Mettler-Toledo International Inc.

Acct 635/FIN 700 Final Project Grading Rubric (total 200 points possible)

Item Points Possible Instructor notes

1. Business analysis contains a thorough
discussion of a firms competitive
challenges and evaluation of its
business plans/goals. In particular,
please perform:

a. Porters Five Forces Analysis of
Competitive environment of the
company.

b. SWOT analysis and analysis of risks
facing the company. Please refer
directly to the risk disclosures the
company provides in its most recent
10-Ks.

/20

2. Project contains analysis of most
recent news surrounding the company
from multiple news sources and
provides consideration of how this
news analysis impacts business
analysis. In particular, you must
provide a summary of:
a. News articles for the most recent

two years for the company.
b. Discussion of the last four

quarterly earnings releases and
earnings releases conference calls
and strategic company issues
raised in those earnings releases
and conference calls.

/15

3. Project contains a discussion of critical
accounting issues facing the company

/15

as well as discussion of risk of possible
mis-application of accounting rules
that could hurt investors, including
consideration of incentives to commit
accounting fraud (e.g. due to
excessive growth expectations).

In particular, please discuss whether
the companys revenue recognition
policy is consistent with that of its
competitors. Discuss if there are any
obvious red flags suggesting
management may want to manage
earnings or misstate earnings outright.
Discuss levels of a companys accruals
and how they compare to the
competitors (whether they are in
particular excessively high). Discuss
any unusual changes in ratios which
may suggest earnings management
risks (for example excessive declines
in AR or inventory turnovers or overall
declines in turnover ratios).

Discuss if a company has material
accounts which require significant
management judgments, and thus
could be vulnerable to manipulation
(e.g. significant estimates such as
goodwill).

4. Project contains a thorough discussion
of applicable ratio analysis with
respect to implications for future
profitability and future cash flows.

/30

5. Project contains a clear discussion of
how business analysis, accounting
analysis as well as ratio analysis
impact assumptions surrounding
forecasts of future financial
statements.

Please be very clear on how ratio patterns
affected your forecast judgments and
predictions. Please be very specific in your
discussions of the assume sales and expenses
growth rates. Please do not assume constant,
persistent growth rates without clear
justification. Please make sure to EXPLICITLY
tie these growth rates assumptions to your
earlier discussion of competition.

/30

6. Project contains well-presented
forecasted financial statements
(income statement and balance sheet)

Please include your assumption worksheet
and make sure that your forecasted balance
sheet is in balance.

/30

7. Project is organized and presented in
professional manner (i.e. contains an
executive summary, appropriately
organizes the text and has clear and
neat presentation of exhibits)

/20

8. Writing is clear and is free of
mechanical errors.

/20

9. Project presentation was well
organized, within appropriate time
limits and followed professional
requirements as stipulated in the
Professors Writing and Presentations
Video.

/20

Points Earned

/200 Molson Coors Brewing Corporation

Business Analysis and Valuation

FIN700 Fall 2019

Dr Mikhail Pevzner

University of Baltimore

Merrick School of Business

Table of Contents

1

Executive Summary.1

Business Analysis2

Background..2

Competitors..3

Opportunities and Challenges..4

Accounting Analysis6

Ratio Analysis..8

Forecasting and Valuation.12

Conclusion.14

References..16

Appendix….18

Executive Summary

Molson Coors Brewing Company (MCBC) is a publicly traded international brewing

organization which specializes in domestic lagers and light beers. The present analysis begins

with a background on MCBC, then looks at future potential for profitability and growth. An

accounting analysis, ratio analysis, and forecast is conducted to determine a present-day

valuation based on the business analysis. The analysis concludes that MCBC is making

corrective moves to position itself for success in a changing marketplace, however these moves

may only be realizable in the medium to long run and in the short run MCBC is likely to

continue to face slower than average growth compared to US economy as a whole.

Introduction

2

Molson Coors Brewing Company (NYSE: TAP; MCBC hereafter) is a multinational

brewing company which operates primarily in the United States and Canada selling beers, lagers,

spirits, and energy drinks. While the company was incorporated in the United States, it is traded

on exchanges in both the United States and Canada. MCBC is the fifth largest brewer in the

world by volume (Technavio, 2018).

Background

MCBC is the product of a 2005 merger with two brewing giants, Molson of Canada and

Coors of the US. Molson Brewery was formed in 1786 in Montreal by the Molson family

Molson is the oldest brewery in North America. During the 20th century, Molson expanded

considerably after becoming a publicly traded company and moving into dispersed areas of

Canada subsequently growing to be the largest brewer in Canada. Molsons flagship product is

its Molson Canadian lager which contains 5% alcohol by volume and was released in 1959. In

2011 Molson entered into a $375 million partnership with the National Hockey League for

guaranteed advertisement rights and special promotions. Today Molson continues to brew from

its first brewery located on the Saint Lawrence River in Montreal.

