Monforte Dairy

Monforte Dairy

This report is consistent with my signed Academic Integrity Form on file with the instructor.

Team #5

June 19, 20XX

Critical Issues

In order for Ruth Klahsen to retire in 10-15 years and grow Monforte Dairy Farm to a position as a $10-million-revenue company in the long-term, Klahsen must address:

1. Insolvency issues: Currently, Monforte is unable to pay off current portion of debt obligations and will be unable to obtain financing for future growth

2. Government Enforced Quota System: This limit on cheese production may hinder Monforte’s ability to keep up with current demand as well as potential future expansion.

Analysis

Due to current low interest rates, Klahsen is considering the expansion of the Monforte Dairy farm through a variety of different business ventures address below. As per the 2009 Balance Sheet, Monforte has a significant cash flow problem and is unable to pay the current portion of the company’s debt. The debt to equity ratio is 11.49 so Monforte is already highly leveraged and because of this, it is extremely unlikely that Monforte will be able to acquire any financing from a bank or other financial institution. Monforte’s current financial position will hinder the opportunity for the expansion into other avenues at this time.

The industry has also been faced with a government enforced quota system, which may also hinder Monforte’s ability to meet current demand, let alone an increase due to expansion. Monforte has already secured quotas for five cow-milk cheeses but any more production of a cow-milk cheese must be approved by the governing board and by any current producers of that specific cheese. Again, this situation is not favourable for a company expansion so Klahsen needs to ensure that current debt obligations are met before considering moving on to other revenue streams.

Decision Criteria (Also refer to Exhibit 1. SWOT)

Options

Exhibit 2 provides a Pros and Cons Chart for the...