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DBS 304 Finance For Strategic Management

tag 0 Download 9 Pages / 2,160 Words tag 07-07-2021


Jackson grew up working in Bars as a bartender form the age 20. He was famous for making cocktails with Vodka. Soon he discovered the technology to make Vodka and started improvising the same. By 2014 he had saved enough money and mastered the art of making VODKA. Jackson set up a company “Triple Rock Ltd”. He tied up with a local
Auckland based brewery to manufacture his formulation on a commercial basis. At that point of time he approached his two other friends who brought shares of his company thus raising the initial capital to $100,000. By the end of 2014 his formulation of Vodka won a silver medal and started getting orders.
Being a new entrant in the market Jackson had to give credit to the liquor shops and the brewery would ask him for money before picking up stocks as liquor is an excisable item. By the end of 2015 Jackson did not have enough money to grow his business further. He approached banks and financial institutions were ready to give money but only against securities which Jackson or his other friends could not provide. In 2016 Jackson found that approaching liquor vendors with one product was not cost effective so he tied up with a Vineyard and a beer manufacturer to market their products along with his Vodka. This now gave him a wider range of products and margin too.

Jackson is looking for an investor to invest $300,000 against an equity holding of 30% for a period of minimum five year after which the investor can exit with double the money. However, in December 2015 at a Christmas Party he met Mr. Lee Wong from China who is looking for investing in startup businesses in New Zealand. Mr. Wong has all the
resources but needs your help to prepare a business report assessing the financial performance and position of M/s Triple Rock Ltd. for the past three years. Depending upon your recommendations – will/will not Mr. Wong make investment. M/s Triple Rock Ltd has willingly supplied their Income Statement, Statement of Cash Flows and Balance
Sheet for 2014, 2015 and 2016. 

There is some supplementary information about the company:
1. Till now Mr.Jackson was the only person doing sales except some promo staffNow he plans to have two more permanent sales staff one to look after the south island to be stationed in Christchurch and the other Auckland who will be responsible for sale in the North Island. While Mr. Jackson would do sale plus coordination admin, accounts and look after international market. He anticipates that selling and marketing costs would increase to $35046 in Year-1, and then on it will increase by 50% over the previous year for next two years which will include advertising and other promotions cost.

2. The other routine administerative expenses are projected to go upto $90,000 in Year-1, $180,000 in Year-2 and $280,000 in Year -3 the due to increase in salary cost due to hiring senior level employees.
3. The Distillary has promised to give a better price if the order size is increased to an annual order of $ 500,000
4. Mr.Jackson expects that his gross profit after new cost of good and international orders would be jump to 30%
5. Mr. Jackson plan to hire a place where he can store stock and also office space which will be at $800per week in year -1 with a 10% increase after every 12 months 
6. Domestic and International travel would cost an addition of $ 48000 per annum it is anticipated to increase by 10% in year 2 over year 1 and again 10% in year 3 over year 2.
7. Mr Jackson intends to buy two delivery trucks costing $60,000 each in year one
8. Stocks, Debtors and Creditors will remain unchanged in relation to sales and cost of goods sold
9. Tax on profit will be at 33%
10. Anticipated sales and Net Profit after providing for the expenses post investment are forecasted to be:
Sales Net Profit after Tax
Year 4 $925,000 $28,480
Year 5 $1,387,500 $45,444
Year 6 $2,081,250 $95,411

On an initial review of the financial statements, Mr. Lee is concerned about making investment in the company as the business is running in losses and the owner’s equity is reducing. Mr.Lee is passionate about liquor business has big dreams feels that Vodka has a large market globally and is desirous of taking the risk does not want to lose this
opportunity. He looks at China as very large Vodka market and wants to take product of Triple Rock Ltd there. You as a financial advisor has been entrusted with the taks of submitting a report to Mr.Lee giving a complete analysis of the last three years of operations and finances suggesting him whether to go ahead with the investment also plese explain the anticipated risks if there a. Support your analysis must cover the following in addition to any other argument that you may find useful:
1. Compare the financial statements of last three years and give a simple trend analysis of how the company is performing (try to support your answers with graphs
2. Calculate the following ratios based on the last three years, of financial performance of the company
a) Working capital in dollar terms
b) Current ratio
c) Liquidity ratio
d) Gross Profit Ratio
e) Net Profit Ratio
f) Stock turnover
g) Return on fixed assets
h) Increase in sales % for 2014 and 2015
i) Gross profit percentage
j) Net profit percentage 

3. Analyse and interpret the above finaicial ratios commenting on possible reasons of change from year to year. 
4. While making the recommendations to Mr.Lee please also benchmark your finaicial ratios results with that of industry average and comment on the change over the last three years and risks if any.
5. Mr. Jackson supports his projections using examples of other simmilar Vodka companies that also started as a small independent venture was brought over for $100 million by another leading Vodka marketleader but did not give any specific.
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