Coors Brewing Company was established in Golden Colorado in 1873 by a pair or

German immigrants, Adolph Coors and Jacob Schueler. For much Coors early years, they

marketed and sold their product solely in the American West giving them a mystique in states

which did not have established distribution networks. Later in the 1970s Coors sold their product

nationally. Coors is responsible for many notable innovations in the production of beer such as in

1959 when they became the first American brewer to use an all-aluminum design on their cans,

and to this today Coors operates the largest aluminum can producing plant in the world known as

the Rocky Mountain Metal Container in Golden, CO.

3

MCBC currently has sales in four primary segments: the US, Europe, Canada, and

International in respective order of sales volume. Sales in 2018 for MCBC were $10.77 billion,

down 2.12% from the previous year (more on this in the financial statement analysis): most of

the revenue being derived from the sale of alcoholic beverages. In addition to alcoholic

beverages, MCBC also sells a variety of non-alcoholic beverages and energy drinks. Recently, as

cannabis has become legalized in Canada and in many states in the US, THC/CBD (the active

alkaloids found in cannabis) infused beverages have become a hot topic for many beverage

producers (MarketWatch, 2019). In the fall of 2019, MCBC announced that it is working through

a joint venture with Truss Beverage Co. to produce and market a CBD infused beverage product

for sale in Canada. The portfolio of products is expected to contain various flavors and dosages,

some containing only CBD (non-psychoactive) and some containing both CBD and THC (the

psychoactive compound in cannabis).

Competitors

As a multinational corporation, MCBC has unique competitors in each of its markets

across North America, Europe, and the rest of the world. In North America where most of their

revenue is derived, their primary competitors are alternative domestic lager producers Anheuser-

Busch Inc (NYSE: BUD), Constellation Brands, Inc. (NYSE: STZB), and Boston Beer Co Inc

(NYSE: SAM). Anheuser-Busch, with a market cap of over $150 billion, is the largest of these

competitors (MCBC has a market cap of just over $10 billion).

Because of the commoditization of domestic beer, product differentiation is difficult for

the flagship brands such as MCBCs Coors Light, Miller Lite, or Anheuser-Buschs Budweiser

or Bud Light. To differentiate, MCBC has many brands that appeal to a smaller, more niche

market such as their popular Belgium-style wheat ale called Blue Moon. This strategy is not

4

unique to MCBC in any way however, as Anheuser-Busch owns dozens of similar niche beers

such as Michelob Ultra, Stella Artois, and Landshark, to name but a few.

In recently years, MCBC has seen decreased sales in the US driven down primarily by

lower demand for their Premium Light segment (Doering, 2018). Much of this demand reduction

was attributed from American consumers favoring Mexican imports, higher quality craft beers,

and wine/spirits over the Premium Light. This lower demand for premium light beers was not

isolated in its impact to MCBC rather this was an industry-wide phenomenon that impacted

many of MCBCs competitors who also sold in this segment.

Opportunities and Challenges

As a major participant in a mostly mature market, growth for MCBC is limited. In

addition, according to some sources many Americans are making efforts to curb their alcohol

consumption. According to survey conducted by Nielsen, 66% of millennials say they are

making efforts to reduce their alcohol consumption for health, for weight loss, and for the cost

(Nielsen, 2019). To replace alcohol consumption, many consumers are moving to non-alcoholic

alternatives such as Kombucha, energy drinks, sparkling water, and value-added water. The

market for Kombucha for example has increased by approximately 20% year/year according to

Nielsen Retail Measurement (Nielsen, 2019).

These shifts in consumer behavior patterns have been showing up in MCBCs financial

statements over the past couple years with total revenue dropping by 2.12% from 2017-2018.

The impact of this consumer shift is not isolated to MCBC Anheuser-Busch Incs revenue also

dropped by 3.23% over the same period. If consumers are moving away from alcoholic

beverages in favor of non-alcoholic beverages and shifting to craft beers for the remaining

5

alcohol demand, producers of domestic lager beers such as MCBC and Anheuser-Busch may

find difficulty in realizing revenue growth for these products.

