I have analyzed the proposal St Thomas Wines Inc and Magnotta Vineyard and Wineries Ltd. My analysis is based on the financial statements for the year ended 31st December 2007 and 2008 as submitted by these two companies. I give below alternative solutions to be considered in resolving this issue.

Methods used
1. I have presented all items in percentage terms under the common-size statements, expressing the balance sheet as a percentage of assets and the income statement as a percentage of sales and the Short-term/Long term solvency ratios as per Annex 1.
2. I have used a sales forecast of 12% which is the industry average increase in sales of wine over the last 3 years to prepare the pro forma statements as per Annex 2.
3. I have use the 2008 Balance sheets and Income statements to generate the pro forma statements and to determine the External financing needs and growth Common-size Statements In 2008, Magnotta’s current assets were 48.3% to total asset, higher than for St Tomas( 45.2% ) to total assets, however the % change from 2007 to 2008 is higher for St Thomas, showing an increase of 4.3% where as the current assets for Magnotta shows a decline of 6.2% from 2007 to 2008.
The current liabilities for St Thomas has increased by 6.2%, from 25% to 31% of total liabilities and owners’ equity where as current liabilities declined from 36% to 15% of total liabilities and owners’ equity for Magnotta over that same period. Similarly total equity rose from 44% to 66% for Magnotta where as St Thomas registered a decline of 1%, from 39% to 38% for that same period.
From the Common-size income statement s, my observation after interest expense and taxes are paid out, $10.29 of each dollar for St Thomas flowed through the bottom line in 2006 with a decline of .65% for 2008 where as Magnotta. with a bottom line of $.197 has registered a serious decline of 16.69% falling to $.0301 in 2008.

Ratio Analysis

• Measures of liquidity The liquidy ratios for St Thomas have decreased from 2007 to 2008 where as those for Magnotta who were higher have increased considerably in 2008. This provides assurance that Magnotta will be able to satisfy its immediate obligation better than St Thomas. In general, the larger the liquidity ratios, the better the ability of the company to satisfy its immediate obligations.

• Financial Leverage
Financial leverage ratios are used to assess how much