The Brewing Industry at A Glance

Fall
The Brewing Industry at a Glance

The Boston Beer Company vs. Craft Brew Alliance
By Jaime Evans, Doriana Rossi, Jensy Sanchez, Caleb Barton, William Montanez & Collin Murray
A C C 6 1 5 P r o f e s s o r P a u l G l o t z b e c k e r
14
The Brewing Industry

At A Glance
The Boston Beer Co.
[TICKER: SAM]
VS
Craft Brew Alliance
[TICKER: BREW]
By
Jaime Evans
Doriana Rossi
Jensy Sanchez
Caleb Barton
William Montanez
Collin Murray
Table of Content
Brewing Industry: Boston Beer Company, Inc. ........................................................................................... 4
Economic Attributes Framework ................................................................................................................. 5
Economic Attributes: Demand ..................................................................................................................... 6
Economic Attributes: Supply ....................................................................................................................... 7
Economic Attributes: Manufacturing ........................................................................................................... 8
Economic Attributes: Marketing .................................................................................................................. 9
Economic Attributes: Investing & Financing ............................................................................................ 10
Company Strategies ................................................................................................................................... 11
Restatement of the Financial Statement ..................................................................................................... 12
Inventory Restatement ............................................................................................................................... 12
Depreciation Restatement .......................................................................................................................... 13
Leases Restatement .................................................................................................................................... 13
Profitability Analysis ................................................................................................................................. 15
Profitability Ratios ..................................................................................................................................... 17
Turnover Ratios/Factors ............................................................................................................................ 19
Risk Analysis ............................................................................................................................................. 21
Liquidity (Short-term) Risk ....................................................................................................................... 21
Solvency (Long-term) Risk ....................................................................................................................... 23
Activity Ratios ........................................................................................................................................... 25
Financial Statement Performance Analysis ............................................................................................... 27
Financial Statement Projections ................................................................................................................. 27
Income Statement Boston Beer Company .............................................................................................. 27
Income Statement Craft Brew Alliance .................................................................................................. 31
Balance Sheet Boston Beer ..................................................................................................................... 32
Balance Sheet Craft Brew Alliance ........................................................................................................ 34
Valuation Analysis ..................................................................................................................................... 36
Conclusion ................................................................................................................................................. 38
Bibliography .............................................................................................................................................. 40
Appendix A Restated Financial Statements ............................................................................................ 41
Appendix B Ratios .................................................................................................................................. 43
Appendix C Projected Financial Statements ........................................................................................... 44
Appendix D Valuation ............................................................................................................................ 50

Brewing Industry: Boston Beer Company, Inc.

Industry analysis is the essential first step in the valuation of a company. Without
establishing an underlying understanding of the scope in which a company operates, proper
evaluation of the company is impossible. With this in mind, the process of analyzing the
performances of Boston Beer Company (SAM) and Craft Brew Alliance (BREW) will begin
with the Economic Attributes Framework industry analysis of the brewing industry. Special
consideration will be given to the craft brew segment, and specific observations concerning each
companys attribute.
The United States beer industry is partitioned into three tiers breweries,
distributors/wholesalers, and retailors. This structure was mandated following the repeal of
prohibition, to ensure that breweries, the producers of the product, would not gain an excess of
power. Wholesalers buy the product from the producers and sell them to the retailors the party
that resells the product to the consumers. Craft brewers, according to the Brewers Association,
are breweries that are small, independent, and traditional. The Brewers Association lists
guidelines that are specific to each of the three characteristics: annual production of under 6
million barrels (small), less than 25% of the company is owned by an alcoholic beverage
industry member that is not itself (independent), and it makes mostly beer whose flavor derives
from traditional or innovative brewing ingredients and their fermentation (traditional). By this
definition, Craft Beer Alliance is technically not a craft beer brewer due to the percentage stake
owned by Anheuser-Busch InBev (A-B) which will be discussed later. However, it is
important to realize that for purposes of being an active competitor in the craft beer industry,
these technicalities are irrelevant. There has been a shift in consumer concern away from the
technical definition towards the application of the term craft beer to any products whose
characteristics would cause it to be perceived as such. Because Craft Beer Alliances products
certainly pertain to this concept, and because the company readily competes with other
companies in the craft beer industry, it will be referred to as such for the remainder of this
analysis, despite its technical disqualification.
General market trends show that beer has been losing market share to wine and spirits for
over a decade. Despite this, looking at changes across the entire alcoholic beverage scope,

premium/ luxury priced beer is regaining favor with the consumer, deeming craft, import, and
super premium beer an affordable luxury. Craft beer is projected to represent nearly 15% of the
beer industry by 2020 at current growth rate. The growth rate is driven by current beer drinkers
consuming more craft beer, and to consumers of other beverages switching to craft beer. It is
safe to predict that increasing trends in the brewery industry and the craft beer segment will
continue into the future.
Economic Attributes Framework

Established in 1984, the Boston Beer Company has become one of the largest, most
respected craft brewers in the United States, with a 19.3% market share in the industry. When
the Companys signature product line, Samuel Adams Boston Lager was first created, the
demand for micro-brewed (craft) beers was practically non-existent, and it took several years for
the Company to build a loyal customer base. Nonetheless, during its 30 years of operations, the
Company has been able to uphold and maintain its strategy of producing high quality alcoholic
beverages, as well as adapting to the ever-changing tastes and preferences of consumers, by
constantly brewing new flavors and acquiring complementary brands like Angry Orchard hard
cider and Twisted Tea.
Craft Brew Alliance was formed in 2008 from the merger of two leading Pacific
Northwest craft brewers Widmer Brothers Brewing and Redhook Ale Brewery. Two years
later, Kona Brewing Company, the largest craft brewery in Hawaii, joined the team as well.
While it is newer and operates on a smaller level than Boston Beer Company, Craft Brew
Alliance has quickly proven its worth. Omission Beer, internally developed only two years after
the last company merging, is the first beer brand specially crafted to remove gluten. The gluten
free market was valued at $4.2 billion in 2012 and is projected to reach $15.6 billion by 2015.
The company has a portfolio of five unique and pioneering beer and cider brands. It creates
customer satisfaction through the brewing, marketing, and selling of its high quality awardwinning craft beers. Craft Beer Alliance is a family rooted in passion, creativity and uniqueness
with a shared conviction: Craft Brew Alliance will continue to push the envelope in the everchanging craft beer industry.
Economic Attributes: Demand

