Earnings cascade (SIG): reading the 9 tiers
France's nine intermediate management balances (SIG) break your income statement down tier by tier. Gross margin, value added, EBITDA-like EBE, operating profit: see where performance is created and where it leaks, and how to read each level.
Expert note: This article was written by our chartered accountancy firm. Information is current as of 2026. For a personalised review of your situation, contact us.
Quick answer. France's intermediate management balances (soldes intermédiaires de gestion) are nine indicators that break the income statement into successive tiers, from gross margin to net profit. Each tier isolates one source of performance, so you can see where value is created and where it leaks, which a single net profit figure hides.
Many business owners look at a single line of the income statement: net profit. It is the latest indicator, the one that aggregates everything, and therefore the least useful for steering. The intermediate management balances answer a more practical question: at which tier are you making or losing money?
Defined by the French general accounting plan (ANC regulation no. 2014-03), the SIG are not just one analytical option among many: they are the standardised reading grid for the French income statement. This article walks through them as a diagnostic tool, tier by tier, without reducing the analysis to the EBE alone.
Why nine tiers rather than a single figure#
The income statement adds up income and expenses of very different natures: operating, financing, exceptional events, tax. A positive net profit can hide a deteriorating operation, offset once by a one-off disposal gain. Conversely, a thin net profit can mask a healthy operation weighed down by a temporary interest charge.
The SIG cascade separates these layers. You move down from revenue to net profit, removing one specific type of expense at each step. The point is not to stack ratios but to locate the problem: is it in the purchase price, the external charges, the payroll, the depreciated production tool, or the debt?
To read this cascade well, it helps to first master the structure of the income statement and the nature of operating expenses, since these drive the first tiers.
The 9 SIG cascade: formulas#
Here are the nine balances in the order they chain together, with their formula. The first two depend on the activity: gross margin applies to trading, production of the period applies to manufacturing businesses.
| # | Intermediate balance | Formula |
|---|---|---|
| 1 | Gross trading margin | Sales of goods - cost of goods sold |
| 2 | Production of the period | Sold production + stored production + capitalised production |
| 3 | Value added (VA) | Gross trading margin + production of the period - consumption from third parties |
| 4 | Gross operating surplus (EBE) | VA + operating subsidies - (taxes and duties + payroll costs) |
| 5 | Operating profit | EBE + provision reversals and expense transfers + other operating income - (depreciation and provisions + other operating expenses) |
| 6 | Current profit before tax | Operating profit +/- financial result |
| 7 | Exceptional result | Exceptional income - exceptional expenses |
| 8 | Net profit for the period | Current profit before tax + exceptional result - employee profit-sharing - corporate income tax |
| 9 | Gains and losses on asset disposals | Calculated separately, isolated from the other balances |
Consumption from third parties covers raw material purchases and all other external charges (subcontracting, rent, fees, energy). It is the line that separates revenue from the value the business actually creates.
What each tier reveals#
Each balance answers a distinct management question. This is the diagnostic table to keep in front of you.
| Tier | Question raised | Warning signal |
|---|---|---|
| Gross trading margin | Are my purchase prices holding? | Margin eroding at constant revenue |
| Production of the period | How much did I really produce? | High stored production left unsold |
| Value added | How much wealth do I create myself? | Low VA despite strong revenue (heavy outsourcing) |
| EBE | Does my operation generate cash? | Negative EBE (gross operating deficit) |
| Operating profit | Is my productive tool profitable? | Sound EBE but weak operating profit (heavy depreciation) |
| Current profit | Is my debt weighing in? | Wide gap driven by financial charges |
| Exceptional result | What role does the non-recurring play? | Profit carried by an exceptional disposal |
| Net profit | What is left after tax? | Net positive only thanks to the exceptional |
| Disposal gains or losses | What effect from asset arbitrage? | Disposals masking a loss-making operation |
Our reading: value added and EBE are the two decisive tiers#
In steering engagements, two tiers concentrate most of the diagnosis. Value added measures the firm's own wealth, before paying labour and capital. The gross operating surplus is the most representative indicator of operating performance: it is independent of financing choices, depreciation policy and exceptional items. Two comparable firms can show very different net profits for almost identical EBE, simply because one is in debt and the other is not.
The underestimated risk: confusing positive EBE with available cash#
A positive EBE means the operation generates a surplus before depreciation, financial charges and tax. It is not cash immediately available. Changes in working capital, loan repayments and tax come afterwards. An owner who pays themselves on the strength of a good EBE, without looking at what the later tiers remove, takes a real risk with their financial management.
How to go from revenue to value added#
Value added is calculated by working up the first three tiers. Here is the sequence to follow.
- Calculate the gross trading margin if you have a trading activity: sales of goods minus cost of goods sold.
- Calculate the production of the period if you manufacture: sold production, plus the change in stored production, plus capitalised production.
- Add the two together depending on your activity (a mixed business combines both).
- Deduct consumption from third parties: material purchases and all other external charges.
