Analysis Of Capilano Honey Limited For Potential Lending Deal

Background Details

Address 1 Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	QLD Head Office 399 Archerfield Road Richlands QLD 4077 Postal address: PO Box 531 Inala QLD 4077 Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper
Address 2	WA Office WA Office 99 Beechboro Rd (South) Bayswater WA 6053 Postal address: PO Box 284 Bayswater WA 6933
Address 3	VIC Office 7 Capilano Drive Maryborough VIC 3465

Directors

Mr Brian F O’Donnell

Mrs Julie A Pascoe

Mr Simon L Tregoning

Ms Valentina Tripp

Top 5 Shareholders	Number of ordinary shares	Percentage share
Wroxby Pty Ltd	1,948,689	20.60%
Citicorp Nominees Pty Limited	446,729	4.72%
HSBC Custody Nominees (Australia) Limited	301,009	3.18%
National Nominees Limited	240,692	2.54%
J P Morgan Nominees Australia Limited	181,216	1.92%

The overall deal relevantly comprises of both fixed and overdraft loans, which is needed by the organisation for adequately conducting the expansion process and acquiring additional machines for increasing the production process. In addition, the loan is relevantly for $21 million, which is needed from the lenders on two different parts, where one part comprises of fixed loan amount of 13 million and the rest as overdraft facilities, which is used for supporting the working capital requirements. The overall term loans are relevantly needed for supporting the long-term debt accumulation that has been conducted by the company to support its operational expansion. In addition, the increment in the overall debt will ensure the increase in its productivity. Moreover, the overdraft facilities is mainly used by the organisation for supporting the short term debt, which will be paid and the rest of the loan amount will be used for working capital.

Details	Term Loan
Purpose	· Purchase of new equipment · Repay and replace all their long-term debt at their existing bank · New property for storage purposes
Amount	$13 Million
Term	15 years
Interest Rate	8%

Details	Term Loan
Purpose	· Working capital · Replace all their short term
Amount	$8 Million
Term	5 years
Interest Rate	8%

Capilano Honey Limited was started in 1953, where the management celebrated the 50-year completion in 2003. The company has been one of the major producers of honey in Australia by accumulating loyal beekeepers, which increase their productivity level. Moreover, the company has been engaged in packing of honey for domestic and export sales, which helps the management to acquire the required level of revenue for future growth. In addition, the company has range of products such as kids honey, premium selections, classic honey, pure manuka honey, and creamed pot se (Capilanohoney.com, 2018).

The financial capability of Capilano Honey Limited is seen from their financial report, which depicts the progress and financial position of the organisation. The overall revenue of the organisation has increased from the levels of $133 million in 2017 to $138 million in 2018, while the overall total assets has increased from $96 million in 2017 to $104 million in 2018. The improvement in the financial progress has relevantly allowed the organisation to generate high level of income from operations. Therefore, it could by understood that the financial progress of Capilano Honey Limited has relevantly improved over the period of two fiscal years, which can eventually indicate the progress of the management for generating high level of income from investment (Capilanohoney.com, 2018).

Capilano Honey Limited mainly falls under the Packaged Foods & Meats Industry, where the current position of the company is relevantly not high in comparison to its peers. The market capitalisation of the organisation is also not adequate, as the company has generated high level of income from investment over the time. The improvements in the current financial progress can eventually help in generating high level of income from investment. the current earnings ratio is not adequate, while the P/E ratio and P/B ratio is relevantly high. The organisation has been efficiently operating since 1953, where the current base of suppliers is relevantly loyal and high, which can be used for generating high level of income from investment. The Packaged Foods & Meats Industry relevantly needs higher operational capability for supporting the productivity, which can generate high level of returns from investment.