As explained earlier, demand for craft beer has increased dramatically.
Craft beer
industry growth continues at double-digit rates, which has been a trend since 2008. Consumers
are not highly price-sensitive when it comes to high quality beer; demand is based more on
shifting consumer preferences, even though beverages categorized under Better Beers tend to
be more expensive due to better quality and more complex taste. Studies are showing that
consumers are looking to drink less, but better, and that they are seeking variety. They are
willing to pay extra for better quality beer, however even when going out to a bar or restaurant, a
pint of craft beer is typically cheaper than a glass of wine or a mixed drink in comparison.
Demand is insensitive to business cycles; despite the recession, the brewing industry has
grown immensely over the past five years due to the buy local movement and the shift of
consuming alcoholic beverages at home versus going out. This gives a competitive advantage to
companies like the Boston Beer Company, Craft Brew Alliance, and other small breweries that
may not have contracts with restaurants to sell their products but instead have contracts with
grocery stores, wine/liquor stores, and convenience stores where there is available shelf space.
Demand is, for the most part, independent of seasonal effects. This is surprising because Boston
Beer Company releases a variety of seasonal flavors under its Sam Adams brand, and similarly,
Craft Brew Alliance offers a Summer Variety Pack and Winter Variety Pack.
Craft Beer Alliances sales do reflect a slight degree of seasonality when comparing
quarters, but it has been concluded that results for any particular quarter are not likely to be
indicative of the results to be achieved for the full year. Also, the minor seasonality effect could
be occurring because the seasonal variety packs were very recently introduced in just 2012 and
2013, and it is likely the occurrence will smooth out.
Economic Attributes: Supply

In terms of suppliers, the craft beer industry is growing increasingly competitive due to
the rising number and diversity of craft brewers, including contract brewers. Secondly, more
large national domestic brewers have been acquired by or merged with other national domestic
and foreign brewers, creating a more difficult environment to compete in. In 2013, according to
industry sources, A-B and MillerCoors accounted for more than 74% of total beer shipped in the
U.S., excluding imports. In addition, A-B and MillerCoors have invested in existing smaller
craft breweries and created separate craft-focused divisions in an effort to capitalize on the
growing craft beer segment.
The Boston Beer Company is beginning to face substantial competition due to the
massive boom in the brewing industry, and also due to the large and growing number of craft
brewers with similar pricing and target drinkers. However, the company has a significant
competitive advantage due to the popularity of its branded products like Samuel Adams Boston
Lager, and its expansion into new distribution channels. In 2013, the Company launched the
Sam Can, which is its signature Samuel Adams served in a special can that preserves and
slightly enhances the drinking experience. This was a huge success because it opened a new
channel of venues where glass bottles are prohibited, such as: beaches, golf clubs, sports and
concert venues. The Company has offered to license the use of the specially engineered can to
other craft brewers on a royalty-free basis (Letter to the Shareholders).
Craft Brew Alliance has created its own methods to cope with high levels of competition
in the brewery industry. Craft Brew Alliance is the only independent craft brewer in the U.S. to
establish a wholly aligned distribution network through its partnership with A-B.
The
partnership provides the company access to national distribution in all 50 states, which results in
a highly effective distribution presence in each market and administrative efficiencies. Even
though many competitors distribute nationally and have greater financial resources, partnership
with A-B has put the company on the same playing field, without having to come up with the
resources on its own. Additionally, Craft Brew Alliance uniquely acts as its own retail for a
portion of its products.
They provide an opportunity to continually experiment with new
varieties of hops and malts in all styles of beer on a market in test-size batches. This allows the
company to evaluate its strengths prior to releasing them on a national level.

There are low barriers to entry in the brewing industry, and increased market acceptance
has made the industry attractive for new businesses. Craft brewing has gained enormous
popularity over the last several years, but the Boston Beer Company has remained the largest
brewer of Better Beer in the industry, with competition coming from Craft Brew Alliance and
other emerging breweries. The Boston Beer Company has several strengths that contribute to its
success of being the primary supplier of craft beer in the country: the Company has won several
awards for its products, including 442 awards and honors, and Samuel Adams Boston Lager won
a gold medal at the European Beer Star Competition (one of the most significant beer
competitions in the world) in 2013, alone; its distribution capabilities pose a significant
competitive advantage especially due to its connections with international markets (Canada,
Israel, Europe, Mexico, Central and South America) and its ability to distribute its products on a
more cost-effective bases, and the companys scale is much larger than its competitors like Sierra
Nevada, Dogfish Head, and New Belgium Brewing Company.
Craft Brew Alliance has some advantages for being a newer entrant in the market. As
discussed, the craft beer industry has grown as a market segment and is projected to continue to
grow, and the newer entrant is uniquely positioned to take advantage of segment growth and new
opportunities. It is also important to note that even though Craft Brew Alliance is a fairly young
company, its leadership team, along with the three companies that merged to form it, actually
have 100+ years of beer and growth-company expertise.
Economic Attributes: Manufacturing

This industry is mostly capital-intensive. The establishment of a brewery requires a
substantial amount of capital in the form of equipment, plants, stills, filtration systems, and
bottling lines which require repairs and maintenance year-round. The majority of the production
process is completed using automated brewing machinery; therefore, a significant amount of
labor is not needed. Craft Brew Alliance uses this equipment at four of its production breweries,
but has manual brewpub-style brewing systems in place at its two smallest breweries; these
require a labor component.
The bottling and distribution of the product is especially capital-intensive; SAM bottles
and packages all of its products, and sells its beer to 350 wholesalers in the United States and
also to a network of importers and other agencies. The wholesalers then sell the product to

retailers (pubs, restaurants, grocery stores, convenience stores, etc.) where it is made available to
consumers. A full range of the Companys core products (Samuel Adams line) are brewed at the
Pennsylvania Brewery and the Cincinnati Brewery; the Boston Brewery serves as an innovator
for developing new types of beers and packaging certain keg beers for the local market (2013
Annual Report, page 4).
Due to the heavy reliance on the quality of the product, the manufacturing process has a
lower-level error tolerance. Quality control is important to make sure the manufacturing process
continues smoothly, without errors that would compromise the product, or cause raw materials to
be wasted. Both the Boston Beer Company and Craft Brew Alliance exemplify this point;
monitoring production and quality control at all of their breweries. All of Craft Brew Alliances
breweries have an on-site laboratory where microbiologists and lab technicians supervise on-site
yeast propagation, monitor product quality, test products, measure color and bitterness, and test
for oxidation and unwanted bacteria. In addition, every batch of beer that BREW produces goes
through an internal taste panel to ensure that it meets the Companys taste and profile standards.
So, it can be concluded the manufacturing of beer is not a simple process.
Economic Attributes: Marketing