- The result is value added: the wealth created by the business, which will pay employees, the State, lenders and leave a profit.
This is exactly the step where fragile cost structures surface. A business can show a flattering trading margin and a mediocre value added because it outsources too much: subcontracting, temporary staff, high rents. The revenue impresses, the value actually captured much less.
Common case: stable net profit, an EBE that slips#
A services SME owner shows us three years with almost constant net profit. Reassuring at first sight. Rebuilding the SIG changes the picture: value added stagnates, payroll costs rise, and EBE falls year after year. Net profit only held up because depreciation charges were dropping (an ageing, unrenewed fleet) and provision reversals were inflating operating profit.
In other words, operating performance was deteriorating while the final figure stayed flattering. With no equipment renewed, the declining EBE would eventually contaminate net profit. Reading tier by tier made it possible to act before the break, on productivity and pricing, rather than through late cuts.
In practice: rebuilding your SIG from the income statement#
The SIG are built directly from your income statement. Here are the operational reflexes:
- Get the detailed income statement by line item, not just the main aggregates.
- Clearly isolate external charges: this line drives the move from revenue to value added.
- Track your SIG as a trend over three years, never on a single year: it is the change that speaks, not the absolute level.
- Compare your ratios (EBE to revenue, value added to revenue) with the benchmarks of your sector.
- Connect the SIG reading to the balance sheet, because a good EBE alongside an unbalanced balance sheet remains a warning signal.
Points to watch#
A few pitfalls keep coming up in SIG analyses, especially when they are done quickly.
- Operating subsidies enter the EBE, investment subsidies do not: confusing the two distorts tier 4.
- Finance leasing sits in external charges, which mechanically lowers value added compared with a debt-financed purchase. To compare two firms, neutralise this financing choice.
- Expense transfers can artificially inflate operating profit: check their nature.
- A high exceptional result must always be explained: it will not repeat next year.
- Employee profit-sharing and corporate income tax are deducted at the final tier only, not before.
To make these analyses reliable, it is better to have your accounts prepared and analysed with a consistent method from one year to the next, and to project the tiers into a forecast when a structuring decision is at stake: that is the purpose of work to build a costed forecast.
Frequently asked questions
What are the intermediate management balances?+
The intermediate management balances are nine indicators defined by the French general accounting plan that break the income statement into successive tiers, from gross trading margin to net profit. Each isolates one stage in the formation of profit and helps pinpoint where performance is created or eroded.
How do you calculate value added?+
Value added is obtained by adding the gross trading margin and the production of the period, then deducting consumption from third parties: material purchases and other external charges. It measures the wealth actually created by the business, before paying staff, the State and lenders.
What is the difference between gross trading margin and value added?+
Gross trading margin only concerns trading activity: sales of goods minus their purchase cost. Value added is broader: it starts from the trading margin and production, then deducts all external consumption. A good trading margin therefore does not imply a good value added.
What are the SIG used for?+
The SIG are used to diagnose performance tier by tier, rather than relying on net profit alone. They help locate the origin of a problem (purchase price, external charges, payroll, depreciation, debt) and to track how operating profitability evolves over time.
What is the EBE?+
The gross operating surplus is the balance obtained by adding operating subsidies to value added, then deducting taxes and duties and payroll costs. It is the most representative indicator of operating performance, because it is independent of financing, depreciation and exceptional items. When negative, it is called a gross operating deficit.
Are the SIG mandatory?+
The SIG table is not a mandatory tax return, but its calculation method derives from the French general accounting plan. It is a standardised analytical tool, widely used by chartered accountants, banks and analysts to read a company's performance on a comparable basis.
How do you interpret a positive EBE but a weak result?+
A positive EBE alongside a weak operating profit often signals heavy depreciation: the productive tool is expensive in non-cash charges. If the current profit falls further, the weight of debt is at play. The SIG cascade shows precisely at which tier performance deteriorates.
Key takeaways#
- The nine SIG break the income statement into tiers, from revenue to net profit, to locate the source of performance.
- Value added measures the firm's own wealth; a gap between a good margin and a low value added reveals external charges that are too heavy.
- EBE is the best judge of operating performance, independent of financing, depreciation and exceptional items, but it is not available cash.
- A stable net profit can mask a slipping EBE: reading the trend over three years is essential.
- The tiers are read together: a sound EBE but a weak operating profit points to depreciation policy.
Official sources#
- Bpifrance Création: understanding and calculating the intermediate management balances
- French Accounting Standards Authority: general accounting plan, ANC regulation no. 2014-03
- Insee: definitions of value added and gross trading margin
This article is published by Hayot Expertise, a chartered accountancy firm registered with the Ordre des experts-comptables d'Île-de-France. It is for information only; a decision specific to your situation requires a review of your accounts, your documents and your company's context.
Article written by Samuel HAYOT
Chartered Accountant, registered with the Institute of Chartered Accountants.
Regulated French accounting and audit firm based in Paris 8, built to support companies across France with a digital and decision-oriented approach.
Sources
Official and operational sources cited for this page.
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