Describe the key aspects of Farmer Brothers business

Reference no: EM132736264

Question - In Harvard Business there is an article of "Coffee Inventory Management under LIFO at Farmer Brothers Coffee Company". I have several questions that under this article:

1. Describe the key aspects of Farmer Brothers' business. What are the major risk factors the company faced?

2. What is your assessment of Farmer Brothers' financial ratios and cash flow performance? How does it compare to Green Mountain Coffee?

3. Consider the information about Farmer Brothers' LIFO reserve in the footnotes. What would the company's income before taxes be in 2011, 2010, and 2009 if they used FIFO instead of LIFO?

4. How much inventory (in pounds of coffee) did the company have at 6/30/2011 and 6/30/2010? What is the approximate average cost of LIFO inventory at 6/30/11 and 6/30/10? Explain the company's year-end purchase decision in 2011. Without switching from LIFO, how much could the company have increased income before taxes in 2011? Why didn't the company do so? What did Sinclair Research mean by the claim that "FARM now has a large LIFO reserve, which is beneficial during a period of declining input costs"?

5. Under commodity price risk (see footnotes), Farmer Brothers mentioned that "from time to time, it holds a mixture of futures contracts and options to hedge against volatility in green coffee prices." How would Farmers use these financial products to hedge price risk?

6. Do you agree with Sinclair that Farmer Brothers is worth $11 per share? Why or why not?

Reference no: EM132736264

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