Monforte Dairy Case Summary
Case #7 – Monforte Dairy
ACME Marketing Group
Howard Tseng
ENTR 3140 – S50
Team #1
November 9, 2011
Team #1
2
Critical Issues
Insolvency: Monforte is heavily leveraged on debt and the bank is not willing to finance a loan. Monforte runs the risk of not being able to pay off the current portion of their debt and liabilities as they are due.
The current financial situation of Monforte does not allow capitalization on expansion.
Government Quota: The government quota system regulates Monforte’s cheese production which could potentially hinder them meeting the demand for their product; Klahsen ultimately has less control as the supplier power is increased.
Management Time & Commitment: Despite Klahsen’s goal for reaching …show more content…
Monforte is highly leveraged by debt with a ratio of 11.49 in 2009; this makes
Monforte vulnerable to any interest rate increases and creates difficulties in obtaining financing from the bank for possible expansion of the company. By analysing Monforte’s finances for 2009 it is apparent that Klahsen is unable to pay off her current liabilities, with an acid ratio of 0.9. This liquidity issue could be detrimental to Monforte as it would not be able to pay off its creditors if they suddenly called in the debt. It is becoming increasingly difficult to pay her debt due to the fact that her receivables are collected
14 days after she needs to pay her payables1.
Presently Monforte’s cow’s milk cheese production is restricted by government quotas. This negatively impacts Klahsen’s business due to the fact that Monforte can only produce a certain amount of the five types of cow’s milk cheese. As Monforte sold almost everything it produced in 2009, a …show more content…
This results in a loss of $23,000 in the first year and then a loss of $3,000 from then on (Exhibit
5).
Option 5 – Status Quo with Sale of Building
By maintaining status quo, Monforte’s projected revenue for 2010 would be $148,785.55, an increase of
$101,468.55, and $276,138.22 in 2015 with sales of $2,676,451.16, based on an annual 6% overall increase in sales (Exhibit 8). Remaining at status quo involves the lowest amount of risk for Monforte and allows Klahsen to build capital to finance an expansion at some other point in time. Status quo would also allow Monforte to decrease its debt to equity ratio and improve its acid ratio. By selling the building it recently purchased and leasing it back Monforte would reduce their debt to equity ratio to 2.54 as opposed to the current 11.49. This would free up some much needed capital for Monforte and would also allow
Monforte to potentially receive funding from the bank for possible future expansion. The lease payment
Team #1
4
calculated would amount to $4,618.06 (Exhibit 8). The net income for 2010 would then increase to
$411,725.19 and would increase to $628,010.77 in
ACME Marketing Group
Howard Tseng
ENTR 3140 – S50
Team #1
November 9, 2011
Team #1
2
Critical Issues
Insolvency: Monforte is heavily leveraged on debt and the bank is not willing to finance a loan. Monforte runs the risk of not being able to pay off the current portion of their debt and liabilities as they are due.
The current financial situation of Monforte does not allow capitalization on expansion.
Government Quota: The government quota system regulates Monforte’s cheese production which could potentially hinder them meeting the demand for their product; Klahsen ultimately has less control as the supplier power is increased.
Management Time & Commitment: Despite Klahsen’s goal for reaching …show more content…
Monforte is highly leveraged by debt with a ratio of 11.49 in 2009; this makes
Monforte vulnerable to any interest rate increases and creates difficulties in obtaining financing from the bank for possible expansion of the company. By analysing Monforte’s finances for 2009 it is apparent that Klahsen is unable to pay off her current liabilities, with an acid ratio of 0.9. This liquidity issue could be detrimental to Monforte as it would not be able to pay off its creditors if they suddenly called in the debt. It is becoming increasingly difficult to pay her debt due to the fact that her receivables are collected
14 days after she needs to pay her payables1.
Presently Monforte’s cow’s milk cheese production is restricted by government quotas. This negatively impacts Klahsen’s business due to the fact that Monforte can only produce a certain amount of the five types of cow’s milk cheese. As Monforte sold almost everything it produced in 2009, a …show more content…
This results in a loss of $23,000 in the first year and then a loss of $3,000 from then on (Exhibit
5).
Option 5 – Status Quo with Sale of Building
By maintaining status quo, Monforte’s projected revenue for 2010 would be $148,785.55, an increase of
$101,468.55, and $276,138.22 in 2015 with sales of $2,676,451.16, based on an annual 6% overall increase in sales (Exhibit 8). Remaining at status quo involves the lowest amount of risk for Monforte and allows Klahsen to build capital to finance an expansion at some other point in time. Status quo would also allow Monforte to decrease its debt to equity ratio and improve its acid ratio. By selling the building it recently purchased and leasing it back Monforte would reduce their debt to equity ratio to 2.54 as opposed to the current 11.49. This would free up some much needed capital for Monforte and would also allow
Monforte to potentially receive funding from the bank for possible future expansion. The lease payment
Team #1
4
calculated would amount to $4,618.06 (Exhibit 8). The net income for 2010 would then increase to
$411,725.19 and would increase to $628,010.77 in