The Boston Beer Company is committed to the marketing and product education process
of all of its brands, with a sales force of 380 employees, which is considered to be one of the
largest teams in the industry. Members of the sales force have a great deal of product knowledge
and are trained to educate distributors, wholesale, and retail buyers about the Companys
premium pricing and growth strategy, and also about the brewing and selling processes. This
helps to build stronger relationships among distributors and buyers. The Company also manages
media campaigns in the form of television, radio, billboard, and print ads in order to promote
events, local beer festivals, and new products (2013 Annual Report, page 3). The Company
hosts brewery tours and tastings at each of its four locations (the Boston Brewery, the Cincinnati
Brewery, the Pennsylvania Brewery, and the Angel City Brewery), which are important for
brand recognition and loyalty, since loyal consumers and drinkers of the product are interested in
learning about the Companys manufacturing and brewing processes.
Under Craft Brew Alliances Distributor Agreement with A-B, the company has entered
a network alliance in which instead of having to market and sell to various distributors, it has

agreed to only pursue A-B or any of the distributors aligned with A-B. Nevertheless, BREW is
still responsible for its own marketing of products to A-B wholesalers, as well as retailors and
consumers.
The Craft Brew Alliance promotes its products through a national sales and marketing
network that includes but is not limited to: creating and executing a range of advertising
programs; training and educating wholesalers and retailers about products; and promoting
company name, product offerings and brands, and experimental beers at local festivals, venues
and pubs. It advertises and promotes products through an assortment of media, including
television, radio, billboard, print and social media, including Facebook and Twitter, which is all
very similar to SAMs marketing techniques.
Craft Brew Alliances breweries play a significant role in increasing consumer awareness
of products and enhancing image as a craft brewer. Thousands of visitors per year take tours at
the companys breweries, all of which have a retail restaurant or pub where products are served.
In addition, several of the breweries have meeting rooms that the public can rent for business
meetings, parties and holiday events, and that can be used to entertain and educate wholesalers,
retailers and the media about the companys products.
Economic Attributes: Investing & Financing

The assets belonging to a company in the brewing industry are mostly long-term, and
primarily consist of property, plants, and equipment. The level of technology change is low;
small technological improvements have been made to make the brewing process more precise,
allowing brewers to control variables like temperature and ingredient proportions.
In 2013, approximately 60% of the Boston Beer Companys assets were composed of
PP&E. In terms of financing, the firm dictates low debt and high shareholders equity financing,
even though there is relatively little risk in the firms assets from technological obsolescence.
Craft Brew Alliances capital expenditures for 2013 were approximately $9.9 million, reflecting
continued investments in capacity, its pubs, efficiency and quality initiatives.
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Company Strategies
The Boston Beer Companys mission is to create and offer a world-class variety of
traditional and innovative beers and ciders with a focus on promoting the Samuel Adams product
line. The Company has done exactly that by releasing several different flavored beers under its
Samuel Adams brand, including the Samuel Adams Boston Lager, Rebel IPA, Samuel Adams
Seasonals, BrewMasters Collection, and Sam Adams Light. The Company releases a plethora of
seasonal variety packs throughout the year under its Samuel Adams brand, and has also released
complementary products that have become increasingly successful, but do not distract from the
Companys main focus (Samuel Adams). The Angry Orchard hard cider brand exceeded the
Companys expectations in 2013, becoming the largest selling hard cider in the United States
(2013 Annual Report, page 2). This fact correlates with the Companys strategy, because the
Angry Orchard brand is growing, and so is the demand for hard cider, but it is not a distraction
from the Companys main product line. The Twisted Tea brand also demonstrates the Boston
Beer Companys innovative capabilities by branching out into the malt beverages sector.
Creating new flavors within each brand and expansion into different sectors of the industry
reflects the Companys nature of its products, which is a product differentiation strategy. SAM
has achieved high profit margins by creating unique products among each of its core brands for
particular market niches (Overview of Financial Reporting, Financial Statement Analysis, and
Valuation, pg. 15). As far as the Companys integration in the value chain goes, it creates and
manufactures its own products, which enhances product quality and brand loyalty. Conversely,
the Company outsources its distribution function to a network of distributors, as discussed
earlier. These distributors in turn sell the product to restaurants, beer/liquor stores, grocery
stores, pubs, etc. Geographically speaking, the SAM derives most of its revenue from the United
States, but as previously discussed, the Company has markets in other countries that provide a
significant advantage compared to other craft brewing competitors. SAMs strategy framework
has played a major role in the Companys success, and the results can be seen in the qualitative
factors discussed in previous paragraphs, as well as the financial statements which will be
discussed later in this analysis.
Craft Brew Alliance provides several factors contributing to its business strategy,
including an innovative complementary portfolio of beers and cidersdistinct, authentic craft
beer brandsa national brewing footprintand a diverse leadership team (2013 Annual

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Report, page 3). Craft Brew Alliance, like the Boston Beer Company, also maintains a product
differentiation strategy by producing of variety of specialty craft beers using high quality
ingredients under each of its five brand families: the Kona Brewing Company, Widmer Brothers
Brewing, Redhook Brewery, Omission Beer, and Square Mile Cider Company. BREWs
integration in the value chain is comparable to that of the Boston Beer Company, and as
previously discussed it manufactures and brews its own products. However, in terms of
geographical diversification, Craft Brew Alliance states that only one of its brands, Omission
Beer, continues to expand into international markets. The Company does not disclose which
country it markets in, except for the United States.
Restatement of the Financial Statement

Bias is one of the largest elements located on a financial statement, which derives from
managements judgment when evaluating certain tangible and intangible assets. Such bias can be
misleading to a financial statement reader when deciding on which company to invest in because
they find themselves comparing apples to bananas. An analysis should only evaluate a company
after it has made the proper adjustments to the targets, and benchmarks, financial statements.
Hence, restating a companys financial statements allows for a fair comparison and evaluation
between companies.
In restating the Boston Beer Company (SAM) and Craft Brew Alliance (BREW)
financial statement we have taken a look at any discrepancies that derived from different
accounting treatments that the companies used for the same financial item or event. The three
main categories that require restatement are inventory, depreciation, and leases.
Inventory Restatement
Inventory is only restated when the two companies have different methods for accounting
for inventory where one company uses last-in-first-out (LIFO) and the other uses first-infirst-out (FIFO). The general rule when restating inventory is to examine the method
commonly used in the industry and then to restate both companies using the same method. The
inventory for SAM and BREW were not restated because both of the companies use the same
method when accounting for inventory FIFO or Lower Cost or Market (LCM). In addition,
the brewery industry favors the FIFO method because their earliest product has to be sold first to
avoid materials from expiring and going bad.

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Depreciation Restatement
The discrepancy in depreciation, or amortization, between both companies derive from
multiple factors, one being the useful life of the capital assets, the residual value of the assets,
and the depreciation method used. Some companies use a more accelerated method of
depreciation, which allows for depreciation expense to be recognized in the earlier years of the
assets life compared to the straight-line method, which allocates the expense evenly over a set
period of time. In SAMs and BREWs case, both companies use the straight-line method when
depreciating their capital assets, and have similar useful life for the same assets. A restatement
for the small discrepancy in useful life is not material enough to affect the financial statements of
both companies, which is why depreciation and capital assets were not restated to another
amount.
Leases Restatement
A majority of the time, the one item that is included on a companys financial statement
are leases operating leases, to be more specific. Leases are can be divided into two categories,
operating leases and capital leases. The advantage of have an operating lease is that the asset that
is being leased is not capitalized rather expensed through rent expense causing the asset to
never be reported on the balance sheet. Operating leases are examples of line items that are
restated, not because the method of accounting for leases differs between companies, but because
operating leases do not illustrate the financial impact of capitalizing a lease.
When restating SAMs and BREWs operating leases to capital leases, the companys
operating lease future commitment payments had to be established before discount the payments
to a present value amount, using the companys cost of borrowing. The cost of borrowing for
BREW is the weighted average of their current interest, calculated by dividing the current years
interest expense by the average short-term and long-term debt balances. Hence, the borrowing
rate used in discounting BREWs future commitment payments was 3.576%.
However, the same cost of borrowing computation was not used in SAMs operating
lease restatement because the company did not report any interest expense on their 2013, and
2012, year-end report instead they reported a net interest income. Their alternative prime rate
of 3.25%, found in note H of the annual report, was used in computing the present value of their
future commitments. That rate is their fixed borrowing rate on the line of credit they have from

