Deutshe Brauerei Case

1258 words, 6 pages

Intro Sample...

Executive Summary
While Deutsche Brauerei seems to have had almost overnight success in Ukraine, financial statements show that this success has been purely cosmetic. Using lax credit terms, Oleg Pinchuk has been able to report rapid sales growth yet seems unlikely to collect on some of the accounts. The focus on sales has masked the fact the Deutsche Brauerei is not very profitable and has been experiencing an increase in costs. Because of this, the company’s value is actually declining. To rectify this situation, Deutsche Brauerei needs to focus on increasing profitability by cutting costs and reducing dividends.
The current tasks facing the board of directors are approving the budget for 2001, declaring the quarterly... View More »

Body Sample...

and will learn quickly” (p.150). Oleg contends that without these credit terms, he would not be able to make sales in Ukraine. Oleg admits that some of the distributors have gotten behind on payments but says he confident they will catch up in due course.
Despite Oleg’s optimism, I think it’s extremely risky to extend lax credit terms to these types of distributors. Oleg admits that most of these retailers cannot qualify for bank credit and that is the reason they need these terms. Three of the distributors have significantly lower operating profit/sales compared to the industry and all have large trade payable accounts. They carry little inventory and have longer day’s sales outstanding than the industry average. The only one of these distributors that Oleg should consider giving these terms to is Kiev. I think Oleg’s forecast of bad debts accounting for only 2% of accounts receivable is too low.
Another symptom of these lax credit terms has been an increase in short term borrowing. Because Deutsche Brauerei is not receiving these payments form their Ukrainian sales, they have been forced into short term borrowing to finance there growth. Short term borrowing has gone from 5% of sale in 1998 to a projected 18% in 2002. While this isn’t an alarmingly high number, its growth seems unnecessary. Another number I found to be unnecessarily high was the company’s dividends. Over the years, Deutsche Brauerei has paid out 75% of their net earnings in dividends. For a company with such a low profit margin, this amount seems like too much.
After analyzing the financial ...

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