My own draft of Boston Beer 7 Lion Brewery case study from “Cases in Financial Reporting” by Hirst Mcnally a. Based solely on reading the background information on each company, I would expect the financial statements to differ in some fundamental ways. The background information for the Boston Beer Company, Inc. indicates that the are a fairly well position craft brewery, in fact according to the general statement they are the largest craft brewing company; selling a volume of beer in 1996 that is believed to be more than the next five largest craft brewers combined. Boston Beer seems to be very optimistic about their current market share and predicted growth, they appear to be focused almost exclusively on providing beer and ale products. In addition, Boston Beers seems to have one primary brewery that they manage somewhat hands-on, but overall their business model seems to involve acquiring other companies or contracting out to other companies to produce certain brands of beer.
As a result they manage a wide array of micro-breweries world wide. I would expect their financial states to reflect a higher volume of sales and income than that of Lion Brewery, which as indicated from the literature probably does 1/5 the volume of Boston Beer at best. The Lion Brewery seems to focus on a wider array of specialty beverages, including malta, specialty beers, and various soft drinks. The company also produces specialty soft drinks for third parties, who then place their own lable on the products. Lion Brewery seems to be equally focused on all of its products, perhaps even more focused on the soft drink market than on its beers. I would assume that their net income and sales volume will be significantly less than that of Boston Beer.
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They may also have different and possibly reduced cost factors as a lot of the work they do is production for other companies. This may reduce some of their costs such as inventory, and sales and marketing. “Go into more detail on: as a result of the companies’s trategic operating, investing, and financing decisions, how would you expect major financial statement relationships to differ?” b. Applying the DuPont model to analyze the return on equity (ROE) for both Boston Beer and Lion Brewery. ROE is a measure of profitability that companies the profit made during a period (NI) to the resources invested in the company (shareholders’ equity).
The case study asks to use the following form of the the DuPont model: ROE = [NI/EBT] x [EBT/EBIT] x [EBIT/SALES] x [Sales/Total Assets] x [Total Assets/Common Equity] NI = Net Income EBT = Earnings before tax EBIT = Earnings before interest and tax.
ROE Calculation for Boston Beer and Lion Brewery in 1995 and 1996.
