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Financial Management
Calaveras Vineyards sits on 220 acres in Alameda Valley, California. Anne Clemens, a senior vice president at Goldengate Capital, received a loan proposal from Tom Howell, a managing director with NationsBank's investment-banking group. The brochure described the prospective management acquisition of Calaveras Vineyards and solicited Goldengate's participation in the $4.5 million senior financing facility. The facility would consist of a $2 million term loan and a revolving credit of up to $2.5 million. Clemens needed to decide quickly whether the proposed terms were attractive, where to position Goldengate in this credit, and whether to offer a counterproposal on terms. Winston-Fendall has also agreed to provide collection services and will pay Calaveras any receivables left unpaid after 90 days. This arrangement would relieve Calaveras of any substantial credit risk.
The Vineyard is the beneficiary of a trend of strengthening brand recognition. The organization used to sale solely through wholesale distribution channels, but being marketed as a premium brand has significant impacts upon potential profitability. However, in its current state, the Vineyard is low on capital and some judgement calls about the feasibility of the financial package must be made. The following analysis focuses on the 5Cs and other relevant decision criteria.
Data Analysis
Character: Good
Character is an estimation of the management's experience, personal, and business credit history. It was determined that the character of the borrower was good.
Credit History:
The Debt / Total Asset and Debt/Equity ratios decreased in recent years
1990
1991
1992
1993
Debt
166254
217290
95410
78853
Debt/Total Asset
0.0221
0.0303
0.0151
0.0112
Debt/Equity
0.0226
0.0312
0.0153
0.0113
Industry Averages
Upper
Median
Lower
CL/Equity
0.08
0.44
1.027
TL/Equity
0.288
1.034
1.864
1994
1995
1996
1997
1998
Debt
3568316
3432734
3029585
2517990
1770078
Debt/Total Asset
0.7192
0.6459
0.5502
0.4444
0.3103
CL/Equity
1.7
1.4
1.06
0.8
Management Experience and Success:
Calaveras market strategy to move from the bulk-wine sales into the premium-brand market has largely successful. Upon acquisition of the vineyard, Winston-Fendall will take also over marketing of the company which should further established its premium brand status in the market.
Capital: Sub-Par
Capital is the overall financial strength of the based on financial performance and asset utilization. The following financial ratios were calculated to provide an overall picture of the capital structure of the Vineyard.
Liquidity:
1994
1995
1996
1997
1998
Current ratio
0.82
0.95
1.15
1.48
2.16
Quick ratio
0.16
0.16
0.17
0.16
0.15
Industry
Upper
Median
Lower
Current ratio
5.5
2.5
1.5
Quick ratio
1.2
0.4
0.2
Compared with other players in the industry, the Vineyard has a much higher debt to equity ratio based on these calculations.
Efficiency:
1994
1995
1996
1997
1998
Days in AR
18.25
34.37
34.59
35.45
35.2
Days in Inventor
Days in AP
31.26
38.59
37.62
37.8
37.24
Collect period
Industry
Upper
Median
Lower
Collect period
29.2
51.3
69.2
Collection period is also much higher than many of the other firms in the industry.
Cash Flow: Decent
Capacity refers to the company's ability to generate sufficient revenues…
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