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 Diageos 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 Companys 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 Companys 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 companys 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 Companys 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 companys market value in comparison to its book value. The price to book ratio indicates whether or not a companys asset value is comparable to the market price of its 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 Companys current ratio is 1. 83. Current ratio is defined by a companys current assets divided by is current liabilities. A companys current ratio is a liquidity ratio that measures a companys 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 Companys 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 companys amount of inventory provides a great deal of assets that makes the company much more liquid when this formula is used. Quick Ratio (MRQ) The quick ratio for Boston Beer Company is 1. 33. A companys quick ratio is an indicator of a companys short-term liquidity. This ratio is a more conservative form of the current ratio because it does not take into account inventory of the company when determining its current assets.
Boston Beer Company still has a favorable ratio well above 1. 0. While their current ratio is much better with all the inventory, Boston Beer Company is still a reliable company that can pay off its short term debts if need be. Measuring Returns Primary Stakeholders Boston Beer Company has five primary stakeholders within company, Martin F. Roper (President and CEO), C. James Koch (Founder and Chairman), William F. Urich (CFO and Treasurer), John C. Geist (Vice President of Sales), and Thomas W. Lance (Vice President of Operations). Of the five of them C.
James Koch holds more than 34% of the shares and is the sole holder of the class B common stock that gives him the right to appoint five of the eight members that are chosen to be on the board as seen in the following quote from the 2013 Proxy Statement. At the Annual Meeting you will be asked to elect three Class A Directors and cast an advisory vote on executive compensation. As the sole holder of Class B Common Stock, I will elect five Class B Directors and cast a vote to ratify the selection of our independent registered public accounting firm.
(Boston Beer Company, Inc. , 2013) While Koch may have stepped down from CEO in 2001 he has maintained a great interest in his company and has positioned himself to have great control over the Company with his position as Chairman of the Board. His actions and goals are seen laid out in all of the companys press releases and the company is continuing to be grown and maintained the same as it always has been with the exception of Boston Beer Company running its own breweries instead of subcontracting out their orders. Capital Budgeting
Boston Beer Company runs just like any cash business. They have no money tied up in debt and any investment they make is paid for in cash. There is an upside and downside to this method of running a company. On the upside, the company is very liquid, meaning they can pay for most investments on the spot without accruing any debt. However, no debt might deter some investors from buying into the company. Having no debt throws off a companys ratios in comparison with other companies within the industry and can make it difficult for investors to trust in the company.
A typical investment for Boston Beer Company would be opening a new brewery or purchasing an existing one to help the company keep up with the demands for their products. The acquisition of the Diageo brewery 60 miles outside of Philadelphia in 2008 was the companys most recent investment. Since the purchase, Boston Beer Company has been pouring tens of millions of dollars into the facility that used to employ 220 people to make Smirnoff and now employs 260 people to brew Sam Adams.
Boston Beers Breinigsville facility employs 260, up from 220 workers when the plant was purchased from Diageo. (Richardson, 2012) Boston Beer Company now has three breweries. They are located in Cincinnati, Ohio, Breinigsville, Pennsylvania, and Boston, Massachusetts. Boston Beer Company has been weary to invest in the western half of the U. S. because they believe the craft beer market is oversaturated and they will not have much success, however, some market specialists believe they should do a trial batch with a brewery in the western market and measure real results.
The only real measure of value for Boston Beer is the volume being sold. Boston Beer used to lease brewery locations in order to brew according to their demand. Within the last five years the demands for craft beers have grown significantly especially among the younger alcohol consuming demographic that is looking for something more the generic beer taste of the three big beer companies, Anheuser Busch InBev, MillerCoors, and Pabst. Boston Beer Company no longer has the need to lease other breweries after the purchase of the Diageo brewery.
Now that they have the capacity to brew their own beer and staff accordingly Boston Beer Company has not only added value to the company, but have positioned them self to expand as the demands for their products continue to increase. The only place that Boston Beer Company seems to be struggling with is the money that they are leaving sit idle. While the company is very profitable and is run as a cash business, some of their cash flows could be invested to generate a better return than they are currently getting.