Wine retailer More Vino LTD is located in Port of Spain, Trinidad. It operates four subunits: wholesaling and distribution, a retail store, a bar, a restaurant, and a delivery service, making it a successful multilevel business.
Marketing AnalysisFounded in 2005 by the Stone brothers, More Vino strives to become one of the leading retailer and distributors of the finest local and imported wines to Trinidad. Being among the few in the industry, they carried the widest and exclusive selections of alcohol products in the country. The island is a popular vacation spot for tourists and for the natives all year round. Peak times include summer and winter, and this creates seasonality for the company.
The strong economic city and ongoing tourism is the main ground for their increasing sales and growth. Their increase in sales growth is a strong percentage of over 100% from 2006 to 2007. This increase is mainly from their retail consumption locations rather than their wholesale and delivery. This is why the Stone brothers felt the need to expand their retail business.
Sales increase also suggests that their marketing tactics have been doing well to give their company more recognition. More Vino endorses their products by offering wine tasting events, and by having special promotions. Their wine club is intended to retain a regular clientele, and allows their customers to have a luxurious experience. This creates a competitive advantage for More Vino.
Their imported wine also creates competition from the mediocre wine sellers in Port of Spain. Prior to their expansion to retail, they were a wholesale company; their pricing was not set at the retail level. This means that their pricing was low when it should have been higher to match with the market and competition. When cost of goods increased due to taxes, they increased their product prices 30%.
There is cyclicality in the business because the demand of the products changes with the market growth in the wine industry. The Stone brothers thought that this was a great opportunity as the wine market was anticipated to grow in the next five years, and the present value of the market was TT$48 million.Operations AnalysisMore Vino operates in a facility that is large enough to hold their bar and restaurant, an office space, and a warehouse and an option to expand with an outdoor garden space. More Vino did not expect that their sales would be coming mostly from their restaurant and bar consumption.
The Stone brothers wanted to expand and encourage their business by shifting to the retail market, and this change would come at a fair expense. At 2007, their fixed asset turnover was at 5.8%. This number remains stagnant because their company is shifting from the wholesale market to the retail market.
Their Total Asset Turnover goes from 2.0% to 3.9% in 2006 to 2007. This increase is created by the increase in sales in 2007 although their total assets did not increase significantly.
The fixed assets do increase significantly due to their shift from wholesale to retail, but because their inventory significantly decreases, the yearly accounts don’t change much. Their inventory and inventory days from 2006 to 2007 are $1,359,144 to $708,984 and 149 to 46 days. The significant change in inventory is simply because they don’t require that much product for a retail business as they would for a wholesale business. They also probably are selective about what products they offer to their customers, focusing more on what their customers want.
This concludes that they manage their fixed assets and inventory well for a shifting company. Accounts Payable Days is increasing by 43 to 78 days from 2006 to 2007. Their suppliers have granted More Vino extended payment terms to pay off their accounts going forward. Their accounts receivables are decreasing from 25,380 to 11,064 along with 2 to 0 for their accounts receivable days for 2006 to 2007.
The change in retail requires their customers to pay upfront for their order, versus wholesale, where a customer would buy products on credit. This also would cause their average collection period to become 0, because they no longer need to collect credit payment from customers. Only a small percentage of the company’s sales have customers that buy for resale purposes, the majority sales are cash retail.Financial AnalysisFunding for More Vino LTD is mainly derived from Arthur Greenway and Moore who has a 2/3 ownership stake in the company and over 1,500,000 in bank loans.
The balance sheet shows $1,646,920 in total liabilities for 2007.They also have shareholder loans, which is an injection of capital, or debt capital, in a form of a loan. Their accounts payables are also extremely high because they are relying on credit purchases as a short-term loan. This can be risky for long term funding needs.
The accounts payable is also why their current ratio is at a decreasing rate of 3% in 2007 when it was 7% in 2006. The acid test ratio is at 0% for both years. More Vino is not very liquid, and this can be problematic. They must get their inventory to be able to sell faster because that is their most prized asset.
The low current ratio and acid test ratio is very risky. They could possibly become bankrupt if they need to sell their fixed assets to pay for short-term dues. In 2007 the company was generating cash from everyday operations but the statement of cash flows shows that the company has had a negative profit from 2006 to 2007, but this is because More Vino has expenses that are higher than their sales and they are only two years old. Their decreasing cash flow from operations and fixed asset investments are being funded by debt.
Gross Profit Margin is increasing and this is because More Vino must be pricing higher to meet competition and tax purposes.This is seen on the financial statements that they lowered COGS from 77.2% to 66.1%.
They are bettering their gross profit margin by lowering cost of goods sold and increasing prices by negotiating pricing with their suppliers. Profitability seems to be increasing in trends with these following ratios for 2006 to 2007: the return on equity is 155.6% to 43.3%, return on assets is -93.
7% to -44.1%, gross profit margin is 22.8% to 34.9%, operating margin is -36.
5% to -3.6%, and net profit margin is -46.7% to -11.4%.
All ratios show improvement, which is a positive for More Vino’s future. Although the company is still unprofitable over the years span, the ratios show positivity and the company has become less unprofitable.This suggests that the Stone brothers have applied better management to the company, and if this continues then the company will be profitable in the near future. The leverage ratios also show that the company is completely financed by debt.
Debt to Equity is 2.7% to 2.0% and Time Interest Earned is 3.6% to .
4%. The company is not making enough to cover interest payments. An unprofitable company cannot afford to have interest expenses along with their accrued debt, the debtors will demand their interest at some point, and this can become troublesome. They currently want to expand at a cost of $1,060,000.
Financing with annual rate of 9%, $200,000 from their mother, $260,000 together, and a potential $600,000 from existing lenders Greenway and Moore. More Vino’s net income is improving, and their net cash flows from operations is positive, which shows optimism for the future.SummaryThe strong growth results are not enough to say that More Vino is ready to expand their business further with more external financing. Putting personal factors aside, Greenway should not provide extra financing to the Stone brothers.
They are requesting to finance their expansion, which will require them to purchase further fixed assets, when they currently are not profitable with the fixed assets that are available to them. Once they are profitable with their financing and debt lowered, then it would be safe for them to expand and finance again. More Vino is currently too risky to expand and add more debt to their company.
