Contents

Page
Question One
Question Two
Calaveras Vineyard s Report
Contents
1. Executive Summary
2. Background
3. Qualitative Analysis
4. Quantitative Analysis
5. Aendices
!. Conclusions and "ecommendations
3
3
4
5
!
#
$
13
1#
2%
Question One
1.1 E
1.2 C
1.3 &
1.4 &
1.5 E
1.! B
1.# B
1.' B
1.$ &
1.1% A
1.11 &
1.12 C
1.13 C
1.14 E
1.15 &
1.1! C
1.1# A
1.1' A
1.1$ B
1.2% C
Question Two
Calaveras (ineyards "eort )*elo+,
Calaveras (ineyards
"eort
Contents
Page
1. 1. Executive Summary
2. 2. Background
3. 3. Qualitative Analysis
4. 4. Quantitative Analysis
5. 5. Aendices
!. !. Conclusions and "ecommendations
!
#
$
13
1#
2%
1 Executive Summary
-.is reort investigates +.et.er /ationsBank s.ould arove t.e loan alication o0
14.5 million to urc.ase Calaveras (ineyards. -.e met.od o0 investigation entailed
revie+ing t.e .istorical data rovided. A &iscounted Cas. 2lo+ )&C2, +as
0ormulated3 /4( and 4ay*ack +as also calculated.
-.e t.ree main 0actors considered in t.e estimates +ere case sales trends and
demand3 in0lation and real rice increases re0lect Calaveras strengt.ening t.eir
*rand recognition. -.e 0irst assumtion is t.at t.e rices +ill increase 25 *e0ore
in0lation. -.e roduction er ton o0 graes and yield er acre increased in 1$$2 due
to t.e ne+ market strategies. Sales are exected to gro+ 135 in 1$$5 a0ter +.ic. an
estimate o0 1253 !53 and '5 0or 1$$!3 1$$# and 1$$' resectively3 s.o+ gro+t.
+.ile recognising a s.i0t to+ard +.ite +ines 6 translating into an annual ro7ection o0
1%5 er 0or t.e 0orecast eriod 6 Aendix 5. -.e tax rate o0 3#5 and in0lation rate
o0 25 is taken into account in t.e 0orecast. -.ere0ore t.e rices er case 0or eac.
category .as 25 rice gro+t. as +ell as 25 in0lation rate3 t.e total o0 45 is re0lected
in t.e 0orecasted income statement. -.e key drivers o0 t.is model are 8ross margin
on eac. o0 t.e 5 main roduct grous3 tax rate3 in0lation rate3 real9rice gro+t. level3
interest rate3 Accounts "eceiva*le to Sales ratio.
/4( and 4ay*ack +as 0avoura*le as a ositive /4( indicates t.at t.e investment is
a good one. 4ay*ack +as calculated to *e 1.%# years and t.is means t.at t.e *ank
+ould easily make t.eir money *ack. -.e :"" +as aroximately $35. -.is deal
s.ould *e aroved.
-.e 0inal recommendation suorts t.e alication. Also contained in t.e 0inal
recommendations3 t.e reader +ill *e a*le to o*serve a +ider3 marketing 6 customer
centric aroac. to *usiness ractice and marketing e00orts to control costs and
encourage *usiness gro+t..
2 Background
An internal assessment o0 Calaveras (ineyards indicates a relatively sta*le going
concern3 +.ic. is sta*le in t.e alco.olic *everage industry as a +ine roducer and
sulier. -.e comany +as originally started *y Esta*an Calaveras in 1''3 and .as
since exanded its suly market 0rom t.e 0ocus c.urc. +ine consumtion to
retailing3 +.olesaling and secialised customer sulies )8igantic Airlines,. :t o00ers
a 0ull range o0 +ines *y roduct range and rice ositioning3 including C.ardonnay3
Sauvignon Blanc and Ca*ernet Sauvignon3 and some lesser ;uality roducts +.ic.
rovide reac..
-.e recent management *uyout roosal3 considered in t.is document3 indicates
t.e con0idence o0 t.e management team3 +.o kno+ and understand t.e market
articular to *ot. t.e comany and its seci0ic trading activities. -.e *uyout team
consists o0 &r <ynn =artine>3 +.o .as *een +orking in t.e comany since 1$'# and
aims to o+n '55 o0 t.e *usiness. /e+some3 t.e current oerations manager +ill
*uy t.e remaining 155. =artine> and /e+some intend to recruit t.e marketing
service to ?inston92endall )+.o .as recently lost t.eir 0lag9s.i account, as t.eir
marketer. Besides *eing a strong marketer3 ?inston92endall +ill also o00er collection
service 0or aya*les3 o00ering to ay a receiva*le unaid a0ter $% days 6 roviding a
strong mec.anism to secure Calaveras cas.90lo+ osition3 Calaveras (ineyards
oerates o00 22% acres o0 land3 sourcing t.e ma7ority o0 its graes o00 1#5 acres o0
t.is land. -.e remaining land is used 0or oerational lants and rocessing 0unctions
o0 t.e *usiness3 as +ell as a +inery 0or u*lic visits3 +.ere t.ey also sell roducts
direct to t.e u*lic at maximum margins. Additional incomes stem 0rom direct suly
accounts t.ey serve3 reresenting yet again greater margin as comared to t.eir
+.olesale c.annels. 8igantic Airlines .ave guaranteed t.eir demand at a minimum
o0 1!5%% cases 0or t.e next eriods3 +.ile t.e .otel c.annel .as gro+n considera*ly