13
Bank of America, N.A. The sum of all the present value of the future commitments was used to
adjust both companies balance sheets. Though the balance sheet was restated, the income
statement was not since there is no materiality when reallocating rent expense into depreciation
expense and interest expense net income would have stayed the same. However, the affect on
depreciation expense and interest expense was used when computing both companys
profitability and risk ratios.
Following the restatement, BREWs and SAMs assets and liability increased by $12.7
and $8.6 million, respectively, for the end of 2013. The restatement for both companies had a
material effect on their financial statements, where SAMs and BREWs assets experienced an
increase of 1.93% and 7.46%, respectively. In addition, their 2012 balance sheet was also
restated to reflect the operating leases as capital. The restatement of the 2012 financials allows
for a better time series analysis of the companys profitability and risks. In 2012, BREWs and
SAMs assets and liability were adjusted to reflect an increase of $12.5 and $$8.4 million.
Located below is the present value commitment computation for both companies:
BREW
Operating Lease
Years
Commitments
PV Factor
(in thousands)
PV of
Sum of ALL
Commitments
Commitments
2014
1,263
0.96548
1,219
2015
1,232
0.93215
1,148
2016
1,114
0.89997
1,003
2017
1,004
0.86890
872
2018
761
0.83891
638
4,881
12,416
7,829
Thereafter
17,790
$12,710
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SAM
Operating Lease
Years
Commitments
PV Factor
(in thousands)
PV of
Sum of ALL
Commitments
Commitments
2014
2,726
0.96852
2,640
2015
2,042
0.93804
1,915
2016
1,935
0.90851
1,758
2017
975
0.87991
858
2018
567
0.85222
483
7,655
1,154
936
Thereafter
9,399
$8,591
Profitability Analysis
Analyzing a companys profitability is crucial when evaluating them because it helps
identify a companys strategies, managements objectives, and managements efficiency at
executing their strategies. When analyzing the companys profitability, a hybrid approach much
be used in conjunction with common sizing the financial statements which allows for a better
comparison of apples to apples by eliminating the size factor. There are two main analysis that
are performed, a time series and cross sectional analysis. Each approach provides a separate
value, but when combined they provide a greater value because trends can be identified and then
compared to the appropriate benchmark. Before any profitability or risk analysis are done, both
financial statements should be restated accordingly and then common sized as a percentage of
total sales, or assets.
In SAMs and BREWs case, the most important trend that can be identified is a
companys life cycle stage. The life cycle stage permits for a better study of the profitability
measurements because a growth stage can be very beneficial for an investor that is looking for a
great upside. Nonetheless, an investor that is looking for a steady return would favor a mature
company that has proven themselves in the industry. An industrys life cycle is usually a great
starting point because it provides a blueprint of where your company is at and what to expect at

15
that point of their stage. The time series analysis of the cash flow statement illustrated that both
companies are in a mid-growth stage, but BREW investing cash flow has fluctuated frequently.
The fluctuation is greatly due to the sale of their interest in Fulton Street Brewery LLC in 2011.
Located below is the cash flow trend of SAM and BREW, from 2009 to 2013:
Cash Flow Trend - SAM
(in thousands)
CF - Operating Activities
150,000
100,000
50,000
0
-50,0002009
-100,000
-150,000
CF - Investing Activities
2010
2011
CF - Financing Activities.
2012
2013
Cash Flow Trend - BREW

CF - Operating Activities
CF - Investing Activities
CF - Financing Activities.
(in thousands)
20,000
10,000
0
-10,000
2009
2010
2011
-20,000
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2012
2013
Profitability Ratios
Ratios help analyze a companys profitability because it allows for an examination of the
correlation between the income statement and balance sheet. The main measurements for
profitability is the return on assets (ROA), return on common equity (ROCE), cost of good
sold (COGS) as a percentage of sales, and selling, general & administrative (SG&A)
expense as a percentage of sales. Each ratio is interpreted differently but usually the
interpretation of one ratio can support another ratio turnover factors are a great example that
will be discussed later.
The ROA ratio measures the return on every dollar of assets that the company has
invested in. A high ROA illustrates that the company is using their assets every efficiently when
generating income for the company, adding value to the company. In this case, SAM has a
favorable ROA of 8.25%, when compared to BREWs ROA of 0.62%. However, SAMs ROA
its previous year was 9.28%, which is more efficient then the current years ROA. The 7.6%
decrease it suffered this year is because of a lack of asset efficiency, which derives from poor
management of their capital assets. In addition, BREWs ROA dipped from 0.86%, which is a
28%decrease from its 2012 yearend.
SAMs decreasing ROA is not as impactful to their company, as is BREWs decreasing
ROA because SAMs cost of borrowing, 3.25%, is much lower than their 8.25% ROA. An ROA
that is greater than the cost of borrowing is important due to the fact that assets are usually
financed, hence, a company should generate large enough outputs from the asset to cover the
financing cost of the asset and generate a profit.
On the other hand, ROCE focuses more on the common shareholders return after
factoring in the borrowing rate, and the value added to the common shareholders. Shareholders
usually require a high rate of return, and ROCE allows for the shareholder to measure their
required return to the actual return. In this case, SAM has a substantially greater ROCE, of
42.6%, than BREW, and SAMs ROCE has also increased by 6% when compared to the ROCE
provided in 2012. BREW has shown a decline in their ROCE of 26.7%, to 1.09% in 2012.
An analysis of the COGS and SG&A expense will demonstrate the factors that are
driving ROA and ROCE. Both ratios measure the factors that drive a companys net income and