Ratio Analysis	2018	2017
Gross Profit / Sales	57.62%	57.71%
Operating Expenses / Sales	10.38%	9.19%
Net Profit (before tax) / Sales	10.14%	10.37%
Net Profit / Sales	7.09%	7.76%
Trade Debtors / Ave. Daily Sales	65.93	66.37
Trade Creditors / Ave. Daily Cost of Sales	79.27	99.03
Stock Turnover	234.43	209.75
Basic Earnings Per Share	103.90	109.30
Basic Earnings Per Share Diluted	103.20	108.90
No. of shares Basic	9,457,481	9,457,481
No. of shares Diluted	9,517,481	9,487,481

Brief and overview of the facts of the Deal

The above table represents the overall financial progress and a stability of Capilano Honey Limited for the past two years. The increment in the overall financial progress has relevantly allowed the organisation to increase its profitability conditions. In addition, the gross profit margin of the company has slightly declined over the period of time, which indicates the increment in cost of goods sold. This increment in cost will directly have negative impact on the financial progress of the company. The increment in operating income of the organisation is relevantly detected, where the values have increased from the level of 9.19% to 10.8%. This increment in the current financial progress has relevantly depicted the use of adequate measures for generating high level of income from operations. The decline in administrative expenses of Capilano Honey Limited has relevantly allowed the organisation to increase its operational ratio over the period of two fiscal years, which indicates a positive attribute for the organisation (Czajor & Michalak, 2017).

Both the net profit margin before tax and after tax has relevantly declined over the period of two fiscal years. This decline in the revenue has relevantly indicated the overall reduction in revenues generated by the organisation. However, the increment in revenue of Capilano Honey Limited during the fiscal year of 2017 was due to the disposal of Manuka beekeeping assets. the gains made from the disposal has relevantly allowed the organisation to generate high revenue, without which the revenue of the company is in line and is relevantly progressing. Therefore, it could be understood that the financial progress of Capilano Honey Limited is relevantly adequate, where the increment in cost is due the rising sales of the company. On the other hand, the evaluation of financial cost also indicates a certain decline in values, which is considered a positive attribute for the company.

The future evaluation of the efficiency ratio relevantly indicates both the positive and negative attributes of organisational progress. The collection period from the trade debtors has relevantly declined from the values of 66.37 days to 65.93 days, which depicts the reduction of collection days that might increase cash flows of the organisation. However, in the same instance the overall trade creditors days of the organisation has relevantly declined from the levels of 99.03 days to 79.27 days in 2018. The decline in trade creditors days is a negative attribute for the organisation, where the management must conduct the payment to its creditors sooner than anticipated, which will directly reduce cash position of Capilano Honey Limited. Furthermore, the overall stock turnover conditions of the organisation have relevantly indicated an inclination on the holding days, which has increased from 209.75 days to 234.43 days. This relevantly depicts that the organisation has been accumulating higher inventory over time, which is blocking essential working capital. However, the overall evaluation directly indicates that the financial progress of Capilano Honey Limited is relevantly positive, where the management has conducted adequate investment for generating high level of returns from investment (Lukason, Laitinen, & Suvas, 2015).

Overview of the Borrower

The short-term liquidity conditions of Capilano Honey Limited can be detected from the overall appendix 2, where the relevant condition is adequately depicted. In addition, from the evaluation it can be understood that short term liquidity position of the company has increased over the period of two fiscal years. This improvement has been conducted by raising the values of total current assets in comparison to the current liabilities, which has improvised the current ratio from the values of 2.62 in 2017 to 2.76 in 2018. This increment in the overall financial progress has mainly allowed the organisation for improving its current financial progress. Furthermore, from the evaluation it can also be detected that the financial progress of the organisation has been adequately been conducted (Soares & Pina 2017).

The overall quick ratio of the organisation has also improved over the period of time, which has increased from the level of 1.04 in 2017 to 1.23 in 2018. This increment in the overall values has been calculated by dividing the current assts with current liabilities of the organisation, where the investors are detected from the current assets. This has relevantly allowed the organisation to detect the level of assets that can be sold quickly for fulfilling the short-term obligations and continue its operations. This improvement has relevantly allowed the company to generate high level of income from investment, while reducing the risk attributes. Laitinen (2018) mentioned that investors using the short-term solvency calculation is able to understand the financial capability of the organisation to support its obligations and continue the operations without any hinderance. Capilano Honey Limited has adequate short-term assets over the period of two fiscal years, which has relevantly allowed the company to supports its operations even after repaying their obligations. This mainly indicates that the assets of the organisation are appropriate for supporting its operations.