over t.e ast t.ree years to 2%$% cases3 exected to sta*ilise at 4%%% cases 0or t.e
next 0ive years. Essentially3 sales are ro7ected to gro+ at an average o0 1%5
annually over t.e next 5 years.
-.e external 0orces a00ecting t.is market3 and t.ere0ore ultimately Calaveras
(ineyards is a00ected *y its cometitors 0rom local and international *rands. -.e
American oulation is said to .ave taken kindly to t.e general oinion t.at drinking
red +ine is good 0or eole@s .ealt.. -.is market is t.ere0ore exected to gro+ at a
.ig.er rate t.an t.e exected ermissi*le rice increases +it.9in t.is market. =arket
s.are is t.ere0ore imerative3 as ro0its +ill *e a00ected *y a reduction in s.are
*ecause rices do not cater ade;uately 0or in0lationary increases t.at t.ey +ould *e
su*7ected to. ?ine sales are exected to maintain its volume gro+t. o0 #.45 vAs
ot.er sirits averaging at 2.25 annually.
3 Qualitative analysis
Calaveras (ineyards is a muc. smaller entity as comared to its cometitors3 +.o
cele*rate muc. .ig.er revenues +.ile .aving *rands +.ic. are comara*le +it.
Calaveras (ineyards roducts3 yet trade more volumes t.an Calaveras (ineyards
does. :t is understood t.oug.3 t.at +it. suc. cometition3 t.at Calaveras (ineyards
+ould .ave to exand its s.are *y volumes *y ensuring market ositioning in t.e
.earts o0 consumers. Building *rands and demand +ill c.allenge t.eir current suly
c.ain o0 graesB t.e comany already sources aroximately 5%5 o0 t.eir ra+
roducts 0rom long9term contracts. -.ese contracts are 0ixed9term and +ould re;uire
urgent security to ensure sulies. A revious s.ortage3 due to cro in0estation
taug.t t.e lessons o0 .o+ signi0icantly care0ully t.e team +ould need to manage t.eir
risk mitigation.
A 0urt.er consideration o0 t.e external market 0actors recognises t.at +ine sales at
suermarkets .ave s.o+n a signi0icant increase as comared to *eer. -.is resents
an oortunity 0or Calaveras (ineyards3 +.ile it +ill also strain relations.is i0 t.e
exansion excluded ?inston92endall. -.oug. internal *y contract3 +e urge
consideration o0 t.e exosure to +.olesale commitments *ecause o0 5% ercent o0
t.eir total volume is .andled *y 2 o0 t.eir $ distri*utors. Calaveras (ineyards is
t.ere0ore to *e considered as eit.er exosed or reliant on dedicated artners. -.is
security re;uires evaluation3 yet at t.is stage aears sta*le.
Exansion scoe in t.e retail stores is consider .ig.ly cometitive3 and strongly
*rand centric. -.oug. t.e Calaveras (ineyards *rand ositioning is sta*le and
secure3 o+ing to t.e range o0 roducts +.ic. .ave *een care0ully cra0ted3 +it. eer
ressure on market s.are laying a vital role in exanding t.e Calaveras (ineyards
s.are. -.is ra+ material demand t.ere0ore remains increasingly strained i0
Calaveras (ineyards s.ould succeed in increased suly to demand3 *ut more
imortantly3 to increasing sales relative to maintaining strategic advantages in t.e
nic.e@ )*y volumes, *usiness.
Strengts
1. Small comany 6 a*le to *e
dynamic and 0lexi*le.
2. Strong *rand osition.
3. Sta*le .ig. volume customer
*ase.
4. Exerienced o+ners3 +.o relate
assionately to t.eir comany.
5. Entrereneurial intentions o0 ne+
o+ners.
!eaknesses
1. Si>e and security may limit reac.
and sales volumes 6 t.ere*y
revenues.
2. Suly agreements +it. 0uture
cometitive suliers to suly
graes.
O""ortunities
1. :ncrease .ig. margin sales
c.annels +it.out reducing ot.er
volumes.
2. Brand osition sta*leC marketing
activities re;uired to *uild demand
and testing o0 ne+ sales markets.
3. :nternational sales +ill rovide t.e
greatest range o0 exansion
otential.
4. Cas.90lo+ security in receiva*les
collection *y marketing comany.
5. <oan 0acility +ill suort inventory
volumes3 to increase stock .olding
and suly rates3 to ma7or
accounts +.o *uy greater
volumes.
!. Exansion along airlines routes.
Treats
1. Cas. 0lo+ limitations may come
into t.e sot9lig.t as t.e comany
ursues t.e roosed 2.5 million
dollar revolving loan3 to 0und
inventory and ot.er exenses.
2. Suly o0 graes 0or making
+ines.
-a*le 1C S?D- Analysis
Exloiting Strategic Dortunities and mitigating -.reats
-.e loans alied 0or *y t.e 0uture o+ners@ demands 0ocussing on imroved cas.
0lo+s in t.e *usiness. -.is t.reat governs t.eir 0uture a*ility to ay de*t +.ile also
.ig.lig.ts t.e need 0or t.em to increase *rand ositioning in a gro+ing market
segment 6 +ines. -.is area o0 t.e *usiness +ill demand greater amounts o0