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in this case the two driving factors of expense is COGS/SG&A as a percentage of sales. COGS
as a percent of sales measures a companys product cost structure. In this case BREWs cost
structure is not very well managed because their gross profit margin is only 28%, meaning that
the cost of the goods they sell are high. When comparing BREWs gross profit margin to SAMs,
one sees that SAM has managed to maintain a low cost of goods because their gross profit
margin is 52%. In addition, SAM also has managed their SG&A expenses exceptionally well,
and have even decreased it by 2.5% from the 2012 yearend.
Overall, SAM has proven that they know how to generate profits, by managing their main
expenses and still maintaining a high quality product, and brand. Located below is a detailed
look at the profitability ratios for both companies and the change from 2012 to 2013:
SAM
Ratios
FY 2013
FY 2012
Change
Return on Assets (ROA)
8.58%
9.28%
-7.6%
Profit Margin for ROA
9.52%
10.25%
-7.1%
Return on Common Equity (ROCE)
42.59%
40.19%
6.0%
Profit Margin for ROCE
9.52%
10.25%
-7.1%
Capital Structure Leverage
4.9643
4.3285
14.7%
COGS to Sales %
47.92%
45.67%
4.9%
SG&A to Sales %
8.43%
8.65%
-2.5%
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BREW
Ratios
FY 2013
FY 2012
Change
0.62%
0.86%
-28.0%
1.25%
1.71%
-27.1%
1.43%
1.86%
-23.0%
1.09%
1.49%
-26.7%
2.6437
2.4845
6.4%
COGS to Sales %
71.95%
70.45%
2.1%
SG&A to Sales %
25.93%
26.52%
-2.2%
Turnover Ratios/Factors
Turnover factors are large component of the profitability and risk analysis it measures
the rate, or speed, at which something is being converted into something else. They are also
considered drivers, or multiples, of other ratios, like ROA and ROCE. The main turnover ratios
are asset turnover, accounts receivable turnover, and inventory turnover. These factors help
identify how efficient management is at managing their short-term obligations.
The asset turnover ratio is a component of ROA and ROCE, because it measures the
amount of sales, or revenues, generated by every dollar of asset on the balance sheet. The more
money that one dollar of asset generates, the higher the multiple, then it generates a higher ROA,
or ROCE. In this case, SAM had a more favorable ROA and ROCE indicating that their asset
turnover should also be more favorable this statement holds true because SAM has an asset
turnover ratio of 0.901. The ratio illustrates that every dollar of asset is generating approximately
$0.90 of revenue. Where BREW only generates approximately $0.50 of revenue for every dollar
of assets. In conclusion, management is not using their assets very efficiently, or maybe they
have older assets that are not as efficient. Management at BREW should look to trade in some
older equipment for newer more efficient equipment.
The accounts receivable turnover ratio for this evaluation is not very reliable because the
companies did not disclose their credit sales figures, which is the amount that is needed when
calculating accounts receivable turnover. Hence, the total sales amount was used in computing

19
the accounts receivable turnover ratio, which measures how effective a companys receivables
collection process is. When a company takes a long time to collect their receivables they are
technically extending an interest free credit line to the customer, in return the company cannot
reinvest in products for the business.
Based on the information provided in the companys 2013, and 2012, annual report SAM
happens to have a more efficient collection processes of their outstanding receivables. Their
turnover rate for 2013 was 20.12, a 5.2% decrease from their previous year. On the other hand,
BREW had a lower turnover rate for their receivables, at 16.38, but has improved from the
previous year increasing by 15.3%. It proves that management is aware of the issue and has
established a more effective collection process. In brief, both companies have a very efficient
method of collecting receivables, but this turnover factor will later be applied to a short-term risk
factor that measures the amount of days it takes the company to collect their receivables.
An affective inventory system is detrimental to the success of any manufacturing
company especially ones that sell goods that can expire. That is why the inventory turnover
ratio is a good measurement of the amount of times inventory is turned over to generate sales. A
low turnover implies poor sales and inefficient buying, therefore, excess inventory. A high ratio
implies either strong sales, or effective buying. In this case, BREW shows that they manage their
inventory very well and have a good inventory system in place. When their 9.08 inventory
turnover ratio is analyze in conjunction with their COGS as a percentage of sales ratio, one can
concur that the company has a very ineffective buying system in place. They are turning over
their inventory very fast, but of the inventory is continues to be expensive management has a lot
of pressure to sell larger volume of units. However, SAM has a 7.03 inventory turnover ratio but
high gross profit margins meaning that if the volume of sales decreases they have a large
enough margin to withstand such a decline. Located bellow is a detailed look at the turnover
ratio table for both companies and the change from 2012 to 2013:

20
SAM
Ratios
FY 2013
FY 2012
Change
Turnover Ratios
Total Asset Turnover
0.901
0.906
-0.6%
Accounts Receivable Turnover
20.12
21.21
-5.2%
Inventory Turnover
7.03
6.76
4.0%
Fixed Asset Turnover
3.12
3.39
-8.0%
BREW
Ratios
FY 2013
FY 2012
Change
Turnover Ratios
0.496
0.502
-1.2%
16.38
14.20
15.3%
Inventory Turnover
9.08
11.25
-19.3%
1.54
1.57
-1.5%
Risk Analysis
Some level of risk governs every decision that is ever made, and being able to evaluate
the level of risk associated with an investment decision helps justify an investors expected return.
The general rule is that a higher risk constitutes a higher return, or larger losses depending how
the investment turns out. There are three main factors that must be taken into account when
analyzing a companys risk liquidity risk, solvency risk and the activity ratios. All the factors
will be discussed along with the key measurements associated with the analysis.
Liquidity (Short-term) Risk

Being a liquid able company can be a positive factor, but can also have a negative affect
on the company. Many companies have to find the right balance between being to liquid and not
being as liquid able to meet current obligations. In analyzing the Boston Beer Company
(SAM) and Craft Brew Alliance (BREW), the current ratio was favored over the quick ratio
because the inventories of both companies have a high turnover rate meaning that it can rely on

21
their inventory to sell quickly. In addition, the operating cash flow to current liabilities ratio is
another indicator of how liquid a company is.
The current ratio measures if there is enough current asset to meet their current
obligations current liabilities. SAMs current ratio for their 2013 yearend is 1.54, which
means that for every dollar of current obligation on hand SAM has $1.54 of assets to cover the
current obligation. If the companys current ratio is 1 then that means that the company is
liquefiable enough to meet their current obligation, but if the ratio is greater than 2 then that
illustrates that the company is not investing their current assets efficiently. This is a scenario that
could lead to a company take over where the takeover firm retains all their current assets and
sells off the remaining assets. BREW has a current ratio of 1.15, which is dangerous because its
very close to a ratio of 1.
The operating cash flow to current liability ratio is favored by a lot of analyst because it
converts accrual amounts to cash amounts. The ratio measures how much cash flow from
operation is needed to cover the companys current liability. Both SAM and BREW have shown
a significant decline, of 16.3% and 42%, respectively, since there 2012 yearend. While
analyzing the operating cash flow trend, dating back to 2009, it was noticed that BREW's cash
flow from operation fluctuates from year to year - instead of having a steady growth like SAM.
This raises some concern because if there isnt enough cash inflow from BREWs main business
then in the future, more debt might have to be acquired to pay off current obligation which in
return increase interest expense, and reduce net income, ROA, and ROCE. Located bellow is a
detailed look at the short-term liquidity ratio table for both companies and the change from 2012
to 2013:
SAM
Ratios
FY 2013
FY 2012
Change
Risk Ratios (Short Term Liquidity Risk)
Current Ratio
1.5351
1.7897
-14.2%
Quick Ratio
0.8552
1.1679
-26.8%
Operating CF to CL Ratio
0.5057
0.6043
-16.3%
22
BREW
Ratios
FY 2013
FY 2012
Change

Current Ratio
1.1476
1.1397
0.7%
Quick Ratio
0.4559
0.5472
-16.7%
0.2853
0.4916
-42.0%
Solvency (Long-term) Risk

