Deutsche Brauerei

Topics: Finance, Investment, Money Pages: 2 (509 words) Published: April 10, 2011
What risk company is assuming??
Risks are major threats to the survival of company. Deutsche Brauerei, the beer making company assumed several risks. •Due to Russian debt crisis, the Ukrainian hryvna depreciated by 125%. o Revenue or profit was lower than expected.

Secondly, the risk was about dividends.
oHalf of family stockholders were retirees and they relied on only dividend to help make ends meet. oPinchuk had suggested Lukas to invest EUR 7 million for the year 2001 and EUR 6.8 million for year 2002 and added that he can't sustain growth without those major investments. oFor this, the firm usually relied on short term bank loans but now, Lukas Schweitzer was in doubt that he should continue to rely or not. This was also a major type of risk involved. oTo meet needs, Lukas can borrow from Hausbank at about 6.5% interest level but still another risk was involved – can the banker wait for a week to get more of the business? •The other major risks were about distributors. The main challenge was to getting people to try it and get into a distribution pipeline. oThe main problem was that in Ukraine, the beer distribution pipeline was non – existent. oAgain, the distributors had no capital and this made Pinchuk upset. oHowever, to avoid this, he increased credit to those distributors and relaxed those terms which he gave from 2% 10, net 40 (meaning: 2% discount if payment made in 10 days for payment due within 40 days) to 2% 10, net 80 (meaning: 2% discount if payment made in 10 days for payment due in 80 days). oBut, this was not enough as the distributors demanded more extensions. Pinchuk gave them 90 day deadline. oNow, he thinks, he will get recievables but that is still a risk assumed. He is also suspecting that can the distributors catch up in due course. oIt was found from credit information which he provided that out of 5 distributors which he had, 3 of them are not even having 3 % profit / sales ratio and one of them had...
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