Cooley Distillery: The Independent Spirit Of Ireland Harvard Case Solution & Analysis

INTRODUCTION

Cooley Distilleries is a whiskey manufacturing company which was founded by John Teeling. The company has enjoyed modest profits. Along with such modest profits, Cooley has always faced challenge in the promotion and in building the brand as it has always faced the cash flow problems. However, Cooley has its own unique whisky production facility which helped in building the brand name and also has won the awards for the brands. Cooley is in the mature market where there is competition among the players for the market share.

In this case, the performance of Cooley till the date has been discussed and the various performance and operational ratios has been calculated in the EXHIBIT. Moreover, the position of the company in the global spirits market has been analyzed and discussed. Finally, the ability of Cooley to work independently has been assessed and a course of action has been suggested.

ANALYSIS

FINANCIAL AND OPERATIONAL PERFORMANCE

In this part of the analysis, a detailed discussion has been performed on the financial and operational performance of the Cooley Distilleries. Cooley is a producer of the Irish whiskeys. It is famous for its unique method of production, the robust management and the brands it sells. Cooley is a profitable company as its operating profit margin and the net profit margin are 15% and 14% respectively (EXHIBIT). These percentages are close to the market competitors in the same industry. However, the net profit margin of 19% of Diageo is exceptionally higher. The net profit margin of Cooley has increased by 11% from 2004 to 2010 and this is asign of good growth, which can be maintained in the future.

With the perspective of the financial performance of the Cooley, total debt to asset ratio is quite impressive as it is decreasing throughout the period.This means that Cooley is decreasing its debt liability and this is good to some extent, as to get the optimal capital structure a company should have a mix of debt and equity. The total debt to equity ratio is also on the same track, as this is also representing a positive sign because it is decreasing throughout the period and currently it is 7.7%. The equity multiplier is, however decreasing, which indicates that the majority of the assets are being purchased through the debt and not equity. Similar is the case of interest coverage ratio as it is also decreasing.This is shows the ability of the company to pay the interest on its outstanding debt, therefore it must increases.

Cooley’s current dividend policy is that it is paying no dividend since its incorporation, and this has to be considered. A dividend basically does not increase any value in share, as it decreases the value but through dividend, the investors can realize some of the capital appreciation on the shares. Currently, Cooley is reinvesting what it is earning. It has to consider giving dividends now because it is improving the liquidity of the shares.

The return on equity is disappointing as it is decreasing throughout the period; it was 11.3% in 2004 and just 9.6% in 2010. It has to improve it as it is not paying any dividend. Its competitors, Diageo and Brown Forman, are paying extraordinary return as 41% and 29% respectively. However, the market return is 8%; Cooley is still paying more than this. Furthermore, Cooley has improved its return on assets which is again a good sign.

With the perspective of operational performance of Cooley, the current and the quick ratio are impressive as they are increasing over the time. However, these are not good comparing to the market as in the market, the current and quick ratio are 3.52 and 0.99 respectively. Nonetheless, the current and quick ratios for Cooley are 2.2 and 0.27 respectively. They have to improve it to cope up with the market. These ratios have been improved since 2004 therefore,it can be said that it will keep this on in the future.

The inventory turnover ratio is quite good. It is in the increasing trend since 2004. However, it is lower than the industry benchmark such that it is 0.32 times for Cooley and 0.89 times for the industry therefore,this should also be improved.

COMPANY’S POSITION IN THE GLOBAL SPIRITS INDUSTRY

In the nineteenth century, the Irish whisky was the world’s alcoholic spirit of choice. However,nowadays people prefer to drink non-alcoholic spirits there fore, this is athreat for the company. Currently in 2010, the Irish whisky has a market share of 26.5% in the global spirit market. Cooley sells its products in over 40 countries; however it is more focused in the U.S., U.K, Ireland, France and Germany. The company is not expanding further into the other countries as the sales in the mentioned countries are also decreasing.............................

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