Having a good balance of long-term liabilities as it relates to short-term liability and
equity is considered as a good capital structure. Long-term risk should be assessed before
making any investments because leverage is a factor that does a lot of good for a company, but
also can destroy a company. The concept behind leveraging is to amplify your return on an
investment, if you have more money to invest then you can make more money on that
investment. However, if leverage is not carefully managed then a small loss could turn into a
large lost.
In analyzing leverage, one must look at the relationship between liabilities, assets, and
equity. This report focuses mainly on three key ratios liabilities to asset, long-term debt to
long-term capital and interest coverage ratio.
The liabilities to asset ratio provide a snap shot on how the companys assets are being
financed asset can be financed through the issuance of debt or equity. In SAMs case there
leverage ratio is .3327, meaning that 33.3% of SAMs assets are financed by debt, but for BREW
a larger portion of their assets are financed by debt 39.2%. When discussing leverage, a snap
shot of a point in time is not good enough for analyzing. In brief, both companies manage their
debt very well, and BREWs high leverage could be justified by the low ROCE that is provided
to the common shareholders so to increase their return they must leverage the company.
However, they should look to increase their sales before decreasing their leverage so they could
then have stronger sales to rely on.

23
Long-term debt to long-term capital helps identify the balance of debt as it related to the
long-term capital in the company. Long-term capital is defined as all the long-term debt and the
total shareholders equity because that is the capital that will be supporting the company in the
long haul. A larger amount is not favored because that means the company has to rely on longterm debt, and incur interest expense on the debt. In SAMs case they have a better structure
when it comes down to long-term debt as it relates to long-term capital, with a ratio of 0.126
compared to BREWs ratio of 0.269. A low ratio offers SAM the flexibility to obtain more debt
for expansion at a lower rate if it had to.
Considered one of the most important measurements of leverage, is the interest coverage
ratio because it measures the number of times a firms income, or cash flows, could cover
interest charges. In this case SAM is considered very favorable because their ratio is 454.4,
which means they generate enough income, or cash flow, to cover their interest expense.
However, this ratio means very little to SAM since they generate enough interest income to
cover their interest expense. It also illustrates that management knows how to invest their assets
appropriately by generating enough income to pay off their debt. Such efficiency is considered
an extension of the ROA, where their cost of borrowing is so low and their ROA margin is so
high that they make money on their debt obligations. Located bellow is a detailed look at the
long-term solvency ratio table for both companies and the change from 2012 to 2013:
SAM
Ratios
FY 2013
FY 2012
Change
Risk Ratios (Long Term Solvency Risk)
Liabilities to Asset Ratio
0.333
0.334
-0.35%
Liabilities to Shareholder's Equity Ratio
0.498
0.501
-0.52%
LT Debt to LT Capital Ratio
0.126
0.116
8.83%
LT Debt to Shareholder's Equity Ratio
0.144
0.131
10.10%
Interest Coverage Ratio
454.426
394.722
15.13%
Operating CF to Total Liability Ratio
0.731
0.906
-19.23%
24
BREW
Ratios
FY 2013
FY 2012
Change

0.3922
0.3926
-0.1%
Liabilities to Shareholder's Equity Ratio
0.6452
0.6463
-0.2%
0.2686
0.2775
-3.2%
0.3672
0.3841
-4.4%
4.5527
4.5659
-0.3%
0.1194
0.2108
-43.4%
Activity Ratios
The purpose of calculating a companys activity ratios is to assess managements
efficiency and identify the companys weakness. Turnover factors play a key role in calculating
the activity ratios since they drive the companys activity. These ratios look at the companys
inventory efficiency, collections efficiency and revenue efficiency. Three key ratios that will be
discussed in more detail are days receivables outstanding, days inventory held, and days account
payable outstanding.
The days receivables outstanding measures the days it takes the company to collect their
accounts receivable. Both companies collect receivables fairly quick, but SAM collects their
receivables quicker. This is important when analyzing how long a company extends credit to
their customers for free - the rule of thumb is 30 days. Now days accounts payable outstanding is
a related ratio because it measures the amount of days it takes the company to payoff their
accounts payable. A larger number is favorable because then the company has interest free cash
flow they could invest in something else it's considered as borrowing cash interest free for a
number of days. Its the other side of the account receivables ratio. However, BREW has a
favorable accounts payable ratio, which is driven by their favorable accounts payable turnover.
The days inventory held measures the amount of days it takes the company to turnover
inventory to sales. In this case, BREW turns their inventory over quicker leading to higher

25
purchases, and generally higher volumes of sales. However, BREW's days in inventory has been
increasing while SAM has managed to decrease their inventory held days. This refers back to
BREWs business plan of having to sell a high volume of goods to maintain the gross profit
margin. Located bellow is a detailed look at the activity ratio table for both companies and the
change from 2012 to 2013.
SAM
Ratios
FY 2013
FY 2012
Change
Activity Ratios
Days Receivable Outstanding
18.1
17.2
5.4%
Days Inventory Held
51.9
54.0
-3.9%
Accounts Payable Turnover
10.9074
10.8142
0.9%
Days AP Outstanding
33.5
33.8
-0.9%
Revenues to Cash Ratio
11.9215
9.3650
27.3%
Days Revenues in Cash
30.6
39.0
-21.4%
BREW
Ratios
FY 2013
FY 2012
Change
Activity Ratios
22.3
25.7
-13.3%
Days Inventory Held
40.2
32.4
23.9%
9.1884
10.0613
-8.7%
Days AP Outstanding
39.7
36.3
9.5%
46.3057
58.2944
-20.6%
7.9
6.3
25.9%
26
Financial Statement Performance Analysis

In conclusion, the Boston Beer Company (SAM) has out performed Craft Brew
Alliance (BREW) from a financial statement perspective. This was assumed because of the
life-cycle stage SAM is in, when compared to BREW. Being a more mature company leads to
risk being low, and in combination with efficient profitability a steady return for an investor is
expected. In the other hand, BREW is considered a more, risky investment when looking at the
financial statements. However, BREW could be a more favorable investment choice for certain
types of investors because high risks usually generate higher returns. The final conclusion will be
discussed in depth at a later time.
Financial Statement Projections

As part of this analysis, we have performed an exhaustive projection of the income
statements and balance sheets because investors, while concerned with the current state of a
company, are most concerned with how the company will perform in the future. This is
additionally important in the craft brewery industry since the companies within the segment are
moving through their growth stages and are developing strategies for their maturity phase. The
complete, projected financial statements can be found in the appendix of this analysis.
Income Statement Boston Beer Company

