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30 Jun
2020

ACCT 601: Accounting for Managers

Category:ACADEMICIAN

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Bella BeveragesInc. Analysis
ACCT 601: Accounting for Managers
15th December 2019
Bella Beverages Analysis
Executive Summary
This report is about the case study analysis of Bella Beverages. Bella Beverages is basically a Canadian company registered on Toronto stock exchange. The company has its own production and distribution channels for juice beverages and non-alcoholic soft drinks. Bella Beverages is selling its products in Canada and the US market. The company’s focus is on high-quality, healthy drinks with real fruit ingredients. Bella Beverages is focused on the young generation mainly aged from 19-30. Hani Jafeer is president and CEO of the company. Bella beverages board of directors has seven members including Hani Jafeer, the CEO. The company has four types of soft drinks and four types of BB juices preparing from concentrated real fruit ingredients. In 2004 and 2005 the company won the special innovation and healthy drinks award as well. However, now, Bella Beverages has no more research and development department. Bottles of Bella Beverages are designed by a special New York company, which results in beautiful and designer bottles. Sales of Bella Beverages are seasonal and spread in the western part of Canada and in the border part of the US. The company has a low marketing budget and only does small advertisements on radio and magazines only. BB’s head office is in the industrial park and their production plant is 25 km away from head office. Present Revenue $24.04M & Gross Profit $11.45M. Net Income $1.23M & Earnings per share $0.27.Aim to earn a gross profit on at least 70% of its sales &10% ROI. In the global drinks market company is taking advantage of the unique and healthy real fruit ingredient juices. BB’s beverages have a few new development options to expand their market. This report has done the SWOT, PESTEL, financial ratio analysis, and quantitative and qualitative analysis of the new opportunities and have given recommendations, implementations and conclusion according to that, which one option is the best for the company.
SWOT Analysis 2
Strengths 2
Brand Awareness 2
Availability 2
Innovation 2
Weaknesses 3
Water Availability 3
Location 3
Opportunities 3
Diversity 3
Products 3
Extended Reach 3
Threats 4
Low Budget 4
Indirect Competition 4
Qualitative Analysis 4
Pros 4
Cons 5
Financial Analysis…………………………………………………………………………………………………………………………………….7
Horizontal Analysis……………………………………………………………………………………………………………………………….7
Vertical Analysis……………………………………………………………………………………………………………………………………7
Financial Ratio Analysis………………………………………………………………………………………………………………………8
Quantitative Assessment……………………………………………………………………………………………………………………9
Refrence…………………………………………………………………………………………………………………………………………….13
Appendix
Table 1. Horizontal Analysis………………………………………………………………………………………………………………14
Table 2. Vertical Analysis………………………………………………………………………………………………………………….15
Table 3. NPV analysis of Water Venture…………………………………………………………………………………………..16
Table 4. NPV analysis of Brand for Sale……………………………………………………………………………………………16
Table5. Financial Ratio Analysis………………………………………………………………………………………………………17
BELLA BEVERAGES ANALYSIS
Introduction
Bella Beverages is basically a Canadian company registered on Toronto stock exchange, as well. The company has its own production and distribution channels for juice beverages and non-alcoholic soft drinks. BB’s is mainly focused on health-conscious juice beverages and non-alcoholic soft drinks. At present Bella beverages have some issues related to Poor marketing expense records. The company is facing some ethical issues regards salespersons. Input material prices are rising, and Union members are putting pressure on pension plans. Currently, the company has no more R&D department. Soft drinks demand in the global market is shrinking as well. Aim of BB is to earn a gross profit on at least 70% of its sales &10% ROI.A slight increase in the net income of the company over the last five years.Fluctuating EPS over the last five years from $0.23 to $0.27. Bella Beverages’ goal is to get a 10% growth in EPS every year. The main objective of Bella’s company to increase its Earning Per Share. The company wants to increase its revenue through brand loyalty by providing excellent quality and diversified products. Bella wants an increment in productivity as well through implication in their internal efficiencies.
Vision &Mission
The vision of the company is to become the leading lead producer of healthy juice beverages and non-alcoholic soft drinks in the soft drinks global market. And mainly stay focused on health-conscious young generation customers. The mission is to win more awards for their unique and health-conscious products with a secret recipe. And grow in the global soft drinks market with serving unique products.
