BBoston Beer/Lion Brewery
15,763/ 191116=8.25%
Lion Brewery 1995 Boston Beer 1995
2475000/24793000=9.98% 2440/151313 = 1.61%
Cash flow to assets = Net cash flow from operating activities/ average total assets
Lion Brewery 1996 Boston Beer 1996
2689000/ 15198000 = 17.69% 15,763/ 86,622=18.19%
Free cash flow: Net cash flow from operating activities-dividends+ sale of assets –purchases of assets
Lion Brewery 1996 Boston Beer 1996
2689000-0+0-908000 15,763,000-0+0-11359000
=$1,781,000 =$4,404,000
Lion Brewery 1995 Boston Beer 1995$
2475000-0+12000-319000 2440000-0+0-4268000
=$2,168,000 =-$1828000 (cash deficiency in 1995)
Lion Brewery: In both 1995 and 1996, Lion Brewery’s cash flow from operating activities was a source of cash, in that their cash flow was positive. A positive cash flow shows that the company is generating more cash than it is using.
Boston Beer: In 1996, Boston Beer enjoyed positive cash flow, showing that its cash flow from operating activities was a source of cash as opposed to a use of cash. However, in 1995, they experienced negative cash flow, which indicates that in this year their cash flows from operating expenses were a use, rather than a source of cash.
Boston Beer’s Operation and Investing activities are primarily financed by proceeds from stock option plans and proceeds from sales under stock purchase plans. Lion brewery generated a significant amount of cash from sale of stock. The major difference between the two companies is the fact that Lion Brewery depends heavily on financing from investors, while Boston Beer depends on creditors. Lion Brewery appears to be a more conservative company than Boston Beer. They do not take as much risk as Boston Beer, which may explain its lower return.
E) Based on the information presented, Boston Beer appears to be at greater future risk than Lion Brewery. Boston Beer is reliant on debt, and is therefore more exposed to risk.
In determining the company with the greater potential to increase its owners’ wealth, the price/earnings (P/E) ratio was computed. The P/E ratio [next page]