The challenges faced by MCBC also produce their share of opportunities. To address this

shifting landscape, MCBC announced in October 2019 a revitalization plan that will mobilize

the company to take advantage of the growing market in non-alcoholic beverages (Furnari,

2019). Among these mobilization efforts, the company included a name change from brewing

to beverage underscoring their interest in pursuing the non-alcoholic market. Shortly

afterwards, MCBC announced that it will be acquiring a minority interest in L.A. Libations, a

California based incubator that produces emerging non-alcoholic beverages. This equity

investment creates many opportunities for MCBC since this gives them an immediate stake in

the growing non-alcoholic market as well as access to new distribution, marketing, and branding

networks. By partnering with L.A. Libations, MCBC also has access to some of the innovative

minds in the non-alcoholic space, such as their CEO, Danny Stepper. Stepper previously worked

with Coca-Cola and has a strong track record of success in the non-alcoholic market. According

to the president of emerging growth of MCBC Pete Marino, this partnership with Stepper was

one of the driving factors behind the acquisition. By building strategic partnerships with

established success stories in the non-alcoholic space, MCBC positions itself to potentially

mitigate the impacts to the falling demand of the domestic lagers and to potentially outperform

its peers in the mid to long-term if continued growth is realized in the non-alcoholic segment.

In addition to opportunities in the non-alcoholic segment, opportunities also exist for

MCBC as federal cannabis legalization becomes more likely in the US (Furnari, 2019). To

address this growing opportunity, in 2018 MCBC announced that it would be partnering with

The Hydropothecary Corporation (NYSE: HEXO) in a joint venture to develop cannabis infused

6

beverages. This type of partnership is not unique to MCBC however in 2017 Constellation

Brands (NYSE: STZ) announced a partnership with Canopy Growth Corp, another large

cannabis player. By partnering with HEXO, MCBC helps to position itself to benefit from the

growing demand for cannabis infused beverages in Canada and in certain states such as

California where recreational cannabis use has been legalized.

By shifting its focus to other non-alcoholic segments and through strategic partnerships

such as those with L.A. Libations and HEXO, MCBC can help to offset some of the lost revenue

from lower domestic beer sales. The shift undertaken by MCBC may take time to be realized

however, and in the short-run revenue may continue to decline if lower demand for alcoholic

beverages continues. As Americans become more health-conscious, volumes previously seen by

beer sales may not realizable in the future particularly when combined with the growing

preference for craft and microbrews. As the culture of microbreweries grows in many major

cities (Wood, 2019), this may continue to put downward pressure on the sales of domestic

brewers.

Accounting Analysis

When considering a companys financial performance, it is important to consider the

accounting practices surrounding the reports since this provides the context for the numbers.

MCBCs reporting is based on the key geographic regions in which they operate these

segments are, in order of sales: United States, Canada, Europe, and International. Figure 2

illustrates sales by operating unit. The Corporate operating unit is not like the others and

primarily includes interest and SG&A expenses.

7

In 2018, MCBC notes in their annual filing that they adopted a new way of accounting

for pensions and other postretirement benefit plans pursuant unto FASBs August 2018

guidance. The new guidance is to take effect after Dec 2020, however early adoption is

permitted. MCBC decided to adopt this new guidance in the fourth quarter of 2018. This new

guidance requires the service cost component to be split out from the other compensation costs.

The service cost only can then be capitalized where applicable. This guidance adoption was a

classification adjustment for MCBC and did not impact the consolidated net income.

In addition, MCBC adopted the May 2014 FASB revenue recognition guidance in

January 1 of 2018. This new revenue recognition guidance pertained to how to recognize

revenue for customer contracts. This change resulted in reclassification of certain cash payments

to customers from SG&A leading to a small reduction in revenue: the impacts of this

reclassification can be viewed in Figure 3.

Inventories for MCBC are recorded at the lower of cost or net realizable value. To

determine the cost MCBC uses first-in first-out (FIFO). This method of valuing inventory is

standard in the brewing industry: for example, both Anheuser-Busch Inc and Constellation

Brands also use this method for valuing inventories. MCBC regularly assesses the shelf-life of

their inventory to reserve product when it becomes clear the product will not be sold in

compliance with MCBCs freshness specifications.

MCBC tests goodwill for impairment at least annually, on an operating unit basis. For

example, impairment tests are made separately for operations in the US, Canada, and Europe.

This method of testing is similar to other industry participants; however, differences do exist. For

example, Anheuser-Busch Inc also tests goodwill for impairment annually, however they

8

conduct this test on the cash-generating unit level rather than at the operating segment the cash-

generating unit is one level below the operating segment.

Considering the accounting methods used, it seems unlikely that a greater than average

risk exists for accounting fraud. The accounting methods, including recognition of revenue and

inventory valuation, are similar if not the same to those same methods used by similar

companies. In addition, from the outside looking in the environment does not seem to include

greater than normal incentives to commit accounting fraud since managerial growth expectations

appear tempered considering the shifting landscape and the need for adaptation, namely the

adaptation of a larger non-alcoholic product portfolio.