Shareholder’s preferences
There are almost 252 shareholders and the common shares issued are $3,662,844. Term Sheet Securities Inc. sponsored BB and their offering price was $1.10 per share. In the first two years the share price increased and then there was no change in it. By the end of the year 2011, no new shares were issued over there and they found that Jafeer will remain their preference. It is the largest shareholder.
SWOT analysis of this company mainly represents the way the company controls the iconic brands of all the time. In actual Bell, beverages Inc. is considered one of the top leading companies in the market due to the appropriate handling of its organizational structure, competitive advantage and latest manufacturing of beverages. This company has a focus on selling high-quality non-alcoholic drinks, juice beverages. 55% of drinks are sold in Canada and the rest of 45% are sold in the US market.
Strengths
Brand Awareness: One of the greatest strengths of this Bella Beverages is the name of its brand reorganization. According to a study, 11.3%, people recognize the company’s logo, and their drinks are included in the top 20% drinks of Canada.
Niche Market focus. Bella Beverage’s primary focus is on the niche market of young generation people (19-30 years). Another focus is on serving the best quality health drink beverages and non-alcoholic drinks only.
Packaging design & secret recipe. All drinks recipes are kept highly secret to avoid any duplication. Only three employees have full access to of recipe of drinks; moreover, the company’s bottles are designed by a New York company, which are really attractive and gives a great experience to customers.
Relevant experience. Many years of relevant experience of the company CEO and vice president and other senior operational employees is a significant positive point for the Bella Beverages company operations.
Innovation Awards. Bella Beverages won the unique & healthy product awards back in 2004 and 2005 year. Bella Beverages products are unique in the market with natural ingredients.
Weakness:
No research and development department. Currently, Bella Beverages has no R&D department, and in the last 2008-year company stopped one of its juice products as it was not doing well in the market. And because of having no R&D department company is not able to bring new innovative healthy beverages and soft drinks in the market, which is the highest lacking point for the company as their competitors get ahead of them by bringing more innovative and new drinks in the market.
Seasonal Sales. Almost 40% of sales of beverages and soft drinks are seasonal from May to August month. So a company can expand its sales by introducing a new variety of hot drinks which can be sold in the winter season as well.
Sales & marketing in two countries only. Bella Beverages has sales and marketing of its products in the US and Canada only; They can expand their sales market in other Arab countries, as well as their all drinks, which are non-alcoholic. Therefore they can have an enormous scope in Arab countries. It is evident that if the demands of the company outside Canada will not be considered by the company management than, it could affect them adversely to the net-profitability of the company.
Low Advertising budget. Bella Beverages has no sponsorship teams and not very popular on social media because of the company’s low advertisement budget. The company has only short advertisements on the radio and magazines only for target customers.
Increasing Input costs. Increasing input costs of raw materials and poor relations with the suppliers of raw material is another weak point for the company. Because of this, the costs of raw materials and goods are increasing continuously
Opportunities:
Diversity. Outside customer demands for the beverages of Bella Company is one of the most significant opportunities of the company. It is the quality of services and products of the company due to which customers have been demanding it in the external areas of Canada. Well, this opportunity can only be enhanced in the case when a massive investment in the budget will be made; otherwise, if the company follows its current structure, it is an estimation that the company will lose its customer demands.
New Products. Another most significant opportunity for this company is to invest in its new products in Islamic countries because it doesn’t sell alcoholic drinks. It will be a significant step in the establishment of its great name of the brand. Basically, the provided products of the company are found in different sized bottles, which range from 300ml to 1 liter. These products of the company, which are available in almost 42 stock keeping sections of the eight significant beverages.
Collaboration with other companies. Bella Beverages can utilize its vast vacant land that is in its production plant by expanding its production and shifts by collaborating with other companies and investing new developments. Like the company has opportunities from Athlete Promotions, Bottled Water Venture, Brand for Sale, etc. Bella Beverages should select the best option like Bottled Water Venture, which can increase its Gross profit, Net Present Value, and EPS.
