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Calaveras Case Essay Sample

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Calaveras Case Essay Sample

We believe that Calaveras is a good investement according to the following ratios: * Gross Margin ratio
Gross margin/cost of sales = 2,534,255 – 1779809 = 1,42
This tells about the increasing operational activity of Calaveras and at the same time a decrease inliability. This signals management commitment for stable investments and improvement of the financial health of the company. * ROA ratio

Income/Assets = 0,42
In regard to ROA investment, which measure the efficiency of the investment, the return of investment. the sales forecast is based onincrease in demand and a successful marketing strategy that will lead to increase in case sales andprices due to the orientation towards high quality wines. Therefore, we expect that these assumptions will not deviate extensively and according to it we can conclude that Calaveras will be able to repay the debt. In case of any larger deviations towards decrease of case sales followedby increased competition in the market or unsuccessful marketing strategy in terms of high-quality wines, it might happen that the goals of achieving required levels of sale would not bemet. This would have a negative impact on the ability to repay the debt.

As Calaveras Vineyards are limited by the supply chain, it should focus on the improvements of production and increased contractual securities in order to guarantee supplies. Moreover, theincrease in the wine market is a great opportunity for Calaveras to strengthen their marketposition especially in the wholesale market, where the company has secure brand position andstable relationships with the distributors. This brings us to the conclusion that Calaveras has bigopportunities to expand its market share. Another advantage Calaveras is its ability to be presentin both the markets of premium wines as well as in the private-label wines for hotels, resorts, andairlines, and in servicing the higher-volume wine

* Debt ratio

Total Debt/Total assets = 0,013

based on all this we can say that Calaveras is a company worth investing in andaccording to the conditions proposed by Goldengate the company is able to repay the debt.However, Goldengate may consider increasing the interest rate up to 12 %, and at the same timeincreasing the frequency of paying the interests up to 4 times a year. This alternative is supportedby the Debt-Service-Coverage-Ratio, where 1.2 is the lowest admissible level. (Figure 10)Anyway, increasing the interest rate represents the worst-scenario case that will hedge Goldengateagainst deviations from above stated assumptions. Nevertheless, our final remark on the proposalis that Goldengate should participate in the offered deal accepting the given condition

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