WINE INDUSTRY FINANCIAL ANALYSIS PROJECT, Business, College Term Papers.com


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WINE INDUSTRY FINANCIAL ANALYSIS PROJECT

WINE INDUSTRY FINANCIAL ANALYSIS PROJECT Canandaigua Brands, Inc. (formerly Canandaigua Wine Company, Inc.) is a producer and supplier of wine and an importer and producer of beer and distilled spirits in the United States. It maintains a portfolio of over 130 national and regional brands of beverage alcohol which are distributed by over 850 wholesalers throughout the United States and selected international markets. Its beverage alcohol brands are marketed in three general categories: wine, beer and distilled spirits. Brands include: Paul Masson, Manischewitz, Monte Alban, Almaden, Barton’s Gin and Corona Beer. Canandaigua’s return on assets is better than the industry standard for 1998, and just under the industry standard in 1997. The company’s management has been able to improve the company’s ROA by almost doubling net income from the prior year. Management has in the past done a good job of utilizing its assets, and by the latest results is doing an even better job. Canandaigua’s gross margin(25.62) is less than the industry standard(43.80%). It appears that the company’s production costs are greater than others in the industry. Profit margin(6.78%) is greater than the industry standard(6.64%) in 1998. Canandaigua is very good at controlling selling & general administrative expenses. Higher sales in 1998 resulted primarily from additional beer sales, largely Corona Beer sales, additional table wine sales and additional spirits sales. The company has increased its return on common stockholder’s equity(12.84%), compared to the industry standard of 10.89%. Canandaigua does a fair job of controlling borrowing. Interest expense was reduced by decreasing the company’s average borrowings. Canandaigua has exceeded the industry standard current ratio(1.80) for both 1998(1.99) and 1997(2.03). The company exceeds the industry’s quick ratio as well. Canandaigua’s accounts receivable turnover is getting better, but is still higher by 6.42 days. The company’s days inventory is less than half of the industry standard, and almost three times less than the other two companies analyzed. Canandaigua could do a better job utilizing interest free financing. Its accounts days payable is much less than the industry standard. Cash conversion is much lower than others in the industry as well as the industry standard. This is probably due to the amount of beer that is sold, as opposed to wine which requires longer aging time. Very few assets are required to service debt. Canandaigua’s debt to asset ratio is much lower(.33) than the industry standard(.63). This seems to be the case with the other two companies within this analysis. The company needs to continue to increase net income and reduce debt to improve its interest coverage ratio. Altman’s Z shows that there is a low probability of bankruptcy for Canandaigua. Canandaigua’s earnings per share is good in comparison to the other two companies in this analysis. EPS has improved from last year. The company has an adequate price to earnings ratio, but it is not as good as Beringer’s. BERINGER WINE ESTATES HOLDINGS, INC. Beringer Wine Estates Holdings, Inc. is a leading producer of California varietal table wines. The brand names include: Beringer, Meridian Vineyards, Chateau St. Jean, Napa Ridge, Chateau Souverain and Stags’ Leap. Beringer also imports wines from France, Italy, and Chile. Beringer was founded in 1876, and is the oldest continuously operating vineyard in Napa Valley. Management performance is poor, but improving. Beringer’s return on assets is lower than the industry standard. Due to its higher inventory, ROA is less than it could be. Gross margin is just below the industry standard and profit margin is higher than the industry standard. Beringer is doing an adequate job of controlling costs. Asset turnover is much lower than the industry standard. The company has a poor return on common shareholder’s equity(6.86%). The industry standard is 10.89%. The Robert Mondavi Corp. produces premium table wines under the following labels: Robert Mondavi Napa Valley, Robert Mondavi, Woodbridge, Vichon Mediterranean, La Famiglia di Robert Mondavi, Byron, Opus One, Luce and Caliterra. The company operates five wineries in California, including on co-managed with the owners of Chateau Mouton-Rothschild. Management is doing an excellent job of using the company’s assets to generate income at 25% above the industry average, however, this does come at a price resulting in a 28% below average asset turnover. The company is good at marking up their product and excellent at controlling costs, thus allowing profit margins to be 70% over the industry average. Finally, it appears that Mondavi’s management is doing a good job of using debt to benefit its shareholders but is strictly average concerning how much net income is available to the common shareholders and leveraging debt. Due to the nature of the business, over 40% of Mondavi’s total assets is inventory which is the reason for a negative operating cash flow of (18,470). Mondavi doesn’t seem to do very well in using its customers and vendors for financing activities. It seems that a vendor would be very hesitant to do business with Mondavi due to all of these issues as well as the fact that the company’s operating cycle is very lengthy. Although, assuming most payables are due net 30, Mondavi appears to pay their bills on an average of 3.8 days early. From a lendor’s perspective, Mondavi appears very strong in its ability to repay long-term debt and interest despite having a debt to asset ratio 35% below the industry average. Mondavi has a very low probability of bankruptcy with or without the market cap being considered. Accordingly, Mondavi would be a good candidate for a general line of credit from lendors. Mondavi’s stock appears to be over valued by approximately 100% compared to 1997 and 1998’s per share market value. According to the EPS ratio, such over valuation appears to be consistent from ’97 to ’98, according to the EPS ratio. Therefore, it seems that investors would be hesitant to purchase Mondavi’s stock. Bibliography:

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