The trend towards health-conscious drinks. As the young generation is now more health-conscious and demanding for health-conscious juice beverages and soft drinks so this is an excellent opportunity for the Bella Beverages in the soft drinks market as their all drinks all high quality and health-conscious drinks. So, the company can take advantage of this and expand its health-conscious drinks in the market.
Environmentally friendly bottle packaging. In today’s scenario, customers are more concerned about environmental issues. So, the specially designed environmentally friendly bottle packings are an advantage for the company in a competitive market.
Threats:
Low Budget. One of the greatest threats of this company is the low marketing budget of the company. It is because the company makes minute investments on the advertisement of its products. The company has not contributed to advertising its products on radio stations or color advertisements. This is one of the main significant reasons which has contributed to the company’s constant productivity and progress in the prior years. The bottom-line objective of the company is to make money, but the company is not appropriately meeting the needs of the modern era. It is not possible to achieve a high customer target without appropriate marketing on the media.
Indirect Competition. Although most companies such as Starbucks and Dunkin donuts have not been presented in direct competition with the company, these companies have been trying to place a dent in the market share of this company. These companies have been trying to provide their customers with healthy, quality, and cost-effective products in the form of packages. In this way, the companies have opened their small subsidiaries in numerous locations in the world.
Competition from the soft drink industry. As given in the report, Coca-Cola and PepsiCo are the leading players in the market and they have almost 42.7% share of the soft drinks market. So, it is tough for new competitors to enter the market. Only health-conscious drinks are the decisive point for Bella Beverages in the soft drinks market which separates it from other competitors.
PESTLE Analysis
To dig some more details about BB we will be looking into pestle analysis. This is basically going to give us the birds-eye-view of the company. It will be easy to understand the concept in clear about BB by finding political, economic, social, technological, legal and environmental factors.
Political factor: According to the information gathered from the report, the government has provided free trade policy through which the distribution of the product has become easy between Canada and the United States.
Economical Factor: The global soft drink market has been generated a total revenue of $440.30 billion in 2009. In comparison, we see the USA and Asian market has grown 2.8% and 4.8% respectively, over the period.
Social Factor: Bella Beverages has a distinct product with totally different packing which makes them stand different in the market. This company has mainly focused on young age group people like the 19-30 age group. They have found out that these age groups need more health beverages than just going with the common carbonated drinks. So, BB has encouraged people to buy healthy drink instead of opting for a common drink.
Technological Factor: Traditional way of ordering the raw material, it has been consuming a lot of time from unfinished to finished goods.
Less amount of innovation in the company, as they don’t have new machinery to introduce new products.
Legal Factors: BB has successfully passed through the inspection process by the government.
As there will always be a deposit tax on every can of the drink. The customers can return it and get there return on their purchased bottle.
Environmental Factors: It is very important for the company to look after the environment betterment, if not at least find out the alternative of any other material instead of using plastic bottles.
There should be a separate committee in the organization that will find out the best way to protect the environment in the organization.
As this company must produce a large number of drinks, it needs water and it is imperative to look after water scarcity especially in summer.
Bottled Water Venture
Qualitative Analysis.
Referring to the calculations in Table 3. (see Appendix) the value of NPV comes out to be positive, which is a positive sign in investing in any business.
Qualitative Analysis.
Pros.
More variety of products will be there.
Bella Beverages can take advantage of the soft drinks market trend towards health-conscious drinks, as by accepting this opportunity company can add more healthy drinks in its products.
It helps in the economic growth of the company.
No extra water costs as water source Claravay Spring is close to the production plant of the company, so the company takes the free naturally pure water from there.
Getting water from Clavavay’s spring would be of the lowest cost for Bella Beverages. Moreover, water is laboratory tested; no chemical traces were found there.
The same plant machinery and sizes of the existing bottles would be used for the water venture.
So the initial set costs are not very high.
The same distribution channels can be used for distribution in Canada and the US market as well and focused on niche markets again.
Cons.
1. High risk as to the need to invest more in property cleanup, drilling costs, collection of tanks and more.
2. Extra machinery and personnel are required for new product production.
3. Production capacity related issues can be there as not sure about the sales and production of water venture.
4. No research and development department is there to support and quality checks the new product water venture.
Brand for Sale:
Qualitative Analysis.
