CASE STUDY:

CHAMPION CATTLE
FARMS, INC. (A)
 Case: Champion Cattle Farms, Inc. (A)

I. VIEWPOINT
Albert Lim, owner-manager of Champion Cattle Farms Inc.

II. TIME CONTEXT

March 6, 1998

III. STATEMENT OF THE PROBLEM

Albert Lim does not have enough funds to run his farm at full capacity because he lacks
funds and so he need to prove to Mr. Santos, DBB manager, his financial capacity once in full
operation.

IV. OBJECTIVES
MUST OBJECTIVES
 To have the ability to maximize the resources and profitability of the cattle farm
by convincing the DBB manager to grant the bank loan .
WANT OBJECTIVES
 To have other source of funds that will suit his needs.

V. AREAS OF CONSIDERATION
INTERNAL ENVIRONMENT
STRENGTH
 His farm and equipment could handle 1,800 head of fully-grown cattle.
 Terms of sale of live cattle were on cash.
 Mr. Lim kept other overhead costs under control. Expenses which were not
associated with feed-lot operations were limited to the salary of a farm manager,
The estimated monthly overhead expenses at P 10,000.
 WEAKNESS
 The farm was initially financed by Albert Lim’s inheritance and no other source
of funds.
 He can only sell the cattle after six months until they weighed 100-120 kilograms.
 A fully grown cattle weighing an average of 100 kg could only be sold “on-the-
hoof” for P80 per kg that leads to a gross margin percentage of 10 % only
(Gross Profit/Selling Price); (800/8000)
SP P8,000 ( P80 * 100kg)
Cost of Cattle 7,200 (3,000 + 4,200)
GP P800
EXTERNAL ENVIRONMENT
OPPORTUNITY
 Development Bank of Batangas (DBB) was known for its lending program to
cattle farmers in Batangas.
 Champion Farms had a credit limit from a dealer of feeds in Manila of P 150,000
in which the credit term is 21 days.
 A fully grown cattle weighed an average of 100kg and could be sold on-the- hoof
for P80.kilo in the nearby cattle market auction. Hence, marketing cost is not a
problem.
 South Batangas, the location of cattle farm has good access to the port for easy
transport of cattle, availability of feed supply and good workers to tend the feed
lot. Hence, risks in transporting the cattle is reduced.

THREAT
 There were lean months of supply when there were failures in foaling, bad
weather and other problems.
 Champion Farms could only obtain credit for minor portion of its feeds and
veterinary supply.
 Terms of purchase of yearling cattle were on cash basis.
 The number of available yearlings will depend on the yearlings of Masbate
ranchers, purchase prices and his own financial resources.
 Lim’s cash balance reached dangerously low levels in late February.
VI. ALTERNATIVE COURSES OF ACTION (ACA)
ACA 1: Secure a bank loan payable in 1 year using the existing inventories, equipment and real
estate as collateral.
Advantages:
 He personally knew the branch manager.
 DBB was known for its lending program to cattle farmers in Batangas
 Can request for a higher amount of loan.
 Payment terms can be more flexible.
 Favorable interest and payment terms.
Disadvantages:
 High risk when there is default on payment.
 The upfront costs such as valuation fees and arrangement fees will increase your
expenditure.

ACA 2: Offer stocks to potential shareholders.

Advantage:
 Bigger investment.
Disadvantages:
 Less flexibility.
 Difficulty in finding investors willing to invest in a starting business.
ACA 3: Secure a loan from DBB with longer payment terms and offer stocks to possible
stockholders.
Advantages
 He personally knew the branch manager.
 DBB was known for its lending program to cattle farmers in Batangas
 Bigger capital
Disadvantages
 Difficulty in finding investors willing to invest in a starting business.
 Long term means higher interest expense

VII. RECOMMENDATIONS
ACA 3: Secure a loan from DBB with longer payment terms and offer 50% stocks to possible
stockholders
VIII. DETAILED ACTION PLANS

ACTION STEP
PERSON RESPONSIBLE TIME SPAN
DESCRIPTION
Submit all necessary Albert Lim Promptly
requirements to DBB
Present the forecasted cash
balance (Annex A) to DBB
and possible investors
Find possible investors Albert Lim Promptly
Review submitted documents Gloria Santos 1 week
Discuss the terms with Albert
Lim after reviewing the Gloria Santos 1 day
documents.
Approval of loan request. Gloria Santos 1 day
Start and maintain a regular
Albert Lim 1 day
account in DBB
Assess monthly income Albert Lim Frequently