As the new member of the Deutsche Brauerei Board of Directors I am faced with analyzing three decisions facing the Board and recommending a course of action. The main problem is to determine if the 2001 and 2002 financial forecast and credit policies implied within are a viable representation of anticipated financial condition. On a secondary basis, the following issues should also be analized: * Is the 75% dividend payout ratio justifiable considering the firm’s business plan? * Does the Sales and Marketing Manager deserve an increase in compensation based on his sales results?
Steps for Analysis
1. Analyze the financial forecast for 2001 and 2002
2. Analyze Pinchuk’s ROI calculation
3. Review the relaxed credit policy for the Ukraine
4. Analyze the dividend payout ratio
5. Review the compensation strategy for Oleg Pinchuk
In analyzing the financial forecast it is immediately apparently that Mr. Pinchuk has formulated a very aggressive plan for Ukraine expansion. This is based on actual sales growth rates from the previous three year’s results. From 1998-1999 the Ukraine saw 312% growth, followed by 47.20% growth from 1999-2000. The forecasts for 2001 and 2002 are 45% and 30%, respectively. The analysis lies in what this growth rate is based on. It can be seen from the balance sheet the sales growth is being financed through accounts receivable and short term debt. It is concerning that the growth rate of the Ukraine’s accounts receivable is very similar to that of sales. 1999-2002 shows accounts receivable growth rates of 50.81%(actual), 49.84%(projected), and 30%(projected), respectively. Short term debt also increased 1998-2002 by 17.24% and 9.04% (actual) and 36.47% and 19.65% (projected), respectively. It is rarely advisable to increase sales growth significantly through increased accounts receivable and short term debt. In a case such as the Ukraine, it is a very risky practice. Pinchuk...