Details

Case

Educator Copy

CORPORATE DAIRY FARM: PERFORMANCE EVALUATION & FEASIBILITY ANALYSIS

Hafsa Ashfaq, Fazal J. Seyyed, Abid A. Burki


INDUSTRY : Dairy

AREA : Finance

ORGANIZATION :

LENGTH : 19

LUMS No : 02-647-2018-1

PUBLICATION YEAR : 2018

DESCRIPTION

KEYWORDS:

dairy sector, Pakistan, profitability, key value drivers, business development, Tetra Pak, capital budgeting analysis


DESCRIPTION:

The case revolves around a situation in which Salman Malik, the Chief Executive Officer (CEO) of Malik Textile Group (MTG), is worried about the declining profitability in the textile sector in FY2017 and looking into alternative business opportunities. He is inclined towards venturing into the dairy sector. A senior executive at Tetra Pak, Ali Ahmad, agreed to help him in this regard. Salman entrusted Hassan Khan, his business development manager, with the task of analysing the dairy farming operations and evaluating the performance of a corporate dairy farm. Using the data provided by a consultant at Tetra Pak, Hassan prepared a dairy farm business model including the assumptions for presentation to Salman and the senior management team for their feedback. A dairy sector expert, Zafar Iqbal, invited by Salman, raised some serious questions regarding the underlying assumptions. Salman is also concerned that several variables are uncertain. Hassan is; therefore, asked to revisit the business model before analysing the profitability of the dairy farm and assessing the financial viability of the project. He is also encouraged to do a sensitivity analysis on the key value drivers before presenting the final report to the Board of Directors Business Development committee a week later. (Please contact CRU for Excel Files for Students & Instructor)


LEARNING OBJECTIVES:

1. Learn about the dairy sector of Pakistan, 2. Analyse the value drivers and best practices of a corporate dairy farm, 3. Assess the performance and profitability of a corporate dairy farm using various profitability measures, 4. Prepare cash flows from operating profits and apply capital budgeting tools to assess the project viability, 5. Differentiate between the profitability analysis and capital budgeting analysis and discuss the significance of both approaches, and 6. Identify the key value drivers/variables and assess how they impact the performance, profitability and viability of the dairy farm.


SUBJECTS COVERED:

Finance