During the last few years Boston Beer has experienced rapid, double digit sales growth
reaching 26% from 2012 to 2013 and is poised to continue its growth trajectory. However, its
growth is limited if it desires to remain in the craft brewery industry. According to IBIS industry
analysis, to be considered a craft brewery a company must sell no more than 6 million barrels of
beer a year. When compared to the large breweries, this sales ceiling is extremely low and
presents some difficulties for Boston Beer in terms of its growth potential. To begin the
projections, at sales revenue, we had to first know our ceiling in terms of how much revenue
Boston Beer could theoretically earn while still being considered a craft brewery. To do this a
few assumptions had to be made. First, it is assumed that the 6 million barrel limit will not
change. Second, it is assumed that Boston Beer will continue to operate within the craft brewery
industry. Third, it is assumed that beer prices will increase by approximately 2% year over year,
a figure that was derived from both Boston Beers and Craft Brew Alliances financial reports.
After feeling confident in these assumptions, the price per barrel of beer was calculated by

27
dividing 2012 revenues ($628,580,000) by number of barrels sold (2,727,000). This price was
then projected out based on the 6 million barrel limit and a 2% growth rate in beer prices as seen
in the table below:
2012
Revenue
Barrels
Revenue/ Barrel
Projected Revenue
$628,580,000
2,727,000
$230.50
$628,580
Projected Max
Revenue 2014
$1,438,887,839
5,999,999
$239.81
$988,300,000
Projected Max
Revenue 2015
$1,467,665,596
5,999,999
$244.61
$1,116,779,000
Projected Max
Revenue 2016
$1,497,018,908
5,999,999
$249.50
$1,194,954,000
Projected Max
Revenue 2017
$1,526,959,286
5,999,999
$254.49
$1,266,651,000
Projected Max
Revenue 2018
$1,557,498,472
5,999,999
$259.58
$1,329,983,000
Projected Max
Revenue 2019
$1,588,648,441
5,999,999
$264.77
$1,383,183,000
Projected Max
Revenue 2020
$1,620,421,410
5,999,999
$270.07
$1,424,678,000
Projected Max
Revenue 2021
$1,652,829,838
5,999,999
$275.47
$1,467,418,000
Projected Max
Revenue 2022
$1,685,886,435
5,999,999
$280.98
$1,511,440,540
Projected Max
Revenue 2023
$1,719,604,164
5,999,999
$286.60
$1,556,783,756
Projected Max
Revenue 2024
$1,753,996,247
5,999,999
$292.33
$1,603,487,269
Projected Max
Revenue 2025
$1,789,076,172
5,999,999
$298.18
$1,651,591,887
Projected Max
Revenue 2026
$1,824,857,696
5,999,999
$304.14
$1,701,139,644
Projected Max
Revenue 2027
$1,861,354,850
5,999,999
$310.23
$1,752,173,833
Projected Max
Revenue 2028
$1,898,581,947
5,999,999
$316.43
$1,804,739,048
Projected Max
Revenue 2029
$1,936,553,585
5,999,999
$322.76
$1,858,881,219
Projected Max
Revenue 2030
$1,975,284,657
5,999,999
$329.21
$1,914,647,656
Projected Max
Revenue 2031
$2,014,790,350
5,999,999
$335.80
$1,972,087,086
Projected Max
Revenue 2013
$1,410,674,352
5,999,999
$235.11
$793,705,000
Projected Max
Revenue 2032
$2,055,086,157
5,999,999
$342.51
$2,031,249,698
28
Projected Max
Revenue 2033
$2,096,187,880
5,999,999
$349.36
$2,092,187,189
Using Boston Beers quarterly filings, 2014 sales revenue was relatively easy to predict.
By analyzing the trend in sales year over year, we were able to determine what percentage of
total sales the sales from the first two quarters were historically and projected that forward using
the table below:
Revenue Projection
Q1-2
% Year End
Year End
2011
257,423
46%
$558,282
2012
282,620
45%
$628,580
2013
341,351
43%
$793,705
2014
Projection
444,735
45%
$988,300
Projecting the excise tax was straightforward due to the fact that as a percentage of the
change in sales its growth was consistently near 4%. Thus this 4% was projected into the future
as a percentage of the change in sales bringing us to projected net revenue for 2014. In order to
project cost of goods sold for 2014, we used a backdoor approach relying on the companys net
depletion (or sales) growth expectations for year-end 2014 of 20%. After this process was
complete, we projected a gross profit of $462,760,000, representing a 20% growth in net sales.
Moving on to the expense section of the income statement, a percentage-of-sales-growth
analysis was performed on the advertising, promotional, and selling expense account as well as
the total operating expenses in aggregate. For the advertising expense account, it was determined
that it increased by approximately 25% of the growth in sales on average during the period of
2008-2013. When implemented, this percentage was also in-line with the companys
expectations of an increase in advertising expenses of approximately $50 million to $70 million
from 2013 to 2015. Boston Beer also had expectations that its total operating expenses would be
approximately 30%-35% of sales for the foreseeable future. Using this range we arrived at a total
operating expense of $333,379,000. Expected impairment losses of $1,800,000 were disclosed
as well causing the difference between the total operating expenses and the advertising expenses
and the impairment loss to become our projected general and administrative expense for the year
2014. After completing these calculations, the projected operating income for 2014 is
$81,491,000.
29
Other expenses and income were fairly easy to project, using the historical amount of
$31,000 for interest income and zeroing out the non-material other section. A 38% tax rate was
assumed based upon the companys prediction as well as the industry and a projected net income
of $81,491,000 was arrived at representing a 16% growth in income.
In general, this method was continued to project every years income statement except for
the following changes:
o IBIS expected sales growth rates for the industry were 13% for 2015, 7% for 2016, 6%
for 2017, 5% for 2018, 4% for 2019, and 3% for 2020. These sales growth rates were
assumed for our projections each year out to 2020.
o Boston Beer expected its 2015 depletions (sales) to grow by 10% to 15% from 2014 to
2015.
o Boston Beer expected its 2015 gross margin to be between 51% and 53%.
o Impairment losses were zeroed out after 2014.
As mentioned earlier, Boston Beer is faced with a sales growth ceiling. If the company wishes to
stay within the craft beer industry, which is claims that it does, it cannot exceed 6 million barrels
in sales each year. Assuming that this requirement does not change, Boston Beer will meet the
IBIS expected sales growth rate of 3% for 2020 and be able to continue at a rate of 3% until 2034
when its sales revenue would then exceed the ceiling calculated in the table below:
Revenue
Barrels
Revenue/ Barrel
Projected Revenue
Projected Max
Revenue 2032
$2,055,086,157
5,999,999
$342.51
$2,031,249,698
Projected Max
Revenue 2033
$2,096,187,880
5,999,999
$349.36
$2,092,187,189
Projected Max
Revenue 2034
$2,138,111,638
5,999,999
$356.35
$2,154,952,805
Thus, after 2034 Boston Beer will only be able to grow its sales by the growth rate in the price of
beer (assumed in this projection as 2%). The complete projected income statement can be found
in the back of this analysis.
30
Income Statement Craft Brew Alliance

