The Firm Is Called More Vino LTD

More Vino LTD is a multilevel business. It operates four subunits: wholesaling and distribution, a retail store, a bar, and a restaurant, and a delivery service.

Marketing Analysis

More Vino LTD operates in the alcohol industry. The products are essentially alcohol derivatives especially wine. In addition to wine, they sell hors d’oeuvres and appetizers in the bar and the restaurant. More Vino is located in Port of Spain, Trinidad. Trinidad is one of the islands of Trinidad and Tobago and is located at the southern-most end of the Caribbean.

Port of Spain is the capital city of Trinidad but also the place where all the business activities take place. The city is experiencing a boom in the tourism industry. With the variety of their customers, the Stone brothers, owners of More Vino LTD price their products fairly. More Vino promotes its products by offering wine-tasting special events and special promotions. They are also willing to attract their regular clientele by opening a More Vino wine club.

More Vino LTD has a competitive advantage over its competitors because it is specialized in imported wine and wine products of exclusive brands. The evolution of sales growth is strong with more than 100 percent from 2006 to 2007 coming mainly from the on-site consumption. This increase in sales shows that the company’s marketing efforts have been successful. The demand for the products is cyclical because the sales growth increases with the market growth of the industry.

The purchase of inventory is seasonal with a peak in the months of May and November.

Operations Analysis

More Vino LTD imports its products and uses many ways to sell and distribute them. Due to its multilevel activities and the fact that the company is new, it requires a large amount of inventory. Inventory represents 96. 3 percent of current assets for 2006 and 95. 7 percent for 2007 so the inventory represents the majority of the company’s current assets. However, the inventory days for 2006 and 2007 are 149 days and 46 days.

The decrease in inventory days means that the efficiency of the firm in terms of its inventory is good. The TAT of 2. 0 for 2006 and 3. 9 for 2007 mean that More Vino is low asset-intensive. This increase in TAT is driven by a large increase in sales. The average collection period is very low with 1 day for 2007 and 3 days for 2006. This is due to the fact that most of the sales are driven by on-site consumption then consumers pay quickly. The company is managing its receivables well. The FAT has been stable to 5. 0 for both years.

This high number means that the company is effectively using its fixed assets. For More Vino LTD, one point of significance is the negative cash flows from operations in 2006 (2,918,738). The cash flow crunch is apparently caused by a net loss for the year 2006 (2,015,034). There is no mention of any human resources issues affecting performance but the fact that the Stone brothers own only one-third of the shares of their company could be a problem in the future.

Financial Analysis

Christian and David Stone invested their own money in the company. However, they seek additional funding from Arthur Greenway and Rose Moore in order to expand.

The owners’ distribution is as follows: Greenway and Moore control two-thirds of the shares and the remaining one-third is controlled by the brothers. They have additional funding needs because they consider expanding the restaurant and the bar. The low current ratios of 0. 7 and 0. 3 for 2006 and 2007 are driven by a high amount of current debts especially the bank line of credit.

The payable days also increases from 34 in 2006 to 51 in 2007. This may be the result of the suppliers giving more time to More Vino to pay their bills. The quick ratio of the company is 0. 0 for 2007 and 0. 0 for 2006. It shows that inventory is a big component of current assets. The negative cash flows from investing (827,868) in 2006 and (991,512) in 2007 is because of high investment in fixed assets. The cash flows from financing is 10 times less from 2006 (3,773,492) to 2007 (258,740) because the company reduced its loans payable.

They have a large amount of debt. The time’s interest earned is negative and estimated to (3. 6) in 2006 and (0. 4) in 2007. That means that they cannot pay their interest through their operating income, as they have a negative operating income. The debt ratio is superior to 100 percent for both years. The company has not enough cash to pay back its liabilities, thus the firm is risky, there is leverage risk. Net profit margin and operating profit margin decline and are negative because operating income and net income are negative.

This net loss results from the fact that the company is new on the market so their expenses are bigger. They are not paying dividends because they report a net loss for two consecutive years.

Summary

From our analysis, we hold that the company is not liquid and very risky. It also appears that the firm is financed mainly through debt coming from shareholders. With not enough assets to cover its current liabilities, the company should reinforce its operations and investing activities. A positive sign is a net income which is improving even if it is still negative.