Synopsis and Objectives
A newly-appointed director of a small German beer brewer must prepare to vote on three issues coming before the board of directors the next day: (1) approval of the financial plan for 2001, (2) declaration of the quarterly dividend, and (3) adoption of an incentive compensation plan for the marketing manager. The student’s task is to evaluate the past and prospective financial performance of the company and to critique its liberal credit and inventory policies. The objectives of the case are to:
• Introduce and exercise tools and concepts of financial-statement analysis (including financial ratios, break-even analysis, and cash-flow statements).
• Explore possible definitions of the “financial health” of a company.
• Illustrate the linkage between operating policies and financial performance.
• Consider the interdependence among corporate objectives regarding growth, dividends, and debt financing.
• Explore the linkage between compensation incentives and financial performance. In this case, the marketing manager is motivated to build sales volume, which he accomplishes with a dramatic build-up in receivables and inventory.
• Illustrate some of the challenges of doing business in an emerging market. Suggested Questions for Advance Assignment to Students
1.What accounts for Deutsche Brauerei’s rapid growth in recent years? Specifically, what policy choices account for this success?
2.What is Deutsche Brauerei’s credit policy toward its distributors in Ukraine? Why is it different from the policy toward its other distributors? Is the company’s credit policy appropriate? Is it profitable? If not, how would you change it? If so, what arguments would you offer to the board of directors in its defense?
3.Why does this profitable firm need increasing amounts of bank debt?
4.As a member of the board of directors, how would you vote on:
a.The proposed raise for Oleg Pinchuk?
b.The quarterly dividend declaration of EUR698,000?
c.Adoption of the financial plan for 2001?
A Microsoft Excel spreadsheet file, Case_11.xls, supports student and instructor analysis of this case. It is recommended that this file be made available to students, where the instructor seeks to promote the evaluation of scenarios and sensitivities as they relate to possible alternative policies. However, the case may be taught without the support of this file, perhaps distributing instead a copy of Exhibit TN6 to the students. In this instance, the case discussion should be oriented toward the interpretation of the printed data (i.e., in the case and the supplement) and its implications for decision-makers. Here, the file TN_10.xls is only for instructor use. Please do not give the instructor’s file to students.
Hypothetical Teaching Plan
1.As Greta Schweitzer, how would you vote on your Uncle Lukas’s proposals regarding(1) the financing plan for 2001, (2) the dividend declaration, and (3) compensation for Pinchuk?
One can begin by calling on a student to present his position and analysis on these issues, then taking a formal vote of the class. This question is one of two classic ways to begin a discussion of this case and has the effect of riveting the attention of the students on the decisions to be made. This opening will also reveal the unanimity or division of sentiment in the class and may point out other possible avenues of fruitful case discussion among opponents. Finally, if the instructor takes another vote at the end of class, this opening can provide a barometer of thinking: changes in voting patterns can be a basis for useful closing comments by students or the instructor.
2.How does this company make money? What is its strategy? How has the company been doing?
These questions represent another classic opening of...