Ratio Analysis

The comparables (comps) used for the analysis of financial ratios were selected based on

product similarity, geographic operations, and availability of financial data. To compare, three

alcoholic beverage producers, all active traded on the NYSE, were selected: Anheuser-Busch Inc

(BUD), Constellation Brands, Inc. (STZ), and Diageo plc (DEO). Among these comps, BUD is

most similar to MCBC with on their portfolio of domestic and craft beers. STZ is second most

alike with a mixed portfolio of domestic brands like Corona and Modelo along with a broad

offering of spirits and liquors. Lastly, DEO is the least similar to MCBC since their product

portfolio consists of mostly spirits and liquors with only one notable beer brand: Guinness.

Operating profit margin for the group of companies varied greatly for each of the

observed years. Table 1 shows the spread between the MCBC (ticker: TAP) and the three comps

for years 2018-2015. In Year Ending 2016 MCBC had an abnormal operating profit margin as a

result of their large debt-financed acquisition of MillerCoors this larger than normal operating

9

profit margin did not continue in the following years and is not expected moving forward.

MCBCs operating profit margin faired well against close competitor BUD, however both

companies margins were much lower than the liquor-based sales of STZ and DEO. This trend

would imply that while consumers may be moving away from particular beers, they may still be

maintaining full demand for mixed drinks. Another explanation for this is geography most of

the business done by MCBC and BUD are in the US, whereas DEO is based in the UK and does

business all throughout the world. This explanation is also limited however as STZ is a US based

company and had very high operating profit margins.

Table 1 Operating Profit Margin

Return on Assets (ROA) is discussed herein rather than Return on Equity (ROE) since a

companys capital structure can greatly impact the interpretation of any ROE computation. ROA

was computed by dividing Net Income by total assets. Once again MCBC and BUD had much

lower ROAs when compared to the more liquor-heavy portfolios of STZ and DEO. Comparing

MCBC to BUD however we see that they both have similar ROAs with MCBC being slightly

higher overall. MCBC had a good year for ROA in 2016, and this once again can be largely

attributed to the performance from the MillerCoors acquisition. Moving forward, it is unlikely

any major deviations from historical ROAs will be realized in the short-term.

Table 2 ROA

Ticker YE 2018 YE 2017 YE 2016 YE 2015

TAP 10.37% 12.85% 40.45% 10.08%

BUD 8.00% 14.16% 2.72% 18.97%

STZ 42.33% 30.57% 20.94% 16.11%

DEO 24.56% 24.85% 22.09% 21.40%

10

An Asset Turnover ratio was computed by taking total revenue divided by average assets

during the year. Because an average of beginning and ending assets was used, there are three

computations for each company rather than two Table 3 illustrates these computations.

Compared to BUD, MCBC had significantly higher asset turnover for the years in consideration.

Considering MCBC is a fraction of the size of BUD, this could explain some of this differential.

Additionally, MCBC had a lower ratio of PP&E to total assets (15% for MCBC compared to

20% for BUD). Asset turnover for STZ was similar to MCBC, and the asset turnover for DEO

was consistently higher: these results suggest that asset turnover for MCBC is steady and is

showing no evidence for a slowdown or concern.

Table 3 Asset Turnover Ratio

To examine liquidity and short-term solvency, a current ratio was computed for MCBC

and each of the comps (Table 4). Both MCBC and BUD had current ratios of below 1 in the two

most recent years highlighting the difficulties seen by both these companies. A ratio of less than

1 indicates the company has more debt becoming collectable in the next 12 months than it has

short term reserves to pay those debts. Often this indicates financial and solvency troubles in the

YE 2018 YE 2017 YE 2016 YE 2015

TAP 3.71% 4.68% 6.73% 2.93%

BUD 1.88% 3.25% 0.48% 6.14%

STZ 11.75% 11.29% 8.25% 6.22%

DEO 10.10% 10.17% 9.23% 7.88%

YE 2018 YE 2017 YE 2016

TAP 0.36 0.37 0.23

BUD 0.23 0.22 0.23

STZ 0.33 0.39 0.41

DEO 0.42 0.42 0.42

11

future. On the other hand, if MCBC can demonstrate opportunities for increased profitability in

the future they may be able to use these projected cash flows to borrow additional funds to be

prevent default.