The long-term solvency position of the company is mainly detected from appendix 2, where adequate condition of long term solvency position is calculated. The calculation has relevantly indicated that the fixed assets by shareholder funds has relevantly declined from the values of 42.53% to 37.98% in 2018. This decline in values have relevantly indicated that fixed assets mustered by the organisation is being supported by debt and not by shareholders fund. Further evaluation of the assets has relevantly indicated that the shareholders fund by total assets have relevantly increased from the level of 64.69% in 2017 to 65.53% in 2018. This relevantly depicts that Capilano Honey Limited has increased its total assets with the help of rising shareholders value. Moreover, the decline in the value of shareholders fund by outside liabilities directly indicate that the shareholders’ value has increased significantly higher than the total liabilities of the company. This increment has mainly indicated that financial stability of the company (Kanapickiene & Grundiene, 2015).

The increment in gearing ratio from the levels of 14.62% to 19.53% in 2018 is due to the rising levels of long term and short-term obligations of the organisation. The increment in debt accumulation of the organisation is relevantly hampering the level of returns from investment. Furthermore, the calculations have also depicted the level of changes in debt that has been used for supporting operations of Capilano Honey Limited. Thus, it could be understood that Capilano Honey Limited has adequately maintained its long terms solvency position, where the possibility of insolvency conduction is nil.

Industry Analysis

Appendix 3 relevantly depicts the calculation of cash flow condition of Capilano Honey Limited, which has relevantly depicted the surplus that can be generated from loans. This calculation relevantly indicates a surplus of the cash flow after detecting the principal amount of loan. This relevantly indicates that past performance of the organisation directly supports the positive cash flow and raises the cash balance. The calculation also indicated that the organisation has a current long-term debt of 7 million, which can be repaired from the overall profits that is generated from operations. This mainly indicates the positive attributes of the company in supporting its long-term obligations and continuing with the operations even after fulfilling the obligations. Rey and Santelli (2017) mentioned that positive cash flow condition of the organisation could eventually help in detecting its current cash position, which could be helpful in supporting its working capital requirements.

Strength of the Deal:

• The major strength of the overall deal is the financial viability of Capilano Honey Limited in supporting the additional debt, which can increase its operations in future
• The debt acquired by Capilano Honey Limited is distributed in two different segments, where it mainly consists of term loan and overdraft.
• The financial ratios such as profitability, liquidity and solvency condition are adequate and have indicated a positive financial position of the organisation that can eventually help in supporting the new debt aimed by the management.
• The safe lending margin has relevantly indicated a positive value, where it might eventually help in supporting the debt requirements, where the organisation is not able to pay its dues.
• The positive surplus value indicates the rising capability of the organisation to support its obligations from the net profits and continue with the operations.

Weakness of the Deal:

• The major weakness of the deal mainly lies from the rising disconcert of declining demands, which can negatively affect revenue generation capability of the organisation.
• The second weakness of the deal is the valuation method, which is mainly conducted on the basis of balance sheet, where any manipulations in the report might adversely affect position of the deal. The wrong valuation of assets will directly affect the decision of the deal, as asset valuation was considered while analysing overall deal.

Mitigation of the weakness:

• The overall risk of declining demand can be mitigated by Capilano Honey Limited with the help of adequate marking plan. The marketing plan can be used for raising the level of demand for the company product, which might mitigate the risk of declining demands.
• The second risk can be mitigated with the help of adequate audit process, which can be used for valuing the assets of the organisation that is taken into consideration. The audit process might eventually help in understanding actual value of the assets and allow the lender to make adequate decisions.

The financial progress of Capilano Honey Limited can be detected with the help of financial ratios, cash flow analysis, and safe lending margin. Capilano Honey Limited is consisted a safe investment scope, as the company has higher financial statues, where it could adequately repay borrowed money within the specified time. Hence, Capilano Honey Limited can be allowed the loan amount of $21 million, as the organisation has positive financial viability. The organisation has positive profitability conditions, where revenues are rising, while administrative expenses are declining, which in turn is raising profits of the company. Furthermore, the safe lending margin value is more than twice the amount of loan amount, as the assets, trade receivables and investment of company can be considered, as a prohibition of supporting the borrowed money. The relevant strength and weakness of the deal is analysed, which also indicate that the deal can be conducted by the lender, as the investment is secure.

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