Café Monte Bianco
To analyze this case, the analyst conducted liquidity, solvency and profitability ratios for Cafés Monte Bianco along with sales and income projections for operating the business under both private label and premium brands. The analyst has found that the firm utilizes high leverage to achieve ROE. Further, it is the opinion of the analyst that the firm should abandon private label brands and market its own premium brand; thereby leveraging its industry reputation as a fine purveyor of coffees. Cafés Monte Bianco Liquidity Analysis: The current ratio is 0.57 and the quick ratio is 0.41. This is due to higher liabilities and is an indicator of poor liquidity. The Inventory turnover ratio is a healthy 13.83, which means the total Days in Inventory are 26.39 days, about average for the food industry. However, the total Days Sales Outstanding (collection period) are almost 61 days, which indicates lower quality of Accounts Receivables. This may be because private brand retailers delay payments up to 90 days, which reduces cash flow into the company. Cafés Monte Bianco Solvency Analysis: The Debt-to-Total Asset ratio is 0.79 which is very high. It indicates lower solvency. Further, the 3.87 Debt-to-Equity Ratios suggest that the company owes $3.87 in debt for every $1 in equity. In other words, much of this company’s financing is in form of debt. The company has a Times Interest Earned Ratio of 1.85 which is very low and will be a red flag to any creditor. It seriously questions this company’s ability to service its debt. Similarly, the Cash-Debt Coverage Ratio of 0.20 suggests a much lower generation of cash from operations. Cafés Monte Bianco Profitability and Asset Management Ratio Analysis: The Profit Margin rate is only 3.5%, indicating lower net profits. Considering that the Operating Profit Margin is 13%, it means that the Profit Margin Rate is drops down because of Interest Expense (and taxes). The ROA is 4.35%, indicating the firm is...
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