An analyst with Southern Cross,James Amphlett, has been asked to measure the fiscal performance of Farmer Brothers Company, a java manufacturer and provider whose shares the equity firm was deliberatingprocuring for its Growth Service portfolio. Amphlett's research showed the coffee company was volatile. Coffee prices had risen steadily from $0.20 per pound at the end of 2001 to over $1.20 per pound by the end of 2007, just to dive to $0.70 per pound in March 2010, and rise again to over $1.26 by June 2011.
The escalation in coffee prices had taken a toll on Farmer Brothers' bottom line. It had also taken a toll on Farmer Brothers' stock price, as the company saw its stock price fall from over $24 per share in July 2008 by August 2011 to less than $6 per share. Farmer Brothers valued inventory using LIFO method, or the last-in-first-out, whereas FIFO was used by other coffee firms; hence it was more challenging to make an apples-to-apples comparison of financial performance. Amphlett remembered that the LIFO accounting method was used mainly to conserve taxes as higher input prices were matched against revenues to reduce taxable earnings.
PUBLICATION DATE: September 26, 2014 PRODUCT #: TB0379-HCB-ENG
This is just an excerpt. This case is about FINANCE & ACCOUNTING
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