Diario, an italian center-left weekly magazine, is closing down. The main factors that brought the publisher to this hard decision are few copies sold and not enough advertising revenues.

As market analyst I should judge the management of a company impartially, but this time I’m emotionally involved and it’s tougher. I started my (brief) carrer in journalism as a Diario intern and I continued writing as correspondent every now and then. I know all the people working in the newsroom, I know some of their families and I can understand the gravity of losing one’s job. But I’ll try my best analysing the situation.

I think the main problems of Diario are the lack of a marketing department, which would promote the editorial product, and an “homemade” publicity management, only recently externalized to a press agency.

In a market environment where the trends are decreasing revenues from copies sold and fierce competition with tv and new media in advertising, the solution italian publishers found is secondary products, like books and dvds, which increase revenues.

Also Diario tried this way. In fact, the financial report for year 2006 looks “better” compared to the one of the previous year, because the revenues from the chief editor’s self-produced movie lowered the debts. It ends up with a net loss of 644.708 euros anyway.

I drafted a ratio analisys. Please correct me if there’s something wrong (I’m just a student, after all )

2006 2005

ROA -19,89% -54,19%
ROE -52,48% -128,22%
ROD 1,44% 3,41%
ACID TEST 130,47% 110,06%
CURRENT RATIO 131,61% 116,75%
DEBT TO CAPITAL 47,32% 36,84%

The level of receivables looks too high and the liabilities increased in 2006. Even if the revenues from goods sold doubled, the costs of production were still higher than revenues.

The acid test ratio appears to be ok, above 1, so the company should be able to pay its short-term obligations and the debt to capital is acceptable. But the return on debt seems to be too high. The current ratio is low (maybe due to the receivables?), while it should be around 200%…

Concerning ROA and ROE, well, they’re negative. The company is losing 0,20 euro for each euro in the assets. Plus ROE should be between 13% and 15% while it’s -54,48%.

I can’t say more, I would need the statement of cash flow…

I would really appreciate feedback on this, because it’s just a challenge to test my financial accounting skills