Corporate Finance Case Studies
Bayern Brauerei
Presentation by Group 5
MBA Fulltime
1. Rapid growth in sales
Sales in thousands of DM
120.000
100.000
80.000
West
East
Total
60.000
40.000
20.000
0
1989
1990
1991
1992
Year
Group 5
2
2002-05-10
1. Reasons for rapid growth
 Remarkable sales growth only in the east
 From 0 % in 1989 to 18.4% of sales in 1992
 146 % sales growth in the east (1990-1992)
 2 % sales growth from 1989 to 1992 in the west
 Completely new market in the east
 Relaxed credit terms
 Field inventories for distribution
 Marketing Manager running the business
Group 5
3
2002-05-10
2. Sustainable growth
1989
Equity Retention Rate
1990
1991
1992
24,99% 25,00% 25,90% 25,55%
ROE
9,72% 10,25%
6,30%
7,28%
Self Sustainable Growth Rate
2,43%
1,63%
1,86%
4,98% 14,24%
9,14%
Growth in Sales
Group 5
4
2,56%
2002-05-10
2. Reasons for unsustainable growth
 Retention of profits too low
 Growth in sales is much higher than SSGR
 Lack of market research
 Sustainable growth only achievable through:
 Higher retention
 Otherwise:
 Raise new equity (Shares, etc.)
 Long Term Debt financing
Group 5
5
2002-05-10
3. Increasing debt
 No increase in total debt
 Decreasing LTL
 Increase only in STL




Debt is the only way to compensate growth rate
Increase in Inventory
Increase in Receivables
Cash surplus from 6m to 12m
Group 5
6
2002-05-10
4. Accounting Break Even Chart
Deutsche Mark
(millions) 160
Revenue
140
Total cost
120
Variable cost
100
80
60
40
Fixed cost
20
0
0
100 200
300 400 500
600 700 800
900 1000
Hectolitres of beer sold (thousands)
Group 5
7
2002-05-10
5. Financial Plan




8.8m DM in Plant and Equipment
8.6m DM in Warehouse
Dividends payout: 545,500.00 DM
Should not be approved:
 There is no market for further production, if we get the same market share
in the east, we are at this point now
 We are producing beer, distribution is not our business  focus
 It should not be financed with STL
 Instead...
 Rather cut inventories and receivables
 Get receivables back to 2% 10 and net 40
 Retain more earnings to finance further expansion plans
Group 5
8
2002-05-10
Managerial Balance Sheet
1989
1992
Cash
6764
12%
12283
23%
WCR
2549
4%
11585
21%
Investments
3911
7%
3914
7%
Net Assets
44162
77%
26539
49%
57386
100%
54321
100%
STL
LTL
3765
20306
7%
35%
7884
11066
15%
20%
Equity
33315
58%
35371
65%
57386
100%
54321
100%
Group 5
9
2002-05-10
6. Financially Health









Profitability (ROE) is lower than growth rate and decreasing
Growth in sales is higher than the SSGR
Times interest ratio declines, showing high interest rates on STL
Low retention rate
High reliability on STL
No application of financial and accounting principles
Liquidity ratio from 3.71 (1989) to 1.72 (1992)
Bad WCC-management
Max Leiter´s compensation?
Group 5
10
2002-05-10