Monforte Dairy Essay

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MONFORTE DAIRY Critical Issues In order to reach $2 million in annual sales in fiscal 2010 and position Monforte Dairy (Monforte) to become a $10 million revenue company while staying true to its values, Ruth Klahsen must determine: * How to reduce the accumulated financial debt, so that Monforte can reduce its high leverage and position itself for future expansion. * How to efficiently utilize production capacity, so that Monforte can capitalize on the anticipated growth in the artisanal cheese industry by meeting consumer demand. * How to effectively balance work and personal life, so that the most feasible growth option for Monforte can be implemented. Situation Analysis Monforte’s debt to equity ratio of 11.49 signifies that its assets are mainly financed with debt (Exhibit 2). With cash mainly coming from external financing activities rather then internal operations (Exhibit 3), Monforte will be unable to obtain financing from a bank for possible expansion opportunities. In addition, Monforte’s acid ratio of 0.9 indicates that the company will be unable to pay off its current liabilities, particularly if its creditors called in the debt immediately. This can potentially result in: losing core suppliers (Exhibit 1) and being forced to liquidate assets or file for bankruptcy to payoff the bank loan. Monforte has recognized a reduction in current production at its new facility, preventing the company from meeting demand of its current consumers (Exhibit 4). In addition, the government-enforced quota system has restricted Monforte to five types of cow milk cheese, reducing Monforte’s overall production capacity. This can result Monforte not meeting last year’s production quota and demand. Therefore, Monforte must maximize its current production facility, year round, to meet the anticipated increased demand for artisanal cheese.

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