More Vino Case Study

Problem Statement: To decide whether additional funding of TT$600,000 should be

granted to the Stone Brothers for the renovation of the More Vino outdoor patio area.

CASH FLOW ANALYSIS:

 Cash is not getting generated from net income in both the years. Even though they
lost less money in 2017 compared to the last year, the net result is discouraging

 Did not generate cash from operations in 2016 but did so in 2017. This could mean
the business operations are getting better.

 The winery business is not actually a credit business which can be seen from the low
numbers of account receivables.

 Accounts payable is very much for both the years. This money could be better used
for purposes like inventory funding

 In 2016, the business heavily bought inventory and were able to sell most of it in the
next year.

 The business received a major loan from bank in 2016, which they started to pay off
from the next year onwards.

 It could be noted that the business already has many sources of funds available in
terms of loan.

 The fixed assets may have been funded by the net cash generated from operations

RATIO ANALYSIS:

 The COGS has gone down significantly from 2016 to 2017. This is a good sign and
shows that the business is managing its costs efficiently.

 Rent has gone down, and wages expenses have increased. However, in terms of
percentage of revenue the wages have gone down because of increase in sales in
2017.

 The total operating expenses in terms of revenue has decreased more than 20%. This
is a very good indicator of increasing operational efficiency.

 The business is still losing money overall. The business improved considerably in
2007, still they could not generate any overall income.

 The current assets have gone down from 2016 to 2017 and also at the same time
their liabilities have grown. This is a very bad situation for the business.
  Accounts payable has increased very much in 2017 which is mostly due to the
extension they got.

 The business would not be able to cover the interest from the loans as they don’t
have any net earnings. This is the reason why the interest coverage ratio is also not
available.

 Net worth to total assets is also unavailable as it tells how much of the assets are
funded by equity. The business has all its assets funded by debt only. This is a bad
sign.

 Even though they were able to double their sales in a year, they failed to earn a net
income from the business.

RECOMMENDATIONS:

 The business should focus on improving equity prior to a expansion which could put
the business in danger.

 Even though the business is generating good cash flows from operations, much of it
is because of the increasing accounts payable which is a reason for concern.

 Liquidity of the company is good which is seen from a big gap between current ratio
and Acid test in both the years.

 Growth in sales is very little. Also, the total assets of the business along with equity is
growing. This is because they are adding their net income to their retained earnings
each year.

 Hence, the business has both good and bad indicators on whether to provide them
with more funds. My recommendation would be that this is not the correct time to
expand because of the debt the business already owes. Instead, they should focus
on paying off their debt. Once the business is generating net income they can
continue to expand and grow organically over the years. Therefore, the business
already has so much debt and no more debt should be given to the Stone brothers.