Bayern Brauerei

7 Pages 1869 Words

crease. However if current costs decline, there will be a greater profit.
The main sources of cash are sales and depreciation expenses. The main uses of cash go from payment of the long term debt, to the new short term borrowings to finance the expansion into Eastern Germany per Max’s plan. The sales have increased significantly since Max’s arrival; however the profitability of the firm has not increased at the same rate. Another issue we see is that the quick ratio is below the optimal level of one if we purchase the new plant. This tells us that either we have too little cash, or too much in debt. A better indicator of our liquidity, however, can be evidenced in review of the Net Long-term Financing/WCR variations of the past 4 years (See Appendices: Net Long-term Financing/WCR).
The EBIT/Interest ratio going from 7.9 to 2.6 indicates that we are paying entirely too much for interest expenses. This may be because by allowing the East Germans 80 days to pay for our Accounts receivables we are in turn incurring added interest expense. Also because the new debt is mostly short term, we are charged a higher interest rate than if we went with a longer term loan.
Another problem is that we have a number of accounts receivables that are past due. The EBIT includes accounts receivable transactions that have not yet been recieved, an...