This Case meets the conditions of my signed Academic Honesty Statement with the instructor.
The main critical issue for Monforte is to grow its revenues to 10-million dollars while allowing Klahsen to retire within the next 10 to 15 years. Monforte would not be able to reach its goals if it does not fix following issues: * How to increase the revenues from existing market(specialty cheese) and how to decrease its dependency on just cheese products. * Ways to attract investors( increasing the equity) and increase Monforete's capital. * How to identify and solve current financial position in order to increase the chances of potential growth in future. * How to balance Klahsen's personal and work life so that she spends more time with her children. Analysis
Monforte Dairy Company was established in January 2003 as a partnership shared by Ruth Klahsen and Sebastiano Monforte. Six months later, Sebastiano decided to leave the company and the burden of running the business was taken by Klahsen alone. With the growing demand and weak competition of specialty cheese market, Klahsen was able to reap the benefits in terms of increasing profits through past years. Recently, Monforte found itself in unstable financial position when it lost almost a full year of production due to time period of building construction for operations. Monforte currently facing large debt accumulated from past years. Monforte's current debt to equity ratio is 11.49 which shows that company's main source of financing its assets is through loans. It is mainly due to huge loan acquired from the bank($1.85 million) at 7.5% interest rate. This has not only put the company in huge debt but has also increased the interest expense to over 500 % within 1 year. (2.1%in 2008 to 14% in 2009). Moreover, Monforte does not have enough cash on hand to pay off its current liabilities. It is known through low acid-test ratio (0.9) which means Monforte is incapable of paying its suppliers or loan payment if they demand for the immediate payment. Similarly, Monforte cannot afford to initiate any new projects. Banks are reluctant to finance any loan to Monforte due to low target profit margins(10%) which is insufficient for banks to risk financing the company. Monforte has successfully created great loyal customer base over the past years of operations due to Klahsen's involvement in the community. The upcoming opportunities in the specialty cheese market can likely increase the chances of Klahsen reaching its goal (Exhibit 1&2). Even though Monforte has a concrete loyal customer base, there is still uncertainty about the Monforte's ability to operate in the future. There is still an impact of 2008 recession in the economy plus the specialty cheese comes under niche market and Monforte is completely relying on this market for its growth in the future. Criteria
* Has to be financially feasible. An option which is not too risky * Must be able to lower its Acid test ratio and high debt to equity ratio. * Allow Monforte to raise capital in the future with low dependency on bank loans. * Less dependency on Specialty cheese market.
* Does not increase Klahsen's work load significantly.
1. Affinage (Exhibit 3)
* Monforte can sell the product with competitive advantage. * No or very less competition in the market. * High Quality Artisanal cheese. * Net Earnings of $66950 in best case scenario (100% sales). * Net Earnings of $36920 in Worst case scenario (90% sales).
| * Won't be able to increase the sales over $660,000-Since it is at 100% capacity. * Break-Even at 100% Sales= 14.93 years * Break-Even at 90% Sales= 27.08 years * Due to current Financial Position, unable to secure loan for initial investment from either bank or through partnership. * Would increase Klahsen's work load significantly. * Need specialized staff. * High start-up cost.
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