Corporate Finance Case Studies

1
Corporate Finance Case Studies

• Bayern Brauerei
• Presentation by Group 5
• MBA Fulltime

2
1. Rapid growth in sales
3
1. Reasons for rapid growth

• Remarkable sales growth only in the east
• From 0 in 1989 to 18.4 of sales in 1992
• 146 sales growth in the east (1990-1992)
• 2 sales growth from 1989 to 1992 in the west
• Completely new market in the east
• Relaxed credit terms
• Field inventories for distribution
• Marketing Manager running the business

4
2. Sustainable growth
1989
1990
1991
1992
Equity Retention Rate
24,99
25,00
25,90
25,55
ROE
9,72
10,25
6,30
7,28
Self Sustainable Growth Rate
2,43
2,56
1,63
1,86
Growth in Sales
4,98
14,24
9,14
5
2. Reasons for unsustainable growth

• Retention of profits too low
• Growth in sales is much higher than SSGR
• Lack of market research
• Sustainable growth only achievable through
• Higher retention
• Otherwise
• Raise new equity (Shares, etc.)
• Long Term Debt financing

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3. Increasing debt

• No increase in total debt
• Decreasing LTL
• Increase only in STL
• Debt is the only way to compensate growth rate
• Increase in Inventory
• Increase in Receivables
• Cash surplus from 6m to 12m

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4. Accounting Break Even Chart
Deutsche Mark (millions)
160 140 120 100 80 60 40 20 0
Revenue
Total cost
Variable cost
Fixed cost
0 100 200 300 400 500 600 700 800
900 1000
Hectolitres of beer sold (thousands)
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5. Financial Plan

• 8.8m DM in Plant and Equipment
• 8.6m DM in Warehouse
• Dividends payout 545,500.00 DM
• Should not be approved
• There is no market for further production, if we
  get the same market share in the east, we are at
  this point now
• We are producing beer, distribution is not our
  business ? focus
• It should not be financed with STL
• Instead...
• Rather cut inventories and receivables
• Get receivables back to 2 10 and net 40
• Retain more earnings to finance further expansion
  plans

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Managerial Balance Sheet
1992
1989
23
12283
12
6764
Cash
21
11585
4
2549
WCR
7
3914
7
3911
Investments
49
26539
77
44162
Net Assets
100
54321
100
57386
15
7884
7
3765
STL
20
11066
35
20306
LTL
65
35371
58
33315
Equity
100
54321
100
57386
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6. Financially Health

• Profitability (ROE) is lower than growth rate and
  decreasing
• Growth in sales is higher than the SSGR
• Times interest ratio declines, showing high
  interest rates on STL
• Low retention rate
• High reliability on STL
• No application of financial and accounting
  principles
• Liquidity ratio from 3.71 (1989) to 1.72 (1992)
• Bad WCC-management
• Max Leiters compensation?