United Grain Growers Essay

1043 Words Apr 8th, 2015 5 Pages
United Grain Growers Limited

Bharat Gutta

1. UGC estimated that it would need C$150 million to carry out its strategic plans over the coming two years. Will its internal resources provide reliable funding for this program? How much external funding might it need? The company needs to spend C$150 million, which covers the installation of high-throughput elevators (7 or 8 more at $9 million each) and the upgrades of 15 elevators at $3 million each. The rest of the money is needed for the funding of the expansion of Crop Protection Services and Livestock services division.

If we look at the income statement of the company and also the balance sheet and cash flows, we notice that UGG has a negative cash flow for 1998. This means that
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UGG knew that the primary reason weather was important was because it affected UGG’s grain shipment. The problem with such a contract is the moral hazard problem, UGG’s pricing and service also influences its grain shipments. If there is less cash flow because of the weather, UGG also faces problems with the investments because it has less resources (so the secularisation is reduced) but also a decrease of the price of the stock market share due to the decrease of revenues which has a negative influence on the stock market. The weather also impacts the working capital (as the accounts payable may increase due to the fact that the farmers are not able to meet their engagements) 4) Earnings at risk 4a) What does the “earnings at risk” number described on page 7 of the case capture ? They used a measure called “Earning at risks”. which had been developed by the financial community, to describe aggregate risks. EAR expressed a “worst-case” loss, set against a benchmark of expected

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