by his side, preferably an admiring one.
His wife, Juliette, played this doting, attentive role when Henri had first established the company. He had grown the company from its original roots as a reputable carpentry shop run by his father, a master carpenter. In contrast Hubert, a childhood friend who joined the business in its early days as a salesperson, was incapable of taking anything seriously for more than five minutes. As the son of a rich family, he was so happy to have escaped a predictably dull future that he couldn’t keep himself from joking every time he brought in an order. Hubert teased Henri, who struggled to adapt the company’s manufacturing capacity to keep up with the increasing demand, and who lacked a sense of humor when he was the target of such joking.
Juliette, for her part, was able to spend the entire day in silence by her husband’s side, looking on in admiration. For this privilege, she had given up playing piano and had learned, without anyone’s help, first the role of secretary and then that of accountant. She eventually came every morning to work at the factory with her husband for more than fifteen years. Then one day she suddenly stopped going. Héloïse quickly understood that a certain “Georgette,” who was a certified accountant—as Georgette explicitly pointed out every time she introduced herself—had replaced her mother in her role at work.
As Héloïse swings open the heavy door on the office side of the factory, the sun is already high enough that she can feel its hot rays on her neck. She walks down the narrow corridor flanked with offices. Her eyes fall on Georgette who, having heard a car, has half-emerged from her office in order to identify the visitor. On seeing Héloïse, her face stiffens with the double effect of a polite grimace and an ill-concealed disapproving pout. She retreats to her nervous habit of convulsively scratching her right hand, where a rash leaves her skin an angry red.
Georgette has not forgotten her last meeting with Héloïse, when the latter asked what a balance sheet and an income statement were and how the budget was constructed. Héloïse didn’t understand any of Georgette’s explanations, as tiresome as they were detailed, and had made no secret of it.
“Good morning, Georgette!”
“Good morning, Miss Héloïse.”
“Georgette, I am surely past the age to be called Miss. You can just call me Héloïse.”
Her tone is that of someone who has made this admonition many times. Georgette remembers, mumbles something, and then pops back into her office like a mole into its burrow. Héloïse pushes open the next door, the one that leads to her father’s office, torn between feelings of exasperation with Georgette and relief at not having had to shake her hand.
The late Henri Rami’s office is like a den, dark and unique. On one side stands a magnificent oak desk, augmented by an armchair that envelops whoever sits in it. It too is made of oak, reminding the visitor that the company designs and manufactures wooden furniture. On the other side, several chairs and a small round table are reminders of the company’s other principal endeavor, metalwork. Héloïse chooses to sit at the metal table, and thinks to herself that Thierry Ambi would certainly arrive soon. She takes out a folder, and begins to read over her notes.
In the folder’s different colored pockets she has arranged the balance sheets and income statements from the past two years. She recalls the conversation with her mother a few days before, when Juliette explained these to her.
“The balance sheet is a statement of the company’s financial position at a specific point in time. It is usually published once a year, at the end of the year. It is set out in two columns that balance against each other. One side shows the assets, such as buildings, inventory, and cash. The other side shows the liabilities—such as losses, long- and short-term debt, and sums set aside for tax payment—plus the shareholders’ equities, meaning amounts invested by partners. The assets column represents what the company owns, and the other column represents what the company owes. They always balance.”
“Always? They automatically balance?” Héloïse had asked.
“Yes, absolutely, because if there are losses they will show up as debts—loans, for example.”
“So, if I understand you correctly, if Thomas and I had drawn up a balance sheet after we bought our house, the liabilities column would show the principal owing on our fifteen-year mortgage plus the savings each of us contributed to the purchase. On the assets side would be the value of the house, which would match up with the amount in the other column.”
“Yes, that’s it exactly.”
“Then what’s the difference between a balance sheet and an income statement?”
“An income statement measures how a company has managed its financial flow over a certain period of time—a year, for instance. It itemizes all income and also the various expenses incurred. Based on those figures, the result will be a profit or a loss. It can also be useful to do an intermediate analysis of business operations, through calculating the gross margin. To do this, you add up only the costs directly associated with production and sales—such as labor, materials, subcontractors’ fees, advertising, distribution, and overhead—because it will give you an idea of whether the company is being managed well or badly on a day-to-day basis. This is called the cost of goods sold. When you deduct those costs from total revenue, it will give you the gross margin. Then, from that figure, you have to further subtract capital costs—which is to say, interest paid on debts—and tax. The result is the net profit—what’s known as ‘the bottom line.’”
Even though Héloïse had paid attention to her mother’s words with a concentration that wrinkled her brow, the words seemed somewhat abstract. Then she suddenly recalled the sad story her mother had told her a long time ago. It was about her cousin Paul, who got into difficulties with a car-restoration business he had launched on a whim. It had been to Paul that Héloïse entrusted the Fiat 500 her grandmother had given her, when it needed fixing up. Having had to constantly borrow money to finance his inventory, he eventually went bankrupt. He no longer had enough cash, and the capital cost to pay to the bank was eating all the profit even though he had clients who wanted his services.
Héloïse understood and, after a few hours of listening to her mother’s explanations, had learned to interpret the principal financial results of the company. This was how she realized, at the same time her mother did, that although the company made a profit this year of slightly less than €20,000 (almost one percent of the turnover of about €2 million), there would be neither the possibility of increasing wages to keep pace with inflation, nor of hiring anyone new. Paying a dividend to the two shareholders was therefore also out of the question.
The income statement showed excessive spending, which was mainly due to underestimations on quotations to customers. What’s more, the H. Rami company had been existing on credit for two years, with more than 80 percent of its activity financed by short-term loans. And the situation wasn’t getting any better. The balance sheet showed that, compared with the previous year, inventory had increased by 12 percent—an increase mainly due to the purchase of an extra-large batch of exotic wood, for which Henri Rami had negotiated a volume discount. Unfortunately, this wood had not yet found its use. The throughput time was eight weeks; that is to say, raw materials and components purchased took that long a time to emerge from the factory in the form of finished products. In other words, customers had to be patient over two months on average before getting their deliveries.
Her mother, remembering vividly how demanding the company’s customers were, turned pale at this thought and, watching her, Héloïse became pale too. The financial analysis, drawn up by a chartered accountant, was no less mortifying.
