An equity firm, Southern Cross LLC, was in the midst to buy the shares of Farmer Brothers Coffee Company, the manufacturer and distributor of coffee, for its Growth Service portfolio. To assess the financial performance of Farmer Brothers Compnay, Southern Cross LLC hired the services of a financial analyst, James Amphlett. The analysis by the Amphlett disclosed a huge potential in the coffee business.
The prices of Coffee marked a significant rise from $0.20 per pound to over $1.20 between 2001 to 2007. However, in the March 2010 the price went to $0.70 per pound, but by June 2011 it again raised to over $1.26, which created a significant impact on the income and stock price of Farmer Brothers. Although, by August 2011, the company faced a decline to $6 per share from $24 in July 2008. The company utilized the LIFO method to value its inventory. On the other hand, most of the coffee companies followed the FIFO method, which created the problem in comparison of financial performance. Amphlett concluded that the utilization of LIFO method was to reduce the taxes. As against the revenue, higher input prices were matched in order to minimize the taxable income.
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