Vineyard

Calaveras Vineyards Calaveras Vineyard was originally established in 1883 to do booze for the Catholic Church. They occupied 220 acres in California pop of which 175 acres was occupied by the vineyard. They had instantaneously expanded into employment of t sufficient wines for retailers and restaurants. It had changed three ownerships in the last nine years. The most juvenile owner was Stout Plc. which was looking to sell Calaveras and the management of Calaveras was the interested troupe in this transaction.The main strategy from 1987 was broadening the societys slope on premium place category and this is evident from the fact that they were now concentrating on wines in the premium and super-premium category. The five C? s analyses is an important approach to evaluate the acknowledgementworthiness of a potential client. The five metrics that result be analyzed be character, capacity, capital, conditions, and collateral. Character will translate the grapheme of the ma nagement team and major owners and how these major players behave related to task.Related to Lynna Martinez, she has a high level of education and is graduated from important universities in France and USA. She has do researchers in the ara and has lie withs as a professional in the industry, universe Vice president of Calaveras Vineyard since 1987. The other partner Peter clean about, has a degree in Business Administ proportionalityn and has experience in the field in different areas of this industry, such as operating and purchasing. It is possible to arrange that this metric is maybe one the most important for the future of this business since both of them have strong experience in the field.Related to the capacity analysis, it is unclear, found on historical data, the ability of the social club in handle a high debt level, since there no information astir(predicate) Calaveras Vineyards team zero(prenominal) 1 18-Feb-2013 debt from the balance sheet. However, the ac bon ton has a significant position as current assets what run expeditious liquidity for the business as easy as a strong waive cash lessen in both considered scenarios to re hold the loan, dismantle though the free cash flow in 1994 is negative. The apital metrics will measure whether the company has rich capital, in this imply as well matter the commitment of the owners with the business. In the management leveraged buyout, the naked owners will have $ 1 million invested and thus they would have invested 25% of the center demanded fund. It seems that the new owners are putting an great effort on this business since they are buying a company that they have experience in and they believe it can do better than what the previous owners were doing.The sparing conditions for the wine business seems to be in a accept commensurate moment, yet though the alcoholic market has been stagnated, the wine market has grown by 7. 4%, new researches about the benefits of wine has d riven the demand up and thus the market is being benefited. Based on the Pro Forma diachronic fiscal Statements, it seems that the management team is able to control the expenses and cost of goods interchange as the sales plus and decrease. It is possible to see it using the decrease trend of the COGS related to sales and the SG&038A related to sales that has been the comparable (14. 9%) for the last 4 years. The company has as collateral, the Accounts Receivables and fixed assets. In 1993 the company had $316,782 as receivables, $2,332,241 as inventories and $4,487,193 as gross fixed assets. In case of liquidation, the Receivables may be interchange at 85% of the introduce value, or $292,264 Inventory can be sold at 75% of its face value or $1,749,180. The fixed cost can be sold by 40% of the parole value that is $1,794,877. This liquidation would provide a total of $3,836,321 which is more than Calaveras Vineyards Team nary(prenominal) 1 8-Feb-2013 the total loan provide d in 1994 ($3,122,000). It provides a good standard for the potential creditor of this company. heavys SGL framework can also be used to respect the creditworthiness of Calaveras Vineyards. The rating system gives a score ranging from SGL-1 to SGL-4, where one represents companies with