Tokaji wine from hungary to china

Published:

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

Introduction/Purpose

This financial report is done by the Financial Department of Tokaji-China Ltd. It is an international company that involves importing Tokaji wine from Hungary to China. The aim of the company is going to set up retail stores in the whole of China which sell Tokaji wine. At the beginning retail stores will only be open in Beijing, Tianjing, Shanghai, Shengzhen and Hong Kong, five large cities in China. The purpose of preparing this report is to present a complete financial plan to the investors about the company entering into the Chinese market. The relevant data in the report is made with specific studies of the relevant market.

Investment

The ultimate aim of the company is to have its retail stores open in all over China; however such activity requires huge amount of capital investment and at the same time carries extremely high risks. Therefore, at the first, the company will only enter five large cities in China and for that the firm will need to raise money from investors as the initial investment. According to our financial calculation initial investment will demand 3 million Euros in total, which should cover all the operational costs, expenses of the business both in Hungary and China.

Operational costs (expenses)

The main operational cost is divided into two categories; they are fixed costs and variable costs. Fixed costs are constant; they will not vary with business volume. A large part of fixed costs will made up by salaries and benefits of the permanent employees (heads of different departments, managers and shop assistances), rent, machine equipments, decorations of the five stores, utility expenses (water, electricity, gas), and depreciation. Unlike the fixed costs Variable costs will be changing, and it involves the cost of purchasing raw materials (Tokaji wine) from Hungarian suppliers, shipping charges (sea shipping will be used, as it is cheaper), costs on marketing promotions (advertisements, free gifts and free sample testing), and wages for temporary workers. The calculation of salary on both permanent and temporary employees is based on the current wages of Chinese labour market.

Revenues

According to our studies about the purchasing power of the citizens in those five cities, we conservatively estimated that in the first year, the company will be able to sell between 150.000 to 250.000 bottles of Tokaji wine depend on the demand of the market. After the marketing research, the price range of Tokaji wine is fixed at 6 Euros to 30Euros, according to the age and quality of the wine. By taking all the calculations, the income of the first year will be between 3 million Euros to 3.5 million Euros.

Break-even and Profitability

The raw materials (Tokaji wine) are cost from 500HUF(2Euros)-3000HUF(12Euros) in Hungary. The return and profitability of the business is the following; Gross profit is approximately equals to 60 percent of the revenue. And net profit will be around 40 percent to 45 percent of the revenues within which 15 to 20 percent of the revenue will be spent on different costs. According to our estimation, the businesses can break-even in around two year's time, if we take 40 percent revenue into consideration.

Potential financial risk

By entering the Chinese market, the company will expose to a financial risk that is the exchange rate risk. In our business, three currencies will be involved, Hungarian Forint, RMB (Chinese Yuan) and Euro. In Hungary, we use forint to pay our wine supplies, in China, we sell in RMB, and as none of the two currencies are international currency, we decide to adopt euro as the converting currency. Basically, the business will find itself exposing to the risk, when exchange rate of forint to euro and RMB to euro is not stable but fluctuating. It will be a serious problem, when Euro becomes weaker against the Forint, however, gets stronger with RMB, by that the profit of the business will decrease, because we will get our supplies more expensive and will not be able to sell them in higher prices. Therefore, to have a stable exchange rate is essential. Stable exchange rate can be achieved by signing a forward exchange rate contract with banks, such as OTP or Raiffeisen Bank. By examining the Chinese economy, we conclude that, now it is a great opportunity for the company to enter China. As the Chinese economy is growing steady in the past ten years, since 2005,the Chinese RMB has appreciated over 20%. RMB is getting stronger both against Euro and Dollar, the possibility that euro will appreciate is stay in a very low level.

Conclusion

After looking at the above analysis, it can be concluded that, the activity of Tokaji-China is realisable. In this financial report every piece of information related to the business was covered in great details. Firstly, the report defined that in total 3million Euros will be needed at the beginning, and it was followed by the discussion about all the potential costs. Then the report showed that the business can bring high profit and will be break-even in a short time and lastly, a potential financial risk that might cause future issue for the business was discussed.

Recommendation

According to the financial forecast, we are glad to inform our investors that our business is going to be succeeded. With the initial investment, the business can turnover quickly, and break-even in a very short time. We managed to define the potential exchange rate risk that the business is going to encounter, however, as in the above analysis, it can be said that the exchange rate risk is dangerous but can be solve easily, by signing a forward foreign exchange rate contract with a bank. Therefore, we believe that it is a great opportunity for any investors and it is worthy for them to invest into our company, because the business will bring high profit and make more capital.

Writing Services

Essay Writing
Service

Find out how the very best essay writing service can help you accomplish more and achieve higher marks today.

Assignment Writing Service

From complicated assignments to tricky tasks, our experts can tackle virtually any question thrown at them.

Dissertation Writing Service

A dissertation (also known as a thesis or research project) is probably the most important piece of work for any student! From full dissertations to individual chapters, we’re on hand to support you.

Coursework Writing Service

Our expert qualified writers can help you get your coursework right first time, every time.

Dissertation Proposal Service

The first step to completing a dissertation is to create a proposal that talks about what you wish to do. Our experts can design suitable methodologies - perfect to help you get started with a dissertation.

Report Writing
Service

Reports for any audience. Perfectly structured, professionally written, and tailored to suit your exact requirements.

Essay Skeleton Answer Service

If you’re just looking for some help to get started on an essay, our outline service provides you with a perfect essay plan.

Marking & Proofreading Service

Not sure if your work is hitting the mark? Struggling to get feedback from your lecturer? Our premium marking service was created just for you - get the feedback you deserve now.

Exam Revision
Service

Exams can be one of the most stressful experiences you’ll ever have! Revision is key, and we’re here to help. With custom created revision notes and exam answers, you’ll never feel underprepared again.