Deutsche Brauerei Instructor Case Solution

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Deutsche Brauerei

Teaching Note

Synopsis and Objectives

A newly-appointed director of a small German beer brewer must prepare to vote on three issues coming before the board of directors the next day: (1) approval of the financial plan for 2001, (2) declaration of the quarterly dividend, and (3) adoption of an incentive compensation plan for the marketing manager. The student’s task is to evaluate the past and prospective financial performance of the company and to critique its liberal credit and inventory policies. The objectives of the case are to:

• Introduce and exercise tools and concepts of financial-statement analysis (including financial ratios, break-even analysis, and cash-flow statements).

• Explore
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The balance sheet reveals growing debt requirements. However, the sources-and-uses-of-funds statement and the financial ratios provide a more direct route to insights about strengths and weaknesses than does the forecast income statement and balance sheet. In this segment of the discussion, the instructor may wish to review the categories of financial ratios and the basic definition of what constitutes a source and a use of funds.

5. Why does this profitable firm need to borrow?

This question may be rendered redundant by the discussion of question 4, although it serves as a useful summary of financial demands on the company and provides an opportunity to underscore the interdependence of growth, dividend, and debt policies.

6. What do you conclude from case Exhibit 7 about Deutsche’s distributors in Ukraine?

Question 4 exercises students’ abilities in longitudinal analysis of ratios; this question, which compares some of Deutsche’s distributors to the industry averages, invites cross-sectional analysis. The comparison will raise concerns about the creditworthiness of some of the distributors and the reasonableness of Deutsche’s rapid eastern expansion.

7. Are the credit and inventory policies in Ukraine sensible? What risks is the company assuming? What returns are possible?

This segment of the discussion provides an opportunity to test directly the profitability of