Deutsche Brauerei

Teaching Note

Synopsis and Objectives

Suggested complementary cases regarding working-capital management and financial forecasting: “Kota Fibres,” (Case 10); “ServerVault,” (UVA-F-1304); and “Body Shop International 2001,” (Case 8). Cases regarding setting financial policy: “Gainesboro Machine Tools Corp.,” (Case 26); “Rosario Acero S.A.,” (UVA-F-1211). A newly-appointed director of a small German beer brewer must prepare to vote on three issues coming before the board of directors the next day: (1) approval of the financial plan for 2001, (2) declaration of the quarterly dividend, and (3) adoption of an incentive compensation plan for the marketing manager. The student’s task is to evaluate the past and prospective financial performance of the company and to critique its liberal credit and inventory policies. The objectives of the case are to:

• Introduce and exercise tools and concepts of financial-statement analysis (including financial ratios, break-even analysis, and cash-flow statements).

• Explore possible definitions of the “financial health” of a company.

• Illustrate the linkage between operating policies and financial performance.

• Consider the interdependence among corporate objectives regarding growth, dividends, and debt financing.

• Explore the linkage between compensation incentives and financial performance. In this case, the marketing manager is motivated to build sales volume, which he accomplishes with a dramatic build-up in receivables and inventory.

• Illustrate some of the challenges of doing business in an emerging market. Suggested Questions for Advance Assignment to Students

1. What accounts for Deutsche Brauerei’s rapid growth in recent years? Specifically, what policy choices account for this success?

2. What is Deutsche Brauerei’s credit