very good liquidity and four represents companies with weak liquidity. There are several characteristics that are evaluated in rating a company using this framework. The first point is the capacity for financing capital expenditures and net working capital internally.Calaveras has an expect negative free cash flow in 1994 based on Anne Clemens projection (Exhibit 3), so it will not be able to fund internally. However, the company equable has the flexibility of drawing money from its revolving credit line since the borrowing base has sufficient amount. Exhibit 3 also shows that the negative cash flow is due to a significant add-on to net working capital. The addition is big than average because the company is increase its sales to the same level of 1992. The company is projected to have electropositive free cash flows starting in 1995 and will be able to finance internally.The EBIT/(interest and principal) ratio is moderate in 1994 but projected to increase throughout the years (Exhibit 3) and has an average of two. The second characteristic that needs to be analyzed is the flexibility of the company in generating cash from selling its assets in times of distress. Anne Clemen expected that Calaveras grievances receivable would able to generate 80% of book value and inventory for 85% of book value, while land, plant and equipment would sole(prenominal) generate 40%. However, these assets are crucial to the operations of Calaveras and cannot be sold.Thus, the company has no flexibility in generating additional cash flow. Additionally, the assets mentioned before are used as collateral for both the term loan and the revolving credit. This relates to the final exam characteri stic that is the extent Calaveras Vineyards Team none 1 18-Feb-2013 in which the companys assets are encumbered. Calaveras is expected to secure its term loan through land, plant and equipment, and its revolvers borrowing base is equal to 85% of receivables and 75% of inventories. In other words, most of Calaveras assets are encumbered and this limits the financial flexibility.After analyzing Calaveras through the SGL framework, we believed that the company should receive a score of SGL-3. The increase in the size of the wine market is an opportunity for Calaveras to increase their market take especially in the premium and super-premium category where the company has secure brand position and stable relationships with the distributors. It is heavily dependant on two dealers who account for 50% of their sales. It might bode well for them to increase their dealership base. Financial ratio analysis To better understand Calaveras Vineyards financial ondition, we analyzed those finan cial ratios that Anne prepared. EBIT coverage ratio and current ratio in 1994 were already larger than 1 and was increasing from 1994 to 1998, indicating this company was profitable enough to pay shoot its interest expense and short-term obligation. Although current ratio was not so good compared with comparable companies, it was improving through years. The debt ratio was less than 1 and reduced quickly from 1994 to 1998, which was a good signal to investor and creditors that the risk of this company was decreasing.In addition, its decreasing assets/equity ratio indicated the quick increase of equity, which was the result of quick increase of net income. The return on sales and return on assets were much higher(prenominal) than the comparable companies and were increasing from 1994 to 1998, indicating this Calaveras Vineyards Team No. 1 18-Feb-2013 company had good profitability in the industry. Its increasing sales/assets ratio showed an improvement of its ability to generate sa les revenue from each one dollar bill of asset, indicating this company operated more and more efficiently.Through analysis, we found these ratios looked good and some of them were even better than the industry level. The ratio analysis showed Calaveras Vineyards was a healthy company and had an optimistic future. New Scenario A new scenario was drawn in rate to assess how the financial health of the company would be if the COGS and SG&038A were higher than the predicted by the company initially. In this situation, it is possible to see that