Table 4 Current Ratio

To look at the leverage utilized by each company, a debt-to-equity ratio was computed

(Figure 5). Despite MCBC and BUDs similarities, it appears by looking at the D/E ratios that

the two companies differ greatly in their use of debt. In the most recent filing year, MCBC had

about half the outstanding debt compared to the same year for BUD and this observation is

made after 2016 where MCBC more than doubled their use of leverage in the acquisition of

MillerCoors. MCBC also had lower debt levels relative to equity than both STZ and DEO. This

difference implies that MCBC may be positioned more defensively than the other comps and

may be more capable of withstanding the shaping landscape in the alcoholic beverage industry

than its competitors.

Table 5 Debt-to-Equity Ratio

YE 2018 YE 2017 YE 2016 YE 2015

TAP 0.64 0.64 0.69 1.03

BUD 0.53 0.66 1.07 0.64

STZ 1.16 1.79 1.20 1.31

DEO 1.34 1.37 1.30 1.43

YE 2018 YE 2017 YE 2016 YE 2015

TAP 1.21 1.27 1.55 0.74

BUD 2.48 2.29 2.48 2.11

STZ 1.31 1.55 1.70 1.57

DEO 2.53 1.81 1.63 2.15

12

Financial Forecast and Valuation

In forecasting MCBCs revenues, the clear slowdown in the beer brewing industry needs

to be taken into consideration. After the 2016 acquisition of MillerCoors, MCBCs total assets

jumped by 139% in the same year, however in 2017 and 2018 total assets grew at only 3.09%

and -.45% respectively, indicative of slowed growth. This trend is not unique to MCBC BUDs

total assets also shrank by -5% and -6% in 2017 and 2018 respectively. Additionally, revenue for

MCBC shrank by -2.12% in 2018 following the explosive growth of 125% in 2017 because of

the MillerCoors acquisition. With this backdrop in mind, a modest growth rate will be assumed

for the forecasting of revenues.

To determine the growth in revenues, historical revenue growth for MCBC was

considered together with historical growth rates in the Alcoholic Beverage Industry. Using

MCBCs historical revenues is tricky, since in 2017 they grew by 125% due to a one-time

acquisition. The most recent year, revenues shrunk by 2.12%. Considering MCBCs moves to

enter the non-alcoholic markets in addition to its entry into the cannabis infused beverage

markets, MCBCs revenue will be assumed to grow at or above the annual growth rate for the

alcoholic beverage industry at large. According to Allied Market Research, the expected

compound annual growth rate for 2018-2025 for the alcoholic beverage industry is 2.0% (Allied

Market Research, 2019). To remain on the conservative side, this 2.0% growth rate will be used

to forecast revenues for MCBC.

To arrive at forecasts for expenses and balance sheet data, an average of historical ratios

was computed for MCBC. For example, the average SG&A/Revenues from 2015-2018 was .29,

so this number was held consistent and used to forecast SG&A expenses. Additionally, the

average ratio of AR/Sales was used to predict collections and year-end AR balances for the

13

forecast. This process was repeated to estimate the following: inventory, AR balance, AP

balance, capital expenditures, interest expense, and dividends. The product of this forecast is

shown in Table 6.

Table 6 Forecasted Income Statement

Based on the assumed revenue growth rate of 2%, the Year 1 net income decreased from

$1,116,500 to $753,949 thousand, a drop of 32% from 2018 Net Income. This drop comes from

increased costs in COGS, SG&A, and interest expense. Considering the challenging environment

in the alcoholic beverage industry, this forecast is in line with the business analysis.

To determine a valuation for MCBC, a price-to-earnings multiple was used. Historically,

MCBCs P/E ratio has been volatile with a minimum of 7.29 a maximum of 83.76, and a mean

of 19.74 in the past ten years (Wolfram Alpha, 2019). To determine the correct PE to use for

MCBC, an average was taken between the 10 year average PE of MCBC and the current industry

average PE ratio for the Beverages & Brewers industry as a whole in the US according to

GuruFocus, the industry average PE for Beverages & Brewers is 17.44 (GuruFocus, 2019).

Combining these two numbers yields a composite estimate PE of 18.59. To estimate the

valuation, this PE estimate is multiplied against the Year 1 Net Income: this yields an estimated

valuation for Molson Coors of $14,015,916 thousand, or $14 billion dollars. This valuation is

higher than Molson Coors current market capitalization of $10.93 billion.

