Fin 209 – Seminar: Corporate Financial Policy
Statement of the main problem:
Deutsche Brauerei was founded in 1737 and is entirely owned by 16 uncle, aunts and cousins of Schweitzer family. It is well known for its high quality beer. In 1998 it expanded itself in Ukraine due to surplus capacity. By early 2001 Ukraine accounted for almost 28% of DB’s sales. With the present growth 2001 budget requires and investment of EUR 7 mln, proposed investments for 2002 is EUR 6.8 mln. DB has a traditional dividend payout policy of 75% from earnings each year and plans an increase of EUR 698,000 for this quarter. In Ukraine Oleg extended credits to 80 days from 40 days and plans to extend it to 90 days. So far the bad debt has been anticipated to only 2%. Oleg’s suggestion is to borrow at 6.5% from the bank and use those funds to finance receivables in Ukraine that would give a return of about 130%.
Steps for Analysis
• Analyze and evaluate the projected financial planning based on past and present company financials.
• Explain company’s need to borrow so aggressively, as the company has been operating so profitably above its break-even volume.
• Analyze and evaluate traditional dividend payout policy and recommend changes.
• Evaluate compensation scheme for Oleg Pinchuk and comment on the same.
• Analyze and evaluate the projected financial planning based on past and present company financials. ( Analysis of Exhibit 1 & 4)
• Moderate growth in sales in Germany
• Rapid sales growth in Ukraine
• Sudden increase in doubtful accounts in year 2001
• Growth of Net earnings is slow compared to the growth of sales
• Rapid growth in Ukraine accounts receivables
• Rapid growth in allowance for doubtful accounts in Ukraine
• Rapid increase in the total inventories
• A sharp increase in short term bank borrowings
• Total current...