M IV

Jaswinder Singh

MBA06071 24/08/2021

Financial Statement and Analysis

Professor Amrinder Singh

Declaration:
1. I have submitted faculty feedback 30 minutes prior to appearing in the End-Term Exam.
2. I have not copied the answer/matter in this answer booklet from my classmate, internet
and any other sources.

Signature of the Student

Q1. As Arthur Greenway, assess More Vino’s financial performance, utilizing the company’s
financial ratios and statement of cash flows.
SOLUTION

Analysis of financial performance using financial ratios and cash flow - 

Profitability

Cost of Goods Sold - Cost of goods sold has gone down 77.2% to 65.1% in the year 2016 and
2017 respectively because they have shifted their focus from Wholesale to retail and the volume
of purchases has gone up.

Operational expenses – There is a significant decrease in Operational Expenses from 59.3% in

2006 to 38.5% in 2007. This shows that changing focus to a retail business allowed them to
reduce the cost.

Operating Margin - Operating margin has remained negative and constant in both years i.e.
-3.6%. This bothers me a bit but it is acceptable since More Vino has just started up.

Liquidity

Decrease in Current Ratio - The current ratio decreased from 0.71 to 0.26 because of the increase
in accounts payable and the decrease in inventory.

Decrease in Acid Test Ratio - The acid test also decreased from 0.03:1 to 0.01:1 because of the
increase in Accounts Payable.

Low Current and Acid test ratios are not a very good sign because, to compete in a competitive
market (retail/bar), it is vital for businesses to maintain good liquidity. 

Efficiency

Increase in Inventory Turnover Ratio - Inventory Turnover ratio has increased from 2.45 in 2016
to 7.95 in 2017 which is a good sign in the efficiency of the company.

Receivables Collection at Faster Pace – Average collection time of receivables has gone down
from 2.1 days in 2016 and 0.47 days in 2017 which is a good sign.

Increased age of payables - The age of payables has almost tripled from 30.5 days in 2016 to
88.4 days in 2017.

Cash Flow Statement

 Cash Flows from operations: CFO have turned positive as a result of cut in inventory held, and
extension of favourable terms of credit by suppliers. Net income has also increased given the
sharp increase witnessed in sales.
Cash flow from investing: The Company did not witness any stark changes in financing needs as
compared to the previous year. (2016)

Cash flow from financing activities: There was no new roll out of equity in 2017, but shareholder
loans were disbursed amounting to 666000, which helped keep the financing requirements of the
company in check.

 Stability & Growth - The business’s sales increased by 101% from 2006 to 2007 and the total
assets increased 4%. This is because the business just started up, and its net income and equity
are still in a negative number.
Q3. What are More Vino’s financial requirements? As, Greenway, what are your options?

SOLUTION

·        Total - $1,060,000

·        Given by Mother - $ 200,000

·        Themselves - $130,000/each *2 = $260,000

·        Required Funding = 1060000 -200000-260000

= $600,000 (from Greenway & Moore)

All the above funds will be provided at the interest rate of 9% per annum, and the repayment will
commence from 2020 onwards.

As the sales were expected to grow over the years by 40% with that the COGS will also increase,
wages by $300000, rent expense by 20%, marketing and advertising budget by 3.5%, and other
expenses as well. They need to meet their working capital requirements as well and for that they
need more money.

Options with Greenway - 

After the analysis of the financial statements, we can consider the following options:

1 - Fund $600,000 himself - If the growth prospect looks great, Greenway can choose to go with
this option because it will reap him great returns as well as boost his personal relation with the
family. 

2 - Fund More Vino’s in collaboration with Rose Moore - To minimize and share the risk while
keeping the relationship harmonious with the family, Greenway can choose to go with the option
of funding the firm in collaboration with the third partner i.e. Rose Moore.

3 - Reject the proposal of funding - Greenway can choose to not fund for this expansion and stick
to his earlier plan of short term partnership because the brothers were not able to analyse the
market properly, as they expected to get more share from wholesale market but the results were
not same they were getting more sales from retail segment which is bar and restaurant.
Q4. As Greenway, how will you respond to this request for funds? Based on your qualitative and
quantitative analysis, provide detailed rational for your decision.
SOLUTION
After going through the financial statements both quantitatively and qualitatively I have decided
not to give a loan. 
The reasons for this decision are as follows - 
QUANTITATIVE ANALYSIS
 The company is heavily relying on debt as compared to equity. It has a negative total
equity of -2282156 in 2017 which is not a good sign for the company. This also leads to
the conclusion that whether they were right or not to enter this market.
 The company's bank line of credit which is $1580479 is over the limit, this states that
they will require extra working capital to support the activities. When the bank will
demand its money back it will be very difficult for more vino to repay all of it. 
 The current ratio which is 0.26:1 and acid test ratio which is 0.01:1 shows that they are
not able to pay the current liabilities meaning the firm is not liquid. This little liquidity
may even not let them compete in this market.
 There was a loan of $1500000 to support working capital but even this amount is not
sufficient to cover all the working capital requirements, there can be chances of me
paying more money to support them.
QUALITATIVE ANALYSIS
 They discovered that most of the sales ended up turning out differently from what they
expected. This is when they decided to take out even more loans in order to differentiate
their focus for consumers and further expand on it. Be that as it may, the current ratio and
acid test highlight that the company has a troublesome liquidity position. The company’s
main asset is inventory and it needs to be sold faster to improve these ratios
 This isn’t a very good time for them to expand, considering the amount of debt they owe
to various sources.
 Financial ratios may have indicated a small experience of success, but this kind of rate of
growth is unsustainable and should not be expected or dependent on in future years.
Based on financial records, the company is not ready to take on another huge loan, they
need to spend a couple of years to settle down, generate income and begin paying off the
huge amounts of debt
  A simple patio for a relatively small business shouldn’t cost nearly this much, which
means the investment should also be used for more necessary components of the
company. This proves that these men still have some learning to do when it comes to
properly using money and that they aren’t to be trusted with a personal investment of this
 size. Asking for a large sum of money and then making poor use of it will ruin the past
relationship these men already had with Arthur Greenway
For all these reasons, I have decided not to invest the desired TT$600,000 into the company at
this time. If ever solutions could be made to fix these problems, perhaps more investing could be
considered as an option.