Accounting and Finance Chilean Wine Industry

Question: Describe about the Accounting and Finance for Chilean Wine Industry. Answer: 1. Analyze and evaluate the options to pay staff Merit based pay rise-The merit based pay rise are the rise that is provided to the employees of the company in accordance to the contribution the staff is making in the business. If the employee is getting the raise that is worth $ 200 a year, then the value raised for the next 5 years is $ 10,000 (Spawton 2013). The merit based pay rise can be in the form of bonuses and in the form of the incentives. That is the pay for the performance (Edwards et al. 2013). Pay rise: The pay rise is the rise in the salary that is provided to the staffs and the employees of the company in order to meet their daily needs and adjust their salary with respect to the inflation rate. The company may say that all the employees of the staffs are entitled to the pay rise after providing the service to the company for one year (Bianchi 2015).The pay rise may differ according to the work of the staff. The pay rise of the manager is more than the sales officer. Stake in the equity: The owners of the company may also take the decision of providing the employees the share in the equity of the company (Pezzillo 2016). Therefore, the company is making the employee an owner of the company by providing him/her with a part of the companys share. Share in the profit of the business: The employees can also be provided with a share in the profit of the business. For example, the management may take the decision that if the employee contribution helps the company achieves its target for the year the company will provide 5% of the profit to the employee (Bruwer 2012). 2. Analysis and evaluation of Cash Flow Statement for the year ended 2015: As per the given cash flow statement, it can be seen that, total part of their receipt from customers are spend to pay off the employees and suppliers. Moreover, the receipt from customers was not sufficient to pay off the employees and suppliers, which resulted into negative cash from operations. Amount received from disposal of PPE is only $50000 in 2014, whereas, the purchase of PPE amounted to $500,000 both in the year 2013 and 2014. It further resulted negative cash from investing activities. Only the cash from financing activities are showing some positive cash flow, as $100000 received from the owners and there were no payment for financing activities. Insufficient receipt and various payments obligation resulted into cash deficit for the year and the same result is continuing over the years 2013, 2014 and 2015. The opening balance of cash also could not manage to turn the negative cash balance to positive, as except for 2013, their closing cash balance was also negative. For all the three years, that is, 2013, 2014 and 2015, not a single amount is paid towards debt payment. Moreover, $500,000 additional debt has been acquired in the year 2013. Therefore, there is high chance that this issue may relate to breach the bank covenant. 3. Potential material deviation problems and overcome The important material deviation that is been highlighted is in the cash flow the debt that is taken by the company of $ 50,000, the net profit of the company is falling for the year 2014 and 2015. The problems can be overcome by repaying its liabilities in a short span and by increasing their profitability. While evaluating the cash flow, the material potential issue is that the company has taken an additional debt of in the year 2013 of $ 50,000. The cash and cash equivalents in the cash flow in the year 2013 are positive whereas, in the year 2014 and 2015 are negative that shows that the companys position is not that good. The sales revenue in the year 2014 is rising by approx. 10 percent whereas; in the year 2015 it decreased by approx. 5 percent. Therefore, as compared to the sales revenue the cost of goods sold is increasing in each year. The gross profit for the year 2014 has been increase by 10 percent and in the year 2015 has decreased by 35%. The sales and marketing expenses are increasing continuously for the three years (Hammervoll 2014). The sale channel that should be exited is the local retailers. The retailer shop is 80 kms away from the main city whereas; the sales are less than the expenses the shop has to bear. The staffs that have employed are for the part time purpose (Galati 2016). No full time staffs are been employed in the shop. 4. Evaluation of sale channel: Sales Channel Obstacles Solutions Cellar Door As in winter the sale quantity is very small and that too from few loyal customers, it increases the cost of running the shop and paying the part time staff. The customer can be convinced to purchase on-line during the wintertimeand Heretaunga should assure the customers that they would receive their order on time. To make smooth delivery of on line order, they can engage more supply staff. Local