Cafe Monte Bianco

5/25/2018 Cafe Monte Bianco

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Hassan Tariq GhaniSyed Saad ShahSyed Muhammad HamzaSyed Ather WaqarSyed Fayyaz Hasnain

Case Presentation -Accounting for Decision Making


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Founded in the early part of the 19thcentury,Cafes Monte Bianco is a manufacturer andDistributor of Premium Coffee, throughoutEurope

Known for its premium quality standardsand taste


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Grow business aggressively

Consideration of private brand manufacturing andselling

Stable performance for the year 2000 because ofmanufacturing and selling private brands

Projection of financial health of the businessconsidering private and premium brandmanufacturing


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Premium Brand Private BrandSales are volatile particularly in timesof economic downturn

Sales are relatively stable

Margin is relatively high Low margin

DSO is relatively low resulting inhealthy cash flow

Cash flow is hurt when payments aredelayed by the retailers

Production is planned to meet marketdemand

Production is kept to meet contractrequirements, stability of demandallows the company to use full capacityof production

Cannot stock premium coffee due to

concerns of freshness

Simplifies Manufacturing plan as

inventory can be maintained easily

Heavy R&D and marketingexpenditures are incurred to meet salestargets

Reduced administrative, R&D andselling costs (in particular marketingcosts)


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Income Statement


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Balance Sheet


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Current ratio = 0.57

Quick ratio = 0.41

Fixed Asset Turnover = 1.86

Total Asset Turnover = 1.26

Inventory turnover ratio = 11.43

Days Sales Outstanding = 61 days

Higher liabilities, poorliquidity

Indicating lower quality ofAccounts Receivables

Reason being private brandretailers delayed paymentsup to 90 days, reducingcash flow into the company


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Debt Ratio = 0.79

Debt-to-Equity Ratio = 3.87

Times Interest Earned = 1.85

Much of this companysfinancing is in form of debt

Company owes $3.87 indebt for every $1 in equity

More borrowing prospects

are not feasible


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Advertising Expenditure per SalesVolume


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Estimated Cost per Unit for Selling Volume


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Sales during 2000


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Production Plan for Private Brand


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52,800,000,000

Raw Materials & Labor @ 6,600 39,600,000,000

Fixed Costs 3,319,500,000

Total Cost of Goods Sold 42,919,500,000

Gross Profit 9,880,500,000

Marketing / Advertising Expenses ZERO

R&D Expense (Down by 75%) 832,032,500

Selling Expense (Down by 65%) 1,251,148,500Admin Expense (Down by 50%) 2,376,000,000

Interest Expense (Constant at 25 billion Liras) 3,825,000,000

Profit Before Tax 1,596,319,000

Tax @ 40% 638,527,600

Profit After Tax 957,791,400

Caf Monte Bianco

Income Statement

For the Year Ended Dec 31, 2001

Sales (6,000,000 kg @ 8,800) Private Brand

Cost of Goods Sold


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Brand Year 2000 Revenue Quantity Price Per Unit

PRIVATE Revenue/Quantity 9,934,848,000 1,152,000 $8,624

PREMIUM Revenue/Quantity 46,177,560,000 1,196,000 $38,610


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Caf Monte Bianco

Projected Cash Flows

For the Year 2001

Jan Feb Mar Apr May Jun

Opening Balance 1,121,450,000 4,136,804,905 1,511,504,129 (1,123,731,494) (947,324,877) (25,382,261)

Payment Received

Private 1,301,465,088 1,202,116,608 1,192,181,760 3,673,824,000 4,656,960,000 6,105,792,000

Premium 5,541,307,200 - - - - -

Add: Depreciation 216,141,667 216,141,667 216,141,667 216,141,667 216,141,667 216,141,667Less: Disbursements

Raw Material/Labor 3,300,000,000 3,300,000,000 3,300,000,000 2,970,000,000 3,207,600,000 2,574,000,000

R&D Expense 69,336,042 69,336,042 69,336,042 69,336,042 69,336,042 69,336,042

Selling Expense 104,262,375 104,262,375 104,262,375 104,262,375 104,262,375 104,262,375

Interest Expense 318,750,000 318,750,000 318,750,000 318,750,000 318,750,000 318,750,000

Admin Expense 198,000,000 198,000,000 198,000,000 198,000,000 198,000,000 198,000,000

Taxes 53,210,633 53,210,633 53,210,633 53,210,633 53,210,633 53,210,633

Closing Balance 4,136,804,905 1,511,504,129 (1,123,731,494) (947,324,877) (25,382,261) 2,978,992,356


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Caf Monte Bianco

Projected Cash FlowsFor the Year Ended 2001

Jul Aug Sep Oct Nov Dec

Opening Balance 2,978,992,356 3,032,374,973 3,396,221,589 2,156,004,206 501,834,823 (1,618,030,561)

Payment Received

Private 3,880,800,000 4,191,264,000 2,587,200,000 2,173,248,000 1,707,552,000 3,518,592,000

Premium - - - - - -

Add: Depreciation 216,141,667 216,141,667 216,141,667 216,141,667 216,141,667 216,141,667

Less: DisbursementsRaw Material/Labor 3,300,000,000 3,300,000,000 3,300,000,000 3,300,000,000 3,300,000,000 3,300,000,000

R&D Expense 69,336,042 69,336,042 69,336,042 69,336,042 69,336,042 69,336,042

Selling Expense 104,262,375 104,262,375 104,262,375 104,262,375 104,262,375 104,262,375

Interest Expense 318,750,000 318,750,000 318,750,000 318,750,000 318,750,000 318,750,000

Admin Expense 198,000,000 198,000,000 198,000,000 198,000,000 198,000,000 198,000,000

Taxes 53,210,633 53,210,633 53,210,633 53,210,633 53,210,633 53,210,633

Closing Balance 3,032,374,973 3,396,221,589 2,156,004,206 501,834,823 (1,618,030,561) (1,926,855,944)


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For Premium Brand (Year 2000)= Gross Profit / Sales * 100

= 22,878 / 56,112 * 100

= 40.77%

For Private Brand (Year 2001)= Gross Profit / Sales * 100

= 9,880 / 52,800 * 100

= 18.71%

Gross Profit Margin in Year 2000 was greater by 22when compared with GP Margin of 2001


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Contribution Margin is the lowest for privatebrand (D)

2ndlowest CM is at least 3 times greater than

the CM for private brand

Grade D C B BB A AA AAA

Selling Price 8,800 19,500 26,600 30,000 35,500 39,000 42,600

Variable Cost 6,600 12,485 14,275 16,288 17,791 19,166 20,441

Contribution 2,200 7,015 12,325 13,712 17,709 19,834 22,159


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ROE = Net Income / Shareholders Equity

ROE (2000) = 1,945 / 9,165 = 21.2 %

ROE (2001) = 958 / 9,165 = 10.45 %

The ROE on the premium brand is twice the

return earned on private brand.


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Caf Monte Bianco should opt for premium brand or a mixtureof private and premium

A major chunk of sales should come from premium brand

The Gross Profit Margin on premium brand is much higher

The CM on premium brand is higher

A complete shift to private brand will have negative impact oncash flows

Payment is received after 90 days

ROE on premium brand is twice the ROE earned on private brand


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Q A

Cafe Monte Bianco

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