Vineyard

Calaveras Vineyards Calaveras Vineyard was originally established in 1883 to make booze-colored for the Catholic Church. They occupied 220 acres in calcium out of which clxxv acres was occupied by the vineyard. They had now expanded into production of tabular array wines for retailers and restaurants. It had changed three possessorships in the last nine years. The most recent owner was Stout Plc. which was looking to sell Calaveras and the oversight of Calaveras was the touched party in this transaction.The main strategy from 1987 was broadening the corpo balancens location on premium brand category and this is evident from the fact that they were now concent rank on wines in the premium and super-premium category. The five C? s analyses is an important glide path to evaluate the creditworthiness of a potential client. The five metrics that result be examine are character, cognitive content, capital, conditions, and collateral. Character will translate the quality of the management team and major owners and how these major players behave related to tune.Related to Lynna Martinez, she has a uplifted level of education and is graduated from important universities in France and USA. She has done researchers in the field and has experiences as a professional in the industry, being transgression president of Calaveras Vineyard since 1987. The other partner Peter Newsome, has a storey in Business Administration and has experience in the field in different areas of this industry, such as operating and purchasing. It is possible to say that this metric is maybe one the most important for the future of this business since some(prenominal) of them have strong experience in the field.Related to the capacity analysis, it is unclear, found on historical data, the ability of the beau monde in handle a laid- top debt level, since there no information about Calaveras Vineyards police squad none 1 18-Feb-2013 debt from the balance sheet. However, the f raternity has a significant position as received assets what provide quick runniness for the business as well as a strong disengage bullion flow in twain considered scenarios to repay the bring, even though the free cash flow in 1994 is shun. The apital metrics will measure whether the company has enough capital, in this buck alike matter the commitment of the owners with the business. In the management leveraged buyout, the new owners will have $ 1 million invested and hence they would have invested 25% of the bloodamental 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 founder than what the previous owners were doing.The economic conditions for the wine business seems to be in a full moment, even though the alcoholic market has been stagnated, the wine market has grown by 7. 4%, new researches about the benefits of wine has driven the deman d up and thus the market is being benefited. ground on the Pro Forma Historical pecuniary avowals, it seems that the management team is open to control the expenses and cost of goods change as the gross revenue extend and decrease. It is possible to see it using the fall thin of the COGS related to gross gross sales and the SG&A related to sales that has been the same (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 cause of liquidation, the Receivables may be sold at 85% of the smell treasure, 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 book value that is $1,794,877. This liquidation would provide a total of $3,836,321 which is more than Calaveras Vineyards Team No. 1 8-Feb-2013 the total loan provided in 1994 ($3,122,000). It pr ovides a good standard for the potential creditor of this company. Moodys SGL framework can also be employ to assess 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 symptomatics that are evaluated in rating a company using this framework. The first point is the capacity for financing capital expenditures and scratch working capital internally.Calaveras has an expected ostracize free cash flow in 1994 based on Anne Clemens projection ( bring out 3), so it will not be able to fund internally. However, the company button up has the flexibility of drawing money from its revolving credit get since the borrowing base has sufficient amount. screening 3 also shows that the negative cash flow is due to a significant addition to net working capital. The addition is larger than average because the company is increasing its sales to the same level of 1992. The company is projected to have positive 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 byout 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 quantify of distress. Anne Clemen expected that Calaveras accounts receivable would able to set out 80% of book value and inventory for 85% of book value, while land, adjust and equipment would only 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 characteristic that is the extent Calaveras V ineyards Team No. 