Molson Coors Brewing Company *$ in thousands

Income Statement (forecasted) Year 1 Year 2 Year 3 Year 4

Revenues 10,984,992.00$ 11,204,691.84$ 11,428,785.68$ 11,657,361.39$

Cost of Goods Sold 6,580,010.21$ 6,711,610.41$ 6,845,842.62$ 6,982,759.47$

Other Operating Expenses 3,185,647.68$ 3,249,360.63$ 3,314,347.85$ 3,380,634.80$

EBIT 1,219,334.11$ 1,243,720.79$ 1,268,595.21$ 1,293,967.11$

Net Interest Expense (Income) 264,967.99$ 271,372.41$ 277,967.63$ 284,759.35$

Income Before Taxes 954,366.12$ 972,348.38$ 990,627.58$ 1,009,207.77$

Tax Expense 200,416.89$ 204,193.16$ 208,031.79$ 211,933.63$

Net Income 753,949.24$ 768,155.22$ 782,595.78$ 797,274.14$

14

Table 7 Forecasted Balance Sheet

Conclusion

Based on the business analysis conducted herein, MCBC has many strengths to leverage

for increased profitability in the future but also has environmental challenges it must overcome

pertaining to the demand for domestic beers. In the past 3 years, the domestic beer industry has

seen a challenging climate where many Americans are choosing healthier alternatives to beer

such as flavored waters, kombucha, and sparkling waters. To turn these challenges into an

opportunity, MCBC has made moves to partner with firms that can help to give them a

competitive edge in this new environment. Working with companies such as L.A. Libations to

meet the demand of flavored waters, and companies such as The Hydropothecary Corporation to

pioneer the budding cannabis infused beverage industry in Canada, MCBC is on track to profit

from these changing consumer demands. These changes will take time however, and it is

difficult to accurately forecast the potential value of these new ventures, particularly when

politics and legislation play an essential role, such as the case for cannabis infused beverage

products. Overall, MCBC has demonstrated its commitment to driving innovation and its ability

to mobilize and have the flexibility to tackle a changing marketplace. These skills together will

undoubtedly lead to a bright future for MCBC, even if it takes several years to be realized.

Molson Coors Brewing Company

Balance Sheet (Forecasted) Year 0 (actuals) Year 1 Year 2 Year 3 Year 4

Cash 1,438,500.00$ 1,369,629.90$ 1,236,784.75$ 1,102,527.92$ 966,844.75$

Accounts Receivables 736,000.00$ 549,249.60$ 560,234.59$ 571,439.28$ 582,868.07$

Inventories 591,800.00$ 556,713.87$ 567,848.15$ 579,205.11$ 590,789.21$

Long-term assets 27,343,500.00$ 28,077,407.32$ 28,825,992.78$ 29,589,549.95$ 30,368,378.26$

Total Assets 30,109,800.00$ 30,553,000.69$ 31,190,860.26$ 31,842,722.26$ 32,508,880.30$

Accounts Payable 1,616,800.00$ 1,464,573.19$ 1,493,864.65$ 1,523,741.95$ 1,554,216.79$

Long-term debt 8,893,800.00$ 9,108,767.99$ 9,330,140.40$ 9,558,108.04$ 9,792,867.38$

Common Stock 11,906,300.00$ 11,906,300.00$ 11,906,300.00$ 11,906,300.00$ 11,906,300.00$

Retained Earnings 7,692,900.00$ 8,073,359.51$ 8,460,555.21$ 8,854,572.28$ 9,255,496.13$

Total liabilities and equity 30,109,800.00$ 30,553,000.69$ 31,190,860.26$ 31,842,722.26$ 32,508,880.30$

15

References

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https://www.alliedmarketresearch.com/alcoholic-beverages-market

CSIMarket, 2019. Alcoholic Beverages Industry Revenue Growth Rates. Accessed in 2019 from

https://csimarket.com/Industry/industry_growth_rates.php?ind=501&hist=8.

16

Doering, 2018. Molson Coors plans to ‘aggressively address’ flat North American sales.

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sees-future-growth-opportunities-in-non-alcoholic-beverages/#6986befb64ac.

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decriminalization-bill-more-act.

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at https://www.gurufocus.com/industry_overview.php?industry=Beverages-_-Alcoholic

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consumption-trends-and-forecast-2025-2019-11-21?mod=mw_quote_news.

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Nielsen, 2019. Many Americans Are Looking For A Bar Experience Without The Buzz.

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americans-are-looking-for-a-bar-experience-without-the-buzz/.

https://thcnet.com/news/house-judiciary-committee-cannabis-decriminalization-bill-more-act

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Final Report

Review your financial and market performance during the second year. Highlight the key features of the business plan presented to the venture capitalists: brand strategy, pricing strategy, advertising strategy, and sales channel.
Assess your business strategy and performance during the second year.
Explain actions taken in regard to the marketing plan.

