BBoston Beer/Lion Brewery
3,334,000/12,620,000=0.26 times
Boston Beer 1995 Lion Brewery 1995
21,892/54,798 = 0.40 times 11,402,000/2,317,000 = 4.92 times
In 1995, Lion Brewery was heavily indebted to creditors compared to stockholders. However, in 1996 they issued common stock, the funds from which was used to clear their long term debt, and significantly reduce their debt to equity ratio.
There are a number of ‘off balance sheet items’ that would indeed affect the cash flow of each company. One such item is litigation charges filed against Boston Beer in 1996. Although management states that settlement of this law suit filed against the company will not materially affect the financial position of the company, a provision for this has to be made on the balance sheet. Lion Brewery is also involved in legal proceedings, for which a provision should be made on the balance sheet. Another ‘off balance sheet charge’ was the fact that total deposits as indicated in the notes to the financial statements for Boston Beer were not included in the Income Statements. This would have an effect on the cash flow if this liability was excluded for all three years. Another expense not noted on the balance sheet (with regards to Boston Beer – note O) is the subsequent event mentioned. The company has acquired fixed assets, and plans to purchase real estate. This has not been included in the balance sheet, as no prices have been determined, but it would indeed constrain future cash flows.
The differences described in part A turned out to be incorrect, as it was assumed that based on its diversity, Lion Brewery would be more straddled with debt than Boston Beer. On the contrary, Boston Beer, though more liquid, is more dependent on creditors than Lion Brewery. Also, after examining the notes to the financial statements for Boston Beer, it became obvious that they, too, brew and bottle their beer, so the extra charges for bottling suggested in part A would be null and void.
D) Cash Flow yield: Net cash flow from operating activities/net income
Lion Brewery 1996 Boston Beer 1996
2689000/ 1096000= 2.45 times 15,763/ 8385 = 1.88 times
Lion Brewery 1995 Boston Beer 1995
2475000/1051000=2.35 times 2440/12574 = 0.19 times
Cash Flow to sales = Net cash flow from operating activities/ net sales
Lion Brewery 1996 Boston Beer 1996
2689000/ 26439000=10.2%