BBoston Beer/Lion Brewery
A. The background information presented on both companies shows that Boston Beer is the largest craft beer brewer in the United States, supplying a wide variety of high quality, full flavoured beer. Lions Brewery brews and bottles specialty beer, soft drinks and malta, which supplies a smaller market. Based on that information, the following could be expected:
Operating decisions: Boston Beer would probably have more debtors and creditors than Lion Brewery. This is because of its larger client base. Also, Boston Beer would spend more on research, development advertising & promotion and sales to cover its large client base. It would be expected that Lion Brewery would have a larger asset base than Boston Brewery being that it has a wider product base. Boston Beer specializes in Beer only, while Lion Brewery manufactures beer, soft drinks, malta etc. It is also expected that Boston Beer would have the additional cost of bottling, which would not affect Lions Brewery, being that Lion bottles its beverages while Boston Beer does not.
Investment Activities: Lion Brewery would take part in more investment activities, being that it has a larger product line. Lion would be expected to invest in more fixed assets (including bottling equipment) than Boston Beer.
Financing: Lion Brewery would be expected to incur more long term debt, issue more stocks, and hence, pay more dividends.
Income Statement: Boston beer would have a higher income than Lion Beer as Boston Beer only produces one product in a market that they would have known enough about in order to capitalize on sales. Expenses would also be higher for Boston Beer as they would have a larger sale force and administration expense.
C) Based on the graphs presented, the following comparisons were drawn:
The more profitable firm is Boston Beer. This is based on the fact that Boston Beer showed a higher profit margin than Lion Brewery as indicated below:
Profit margin = net income/net sales.
Boston Beer 1996 Lion Brewery 1996
8,385/191,116 = 4.39% 1,007,000/26,439,000= 3.81%
Boston Beer 1995 Lion Brewery 1995
12,574/151,313 = 8.31% 751,000/24,793,000 = 3.03%
The profit margin measures net income produced by each dollar of sales. Therefore, for each dollar of sale, Boston Beer generates $4.39 in profit , while Lion Brewery generates $3.81 in 1996.
Boston Beer also uses its assets more efficiently to produce sales than Lion Brewery, as seen in the calculation of Asset turnover shown below:
Asset Turnover = Net sales /average total assets:
Boston Beer 1996