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Cafes Monte Bianco Memo

Cafes Monte Bianco Memo

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Published by catspajamas 11
Cafes Monte Bianco Memo for case from Harvard Business School.
Cafes Monte Bianco Memo for case from Harvard Business School.

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Published by: catspajamas 11 on Oct 03, 2013
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03/02/2015

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Cafes Monte Bianco

Memo
To: From: cc: Date: Re: Mr. Giacomo Salvetti Andrea Yates Prof. Susan Murray September 5, 2013 Private Label

Per your request, I developed a profit plan and financial assessment for Cafes Monte Bianco possible strategy change to private label. I have determined we should look at maintaining our strategy of selling premium brand and private label coffee.

Profit Plan
Sales I forecasted sales for 2001 compared to 2000 would decrease by 3,312,408,000 liras due to the reduced sales price of private label coffee.

Capacity/Year Current Price (Avg. in 2000) Revenue (Estimated in 2001)

2001 6,000,000 8,800 52,800,000,000

2000 3,500,000 16,032 56,112,408,000

Operating Expenses Our operating expenses will be lowered significantly by going strictly to private label. We will be able to eliminate marketing costs, as well as, reduce selling costs, research and development costs, and administrative costs by 12,440,161,000 liras. Additionally, fixed costs will be lowered due to our increased capacity from 3,500,000 to 6,000,000. Profits Even with the increased capacity and decreased spending in SG&A, we will not be able to make as much in Net Profit as we were in 2000. We will have an estimated 333,828,000 liras shortfall.

800.882. When making the statement of cash flows. 31. Cafes Monte Bianco Estimated Statement of Cash Flows For the Year Ended Dec.700 Increase in A/R (10.148.721 (1.825.408 (42.Revenues Costs of Goods Sold Gross Margin SG&A Interest Expense Profits Taxes (40%) Net Profit Liquidity Income Statement (Thousands of Italian liras) 2001 (Estimated) 2000 52.963 Net Cash Flow from Operating Activities Cash Flows from Financing Activities Net Cash Flows from Financing Activities Cash Flows from Investing Activities Net Cash Flows from Investing Activities Net Cash Flows 8. I am concerned about the liquidity of Cafes Monte Bianco and our ability to keep the necessary inventory and raw materials on hand to meet demand.536) (1.820) (3.945.133) Decrease in A/P (487.233. given the lack of information.329.161 Depreciation Expense 2.440.370.611. I made the assumption we had no finished good or raw material inventory and that we were paying all of our bills on time.088) 1.074.329.000) (3.000) (33.918.805 1. 2001 Cash Flows from Operating Activities Operating Income (EBIT) 12. once any left over A/R is paid in full from the premium label.273.297.633 If we switch to a complete private label strategy. I don’t believe most of my assumptions are correct.000) 2. While our net cash flow seems ok.825.760 - 8.810.112.541 (3.400 Decrease in Inventory (Raw Material) 2.878.341 3. When we first switch over to private label.331) Decrease in Finished Goods 1.000 56.686. The months of March and April will be 2 .867) 9.593.907.000 22. we will not have any cash and will have to rely on credit.760 Accounts Receivable and Operating Cash I have concerns regarding the private brands retailers’ 90-day payment policy.659) (15.242.

07 2000 3.030.545.060 4.350.869.800 1.91 2.800 940.640. this is a real concern. Any disruption in our supply chain could affect our profits for years to come.665.060 4.060 6.060 *Cash Out is calculated using monthly operating expenses minus depreciation for each unit produced.545. I assumed the expansion was already on the books as an asset.400 (1. While the financial leverage ratio did go down.175.140.545.060 4.400.120.219.060 2.000.000 3.47% 1. due to private label retailers’ demand for stability.500 3. as well as.216.800 4.000 6.545.990. Inventory Another issue that may affect our success in the private label is whether or not we can maintain a constant level of inventory.000.000 3.607.100) 383.000 Total Cash On Hand 121.000 3.782.800.590.226.905.577.060 3.332.630.577.823.060 772.000 2.437.362.790.577.892.particularly tough.230.000 3.783.577. With a low to negative net cash flow in some months and a maxed out credit line of 25 billion liras.512.967.340.328.600 1.545. Profitability Ratio (Net Income/Sales) Asset Turnover Ratio (Sales/Assets) Financial Leverage Ratio (Assets/Shareholders Equity) ROE 2001 3.000 3.157.000 4.400.742.185. due to the slow summer sales. Return on Equity With the new potential strategy.895.545.900 6.577.000 3.613.26 4.485.545.000.482.000 3.400 3.865.600) (891. our Return on Equity decreases as well as our profitability ratio.000 4.21 3 .748.000 2. Expected Payment Starting January February March April May June July August September October November December 6.410.87 0.485.577. the debt taken out for the expansion since nothing was mentioned regarding how the expansion was paid for or what the current long-term debt was for.518. Our poor liquidity may be exacerbated if even one of the private retailers makes a late payment.787.410.000 Cash Left Over 3.205.120.373.790. An increase in the asset turnover ratio was expected due to the increase in capacity and the ability to hold coffee in inventory for private label.450.52 0.600.060 8.05% 0.860.868.000 3.400 2.477.000 3.100 3. Looking at the ROE.404.400 2.885.752.000 3.291. asset turnover ratio and financial leverage ratio.659. I believe that is in a large part of not knowing what A/P will be at the end of the year.060 7.577. In making the calculations.577.577. We will also have a low cash reserve at the end of the year.060 4. The inability to maintain a constant level may cause us to lose business in the private label.060 785.800.545.160 7.649.000 1.000 3.400.575. it appears last year’s strategy would be more attractive to investors than the new proposed strategy.740 2.276.420.545.000 6.545.160 3.960.217.131.495.060 Cash Out 3.

Cafes Mount Bianco could pick up three more private label retailers to make up the shortfall in demand for their premium brand offerings.Profitability Ratio Asset Turnover Ratio Financial Leverage Ratio Conclusion In conclusion. 4 . I would recommend Cafes Mount Bianco continue with their current strategy of mixing premium and private label coffee.

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