the company is still able to operate under the conveants imposed by Goldengate pileus.Additional consideration and testimony We based our analysis on the ratio analysis done by Anne Clemen. The ratio analysis shows us lucky trend about financials about this company. The leverage ratio goes on reducing and the times interest clear as well as Profit margin show favourable forecasts. Based on our current analysis, we think Calaveras had good profitability and has enough ability to service the debt, and we agreed that Anne Clemens should participate in the loan. However, there are still some factors that can influence our evaluation of Calaveras.For example, if the expenditure of its wine decreased quickly because of intensive competition or there was a big drop in the production of grape due to some catastrophe, the sales revenue will decreased dramatically, which would result in a shrunken free cash flow and influence its ability to pay back the loan. In Calaveras Vineyards Team No. 1 18-Feb-2013 addition, if the cost of goods sold increased quickly because of a sudden increase of material price or the SG&038A soared up for expanding marketing and advertising to compete with competitors, the free cash flow would also decreased dramatically.So we suggested Anne to keep monitoring these unsteady factors carefully to see whether Calaveras would have a credit risk. Additionally, to decrease the negligence risk, Anne co uld also make covenants with Calaveras to regulate its financial ratios and make part of its assets as collaterals. Calaveras Vineyards Team No. 1 18-Feb-2013 Exhibit 2 Calaveras Vineyards Team No. 1 18-Feb-2013 Calaveras Vineyards Team No. 1 18-Feb-2013 Exhibit 7 New Forecasted Income Statement 1994 1% sales Revenue Cost of Goods Sold Estates Selected chardonnay grape California Generic Special Accts.vintner TOTAL Gross Profit Selling, widely distributed and Admin. Amortization of Organizational Costs EBIT enkindle Expense (avg. balance) Profit originally Taxes Tax Expense dough Income Dividends to Common Shareholders Retentions to lawfulness $ $ $ $ $ $ $ 448,180 272,027 432,977 179,934 224,371 655,916 90,130 $ $ $ $ $ $ $ 594,307 325,923 535, cd 121,580 233,639 683,012 93,853 $ $ $ $ $ $ $ 678,342 383,808 645,546 126,603 243,291 711,228 97,730 $ $ $ $ $ $ $ 706,365 399,663 733,324 131,833 253,341 740,608 101,767 $ $ $ $ $ $ $ $ 31,406 416,173 763,618 137,279 263,807 771 ,203 105,971 2,081,995 (966,861) (60) 1,115,074 (134,514) 980,559 362,807 617,752 617,752 $ 3,707,423 1995 1% $ 4,199,960 1996 1% $ 4,693,764 1997 1% $ 4,984,664 $ 1998 1% 5,371,451 $ (2,303,533) $ (2,587,715) $ (2,886,547) $ (3,066,901) $ (3,289,456) $ 1,403,889 $ 1,612,246 $ 1,807,216 $ 1,917,763 $ (667,336) $ (755,993) $ (844,877) $ (897,239) $ $ $ (60) $ 736,493 $ (60) $ 856,193 $ (60) $ 962,279 (60) $ $ $ 1,020,463 (109,625) $ (214,987) $ (198,101) $ (170,752) $ $ $ $ $ $ 626,869 231,941 394,927 394,927 $ $ $ $ $ 641,206 237,246 403,960 403,960 $ $ $ $ $ 764,178 282,746 481,432 481,432 $ $ $ $ $ 849,711 314,393 535,318 535,318 $ $ $ $ $ Calaveras Vineyards Team No. 1 18-Feb-2013 Exhibit 8 Forecasted Balance Sheets (At Closing) hard currency Accounts Receivable Inventory Organization Costs- up-to-date fundamental menses Assets Land Plant and Equipment Gross PP&038E Accum. depreciation elucidate PP&038E Organization Costs-Noncurrent Total Assets Payables &038 Accruals Debt - genuine Portion LTD Revolving Line of Credit Total Current Liabs.Debt, non-current Total Liabilities Common shopworn Retained Earnings Total comeliness Total Liabilities &038 Equity Memorandum acceptance base (85% AR, 75%Inv) six-shooter $ $ $ $ 2,255,917 2,304,288 $ $ 2,521,907 2,218,955 $ $ 2,699,146 1,949,595 $ $ 2,890,789 1,643,991 $ $ 3,025,581 1,187,490 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 1,124 60 1,184 1,124 582 1,706 1,706 240 3,130 130 400 530 1,600 2,130 1,000 1,000 3,130 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 1994 50 370,742 2,587,715 60 2,958,567 1,124 832 1,956 116 1,840 180 2,960,587 258,771 400 2,304,288 2,563,459 1,200 2,564,659 1,000 394,927 395,927 2,960,587 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 1995 50 419,996 2,886,547 60 3,306,654 1,124 