replacing retained profits with bank loans at CD PROJEKT, buying stores instead of leasing them at Biedronka, or paying off M&A debt at Puig. We don't have time for it right now, but feel free to test this tool on your own at home.

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