More Vino Ltd Case
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As Arthur Greenway, I have decided to grant the Stone brother’s the loan. Because Analysis of SCFAlthough the company didn’t generate any money from operations in 2016, they started to earn profit from operations in 2007,which is a good trend. The net income is negative for either year, which is concerning. The major source from operation is accounts payable and this is a good thing. Since AP needs to be paid back eventually, it is better to invest the money to inventory. However, the company didn’t do so in 2017. This is because their unexpected failure in wholesale part and success in bar. It is a good sign that they are able to sell most of the inventory to generate money. They got a huge sources from loans, which is worrying because we have to pay the high interest and eventually pay the loan back. What’s worse, in 2017, they use money from operations instead of long-term debt to invest on fix assets. Overall, although the company developed very quickly during the past two years, I am concerned about the debt that they owed to the bank. Is it really a proper time to expand, which will definitely make them have more debt, or they should slow down to pay their debt first.Analysis of RatiosThe ratios shows that the company is quiet profitable for their COGS went down and gross profit went up during the two years. Moreover, their operating expenses deceased. Although the operating income is negative in these two years, it increased greatly. However, things are not good when it turns into liquidity. Their current ration is very low. What’s worse, their acid test is about twenty times lower than the current ratio, which means that they tied too much money on inventory. All these tells that they are unable to raise money fast. At the same time,the fact that their sales growth doubled during two years is quite impressive.
From the ratios, I can see a promising company and I believe it can do better in the future. But the leverage is too risky. I still doubt whether it is a proper time to invest to expand.Analysis of Projections,plug,seasonality and sensitivityThe projections shows that the company’s condition is becoming better. They start generating cash from operations. And they are able to run the company with borrowing new debt. They can cover the debt and interest with the money generating from sales. By interfering the plug for seasonality and sensitivity, I see that the bank line of credit is enough to cover the plug.I find that the risk of expand is not as high as I thought. Managing properly, the company is quite profitable in the future.Analysis of 4CConditions: Firstly, the market for wine is very large and will continue to grow in the next five years. The festival and party culture of Triniland is also helpful. Secondly, there are limited competition from specialists. Thirdly More vino operates  nearby many finer restaurants which is good for their promotion. Fourthly, they offer lower prices other than the competitor. Last, they provides on-site entertainment and they are considering wine-tasting events and other promotional efforts.