contractual securities and ossi*le management controls over t.e suly net+ork 6
otentially introducing leasing otions o0 t.e land to ensure securities.
-.is aroac. +ill serve +ell to de0end against sales volumes gro+t. *eing limited
*y t.e suly c.ain and ultimately may *ecome a source o0 exertise develoment
into imroved 0arming met.ods to increase yield and ;uality. -.e otions o0 leasing
may even +ork +ell i0 emloyees are *etter incentivised to +ork to+ard ac.ieving
t.ese standards and o*7ectives.
Araisal o0 0unctional cometencies o0 strengt.s and +eaknesses
Being a relatively smaller entity in t.e market can *e a osition o0 strengt.3 o00ering
t.e 0lexi*ility and secialisation alternatives giants may *e slo+er to move on. As
t.ese +ill *e o+ner run *usinesses3 t.ey are more likely to *e more entrereneurial
and dynamic in .andling marketing e00orts on a one9on9one *asis +it. otential
*uyers in retail stores and .otels. -.e nic.e ro0ile t.ey may retain )a volume9*ased
argument, could allo+ t.em ersonalisation oortunities +.ic. larger entities may
*e slo+er to move on.
4ersonalisation o0 articular roducts may *e limited3 +.ile Calaveras (ineyards
also needs to ensure t.at suc. actions do not dilute t.e *rand. -.e sta*le .ig.
volume customer *ase +ill ensure 0uture sales volumes and direct marketing
met.ods can *e tailored made to meet t.ese sectors .ead9on to increase volumes. :t
may *e an ideal *reeding ground 0or romoting t.e .ealt. *ene0its o0 +ines in adults
+.ile romoting a yout.0ul adult li0estyle +.ic. is suorted *y natures o+n anti9
toxins to stresses and t.e c.allenge o0 aging and c.ronic .ealt. risks.
Brand osition +ill t.ere0ore need to *e moved u a scale3 to ensure long9term retail
rice levels at .ig.er margins and volumes. Calaveras (ineyards 0uture o+ners are
exerienced layers +.o kno+ t.ere *usiness. -.ey are *ound to .ave t.e
net+orking savvy +.ic. +ill *e caitalised on in 0uture *randing and market
exansion e00orts. :nternational marketing e00orts may also *e a*le to caitalise on
t.e Cali0ornian +ines accetance levels in glo*al markets. "ecognising t.e scale o0
suly3 makes it rudent t.at suc. activities s.ould 0ocus yet again on nic.e
ositioning at uscale .otels +.ic. serve t.eir current airline destinations and
artners.
# Quantitative $nalysis
Quantitative analyses 0ocuses on t.e 0ormulation o0 0inancial in0ormation in an e00ort
to evaluate t.e *usiness and ending deal in vie+ o0 t.e revious 0inancial data3 to
determine its alica*ility3 evaluate roosed gro+t. asects in relation to 0orecasts
and ro7ections as comared to trends and norms o0 t.e industry. -.e o*7ective is to
make sense o0 t.ese 0acts 0rom t.e ersective o0 t.e risk to t.e 0unders and to
determine +.et.er t.e ne+ o+ners +ould *e a*le to meet t.e o*ligations o0 t.is
loan. -.is section looks 0irst at current in0ormation to determine t.e going concerns
li;uidity3 t.en 0orecasts in relation to *enc.marked caacities.
-.e +eig.t o0 roducts and t.e comara*le comanies@ unlevelled *eta +as used to
calculate t.e cost o0 caital. ?it. t.ese assumtions3 ?ACC +as calculated to *e
1!.1#5. 2ree cas. 0lo+s )2C2, +ere determined +.ile discounting 2C2 at a ?ACC
)1!.1#5,3 t.e value o0 Calaveras (ineyards +as calculated to *e 13 !4# %%%.
"isk mitigation considering *ankrutcyC
Bankrutcy in *usiness3 due to c.anges in markets or ine00ective marketing met.ods3
is any entrereneur or investors reality. Even destroyed cros are a reality in t.is
*usiness. -.ere0ore assessing t.is undesired ultimate exit is rudent. :n t.is stage o0
t.e analysis3 +e consider valuing t.e oeration to determine t.e 0air9market value o0
Calaveras (ineyards and to mitigate risk in a case o0 0orced li;uidation.
-.ere are t+o tyes o0 li;uidation values3 deending on t.e time availa*le 0or t.e
li;uidation rocess3 Drderly li;uidation value and &istress li;uidation value.
Drderly li;uidation value 9 assumes t.at t.e enterrise can a00ord to sell its assets to
t.e .ig.est *idder. :t assumes an orderly sale rocess to sell eac. asset in its
aroriate season and t.roug. c.annels o0 sale and distri*ution t.at 0etc. t.e
.ig.est rice reasona*ly availa*le 6 )Drderly li;uidation value E /et +orking caital
F 0ixed assets 6 long9term de*t,.
"atios
=eaning
Comarison to :ndustry
norm
Solvency
Quick ratio )x, CA9:nventory A C<
2irms a*ility to ay C<
+it.out relying on t.e sale
o0 it inventories

