Gregory Hall April 1, 2009
Deutsche Brauerei is a brewing company that makes its own beer and sells it in Germany and the Ukraine. The company is very profitable with consistent net earnings that equal 4% of sales and a sizable dividend payout each year totaling 2-3% of sales. The firm is able to maximize shareholder wealth while still retaining enough earnings to support its growth.
On the other hand, Deutsche Brauerei is continuing to grow faster and faster like a train dashing from Germany into the Ukraine. The business in Ukraine is booming but this is creating a problem for the company because they find themselves stretching credit ...view middle of the document...
However, a few financial decisions need to be looked at and concerns need to be raised.
Firstly, I will address the issues in the case. Dividends are quit high as stated in the executive summary at 2-3% of sales. An even striking number puts dividends at 3/4ths of the profit made at the brewery. However, this money is supporting the owners and family members of this family oriented company. I do not see this as a particular problem in this case because changing the payout would only temporarily solve their debt problem and take away from the company’s goal of taking care if its owners. Next, the compensation for Oleg Pinchuk is a huge issue at the firm. He made an extraordinary amount of money last year and deserves the .1% raise (.1%*increase of sales in Ukraine) that will come to him. It is not detrimental to firm’s finances and he is vital to firm’s success in Ukraine. He is the only one who knows and has made contacts for sales in the country, which makes him indispensable at this point. The last problem involving the future financial plan needs a little more discussion. As stated in the case 2001 calls for 7 million euros invested in PPE and another 6 million euros in 2002. The debt at Deutsche Brauerei is already rising and something needs to be done so the firm does not over leverage itself.
As stated in the problem there are many issues at Deutsche Brauerei but only one can be change at the current time. Debt growth needs to be minimized and even declined in the future financial plan. We understand that the company needs to grow in order to complete its sales objectives and continue to survive in the competitive beer brewing industry. Therefore, I propose a solution that cuts debt, encourages strong growth, and reducing the outlandish credit terms that are currently being offered in Ukraine.
Since the Ukraine market is growing and the problems are relatively new, this is where the attention should be given on...