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.
Half of family stockholders were retirees and they relied on only dividend to help make ends meet. o
Pinchuk 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. o
For 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. o
To 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. o
The main problem was that in Ukraine, the beer distribution pipeline was non – existent. o
Again, the distributors had no capital and this made Pinchuk upset. o
However, 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). o
But, this was not enough as the distributors demanded more extensions. Pinchuk gave them 90 day deadline. o
Now, 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. o
It 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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