1,082 2,206 283 1,923 120 3,308,697 288,655 400 2,218,955 2,508,010 800 2,508,810 1,000 798,887 799,887 3,308,697 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 1996 50 469,376 3,066,901 60 3,536,387 1,124 1 ,332 2,456 499 1,957 60 3,538,404 306,690 400 1,949,595 2,256,685 400 2,257,085 1,000 1,280,319 1,281,319 3,538,404 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 1997 50 498,466 3,289,456 60 3,788,033 1,124 1,582 2,706 766 1,940 3,789,973 328,946 400 1,643,991 1,973,337 1,973,337 1,000 1,815,637 1,816,637 3,789,973 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 1998 50 537,145 3,425,344 3,962,539 1,124 1,832 2,956 1,082 1,874 3,964,413 342,534 1,187,490 1,530,024 1,530,024 1,000 2,433,389 2,434,389 3,964,413 Calaveras Vineyards Team No. 1 18-Feb-2013Exhibit 9 Forecast Assumptions Key Assumptions Case Sales $/Case Gross Margins Estates Select-other Chardonnay California Generic Special Accts Winery Dividend Payout Now-1996 1997&038After 0 0 0. 47 0. 35 0. 37 0. 35 0. 26 0. 35 0. 46 Exhibit 11 Exhibit 11 gold Minimum (m) AR/Sales INV(T)/COGS(T+1) CL(T)/COGS(T+1) SGA/Sales Depreciation big(p) Expenditures Interest Rate Tax Rate Inflation Rate received Price Growth 50 0. 1 1 0. 1 0. 18 5-yr, S-L 250 0. 095 0. 37 0. 031 0. 01 Amortiz. Organization Costs 5 years. Calaveras Vineyards Team No. 1 18-Feb-2013 Exhibit 10 Solvency ratio EBIT/ (Interest and Principal) Current ratio Debt ratio Assets/Equity Efficiency ratio Sales/Assets Profitability ratio Return on sales Return on assets Return on equity 1994 1. 32 1. 24 0. 67 3. 6 0. 75 11% 8% 28% Anne Clemens Ratio Analysis 1995 1996 1997 1. 53 1. 8 2. 05 1. 24 1. 33 1. 48 0. 59 0. 5 0. 39 2. 82 2. 22 1. 8 0. 79 12% 9% 26% 0. 85 13% 11% 24% 0. 88 14% 12% 21% 1998 2. 48 2. 16 0. 25 1. 45 0. 94 15% 14% 20% Comparables ratio top(prenominal) Quartile Median Lower Quartile 5. 5 0. 97 2. 5 0. 99 1. 5 0. 995 1. 04 7. 30% 8. 10% 16. 60% 0. 73 2. 80% 2. 30% 7. 70% 0. 35 -0. 20% -0. 10% 1. 10% Calaveras Vineyards Team No. 1 18-Feb-2013 Exhibit 11 exchange feed in Components Cumulative superfluous or dearth bills strike money feast Components Cumulative supernumerary or deficit Cash melt Cash take to the woods Items initial Inputs dough Results Initial Inputs Net Resultsoperating(a) Inflows (Net Sales) in operation(p) Outflows COGS Depreciation SGA Exp Taxes separate Total operating(a) Outflows Total Net Operating Cash lean (NOF) commutes in on the job(p) Capital Receivables (AR) Inventory (INV) former(a) Current Assets (OCA) Accounts Payable (AP) opposite Current Liabilities (OCL) Total channelizes in Net Working Capital (NWC) prodigality or Deficit Cash consort after Working Capital enthronisation Capital Investment stir in Net glacial Assets Depreciation Net Investment descend throw overboard Cash bunk to hearty extra or Deficit (FCFF) Interest Income (II) Fixed coverage Expenditures (Interest) (FCE) Surplus or Deficit Cash move Avaiable for Dividends Dividends (DIV) $ 2,836,062. 00 $ 1,899,853. 00 $ 528,456. 00 $ $ $ 2,428,309. 00 $ 407,753. 00 $ 43,356. 00 $ 654,835. 00 $ (7,012. 00) $ (121,880. 00) $ $ 569,299. 00 $ 977,052. 00 $ 4,193,000. 00 $ 2,294,000. 00 $ 587,00 0. 00 $ 287,000. 00 $ $ 3,168,000. 00 $ 1,025,000. 00 $ (49,000. 00) $ (281,000. 00) $ $ 28,000. 00 $ $ (302,000. 00) $ 723,000. 00 $ 268,332. 00 $ (394,512. 00) $ (126,180. 00) $ 850,872. 00 $ $ $ (83,000. 00) $ (167,000. 00) $ (250,000. 00) $ 473,000. 00 $ $ (308,000. 00) $ 165,000. 00 $ $ 850,872. 00 $ Calaveras Vineyards Team No. 1 18-Feb-2013 Cash geological period Statements Contd.Surplus or Deficit Cash Flow Avaiable for Dividends Dividends (DIV) Managements Discretionary Cash Flow Surplus Financial Cash Flow Change in Long-Term Debt Change in Short-Term acceptance Change in Preffered line of reasoning Change in Common Stock Change in some other Total Change in Net Finncial Cash Flow (NFF) Goodwill/Other Assets &038 Other Liabilities Change in Goodwill &038 Other Asset Change in Other Liabilities Change in Gwill&038OAssets &038 Other Liabilities Surplus or Deficit Cash Flow (Sum of 13 Cash Flow Components) Change in Cash (Cash) Surplus or Deficit after all Cash Flow s $ $ 45,006. 00 13,241. 00 $ 850,872. 00 $ $ 850,872. 