Case Study

Case 11. Deutsche Brauerei

1. By examining the sources-and-uses-of-funds statement (case Exhibit3) and Ratio Analysis (case Exhibit 4), what accounts for Deutshe 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? (Hint: To quantify your analysis, refer to case Exhibit 6 and worksheet “Sensitivity of ROI” in the Excel template posted on Blackboard. Complete the sensitivity analysis, i.e., the data table, to show how ROI would respond to variations in credit loss percentage.)

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? (Hint: Consider the company’s self-sustainable growth rate.)

C. Adoption of the financial plan for 2001? (Hint: Refer to the “Assumptions & Scenario Analysis” worksheet included in the Excel template posted on Blackboard. Change the assumptions based on the following three scenarios and develop a scenario summary table to show how these changes might affect the company’s short-term debt, net income and return on equity. Note that the Excel template posted is a working model. Assumptions / Inputs presented can be changed to vary the results. Use the Scenario Manager feature in Excel.)

Scenario a. Credit extension is cut back in the east to 41 days and the annual rate of sales in the east grows only 2% per year (down from 45% and 30%).

Scenario b. The plant is not expanded in 2001 and 2002; company sales growth in the east and west is only 2% per year. Days’ sales outstanding in both east and west are 41 days.

Scenario c. Dividend payments as a percentage of net income are reduced to 25%.