1$%
!4$.%%


%.5
1
2alls into t.e category
.ig.er t.an t.e median
*ut lo+er t.an t.e Ger
Quartile

Current ratio )x, CA A C<
2irms@ a*ility to ay C<
using assets t.at can *e
converted into cas. in t.e
near term.

2.%
%
2all into t.e category
.ig.er t.an t.e lo+er
;uartile *ut lo+er t.an t.e
median

C< to net +ort.
)5,
2$.2
%
<o+er t.an t.e median
*ut .ig.er t.an t.e uer
;uartile

E00iciency
Collection eriod
)days,
Accounts
receiva*le A )-otal
sales A 3!5,
<engt. o0 time to receive
money 0rom de*tors a0ter
t.e sale is done

$$1'$A
)#52554A3!5,
<o+er is *etter. Hig.er
t.an uer ;uartile *ut
lo+er t.an median
4'.11 days

Sales to inventory
)x,
1.3
4
<o+er t.an median *ut
.ig.er t.an lo+er ;uartile

Asset to Sales )5,
1#1.1
#
Bet+een lo+er ;uartile
and median

Acc aya*le to
Sales )5,
12.!
#
Hig.er t.an median *ut
lo+er t.an lo+er ;uartile
-a*le 2C <i;uidity "atiosC 1$$3 evaluates going concern as an investment
As o*served in ta*le 2 a*ove3 t.e li;uidity o0 t.e going concern is on ar or *etter
t.an norms. :ndicating 0inancial con0idence is 7usti0ied. :t does matter to consider t.e
imact o0 t.e roosed 0unding lan to determine t.e li;uidity o0 t.e 0uture oeration.
Aendix 2 9 /4(C -.e /et 4resent value analysis indicates ositive results +.ic.
suort t.e ;ualitative assessment into t.e via*ility o0 t.is venture and sa0ety
margins to t.e 0unders. -.is result is leasing and assertive.
&istress li;uidation value 9 t.is is an emergency rice. -.is assumes t.at t.e
comany must sell all its assets at or near t.e same time3 to o00er t.e assets is a
dealer +.o secialises in t.e li;uidation o0 t.e entire assets o0 a comany
?e kno+ Calaveras can sell Accounts "eceiva*le at '55 o0 t.e 0ace value and
:nventory #55 o0 *ook value and E;uiment 4%5 o0 *ook value in a 0orced
li;uidation.
-a*le 2C "eduction in 0uture collections eriods re;uireC administrative and 0iscal
disciline to ensure cas. 0lo+ *ene0its and loan servicing.
Gsing t.e discounted cas. 0lo+s3 4AE ratios and t.e li;uidation met.od3 13.!! million
is a good rice. ?.at is even more imortant is t.at cas. 0lo+s generated *y t.e
0orecasted revenues suorts 0ully aying o00 t.e term loan *y aying o00 rincial
ayment o0 !%3%%% er year 0or t.e next 0ive years +.ile at t.e end o0 t.e 5t. year
revolving line credit could *e reduced to %.4 million and &e*t "atio +as reduced 0rom
#55 in 1$$4 to 445 in 1$$'. -.is allo+s t.e Calaveras (ineyards to assume more
0unding 0or exansion andAor reduce t.e interest exenses +.ile increasing t.e
return on investment.
2igure 1C 4ro7ected revenue 0rom +ine tyes er sales c.annel A annum
2igure 1 a*ove3 .ig.lig.ts t.e deendence t.is *usiness .as on revenue 0ul0ilment in
estates and Iselect vineyardsJ roduct9lines. -.e sourcing o0 graes 0rom selected
vineyards +.ic. stands out in relation to t.e sales and margin gains 0rom t.is
roduct line. :t imlies a strong deendence on t.e acclaimed roduct and
encourages t.e ne+ o+ners to re9visit t.e suly c.ain suorting t.ese lines