00 $ $ $ $ (729,402. 00) $ $ (729,402. 00) $ (400,000. 00) $ 236,000. 00 $ $ $ $ (164,000. 00) $ 165,000. 00 $ $ 165,000. 00 $ (153,235. 00) $ $ (153,235. 00) $ (31,765. 00) $ $ $ $ $ $ 1,000. 00 1,000. 00 Calaveras Vineyards hard currency scat STATEMENT 1000 Dec-96 Cash Flow Items Initial Inputs Net Results Cash Flow Components Cumulative Surplus or Deficit Cash Flow Initial Inputs Dec-97 Net Results Cash Flow Components Cumulative Surplus or Deficit Cash FlowOperating Inflows (Net Sales) Operating Outflows COGS Depreciation SGA Exp Taxes Other Total Operating Outflows Total Net Operating Cash Flow (NOF) Changes in Working Capital Receivables (AR) Inventory (INV) Other Current Assets (OCA) Accounts Payable (AP) Other Current Liabilities (OCL) Total Changes in Net Working Capital (NWC) Surplus or Deficit Cash Flow after Working Capital Investment Capital Investment Change in Net Fixed Assets Depreciation Net Investment Flow Free Cash Flow to Firm Surplus or Deficit (FCFF) Interest Income (II) Fixed Coverage Expenditures (Interest) (FCE) $ 4,681,000. 00 $ $ 2,526,000. 00 $ 655,000. 00 $ 349,000. 00 $ $ 3,530,000. 00 $ 1,151,000. 00 $ (49,000. 00) $ (169,000. 00) $ $ 17,000. 00 $ $ (201,000. 00) $ 950,000. 00 $ 4,967,000. 00 $ $ 2,644,000. 00 $ 695,000. 00 $ 394,000. 00 $ $ 3,733,000. 00 $ 1,234,000. 00 $ (29,000. 00) $ (208,000. 00) $ $ 21,000. 00 $ $ (216,000. 00) $ 1,018,000. 00 $ (34,000. 00) $ (216,000. 00) $ (250,000. 00) $ 700,000. 00 $ $ $ (280,000. 00) $ 17,000. 00 $ (267,000. 00) $ (250,000. 00) $ 768,000. 00 $ $ $ (235,000. 00) Calaveras Vineyards Cash Flow Statements Contd.Surplus or Deficit Cash Flow Avaiable for Dividends Dividends (DIV) Managements Discretionary Cash Flow Surplus Financial Cash Flow Change in Long-Term Debt Change in Short-Term Borrowing Change in Preffered Stock Change in Common Stock Change in Other Total Change in Net Finncial Cash Flow (NFF) Goodwill/Other Assets &03 8 Other Liabilities Change in Goodwill &038 Other Asset Change in Other Liabilities Change in Gwill &038 Other Liabilities Surplus or Deficit Cash Flow (Sum of 13 Cash Flow Components) Change in Cash (Cash) Surplus or Deficit after all Cash Flows $ $ $ 420,000. 00 $ $ 420,000. 00 $ (400,000. 00) $ (20,000. 00) $ $ $ $ (420,000. 00) $ (400,000. 00) $ (132,000. 00) $ $ $ $ (532,000. 00) $ 533,000. 00 $ $ 533,000. 00 $ $ $ $ $ $ $ $ $ $ 1,000. 00 1,000. 00 Calaveras Vineyards Team No. 1 18-Feb-2013 CASH FLOW STATEMENT Dec-98 Cash Flow Items Initial Inputs Net Results Cash Flow Components Cumulative Surplus or Deficit Cash FlowOperating Inflows (Net Sales) Operating Outflows COGS Depreciation SGA Exp Taxes Other Total Operating Outflows Total Net Operating Cash Flow (NOF) Changes in Working Capital Receivables (AR) Inventory (INV) Other Current Assets (OCA) Accounts Payable (AP) Other Current Liabilities (OCL) Total Changes in Net Working Capital (NWC) Surplus or Deficit Cash Flow af ter Working Capital Investment Capital Investment Change in Net Fixed Assets Depreciation Net Investment Flow Free Cash Flow to Firm Surplus or Deficit (FCFF) Interest Income (II) $ 5,348,000. 00 $ 2,803,000. 00 $ 749,000. 00 $ 461,000. 00 $ $ 4,013,000. 00 $ 1,335,000. 00 $ (38,000. 00) $ (126,000. 00) $ $ 12,000. 00 $ (400,000. 00) $ (552,000. 00) $ 783,000. 00 $ 66,000. 00 $ (316,000. 00) $ (250,000. 00) $ 533,000. 00 $ Calaveras Vineyards Team No. 1 18-Feb-2013Net Investment Flow Free Cash Flow to Firm Surplus or Deficit (FCFF) Interest Income (II) Fixed Coverage Expenditures (Interest) (FCE) Surplus or Deficit Cash Flow Avaiable for Dividends Dividends (DIV) Managements Discretionary Cash Flow Surplus Financial Cash Flow Change in Long-Term Debt Change in Short-Term Borrowing Change in Preffered Stock Change in Common Stock Change in Other Total Change in Net Finncial Cash Flow (NFF) Goodwill/Other Assets &038 Other Liabilities Change in Goodwill &038 Other Asset Change in Ot her Liabilities Change in Gwill&038OAssets &038 Other Liabilities Surplus or Deficit Cash Flow (Sum of 13 Cash Flow Components) Change in Cash (Cash) Surplus or Deficit after all Cash Flows $ $ $ $ (250,000. 00) $ 533,000. 00 $ (173,000. 00) $ 360,000. 00 $ $ 360,000. 00 $ $ (360,000. 00) $ $ $ $ (360,000. 00) $ $ $ $