3.1The intermediate management balances (SIG)
The essentials in 30 seconds
- The SIG break down the formation of the result into successive steps: you start from turnover and go down, balance after balance.
- Main balances: gross margin, value added (wealth created), EBITDA, operating result, then net result.
- EBITDA measures the pure profitability of operations, before depreciation and financing: a key cash indicator, comparable between businesses.
Running mini-case — Rachid finally reads his figures
Rachid runs a small trading business in Algiers. Every year, his accountant announces "profit" or "loss" without him understanding where it comes from. This year, he opens the SIG table: value added is good, but EBITDA is weak — his staff costs have eaten the wealth created. For the first time, he knows where to act.
This same case returns in the lesson, the diagram, the script and the 48h challenge — and continues in 3.2, 3.3, 3.4 and 3.5.
1. Breaking down the result like a staircase
The net result does not tell how it was formed: profit or loss, you never learn where performance was decided. The Intermediate Management Balances (SIG) break down its formation into successive steps, like a staircase.
You start from turnover and go down, balance after balance, progressively subtracting expenses: gross margin (sales minus purchase cost, for trading), value added (wealth created: production minus external consumption), EBITDA, operating result, then financial, exceptional and net result. Rachid walks down step by step instead of staring at the last one.
2. EBITDA, a key indicator, and the diagnosis
EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation) is particularly scrutinised: it measures the pure profitability of operations, before depreciation and financing — a key cash indicator, independent of the financial structure, hence comparable between businesses.
Mastering the SIG turns a superficial reading ("profit or loss") into a precise diagnosis: good value added but weak EBITDA means staff costs weigh too much; good EBITDA but weak operating result means high depreciation. Each balance answers a precise question.
🔎 Concrete example — Locating where performance is decided
Rachid reads his cascade instead of the net result alone.
Good value added but weak EBITDA → staff costs too heavy.
Good EBITDA but weak operating result → high depreciation.
→ the diagnosis comes from reading the balances, not the net result alone.Result: a real diagnosis, not a simple "profit/loss".
Reflex: EBITDA can be compared between businesses (independent of financing).
Section vocabulary
- SIG
- Intermediate Management Balances: breakdown of the result into successive steps to analyse its formation.
Simple example: Rachid walks from turnover down to the net result, balance after balance.
What it is not: the net result alone read as a verdict with no explanation.
Reflex: facing any result, ask "at which level was it decided?".
- Gross margin
- Sales of goods minus the purchase cost of those goods; relevant for trading activities.
Simple example: Rachid's trading business tracks its margin on every sale before anything else.
What it is not: a meaningless balance for a pure service business.
Reflex: adapt the balances you track to your trade.
- Value added
- Wealth created by the business: production minus external consumption (purchases and external services).
Simple example: a good value added proves the core trade creates wealth.
What it is not: gross turnover, which says nothing about the wealth created.
Reflex: first check whether the wealth created is there.
- EBITDA
- Earnings Before Interest, Taxes, Depreciation and Amortisation: pure profitability of operations before depreciation and financing; a key cash indicator.
Simple example: a weak EBITDA despite good value added points at staff costs.
What it is not: the cash available in the till at a given moment.
Reflex: scrutinise EBITDA first: the core business is speaking.
- Operating result
- Performance of day-to-day activity after depreciation and provisions, excluding financial and exceptional items.
Simple example: a good EBITDA but a weak operating result signals high depreciation.
What it is not: the net result, which mixes operating, financial and exceptional items.
Reflex: compare EBITDA and operating result to isolate depreciation.
In practice — Breaking down the result with the SIG
- Start from turnover and go down balance after balance, progressively subtracting expenses.
- Calculate value added (wealth created = production minus external consumption).
- Calculate EBITDA (pure profitability of operations, before depreciation and financing).
- Continue to the operating result then the net result, and interpret each balance instead of calculating mechanically.
Ready-to-say script — read your SIG in 1 min
"Our turnover is X. Our value added is good: the trade creates wealth. But our EBITDA is weak: staff costs absorb that wealth before depreciation even starts. So the priority is not selling more, it is acting on that level."
To say to your partner or banker, SIG table in front of you.
Copy-paste template — express SIG table
EXPRESS SIG TABLE — year: _______________
TURNOVER: _______________
GROSS MARGIN (trading): sales − purchase cost = _______________
VALUE ADDED (wealth created): _______________
EBITDA (pure profitability, before depreciation/financing): _______________
OPERATING RESULT: _______________
NET RESULT: _______________
DIAGNOSIS (at which level is it decided?): _______________Small business / small budget
No software needed: three balances are enough (value added, EBITDA, operating result), calculated once a year with the accountant.
SME Algiers
Have the accountant explain each balance in plain language; track EBITDA year on year to smooth out activity swings.
Trading / retail
Put gross margin at the centre: it is the first step that decides everything else in the cascade.
Services
Gross margin meaningless: start directly from value added, then scrutinise the weight of staff costs in EBITDA.
✓ Best practices
- Scrutinise EBITDA: the pure profitability of operations, comparable between businesses.
- Locate at which level performance builds up or deteriorates.
- Adapt the balances you track to your trade (gross margin for trading).
✗ Common pitfalls
- Settling for the net result without breaking down its formation.
- Neglecting EBITDA, the most revealing indicator of the core business.
- Calculating every balance mechanically without ever interpreting them.
Key takeaways
- The SIG break down the result into steps to understand where performance comes from.
- Main balances: gross margin, value added, EBITDA, operating result, net result.
- EBITDA measures the pure profitability of operations: a key cash indicator.
- Each balance answers a precise question and turns reading the accounts into a diagnosis.
48h challenge — apply tomorrow
Ask your accountant for the SIG table of the last year, spot the level where performance is decided (margin, value added, EBITDA?) and write your diagnosis in one sentence.
- I can name the main SIG in cascade order.
- I know what EBITDA measures and why it is compared between businesses.
- I have read my own SIG (or scheduled the accountant meeting).
Frequently asked questions
Why do financiers and bankers scrutinise EBITDA so much?
Because it measures the “pure” profitability of the core business, before depreciation (investment policy), before the financial result (financing method) and before exceptional items. It reflects the ability of the activity to generate cash and lets you compare businesses financed differently. A weak EBITDA is a major warning signal, even if the net result is rescued by an exceptional item.
Must you calculate all the SIG every time?
Not necessarily: you adapt to the need and the trade. Gross margin is central for trading but meaningless for services; value added and EBITDA are almost universally useful. Reasoning matters more than exhaustive calculation: spotting where performance builds up or deteriorates.
Rachid has good value added but weak EBITDA. Where does the diagnosis point first?