How to analyze financial statements: SIG, EBE, BFR and key ratios
A clear, hands-on guide to reading a set of accounts: break the result down with the intermediate operating balances, gauge cash with gross operating surplus and working capital, and interpret ratios against sector benchmarks.
What does analyzing financial statements mean?
Analyzing financial statements means turning a set of accounts into a clear reading of a company's financial health. You work from two complementary documents: the balance sheet, a snapshot of the company's assets and liabilities at a given date (assets = what the company owns, liabilities and equity = how it is financed), and the income statement, a moving picture of activity over the financial year (income − expenses = result). The analysis answers three questions: is the company profitable, is it solvent, and does its financial equilibrium hold up over time? To answer them, you restate the accounts into standardized indicators — intermediate operating balances, gross operating surplus (EBE), working capital requirement (BFR), cash flow (CAF) and ratios — as defined by the Plan Comptable Général (PCG, France's chart of accounts / GAAP), then compare them across several years and against sector averages.
The intermediate operating balances (SIG)
The SIG (soldes intermédiaires de gestion) break down, step by step, how the result is built up from the income statement. Each balance sheds light on one specific level of performance — from revenue all the way to net income. It is the starting point of any profitability analysis.
| Balance (SIG) | Simplified formula (PCG) | What it measures |
|---|---|---|
| Trading margin | Sales of goods − cost of goods sold | Performance of the resale (trading) activity |
| Value added | Trading margin + production for the year − external purchases and charges | Wealth actually created by the company |
| EBE | Value added + operating subsidies − taxes & duties − staff costs | Gross profitability of operations |
| Operating result | EBE + write-backs & other income − depreciation and amortization − other charges | Performance of the activity, investment included |
| Pre-tax current result | Operating result + financial result | Performance excluding exceptional items |
| Net income for the year | Current result + exceptional result − employee profit-sharing − corporate income tax | Final profit accruing to the company |
EBE and CAF: the ability to generate cash
EBE (gross operating surplus)
EBE (excédent brut d'exploitation, an EBITDA-like measure) is the margin generated by ordinary activity before depreciation and amortization, financial result and taxes. Neutral with respect to investment and financing choices, it reflects purely operational performance and approximates the potential cash generated by operations. A positive and growing EBE is the first sign of strength; a negative EBE signals a business model that does not cover its operating costs.
CAF (cash flow / self-financing capacity)
CAF (capacité d'autofinancement) measures the cash flow the company generates from its activity alone, available to invest, repay debt or pay its shareholders. Under the PCG's subtractive method, you start from EBE: CAF = EBE + cash-in income − cash-out expenses. This is the indicator a banker scrutinizes: set against financial debt, it gives the repayment capacity (debt / CAF, ideally under 3–4 years).
BFR and cash: financial equilibrium
The working capital requirement (BFR, besoin en fonds de roulement) measures what the company must finance to bridge the gap between its cash outflows (buying inventory, paying suppliers) and its cash inflows (customer payments). It is calculated as follows: BFR = inventory + trade receivables − trade payables (and operating liabilities). A high BFR ties up cash; a controlled BFR frees it. On the other side, the working capital (FR, fonds de roulement) corresponds to the stable resources that finance the operating cycle: FR = permanent capital − fixed assets. The key relationship of financial equilibrium fits in one line: Net cash = working capital − BFR. When the FR covers the BFR, the company generates cash; otherwise, it falls back on overdraft and weakens its position, even while being profitable.
The key ratios: profitability, leverage, liquidity
The SIG and the balance sheet boil down to a handful of ratios that speak for themselves. Four families are enough to steer an SME.
Profitability
Return on capital employed = operating result / economic assets. Return on equity (ROE) = net income / shareholders' equity. They measure the efficiency of the production tool and the return for the owners.
Leverage & autonomy
Financial autonomy = shareholders' equity / total liabilities and equity. Gearing = financial debt / shareholders' equity (ideally < 1). They show how dependent the company is on its creditors.
Liquidity
Current ratio = current assets / short-term liabilities (watch for > 1). It checks that the company can meet its short-term obligations without cash strain.
Repayment capacity
Financial debt / CAF: the number of years needed to repay the debt with the cash generated. Below 3 to 4 years, most banks consider the structure sound.
Interpreting: benchmarks by NAF code
A ratio only means something when it is compared. An 8% margin rate is excellent in food distribution and weak in consulting: it all depends on the sector. That is why the final step is to place each indicator against its industry peer group. The Banque de France (the French central bank) publishes, through its FIBEN database and its diagnostic tools (OPALE, DiagFi), medians and quartiles of ratios by NAF code — the activity code assigned by INSEE (the French statistics office) to every company. By positioning EBE, profitability or the debt burden within its sector quartile, you tell a structural signal apart from a mere quirk of the trade. The right reading is therefore always two-dimensional: over time (the trend across 3 financial years) and across space (the position relative to the sector). It is this dual comparison that turns raw figures into an actionable diagnosis — deciding on an investment, preparing a meeting with the bank or assessing an acquisition target.
Frequently asked questions
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Import your accounts: SIG, EBE, BFR, CAF and ratios are calculated to French GAAP (Plan Comptable Général), commented by AI and exported as a presentation-ready deliverable.