andrew and his wife Andrea started their winery over 12 years ago. It has grown from a small winery that rented everything in order to make a few barrels of wine for the couple and some of their friends to a true winery with a small plot of grapes (less than 2 acres) and a tasting room open five days a week. The bulk of the wine is still made with grapes purchased from growers in the area, but Andrew has developed a good relationship with them and gets some very high quality produce to use in making his wine. The winery produces over 10,000 cases of wine a year now and total sales are over $4 million a year. The vast majority of the wine, 85%, is sold through distributors throughout the country with whom the winery has established relationships. These distributors are shipped the wine with invoices that are due 30 days after shipment. G&J wines are considered to be a good value as the wine is rated highly by wine review magazines and wins a number of awards at industry tastings. Current Situation : Andrew and Andrea knew that the last year had been a bit difficult in the industry overall. Some areas of the country had been hit with bad weather right at harvest time, including theirs. This weather problem drove up the price of grapes somewhat, but G&J had been fortunate that about 50% of the grapes that it bought were under contract so the price hadn't hurt it as much as it had some of the other smaller wineries. Unfortunately for G&J, the majority of those contracts were coming up for renewal and Andrew knew that the vineyards were going to need to try to cover some of their losses. Luckily, total sales in the wine industry were still going up in both the premium category, which is what G&J is considered, and the value wine category. It was early in January and Andrew and Andrea were getting started on planning for the next year. Andrea took care of the financial aspects of the family winery and ran the tasting room, while Andrew did the day to day running of the winery, making the wine, tending to the grape vines, and maintaining the relationships with the growers. Andrew asked Andrea how the last year had ended up for the winery and whether she saw any problems they might be facing in the new year. She replied that she was just sitting down to work on the financial information now. She did tell Andrew that the profits for the year were definitely down from the previous year as a percentage of sales based on the income statement that she had run. Doing the Ratios The first thing Andrea needed to do was to see how last year's financial ratios compared the financial ratios from two years ago and to the industry averages. She recognized the industry averages included the larger wineries, but there were so many small wineries included in those averages she felt that it did provide a good benchmark for comparing G&J's performance. After that task was complete she and Andrew would sit down together and go over them to see what had changed and see what they could do to improve the performance for the upcoming year. Once she had a good idea of where the winery stood compared to other firms financially, Andrea and Andrew were going to have to seriously consider whether they needed to raise the prices for the wines. They had not increased prices for about three years, which may be part of the reason G&J wine is considered such a good value in the marketplace.

questions

• Find the most recent ratios for G&J Winery.
• Suggest what seems to have caused the decline in net profit margin, even though sales were higher.

For the Period Jan. 1, 20XX to Dec. 31, 20XX Net Sales Revenue $4, 107,000 Cost of Goods Sold Beginning Inventory $457,665 + Cost of Goods Produced $2, 196,535 Goods Available for Sale $2,654,200 - Ending Inventory $471,250 Cost of Goods Sold $2, 182,950 Gross Profit $1,924,050 Operating Expenses Utilities $49,700 Marketing $407,900 Insurance $99,500 Depreciation $182,000 Salaries and Benefits $389,780 E-Commerce $62,760 Repairs and Maintenance $72,575 Travel $58,750 Supplies $51,950 Misc. Expenses $56,420 Total Operating Expenses $1,431,335 Other Expenses Interest Expenses $224,300 Total Other Expenses $224,300 Total Expenses $1,655,6 Net Income $268,415Current Assets Cash Accounts Receivable Inventory Supplies Prepaid Expenses Total Current Assets Fixed Assets Land Buildings, net Vehicles, net Equipment, net Furniture and Fixtures, net Total Fixed Assets Total Assets Balance Sheet as of Dec. 31, 20XX $124,987 $429,870 $471 ,250 $4,330 $2,100 $1 .032.537 $302,560 $170,800 $98,000 $237,490 $29,780 $838,630 Current Liabilities Accounts Payable Notes Payable Line of Credit Payable Accrued Wages Payable Accrued Interest Payable Accrued Taxes Payable Total Current Liabilities Long-Term Liabilities Mortgage Loan Total LongTerm Liabilities Owner's Equity Capital and retained earnings Total Liabilities and Owner's Equity $197,865 $201,500 $75,000 $32,750 $19,000 $32,000 $558,115 $376,800 $197,600 $574,400 $738,652 M Liquidity Ratios Current Ratio Quick Ratio Leverage Ratios Debt Ratio Debt to Net Worth Ratio Times Interest Earned (TIE) Ratio Operating Ratios Avg. Inventory Turnover Avg. Collection Period (Days) Avg. Payable Period (Days) Net Sales to Total Assets Protability Ratios Gross Margin (GM) Net Prot Margin (N PM) Net Prot on Assets Return on Equity (ROE) Two Years Ago 1.90 0.98 0.64 1.60 2.90 5.10 34.60 31.20 2.50 50% 10% 21% 39% Industry Mean 2.00 1.05 0.70 1.70 2.40 4.90 33.10 32.50 2.10 49% 10% 20% 25%