retailers (Including bars and restaurants) To make their wines available locally, they offer extended credit terms and the customers are very slow to make the payment The credit term should be fixed like three months or six months. They may offer discount to the customers who pay before time and there should be penalty fir late payment Pemberley Grocers (a)lower prices are demanded from suppliers with delayed payment terms (b)suppliers are required to bear the expenses related to marketing and advertising (a)As displaying their products in Pemberley Grocer has been useful gain for Heretaunga, they have little scope to negotiate on price issue but they can definitely have the option to discuss the issue related to delayed payment. With discussions to Pemberley, Heretaunga can ask for a fixed payment period (b)If the advertising and marketing related expenses are bear by Pemberley, Heretaunga can save a significant amount. They may offer an initial discount in price for this negotiation. Fitz Wine On Line Low margin of gross profit If Heretaunga increase their ability to sell their wine on time through increasing marketing and advertising of their product, they will need to sell less number of product through on line 5. Analyzed evaluation to pay Agneza Merit based pay rise: Agneza is a wine maker and her wines are getting good reviews from the customers. However, the company is suffering from huge losses. Though in order to provide the merit based pay rise company must have sufficient funds to allocate it amongst the employees. Pay rise: The pay rise is also not possible in this case as the pay rise is adjustable to the inflation rate and provided to the employees. The company is not making sufficient profits that can be analyzed with the help of the financial statements it can be stated that the employers are paid more than what the company is receiving from the customers (Chong 2014). The pay rise is the bad option for the company. Stake in the equity: The owners may provide Agneza with the stake in the company by providing the shares of the company. This would give her the motivation to work for the company as she is been provided with the ownership and the voting rights of the company and in the future the company may do well and provide the shareholders with the good returns. Share in the profit: The Company at present is not making profits so providing this option to Agneza is not fruitful for the company. Therefore, a share in the profits is a bad option. 6. Analysis and evaluation of financial performance: Total equity of Heretaunga has increased from $56,64,104 to $63,60,926 over the year 2013 to 2014. However, the total equity has decreased from $63,60,926 to $63,41,249. The reason behind this was the fall in retained earnings from $35,60,926 to $35,41,249 over the year 2014 to 2015. Trade receivables and inventories of the company is in increasing trend, which is a positive sign and the company is in better position to pay off their debt using their current assets. Bank overdraft of the company is in increasing trend, which states that company is experiencing shortage of cash. Trade payables of the company have increased from $182,572 to $272,712 over the year 2013 to 2014. However, it decreased to $253,479 in the year 2015. it is showing that company is improving its payable position. Non-current borrowing balance is same over the year from 2013 to 2015, which means that though the company has not availed any new borrowing, but at the same time did not made any payments towards non -current borrowing . However, the position of the company stated is as per the financial statement of 2013 to 2015. As the financial statement for the year 2016 is not yet available, current position of the company could not be stated. 7. Issues in the sales channel The four issues in the sales channels are as follows: The revenue earned from the cellar door and the retail sales are low. The revenues from this channel are low and the expenses are high. Therefore, the customers can be provided with the products online because the cost of running the cost of the store is more than that of the revenue. The local retailers provides the long term for the credit period. The solution must be that the credit period must be fixed for example for the fixed period of time say 3 months, 4 months. The pemberley grocers sells premium wine and the marketing expenses are very high. To overcome the problem the company has to reduce its marketing expense. Fitz-wine-on-line: The margin for the gross profit is very low. In case, the company uses efficient marketing and advertising strategies to sell its product and penetrate into the market. Cellar door and local sales: Cellar door is the sale channel that is used by the company where the wine is sold to the local and overseas visitors. The nearest metropolitan centre is 80 km away. The area is the tourist area though it has been seen that the tourist visitors in this