continued success as a contri*utor to t.e *ottom line and ultimate survival o0 t.e
*usiness. Certainly3 it t.ere0ore also remains com0orting t.at continued security and
market s.are +ill contri*ute tremendous value to long9term *rand *uilding among
ent.usiasts o0 t.is *rand 0rom Calaveras (ineyards.
/eedless to say3 are t.e gains 0rom Iestate +inesJ and Isecial accountsJ3 +.ic.
.ave a certain 0uture 0or volume creation and 0acility utilisation and deserves secial
attention as t.eir com*ined value surasses t.e Iselect vineyardsJ range volumes.
% $""endices
Appendix 1
Appendix 2
Appendix 3
& Conclusions and recommendations
D*servations o0 t.e revenue streams in t.e sales er c.annel does not re0lect t.e
turn9over ro7ected *y t.e 0uture o+ners3 t.is is a concern and re;uires discussions.
Ket leading t.e discussion 0rom t.e in0ormation rovided3 +e strive to recommend
t.at t.e transaction .as reac.ed its Lgo@ oint and deserve consideration.
-.e 11% %%% maximum caacity may suort t.e ro7ections3 yet in t.e nature o0
suc. use0ul land3 it could *e considered t.at t.e lost sace used 0or o00ices and ot.er
+inery 0unction3 may +ell *e considered to *e relocated to increase caacity. -.e
o*7ective s.ould *e minimising ot.er uses 0or t.is land 6 suorts concet o0 investor
con0idence.
<i;uidity o0 t.e going concern is reassuring. -.e 0uture ratios may not *e as
imressive and may demand more rudence on t.e art o0 t.e 0unders3 to increase
t.e returns and o00set 0uture risks in t.is ro0ile. Security 0rom ?inston92endall is
reassuring +.en considering t.e ne+ o+ners caacity to reay de*t. -.is aut.or
suggest t.at controlling t.e de*t ratios may assert t.e relevant controls on t.e
o+ners management 0unctions to imrove collections and cas. 0lo+s3 reduce
exenses and caitalisation to avoid increased exosure and delays in reayments.
2iscal disciline is called 0or.
As may not *e common to t.e entrereneurs sirit3 t.e 0under s.ould curtail
over>ealous marketing activities3 t.ere*y setting relevant3 negotiated3 limits on t.is
exenditure and drive .ome a greater +illingness to use modern direct marketing
met.ods +.ic. consist o0 net+orking +it. existing suliers and consumer grous
+.ic. may yield suita*le sales volumes at lo+er costs 6 t.e e00ect o0 targeted
marketing.
As is also common3 0ocussing still on exense management3 it is encouraged yet
again t.at t.e ne+ o+ners consider a customer centricity rogram to imrove t.e
over9roduction rocess3 image *uilding culture and marketing t.eme +.ic. is more
cost e00ective and *uilds long9term sustaina*ility and trust. -.e roduct range is
diverse3 and t.is is ackno+ledged3 yet customer centricity at all levels o0 t.e value
c.ain roduce cometitive advantages.
-.ese recommendations are seen 0rom a 0inancial rudence ersective as +ell as
t.e *usiness gro+t. ersective3 not commonly considered relevant to 0inancial
analysis yet ultimately essential to ensuring success in *usiness.