Pros:
Addition of more healthy soft drinks in the Bella Beverages drinks.
It is related to its core business products.
The sale of this company’s drinks is already excellent and steady in the market.
Wonder Snacks is selling its soft drinks product line with its production machinery as well, which is a great advantage again for the company.
Cons.
Machinery life is expected to be five years only.
We need more distribution channels.
Promotional costs will be high.
High set up and maintenance cost required.
Not a very high increase in sales with adding new soft drinks line.
Bella Beverages Qualitative Assessment:
Pros:
The most significant advantage and disadvantages of this company are to sell non-alcoholic drinks. Mainly, alcohol-free and products prepared with the natural ingredients have been the most significant contributor to the credibility of the company. This company is mainly offering wonder snack and caraway spring. Besides this, the sales of the juices with the bottling facility by the company is another benefit of the company.
One of the significant advantages of this company is the private label on the products of the company due to which its products cannot be copied. Fake production of products like Bella Beverages has been providing in actual, can be easily caught. Therefore, it is considered as an advantage of the company that it is the only brand with higher quality in the market.
The coffee drinks provided by the company, including espresso, cappuccino, and latte, all are full of eminence as the presence of well-organized coffee skills in the company. Besides this, customers are allowed even to test the latte-making waters of the company. The overall strategy of the company has not only been beneficial for the company but also for the customers as well. Mainly, the company systems provide the customers with the convenience to tamp either loosely or firmly for the taste accordingly.
Cons.
One of the most significant disadvantages of the company’s product is the relatively high costs of the company’s products. Some of the customers who prefer quality over price buy these products while most of them who want a drink as enjoyment leave the corner after having a view on the price chart.
Besides this, due to high prices, the demand for soft drinks among the customers has been highly decelerated. The products of the company are usually high sugar-containing, and thus, the obesity rates have been likely to increase with the cholesterol level. It must be noted that customers who use the soft drinks of the company daily are likely to have chronic health diseases, and most of the customers in the company are those who come to the store regularly. In this regard, a considerable amount of sucrose and to high dose is realty found to be dire for the young students specifically.
Financial Analysis
Horizontal Analysis
Horizontal analysis is done to compare the current financial position of BB concerning the base year 2008. According to the consolidated income statement published in Dec 2011, BB spent only 5% more on marketing and promotions as were not able to sell its juices in Western Canada. The additional spending on marketing and promotion through big retailers leads to increased profit before taxes by 10% as well as net profit of the year by 12.76%. This implies that if a company invested more in marketing, it would be able to increase net profit.
Vertical Analysis
According to the consolidated balance sheet published on Dec 31, 2011, BB’s accounts receivables decreased by 3.4% to $2,965,524 and inventory decreased by 1.8% to $1,334,486. The decrease in accounts receivable is due to the lack of BB’s communication with retailers that leads to less cash flow towards BB and lower profits. Undoubtedly, BB is trying to minimize the cost related to inventory by working on the concept of just-in-time inventory; it is likely that they are losing the opportunity to sell more beverages. Thus, lower selling leads to less revenue and, consequently, lower net profits.
Moreover, BB’s accounts payables and long-term loans have decreased over the period by 5.4% and 10.9% respectively in the year 2011. The decrease in accounts payables and long-term loans creating the opportunity for BB to borrow more money and to invest in production to generate more profits. As they have a healthy relationship with Resident Bank of Canada for a few decades and they have no problem in granting loans for equipment and mortgages at their head office.
Financial Ratio Analysis
Financial ratio analysis tells about the company’s profitability, liquidity, productivity, and leverage. These ratios help in predicting whether the company is growing or declining every year.
The leverage consists of debt ratio and debt to equity. In 2008 and 2009, the company continues to have a debt ratio of 0.5, which is good because the average debit ratio according to the industry benchmark, should not be more than 0.5. For the next two years, the debt ratio in 2011 further decreased to 0.3 that made BB more reasonable on the debt ratio.
Talking about debts to equity in the years 2008 and 2009, BB has a debt to equity at 1.1, which further decreased to 0.7 and 0.6 in 2010 and 2011, respectively. The declining debt to equity indicates that the company is financially stable.
