Assessment 3 Presentation Stone & Wood Case Study

Required

Read the full Stone & Wood case study available on this unit’s Blackboard site.

Notes

1. The budget period is the 12-month period ending 30 June 2022, however you will base your assessment on the financial statements provided in the Stone & Wood case study for Fermentum Pty Ltd for the 2019 and 2020 financial years.

2. For the purpose of this assessment, assume Stone & Wood accounts for 100% of Fermentum’s financial operations.

3. Assume all costs below gross profit line are fixed costs.

4. Assume cost of sales are 80% variable costs and 20% fixed costs

5. You are advised the base case estimates of sales mix are 50% of sales revenue are trade sales in kegs to pubs and clubs, and 50% are retail sales in cans and bottles.

6. The worst-case scenario for the budget year is a 20% fall in total sales from the base case estimate due to the impact of covid-19 restrictions.

7. The best-case scenario for the following budget year is a 10% increase from the base case estimate in retail sales due to online sales growth during lockdown.

Required

PART A Budgeting

1. Prepare base, best and worst-case profit (NPBT) budgets in contribution margin format

2. Calculate the break-even point and margin of safety

3. Interpret your results from parts 1 and 2 including a comparative analysis of best, worst and base case scenarios.

PART B Financing

During 2020 there were major changes to Stone & Wood's balance sheet.

a. Discuss the major changes to assets, liabilities and equity

b. Using relevant accounting ratios discuss changes in Stone & Wood’s financial risk

c. Did these changes put the company in a better or worse position to withstand the financial shock of the covid-19 pandemic on the brewing industry?

PART C Video presentation of response to sale of Stone & Wood

Read the following article that reports Stone & Wood was recently sold for $500m.

https://manofmany.com/lifestyle/drinks/stone-wood-sold-to-lion

You are required to discuss the sale of Stone & Wood given the Balance Sheet valuations in their 2020 Financial Statements and the information provided in the Stone & Wood case study.

1. Discuss how assets are valued in accounting balance sheets and why or why not this may reflect market value.

2. Provide possible reasons for differences between Stone & Wood's market value and accounting book value according to their 2020 Statement of Financial Position assuming there is no material change in the Balance Sheet from the end of the 2020 financial year up to the time of sale of Stone & Wood. Draw on information from the case study wherever possible.

3. Include a discussion of intangible assets and your estimate of the value of goodwill at the time of sale for Stone & Wood.

4. Drawing on information from the case study and other information you consider relevant identify factors that were likely drivers of the market value of Stone & Wood.