Custom bike company

Industry Financial Ratios

Industry Financial Ratios

Ratio
Lowest
Highest
Average
Custom Bike Company

Liquidity Ratios

Quick Liquidity Test Ratio
1.43
1.43
1.43
N/A

Activity Ratios

Fixed Assets Turnover
1.17
4.47
2.59
1.17

Total Assets Turnover
0.89
1.97
1.42
0.89

Leverage Ratios

Debt Ratio
0.00
15.22
3.04
0.00

Debt to Paid-In Capital
0.00
17.96
3.59
0.00

Profitability Ratios

Gross Profit Margin
55.28
68.13
62.75
68.13

Net Profit Margin
10.25
29.98
20.85
15.40

Return on Assets
12.69
45.84
30.75
13.77

Return on Paid-In Capital
12.69
45.84
32.13
13.77

Financial Statement Highlights

Revenues
2,544,300
12,611,850
8,193,144
2,544,300

Gross Profit
1,733,369
8,513,514
5,146,400
1,733,369

Net Income
391,698
3,678,076
1,922,100
391,698

End of Worksheet Market Demand

Market Demand

Company
Recreation
Mountain
Speed
Total Demand

Freedom Cycles
4,681
5,042
3,129
12,852

CIOVATION
1,251
2,650
1,913
5,814

Cyclist Corporation
1,287
3,195
2,183
6,665

Seiklus3D
2,301
5,652
3,317
11,270

Custom Bike Company
1,204
167
675
2,046

Total
10,724
16,706
11,217
38,647

End of Worksheet

Market Share

Market Share

Company
Recreation
Mountain
Speed
Total
Market Share

Freedom Cycles
43.65
30.18
27.90
33.25

CIOVATION
11.67
15.86
17.05
15.04

Cyclist Corporation
12.00
19.12
19.46
17.25

Seiklus3D
21.46
33.83
29.57
29.16

Custom Bike Company
11.23
1.00
6.02
5.29

End of Worksheet Sales – Total

Sales – Total

Brand
Net
Demand
Lost Sales Due
to Stock-outs
Units
Sold
Sales
Revenue
Rebates
Cost of
Goods Sold
Gross
Margin

Cruiser 2.0
432
0
432
475,200
10,800
115,130
349,270

The Climber
186
0
186
241,800
4,650
78,971
158,179

Silver Bullet
675
0
675
945,000
16,900
330,500
597,600

Cruiser 3.0
426
0
426
489,900
10,650
128,412
350,838

Cruiser 4.0
327
0
327
392,400
16,400
98,517
277,483

Total
2,046
0
2,046
2,544,300
59,400
751,531
1,733,369

End of Worksheet Brand Profitability

Brand Profitability

Report Item
Cruiser 2.0
The Climber
Silver Bullet
Cruiser 3.0
Cruiser 4.0

Brand Revenues
475,200
241,800
945,000
489,900
392,400

– Rebates
10,800
4,650
16,900
10,650
16,400

– Cost of Goods Sold
115,130
78,971
330,500
128,412
98,517

= Gross Profit
349,270
158,179
597,600
350,838
277,483

Brand Design
0
0
0
0
0

+ Ad Design
0
0
0
0
0

+ Brand Advertising
31,062
15,000
0
22,500
31,062

+ Brand Promotions
1,500
1,500
1,500
1,500
1,500

+ Internet Marketing
3,502
10,479
0
6,077
9,231

= Expenses
36,064
26,979
1,500
30,077
41,793

Brand Profit
313,206
131,200
596,100
320,761
235,690

Profit per Unit
725
705
883
753
721

% from Brand Revenues
66
54
63
65
60

End of Worksheet Conscious Scorecard

Corrections to conditions that cause harm are indicated using a “+”. Failures to correct such conditions are indicated using a “X”.

Conscious Scorecard

Quarter 2
Quarter 3
Quarter 4
Quarter 5
Quarter 6

Employee Survey

Employee Survey
+
Blank
Blank
Blank
Blank

Quality Inspections

Bike frame
+
+
+
+
+

Carbon fiber material
+
+
+
+
+

Tires
+
+
+
+
+

Brakes
+
+
+
+
+

Gears
+
+
+
+
+

Follow-up Studies

Environmental Concerns
Blank
Blank
+
Blank
Blank

Quality Control
Blank
+
Blank
Blank
Blank

Employee Involvement
Blank
Blank
Blank
Blank
+

Production Efficiency
Blank
+
Blank
Blank
Blank

Good Neighbor
Blank
Blank
Blank
Blank
+

Environmental Concerns

Retrofit production facility with system to collect, store, and dispose of all chemicals.
Blank
Blank
Blank
Blank
+

Separate employees from chemicals with respirators, protective clothing, and gloves.
Blank
Blank
Blank
Blank
+

Create a “clean room” production facility by controlling the airflow with a super clean, reverse-flow, air ventilation and filtration system.
Blank
Blank
Blank
Blank
+

