Monforte Case Study
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Critical Issues
Monforte has financial constraints due to their inability to produce sufficient profits to cover their liabilities. Monforte need to address their miniscule bottom line to improve their financial situation.
Situational Analysis
Monforte is facing insolvency due to their high debts shown by their quick ratio . The cause of this was their purchase of land from their re-location in 2008. Their profits are being reduced largely by the operating expenses involved with owning land & the interest from the purchase of the land. Monforte’s pricing model is 30/30/30/10 , but are only achieving 4.8% profits.
Decision Criteria
Monforte’s target is to increase net profits to reach their pricing model of 10% net profits by 2014
Option Analysis
1. Affinage
Costs include single investment to develop land already owned by Monforte of $1,000,000. Yearly costs are are $239,000 . Breakeven is 34,143lbs cheese/year. However, it takes just over 6 months to produce the breakeven amount of cheese (exhibit 2). They would be able to produce 66,000lbs in one year (exhibit 2). Monforte is already having trouble meeting demand so it is estimated that they will be able to sell the 66,000lbs. The estimated net earnings are $223,000 with an ROI of 22.30% starting in the second year of operation (exhibit 2).
This option meets the decision criteria but, the initial cost is quite high. Currently Monforte is already highly leveraged and it would be difficult to produce capital without further leveraging themselves. Another risk is that they would not see revenue and would not be able to start paying off these debts until 2011 . This is a fairly high risk option for Monforte’s current financial situation.
2. Charcuterie
Costs include the initial investment of $250,000 for equipment and annual costs of $312,000 . 30,105 lbs of meat is the breakeven point (exhibit 3). Charcuterie is associated with the trend of heathier living and is a great pairing with the cheese that Monforte already produces. Because of this, we estimate that Monforte