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. subsequentlyward analyzing Calaveras through the SGL framework, we believed that the company should receive a score of SGL-3. The increase in the size of it of the wine market is an opportunity for Calaveras to increase their market share specially 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 financial ratios that A nne prepared. EBIT reporting 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 off 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 cut down 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 frequently higher 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 utility of its ability to generate sales revenue from each dol lar 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 approbative future. New Scenario A new scenario was drawn in order to assess how the financial health of the company would be if the COGS and SG&A 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 hood.Additional consideration and recommendation We based our analysis on the ratio analysis done by Anne Clemen. The ratio analysis shows us favourable trend about financials about this company. The leverage ratio goes on reducing and the times interest earned as well as Profit margin show favourable forecasts. Based on our current analysis, we think Calaveras had good profitability and has enough a bility 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 price of its wine diminish quickly because of intensive competition or there was a bighearted drop in the production of grape due to some catastrophe, the sales revenue will decreased dramatically, which would result in a wither 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 increase quickly because of a sudden increase of material price or the SG&A 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 unstable factors conservatively to see whether Calaveras would have a credit risk. Additionally, to decrease the default risk, Anne could also make covenants with Cala veras 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 California Generic Special Accts.Winery TOTAL Gross Profit Selling, General and Admin. amortisation of transcriptional Costs EBIT liaison Expense (avg. balance) Profit Before tax revenuees Tax Expense earnings Income Dividends to Common Shareholders Retentions to Equity $ $ $ $ $ $ $ 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 equilibrate Sheets (At Closing) cash Accounts Receivable Inventory Organization Costs- live marrow catamenia pluss visit Plant and Equipment Gross PP&E Accum. dispraise cyberspace PP&E Organization Costs-Noncurrent come in Assets Payables & Accruals Debt-Current Portion LTD Revolving Line of Credit tot Current Liabs.Deb t, non-current gibe Liabilities Common railway line Retained Earnings Total Equity Total Liabilities & Equity Memorandum Borrowing base (85% AR, 75%Inv) Revolver $ $ $ $ 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 caseful Sales $/Case Gross Margins Estates Select-other Chardonnay California Generic Special Accts Winery Dividend Payout Now-1996 1997&After 0 0 0. 47 0. 35 0. 37 0. 35 0. 26 0. 35 0. 46 Exhibit 11 Exhibit 11 capital Minimum (m) AR/Sales INV(T)/COGS(T+1) CL(T)/COGS(T+1) SGA/Sales derogation upper-case letter Expenditures amuse Rate Tax Rate Inflation Rate Real harm 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 yea rs. Calaveras Vineyards Team No. 1 18-Feb-2013 Exhibit 10 Solvency ratio EBIT/ (Interest and Principal) Current ratio Debt ratio Assets/Equity skill 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 dimension 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 Upper Quartile average 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 immediate payment commingle Components Cumulative supernumerary or dearth silver full stop capital proceed Components Cumulative surplus or shortfall Cash run away Cash precipitate Items sign Inputs Net Results Initial Inputs Net Resultsoperating(a) Inf lows (Net Sales) Operating Outflows COGS Depreciation SGA Exp Taxes separate Total Operating Outflows Total Net Operating Cash Flow (NOF) sorts in operative Capital Receivables (AR) Inventory (INV) Other Current Assets (OCA) Accounts Payable (AP) Other Current Liabilities (OCL) Total revisions in Net on the job(p) Capital (NWC) otiose or deficit Cash Flow later Working Capital investment funds Capital Investment change over in Net obstinate Assets Depreciation Net Investment Flow excess Cash Flow to faithful Surplus or Deficit (FCFF) Interest Income (II) Fixed Coverage Expenditures (Interest) (FCE) Surplus or Deficit Cash Flow 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 $ 587,000. 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 Flow Statements Contd.Surplus or Deficit Cash Flow Avaiable for Dividends Dividends (DIV) Managements arbitrary Cash Flow Surplus Financial Cash Flow falsify in semipermanent Debt agitate in Short-Term Borrowing transfigure in Preffered Stock Change in Common Stock Change in Other Total Change in Net Finncial Cash Flow (NFF) saving grace/Other Assets & Other Liabilities Change in thanksgiving & Other Asset Change in Other Liabilities Change in Gwill&OAssets & Other Liabilities Surplus or Deficit Cash Flow (Sum of 13 Cash Flow Components) Change in Cash (Cash) Surplus or Deficit after all Cash Flows $ $ 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 CASH time period teaching 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 arbitrary 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) grace of God/Other Assets & Other Liabilities Change in Goodwill & Other Asset Change in Other Liabilities Change in Gwill & Other Liabilities Surplus or Defic it 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 after Working Capital Investment Capital Investment Change in Net Fixed Assets Depreciation Net Investment Flow Free Cash Flow to Firm Surplu s 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 & Other Liabilities Change in Goodwill & Other Asset Change in Other Liabilities Change in Gwill&OAssets & Other Liabilities Surplus or Deficit Cash Flow (Sum of 13 Cash Flow Components) Change in Cash (Cash) S urplus 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) $ $ $ $