Liquidity ratios help to find how a company pays its current liabilities. A higher current ratio means the company is quickly making its payments. According to the income statement, BB’s current ratio has increased every year and crossed 2.8 in 2010 and reached 3.4 in 2011, which shows the company is efficiently repaying its liabilities.
The quick ratio acts as an acid test ratio and tells how a company pays for its current liabilities with current assets. A higher quick ratio implies that the company can pay its current liabilities and still left with some assets. The quick ratio of BB gradually increased in four years and reached 2.6 in 2011 from 1.1 in 2008 which makes it on the positive side.
Profitability shows how much profit a company is making from its total assets and equity. The higher the return on assets (ROA) more will be the profit. BB’s ROA increased from 1% to 1.9%. On the other hand, return on Equity (ROE) increased from 2.1% in 2008to 2.3% in 2009. After this, ROE continuously decreases until it reached 1.4% in 2011. Lowering ROE is not in favor of BB.
The productivity of BB can be analyzed using inventory turnover & days sales in inventory. From 2008 to 2011, asset turnover varies by only 0.02 % that means for each dollar in assets BB is generating 1.64 cents. On the other hand, days sales in inventory, it took 38.6 days to sell its inventory, which is right depends upon the company. It will take 90 days to sell the inventory to buy more inventory.
Quantitative Assessment
After analyzing financial instruments critically, we found two alternatives for Bella Beverages, Inc.
Alternative A
BB has a proven strategy of increasing profits by investing more in marketing and promotions as they did in 2011. Moreover, they have increased levels of cash in hand that can be utilized to invest marketing sector. Therefore, BB should go with the Athlete Promotion proposal to increase its brand awareness. The increased promotion will lead to more revenue and net profits. Likewise, their share price may rise, which is floating at a constant value from a long period.
Alternative B
As all the companies traded publicly must recognize their vacant lands as investment property starting from January 2010. This recognition of vacant land has generated a deferred tax liability of $221,460, which impacted the net profit by $85,000. In addition to this, their lower inventory levels are restraining BB to sell more products and generate more profits.
BB should use the opportunity in hand by purchasing Water Venture of total cost $2,858,000 to increase their production capacity. Economies of scale would help them lower the cost of raw materials and increase profit margins. Water Venture could take advantage of well-developed marketing networks to sell bottled water in Canada as well as in the United States.
Recommendations
An in-depth analysis of Bella Beverages is done through various analyses such as situational analysis and Financial analysis. Based on the required EPS targets and ROI, two alternatives were shortlisted. Out of these two alternatives, Water Venture is considered a better option for the strategic growth of the company. After acquiring a new plant, the vision and mission statement needs to be revised as its mission is to provide healthy beverages in both countries: Canada and the United States. In the revised vision statement: becoming a leader of the North American country by providing nutritious, convenient and health-conscious drinks.
Implementation
New marketing strategies will be utilized to promote the products, along with that more budget will be allocated for marketing. A provision of the commission will be designed for retailers. For starting work on, the company needs to get approval from the government. The company should arrange adequate financial resources to make Purchases of farmland, equipment, and machinery. After that, make plans to adopt marketing strategies and product promotion. After signing a contract with a water venture.
Conclusion
Moving under the shadow of its vision upon selecting Water Venture, Bella Beverages can achieve its target constraints. The loyalty of the company increases among its stakeholders as they get their expected profits in the long term. Weaknesses and threats will be tackles in order to achieve expected growth.
