The Farm Winery Harvard Case Solution & Analysis

The Farm Winery Case Solution

Financial Analysis of the Business

In order to analyze the business financially, different ratios are computed with relates to its profitability, liquidity, asset utilization, and leverage ratios. The company is engaged in providing the quality wines by operating in a small winery working. The nature of the earnings of the business is quite cyclical because the products could be sold after three years.

In order to consider the liquidity position of the company, two ratios have been calculated that are quick ratio and the current ratio, it can be seen that the liquidity position of the company is good. That concludes the fact that it can easily be able to fulfill its short term obligation by using its current assets. Even by considering the most liquid assets by subtracting the inventory from the current assets of the company, still it is easily able to repay its short term obligations by using its current assets. The ratio also depicts the fact that the company has optimally used its financing mix by taking more of equity and less of debt which significantly reduces the risk of solvency.

In order to consider the profitability position of the company, four different ratios are computed including the gross profit margin ratio, net profit ratio, return on assets as well as return on equity. By analyzing the gross profit ratio of the company, it can be seen that the company is efficiently selling its inventory by keeping the appropriate margin for its profits. In addition to this, it can be seen that it is attaining the inventory cheaply which shows its efficiency in cutting its cost with relates to the cost of goods sold. In addition to this, it can also be seen that the company has enough amount of cash to pay off its operating as well as financing needs.

However, by considering the net profit ratio of the company, it can be seen that initially in the year 2009 since all the products could benefit in the upcoming years due to which only expenses are occurred in relation to the selling, general, and administrating efforts which resulted in the upcoming years as can be seen in 2013. The reason behind this decrease is the seasonal and cyclical nature of the business. By moving from 2011 to the year 2013, a significant upward trend can be seen because the upcoming years are generating the profits of the last years when the bottles are actually sold to the market.

For the return on assets as well as equity, the non-performance in the earlier years is due to the similar reason of the nature of the business. However, it can be seen that these ratios also shows an upward trend till the year 2013. From this, it can also be concluded that the future of the company could be very bright which could result in even higher growth by efficiently reducing its cost.

By analyzing the leverage position of the company, it can be seen that it has made an optimal use of its capital structure of mixing very low quantity of debt to its equity. All the equity is basically arranged from the owners of the company. In addition to this, the current position strong suggests that the company is financially more stable which is favorable from every stakeholder point of view. In addition to this, as we move forward from the year 2011 to 2013, the ratio gets even better. As oppose to the debt, the company is using much portion of its equity which strongly suggest that the company is more sustainable and less risky to loan. In addition to this, from the higher equity ratio that the company is worth undertaking since only the shareholders are willing to finance the company...................

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