area has been decreased and the demand for the wines have been decreased there are very small number of customers that buy the wines from the shop. Pemberley grocers: The Pemberley grocers sell premium food and wine to the retail customers. The suppliers of Pemberley are required to undertake advertising and marketing activities. Pemberley is able to demand lower purchase price from the suppliers and delayed payment terms (Leenders 2013). Fitz-wine-online Fitz- wine-online is an online wine trader with an emphasis on the Australian wine. As a large, independent, online trader, this company has a focus to provide high quality wine at the discounted prices. The advertising cost is not associated with this sales channel and the brand values remains unaffected. This sales channel is used in selling of bulk quantities and with the minimal profits. The strategic and the operations issue that the company faces is the advertising expenses are high. The Gross profit margin of the company is very low and is almost in negative as the sales that the company is generating are less than the expenses that the company is bearing (Garcia 2012). The debt of the company is increasing it means that the company has the liabilities. The sale channel that should be exited is the local retailers. The retailer shop is 80 kms away from the main city whereas; the sales are less than the expenses the shop has to bear. The staffs that have employed are for the part time purpose. No full time staffs are been employed in the shop. 8. Analysis and evaluation of excess demand from Merlot: As the Merlot wine takes three years time from harvesting of grapes to come in the market and its quality is highly dependent on the quality of grapes, Heretaunga is not able to produce Merlot wine in a large quantity and as their demand is also high, they are running out of stock for Merlot wine. The qualities of wine are also dependent on the skill of labors who make the wine. Natural disasters like hailstorm and draughts can also affect the quantity of grapes. Due to all these issues, company could not match the Merlot wines supply with its demand. However, not all the issues could be solved as Heretaunga does not have control over all the issues but there is definitely some scopes to work on some issues and improve them. They can contact with more grapes supplier who have good record of supplying good quality grapes, so that, with more grapes, they can produce more bottles of Merlot wine. Another area where they can improve is to hire more skilled winemakers, so that, wastage wil l be minimized and more bottles can be produced. However, the excess demand of Merlot wine cannot be fulfilled in full but shortage can be minimized to some extent by increasing the production. The production can be increased only when Heretaunga will have sufficient supply of good quality grapes and sufficient number of skilled wine maker available with them. Reference: Bianchi, Constanza. "Consumer brand loyalty in the Chilean wine industry."Journal of Food Products Marketing21, no. 4 (2015): 442-460. Bruwer, Johan, Isabelle Lesschaeve, and Benjamin L. Campbell. "Consumption dynamics and demographics of Canadian wine consumers: Retailing insights from the tasting room channel."Journal of Retailing and Consumer Services19, no. 1 (2012): 45-58. Chong, Sandy. "Business process management for SMEs: an exploratory study of implementation factors for the Australian wine industry."Journal of Information Systems and Small Business1, no. 1-2 (2014): 41-58. Edwards, Frances, and Tony Spawton. "Pricing in the Australian wine industry."International Journal of Wine Marketing(2013). Galati, Antonino, Maria Crescimanno, Salvatore Tinervia, and Dario Siggia. "Website quality and internal business factors: an empirical investigation in the Italian wine industry."International Journal of Wine Business Research28, no. 4 (2016). Garcia, Fernanda A., Martin G. Marchetta, Mauricio Camargo, Laure Morel, and Raymundo Q. Forradellas. "A framework for measuring logistics performance in the wine industry."International Journal of Production Economics135, no. 1 (2012): 284-298. Hammervoll, Trond, Pierre Mora, and Kjell Toften. "The financial crisis and the wine industry: The performance of niche firms versus mass-market firms."Wine Economics and Policy3, no. 2 (2014): 108-114. Leenders, Mark AAM, and Yanto Chandra. "Antecedents and consequences of green innovation in the wine industry: the role of channel structure."Technology Analysis Strategic Management25, no. 2 (2013): 203-218. pezzillo iacono, mario, Vincenza Esposito, Lorenzo Mercurio, and Marcello Martinez. "Bridging business model and inter-organizational coordination mechanisms in the Italian wine industry."Measuring Business Excellence20, no. 4 (2016). Spawton, Tony. "Development in the global alcoholic drinks industry and its implications for the future marketing of wine."International Journal of Wine Marketing(2013).