Place air-filtering plants throughout the production facility.
Blank
Blank
Blank
Blank
+

Join a producer consortium to develop economical and environmentally friendly ways to recycle carbon fiber products.
Blank
Blank
Blank
Blank
+

Worker Training

Cross-train employees to work on multiple tasks within their department.
Blank
Blank
+
+
+

Train employees to help with departmental planning, including issues related to workflow, equipment, materials, job assignments, vacation scheduling, etc.
Blank
Blank
Blank
Blank
Blank

Schedule time for department planning with coworkers and supervisors.
Blank
Blank
Blank
Blank
Blank

Develop teamwork skills, including interpersonal, communication, and negotiation skills.
Blank
Blank
Blank
Blank
Blank

Quality Control

Set up a statistical process control (SPC) program to monitor all materials, parts and manufactured components.
Blank
Blank
+
+
+

Train operators to detect errors and adjust machines so they produce within tolerance.
Blank
Blank
+
+
+

Supplier Relationships

Measure and reward purchasing agents on both the cost and quality of incoming materials, parts, and services.
Blank
Blank
Blank
Blank
+

Work with suppliers to launch and maintain their own quality improvement programs.
Blank
Blank
Blank
Blank
Blank

Health

Provide fitness center for employees.
Blank
Blank
Blank
Blank
Blank

Provide daycare services for employees.
Blank
Blank
Blank
Blank
Blank

Setup and run a health clinic that includes general practitioners plus a few specialists for employees only.
Blank
Blank
Blank
Blank
Blank

Setup and run a health clinic that includes general practitioners plus a few specialists for the immediate families of employees.
Blank
Blank
Blank
Blank
Blank

Good Neighbor

Set up a grant program to supplement the learning experiences at local schools.
Blank
Blank
Blank
Blank
Blank

Provide seed money to create a technical training school and recruit its students as employees.
Blank
Blank
Blank
Blank
Blank

Help to create bike trails that connect the residential areas, community center and the industrial section where the production facility is located.
Blank
Blank
Blank
Blank
Blank

Help to create a series of parks throughout the community, but first near the production facility.
Blank
Blank
Blank
Blank
Blank

Work with local officials to expand and repave the stretch of road from the apartment complexes to the production facility.
Blank
Blank
Blank
Blank
Blank

R&D Investments

Carbon fiber material: Enriched – lighter, stronger
Blank
Blank
Blank
Blank
Blank

Carbon fiber material: Superior – very light, strong
Blank
Blank
Blank
Blank
Blank

Accessories: Pedal-powered phone/device charger
Blank
Blank
Blank
Blank
Blank

Packaging: Sustainable
Blank
Blank
Blank
Blank
Blank

Failure to correct conditions that cause harm to employees, customers
and/or community after learning about the problem and being able to fix it

Allowing toxic chemicals to enter the water supply
Blank
Blank
X
X
Blank

Exposing workers to toxic chemicals during the production process
Blank
Blank
X
X
Blank

Exposing workers to tiny carbon fibers and epoxy dust that could cause respiratory problems
Blank
Blank
X
X
Blank

Selling rugged bike frames with the standard carbon fiber that could result in injuries to Mountain bikers
Blank
Blank
Blank
X
X

Selling products with packaging that is wasteful
Blank
Blank
Blank
X
X

Failing to provide full health care or a health clinic to all employees
Blank
Blank
X
X
Blank

Engaging in false advertising
Blank
Blank
Blank
Blank
Blank

Paying sweatshop wages
Blank
Blank
Blank
Blank
Blank

Failure to increase production worker compensation by at least 10% when earnings per share are 30x or more
Blank
Blank
Blank
Blank
Blank

Total Conscious Actions
(Sum of positive actions minus failures to fix negative conditions)

This Quarter
6
7
5
2
14

Since Start of Business
6
13
18
20
34

Comparison of Firm Profitability to Employee Compensation

Net Profit
-97,605
-133,121
-2,096,155
4,937
391,698

Net Profit Change

-35,516
-1,963,034
2,101,092
386,760

Production Worker Compensation
13,045
13,045
14,586
14,586
17,625

Production Worker Compensation Change in %

0
12
0
21

Supervisor Compensation
18,089
19,295
22,240
22,240
24,711

Supervisor Compensation Change in %

7
15
0
11

Sales Force Compensation
20,834
23,285
25,736
25,736
29,413

Sales Force Compensation Change in %

12
11
0
14

Total Conscious Actions for Competitors

Freedom Cycles
6
13
25
43
71

CIOVATION
6
12
19
30
46

Cyclist Corporation
6
14
24
41
68

Seiklus3D
6
16
37
59
85

End of Worksheet