Financial Statement Analysis

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EXECUTIVE SUMMARY

The Boston Beer Company operates on the sale of beer in the beer industry. The company’s financial statements from 2007 to 2011, has served for an analysis of company’s success in asset utilization, solvency, profitability, and liquidity. The company has demonstrated strong financial qualities pertaining to its solvency and profitability. Because Boston Beer Co. has no debt; the likelihood of them meeting expansion and growth goals is high. Consistency in incremental increases throughout the years relevant to profits leads to the long-term profitably the company. Asset utilization in the company and liquidity of the company do not demonstrate dramatic change for the better, neither dramatic change for the worse. The company started a program with wholesalers in 2010, which contributed to the increase in inventory held on hand. The program aims to reduce the time inventory is at the wholesalers warehouse, therefore increasing the time inventory is at Boston Beer Co.’s warehouse. The company’s cash conversion cycle stands out as the biggest weakness to the company by increasing in days each year. Although the company displays a decrease in liquidity, they are in a good financial state to meet obligations of future cash needs. Small increases and decreases through the course of five years are due to management’s adjustments resulting from arrangement of new programs, change in supplier requests, and Boston Beer Co.’s ability to prevent debt.

COMPANY OVERVIEW

The Boston Beer Company started in 1984 and as of 2011 is the largest American-owned brewer. Although primarily know for its Samuel Adams beer, the company produces a variety of beer year around including seasonal selections. The company’s profits are mostly from the sale of its own barrels of beer as well as production and packaging for 3rd parties. Major competitors in the beer industry are AB InBev, MillerCoors LLC, Heineken and Corona. The Boston Beer Company into a “better beer” category, which in consumption of beer drinkers is around 20% in the United States. The company sells to approximately 400 wholesalers primarily in the United States, but has markets in Canada, Europe, Israel, the Caribbean, the Pacific Rim and Mexico. The company’s goal is to become the leader in the Better Beer category.

OVERVIEW OF YEAR 2008

In 2008, the Boston Beer Company reported comparatively different results than in previous and future years. This is the only year in the past five years that stands outs dramatically. During 2008, the company participated in certain events that can explain potential reasons for the inconsistency. In 2008, the Boston Beer Company started a new program with wholesalers to lower inventory on hand in wholesaler warehouses. This created a longer inventory on hand for the Boston Beer Company. Also, in 2008, there was a hops shortage worldwide. This key ingredient is vital to a beer company’s survival. The Boston Beer Company provided 20,000 pounds of hops to breweries in the United States to prevent the breweries from going out of business. Additionally, in June of 2008, the company acquired a brewery it used to reduce their dependence of other breweries. Last, and most importantly noted, The Boston Beer Company had a product recall in 2008 concerning small pieces of glass potentially in a small number of bottles. Although no injuries were reported, shares dropped by over 3% and net income resulted in $12 million less.

ANALYSIS

Asset Utilization:
How a company, or management, puts it’s assets to use to make a profit is analyzed to determine the company’s effectiveness. Since Boston Beer Co., has few capital assets, asset utilization ratios are useful in determining how well management has applied this concept. Below is a table of ratios relevant to asset utilization for the years 2007 through 2011.

Ratios20112010200920082007
Receivables Turnover25.8226.7125.2524.9521.29...
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