Hassan Tariq Ghani

Syed Saad Shah

Syed Muhammad Hamza
Syed Ather Waqar
Syed Fayyaz Hasnain

Case Presentation Accounting for Decision Making

Founded in the early part of the 19th century,

Cafes Monte Bianco is manufacturer and
distributor of Premium Coffee, throughout
Europe
Known for its premium quality standards
and taste

Grow business aggressively

Consideration of private brand manufacturing and
selling
Stable performance for the year 2000 because of
manufacturing and selling private brands
Projection of financial health of the business
considering private and premium brand
manufacturing

Premium Brand

Private Brand

Sales are volatile particularly in times

of economic downturn

Sales are relatively stable

Margin is relatively high

Low margin

DSO is relatively low resulting in

healthy cash flow

Cash flow is hurt when payments are

delayed by the retailers

Production is planned to meet market

demand

Production is kept to meet contract

requirements, stability of demand
allows the company to use full capacity
of production

Cannot stock premium coffee due to

concerns of freshness

Simplifies Manufacturing plan as

inventory can be maintained easily

Heavy R&D and marketing

Reduced administrative, R&D and
expenditures are incurred to meet sales selling costs (in particular marketing
targets
costs)

Income Statement

Balance Sheet

Current ratio = 0.57

Quick ratio = 0.41

Fixed Asset Turnover = 1.86

Total Asset Turnover = 1.26
Inventory turnover ratio = 11.43
Days Sales Outstanding = 61 days

Higher liabilities, poor

liquidity

Indicating lower quality of

Accounts Receivables
Reason being private brand
retailers delayed payments
up to 90 days, reducing
cash flow into the company

Debt Ratio = 0.79

Debt-to-Equity Ratio = 3.87

Times Interest Earned = 1.85

Much of this companys

financing is in form of debt
Company owes $3.87 in
debt for every $1 in equity
More borrowing prospects
are not feasible

Advertising Expenditure per Sales

Volume

Estimated Cost per Unit for Selling Volume

Sales during 2000

Production Plan for Private Brand

Caf Monte Bianco

Income Statement
For the Year Ended Dec 31, 2001
Sales (6,000,000 kg @ 8,800) Private Brand

52,800,000,000

Cost of Goods Sold

Raw Materials & Labor @ 6,600
Fixed Costs

39,600,000,000
3,319,500,000

Total Cost of Goods Sold

42,919,500,000

Gross Profit

9,880,500,000

Marketing / Advertising Expenses

R&D Expense (Down by 75%)
Selling Expense (Down by 65%)
Admin Expense (Down by 50%)
Interest Expense (Constant at 25 billion Liras)

ZERO
832,032,500
1,251,148,500
2,376,000,000
3,825,000,000

Profit Before Tax

Tax @ 40%
Profit After Tax

1,596,319,000
638,527,600
957,791,400

Brand
PRIVATE
PREMIUM

Year 2000
Revenue
Revenue/Quantity 9,934,848,000
Revenue/Quantity 46,177,560,000

Quantity
1,152,000
1,196,000

Price Per Unit

$8,624
$38,610

Opening Balance
Payment Received
Private
Premium
Add: Depreciation
Less: Disbursements
Raw Material/Labor
R&D Expense
Selling Expense
Interest Expense
Admin Expense
Taxes
Closing Balance

Jan
1,121,450,000

Caf Monte Bianco

Projected Cash Flows
For the Year 2001
Feb
Mar
Apr
4,136,804,905
1,511,504,129 (1,123,731,494)

1,301,465,088
5,541,307,200
216,141,667

1,202,116,608
216,141,667

1,192,181,760
216,141,667

3,300,000,000
69,336,042
104,262,375
318,750,000
198,000,000
53,210,633

3,300,000,000
69,336,042
104,262,375
318,750,000
198,000,000
53,210,633

4,136,804,905

1,511,504,129

May
(947,324,877)

Jun
(25,382,261)

3,673,824,000
216,141,667

4,656,960,000
216,141,667

6,105,792,000
216,141,667

3,300,000,000
69,336,042
104,262,375
318,750,000
198,000,000
53,210,633

2,970,000,000
69,336,042
104,262,375
318,750,000
198,000,000
53,210,633

3,207,600,000
69,336,042
104,262,375
318,750,000
198,000,000
53,210,633

2,574,000,000
69,336,042
104,262,375
318,750,000
198,000,000
53,210,633

(1,123,731,494)

(947,324,877)

(25,382,261)

2,978,992,356

Opening Balance
Payment Received
Private
Premium
Add: Depreciation
Less: Disbursements
Raw Material/Labor
R&D Expense
Selling Expense
Interest Expense
Admin Expense
Taxes
Closing Balance

Jul
2,978,992,356

Caf Monte Bianco

Projected Cash Flows
For the Year Ended 2001
Aug
Sep
Oct
3,032,374,973
3,396,221,589
2,156,004,206

3,880,800,000
216,141,667

4,191,264,000
216,141,667

2,587,200,000
216,141,667

3,300,000,000
69,336,042
104,262,375
318,750,000
198,000,000
53,210,633

3,300,000,000
69,336,042
104,262,375
318,750,000
198,000,000
53,210,633

3,032,374,973

3,396,221,589

Nov
501,834,823

Dec
(1,618,030,561)

2,173,248,000
216,141,667

1,707,552,000
216,141,667

3,518,592,000
216,141,667

3,300,000,000
69,336,042
104,262,375
318,750,000
198,000,000
53,210,633

3,300,000,000
69,336,042
104,262,375
318,750,000
198,000,000
53,210,633

3,300,000,000
69,336,042
104,262,375
318,750,000
198,000,000
53,210,633

3,300,000,000
69,336,042
104,262,375
318,750,000
198,000,000
53,210,633

2,156,004,206

501,834,823

(1,618,030,561)

(1,926,855,944)

For Premium Brand (Year 2000)

= Gross Profit / Sales * 100
= 22,878 / 56,112 * 100
= 40.77%

For Private Brand (Year 2001)

= Gross Profit / Sales * 100
= 9,880 / 52,800 * 100
= 18.71%
Gross Profit Margin in Year 2000 was greater by 22%
when compared with GP Margin of 2001

Grade
Selling Price
Variable Cost
Contribution

D
8,800
6,600
2,200

C
19,500
12,485
7,015

B
26,600
14,275
12,325

BB
30,000
16,288
13,712

A
35,500
17,791
17,709

AA
39,000
19,166
19,834

AAA
42,600
20,441
22,159

Contribution Margin is the lowest for private

brand (D)
2nd lowest CM is at least 3 times greater than
the CM for private brand

ROE = Net Income / Shareholders Equity

ROE (2000) = 1,945 / 9,165 = 21.2 %

ROE (2001) = 958 / 9,165 = 10.45 %

The ROE on the premium brand is twice the

return earned on private brand.

Caf Monte Bianco should opt for premium brand or a mixture

of private and premium
A major chunk of sales should come from premium brand
A complete shift to private brand will have negative impact on
cash flows due to delay in account receivables on the part of
retailers
By selling premium brand, Salvetti family will able retain their
hard earned position in premium market.

Q&A