Appendix
Table 1. Horizontal Analysis of Income Statement
Horizontal Analysis of Income Statement
Base Period is 2008
As of December, 31
2011 IFRS
2010 IFRS
2009 C-GAAP
2008 C-GAAP
Revenues
$24,038,224
$23,978,444
$23,850,488
$23,785,771
as % of Base year*
101.06%
100.81%
100.27%
100.00%
Cost of sales
12,589,873
12,588,683
12,497,656
12,392,387
as % of Base year*
101.59%
101.58%
100.85%
100.00%
Gross profit
11,448,351
11,389,761
11,352,832
11,393,384
Gross profit margin
100.48%
99.97%
99.64%
100.00%
Expenses:
Marketing and promotion
3,557,657
3,356,982
3,315,218
3,377,579
105.33%
99.39%
98.15%
100.00%
Distribution and selling
3,004,778
3,021,284
2,957,461
2,949,436
101.88%
102.44%
100.27%
100.00%
General and administration
2,692,281
2,805,478
2,885,909
2,830,507
95.12%
99.12%
101.96%
100.00%
Interest expense
292,422
314,916
337,410
359,904
Depreciation
210,036
205,835
202,895
202,265
9,757,174
9,704,495
9,698,893
9,719,691
as % of Base year*
100.39%
99.84%
99.79%
100.00%
Operating income
1,691,177
1,685,266
1,653,939
1,673,693
as % of Base year*
101.04%
100.69%
98.82%
100.00%
Change in value of land
150,000
100,000


Profit before taxes
1,841,177
1,785,266
1,653,939
1,673,693
as % of Base year*
110.01%
106.67%
98.82%
100.00%
Income taxes – current
545,002
534,012
535,023
481,827
Income taxes – deferred
69,410
70,831
43,856
103,966
Total taxes
614,412
604,843
578,879
585,793
Net Profit for the Year
$1,226,765
$1,180,423
$1,075,060
$1,087,900
as % of Base year*
112.76%
108.50%
98.82%
100.00%
Table 2. Vertical Analysis of Balance Sheet
Vertical Analysis of Balance Sheet
Consolidated Statements of Financial Position
As of December 31
2011 IFRS
2010 IFRS
2009 C-GAAP
2008 C-GAAP
Assets
Current Assets:
Cash and equivalents
$2,478,000
15.4%
$901,222
6.0%
$48,444
0.4%
$11,478
0.1%
Accounts receivable
2,965,524
18.4%
2,982,394
19.9%
2,937,252
22.5%
2,980,673
21.8%
Inventory
1,334,486
8.3%
1,328,446
8.9%
1,326,501
10.2%
1,389,356
10.1%
Prepaid expenses and deposits
174,785
1.1%
159,785
1.1%
167,885
1.3%
164,785
1.2%
6,952,795
43.1%
5,371,847
35.9%
4,480,082
34.3%
4,546,292
33.2%
Net property, plant and equipment
7,164,712
44.5%
7,750,909
51.8%
8,586,870
65.7%
9,145,319
66.8%
Investment property
2,000,000
12.4%
1,850,000
12.4%

0.0%

0.0%
Total Assets
$16,117,507
100%
$14,972,756
100%
$13,066,952
100%
$13,691,611
100%
Liabilities and Shareholders’ Equity
Current Liabilities:
Accounts payable and accrued liabilities
$1,728,079
10.7%
$1,600,616
10.7%
$2,139,955
16.4%
$2,208,070
16.1%
Current portion of long-term loan
311,121
1.9%
311,121
2.1%
311,121
2.4%
311,121
2.3%
2,039,200
12.7%
1,911,737
12.8%
2,451,076
18.8%
2,519,191
18.4%
Deferred income taxes
515,746
3.2%
446,335
3.0%
154,042
1.2%
110,186
0.8%
Long-term loan
3,733,446
23.2%
4,044,567
27.0%
4,355,688
33.3%
4,666,809
34.1%
Total liabilities
6,288,392
39.0%
6,402,639
42.8%
6,960,806
53.3%
7,296,186
53.3%
Shareholders’ Equity:
Capital stock
3,662,844
22.7%
3,630,611
24.2%
3,602,003
27.6%
3,566,342
26.0%
Retained earnings
6,166,271
38.3%
4,939,506
33.0%
2,504,143
19.2%
2,829,083
20.7%
9,829,115
61.0%
8,570,117
57.2%
6,106,146
46.7%
6,395,425
46.7%
Total Liabilities and Shareholders’ Equity
$16,117,507
100%
$14,972,756
100%
$13,066,952
100%
$13,691,611
100%
Table 3. NPV analysis of Water Venture
Note. All figures are in millions of dollars.
NPV= 8019- Initial Value
=8019-3765= 4254 =(+ve) NPV
Table 4. NPV analysis of brand for sale
NPV= 13373-2800= 10573
Table 5: Financial ratio analysis
References
Bella Beverages Inc. (Class handout). University Canada West, Vancouver, Canada.
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