Management 511: Financial Decision Making
Boston Beer Company
April 18, 2013
Boston Beer Company
History and Financial Position
Boston Beer Company (SAM) is a brewery in Massachusetts most commonly known for its Samuel Adams line of “craft” beers. The Samuel Adams line of beer was introduced in 1985. Since then the company has grown to do over 580 million dollars in revenue each year. 580 million is a very small piece of the food and beverage industry but the amount of shareholder wealth they are providing is impressive. Boston Beer Company has been named one of the top publically traded businesses to watch in 2013 by Forbes. Boston Beer Company is actually part of two markets. In the overall U.S. Beer market they have a mere one percent of the market. However, they own 22% of the craft beer market. In their industry, 66% of those competing in the craft brew market are brewpubs, which generally do not do mass distribution giving Boston Beer Company an edge. (Smith, 2011) Boston Beer Company has one major difference from its competitors. The company has no debt. The entire company runs on cash even though they have a 50 million dollar line of credit available to them, which they have never used. The company purchased Diageo’s Pennsylvania Brewery in June of 2008 for 55 million dollars cash so that they could produce 100% of their product without having to subcontract larger orders out. Boston Beer Company is capitalized with no bonds or preferred stock, only 13.6 million shares of common stock. (Smith, 2011) Boston Beer Company’s cost of capital is 6.60% since their weighted cost of equity is 6.60% and their weighted cost of debt is 0.00%.
(Market Grader Inc., 2013)
Price to Revenue Ratio (Price to Sales)
Boston Beer Company’s price to revenue ratio (TTM) is 3.54 The price to revenue ratio is usually applied in place of the price to earnings ratio. This ratio is usually applied to companies within the same industry, however it excludes debt and expenses so the information the ratio provides is limited. Price to Cash Flow Ratio
The current price to cash flow ratio for Boston Beer Company is 25.76. The price to cash flow ratio is used to evaluate the price of a company’s stock as compared to the amount of cash flow it generates. The price to cash flow ratio is important for one main reason, it allows the comparison of companies from different jurisdictions because it removes depreciation (which may vary by country) and other non-cash factors. Therefore, it would allow an investor to compare Boston Beer Company’s stock to that of AB InBev along similar financial values. Price to Book Ratio (MRQ)
The price to book ratio for Boston Beer Company is 8.34. The price to book ratio measures a company’s market value in comparison to its book value. The price to book ratio indicates whether or not a company’s asset value is comparable to the market price of it’s stock. Because the price to book ratio for Boston Beer Company is well over one it may be an indicator that the stock is overvalued. An over valued stock for Boston Beer Company could imply the rapid decline in stock value in the near future, especially since the stock has climbed almost 25% in the last quarter alone. With the book value ratio as high as it is, a drop in stock price seems likely in the near future. Current Ratio (MRQ)
Boston Beer Company’s current ratio is 1.83. Current ratio is defined by a company’s current assets divided by is current liabilities. A company’s current ratio is a liquidity ratio that measures a company’s ability to pay short-term obligations. This ratio also takes into account inventory as current assets, although it may easily be converted into cash quickly. Because Boston Beer Company’s ratio is well over one, it means they have the assets and cash flows available to pay off any immediate debt should it be made due. The company’s amount of...
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