Craft Brew Alliance, as compared to Boston Beer, is a younger company and is still early
in its growth stage. To begin the projection of their income statement, we wanted to maintain the
IBIS industry growth rate expectations as stated above but at the same time reflect a tighter
spread indicative of an early-stage company. Late in 2014, the company issued its own
projections for its 2014 year end metrics and stated that it expected sales to grow by 7% to 9%.
Attempting to be conservative in our estimates, we chose 7% and grew their projected 2014 sales
by that amount.
Similar to Boston Beer, projecting the excise taxes was simple as historical analyses
showed that on average they grew at a rate of 7% of the change in sales year over year. Also
similar to Boston Beer, Craft Brew Alliance issued an expected gross margin of between 28%
and 35% for 2014. Again, wanting to project in a conservative manner, we chose 29% and
arrived at a gross profit of $55,676,000 for 2014. Using this value we were able to back
ourselves into a projected cost of goods sold.
Craft Brew Alliance reported selling, general, and administrative as the only line item
under operating expenses. Additionally, the company stated that it expected these expenses to be
27% of sales each year for the foreseeable future. For 2014 these expenses were found to be
$55,594,000, causing our projected operating income to be $83,000. On average, the companys
interest expense declined by 1% to 2% of the change in sales and the companys other expense
category grew by 1% to 2% of the change in sales. As with Boston Beer, the company expects its
tax rate to be approximately 38% and we projected that percentage out into perpetuity. Taking
these calculations into consideration, Craft Brew Alliances projected net income for 2014 is $727,000.
o We deviated from the IBIS expected industry growth rate due to the fact that Craft Brew
Alliance is such a young company and will most likely experience higher-than-average
growth compared to other, more established craft brewers like Boston Beer. Instead of
31
gradually bring the growth rate down to 3%, we kept the companys growth rate higher
and brought the growth rate down to only 5% during the period of 2014 to 2021.
o The craft brew barrel limits are not as applicable to Craft Brew Alliance as they are with
Boston Beer.
Balance Sheet Boston Beer

To begin the balance sheet projection for Boston Beer, we looked back to 2008 to
develop reliable estimates for inventory turnover, accounts receivable turnover, and accounts
payable turnover. This analysis allowed us to visualize trends in each ratio to determine what
direction the company was moving in terms of its inventory, receivables, and payables
management. We were also able to develop reliable 2014 turnover estimates for these three
metrics based on quarter three figures. These quarter three ratios were consistent with the trends
seen from 2008 to 2013 and were thus used for our 2014 projections of inventory based on
projected cost of goods sold, accounts receivable based on projected sales, and accounts payable
also based on projected cost of goods sold. As a contra-asset account, doubtful accounts was
projected based on its historical average of accounts receivable. Cash was also projected based
on the average of cash-on-hand from 2009-2013, $55,000,000, which stayed fairly stable most
likely representing a specific company strategy of how much cash they should hold. The deferred
tax asset, as seen in the table below, was able to be reasonably projected based on its historical
percentage of income from 2010-2013. After computing all of these variables, we determined
that the total current assets at the end of 2014 would be $607,842,000.
2008
All.
D/A
AVG
2009
2010
2011
2012
2013
1.3925% 1.1022% 0.6009% 0.2833% 0.3955% 0.3795%

0.6923%
Moving to fixed assets, property, plant, and equipment (net) was projected based on the
companys expectations of capital spending for 2014 and 2015. Additionally, goodwill was
projected as equal to its 2013 level based on the quarter three value for the account. Adding these
amounts to the current asset projections, we expect total assets for 2014 to be approximately
$607,842,000.

32
Continuing down the balance sheet to current liabilities, accounts payable was projected
based upon 2014s quarter three payable turnover ratio and applied to the expected total 2014
cost of goods sold. Current debt was estimated using the accounts trend from quarter one of 2014
to quarter three of 2014. Lastly, accrued expenses and other current liabilities was projected by
applying the year-over-year percentage of operating expenses. The average percentage over the
past six years was used against the projected operating expense from the income statement for
each year. This table is provided below.
Ac/Exp
Tot.Exp
%
AVG %
2009
2010
2011
2012
2013
48,531 52,776 48,243 60,529 72,540
159,547 175,149 180,912 219,626 271,829
30%
30%
27%
28%
27%
28%
After computing the total current liabilities of $144,093,000 for 2014, we then estimated
deferred income tax liability using the historical percentage of net income illustrated below.
D.T - L
Income
%
AVG %
2009
13,439
31,118
43%
2010
17,087
50,142
34%
2011
17,349
66,059
26%
2012
20,463
59,467
34%
2013
32,394
70,392
46%
37%
Rather than project the long term debt account, we wanted to instead project the equity
section and use the long term debt account as a plug number. Common stock historically stayed
stable at around 128,000 to 130,000 so we used 130,000 as our projected amount. Additional
paid-in capital was projected using inter-quarter trends, as was accumulated other comprehensive
loss. Finally, we calculated retained earnings as the previous years ending amount plus 2014s
net income, enabling us to arrive at the plug value of $3,180,000 in long term debt.
33
o Between 2014 and 2020, we continued to decline our inventory turnover and accounts
receivable turnover forecasts based on historical trends. We maintained a fairly stable
forecast for accounts payable turnover.
o We began to minimally increase cash on hand which we justified as being a result of a
maturing company.
o In 2015, we began projecting additional paid-in capital based on its average growth rate
of 13% from 2008 to 2014.
o Also beginning in 2015, we projected accumulated other comprehensive loss at its seven
year average of -$541,000
o To better project retained earnings after 2014, we began deducting the cost of stock
buybacks at a rate of $30,000,000 per year which is based on a historical average.
After the completion of Boston Beers balance sheet projection, we gained further
confidence based on how closely we tracked the historical trends in the debt to equity and debt to
asset ratios as seen in the table below:
D/E
D/A
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
2020
57%
36%
23%
19%
52%
34%
56%
36%
47%
32%
47%
32%
50%
33%
43%
30%
40%
29%
35%
26%
30%
23%
27%
21%
25%
20%
Balance Sheet Craft Brew Alliance

To begin our projection of Craft Brew Alliance, we looked at the 2014 quarter three
values and began developing time series trends among these accounts. For example we began
bringing the cash balance down, which is in line with the companys growth strategy. We also
continued the increasing trend in the deferred tax asset account as well the deferred tax liability
account. Accrued expenses have, on average, grown by approximately $200,000 to $300,000
every year and we continued that trend into 2014 and beyond. Property, plant, and equipment
showed a shallow increasing trend and this trend was projected into 2014. Additionally, goodwill
remained steady at $12,917,000 for 2014 and every year thereafter.
Moving past our projections based upon historical trends, we were able to project
inventory, accounts receivable, and accounts payable based upon their turnover values as of
quarter three 2014. These turnover values were then applied against their respective projected

34
income statement account and relayed back to the balance sheet. Other large items such as
accrued salaries, wages, and payroll taxes as well as current debt were also able to be projected
based on historically percentages of operating expenses and long term debt respectively as seen
in the two tables below.
2008
Accrued Salaries /
Operating Expenses
AVG
Current Debt Portion /

LTD Portion
AVG
2009
2010
2011
2012
2013
17.63% 13.29% 11.38% 11.73% 9.94%

12.79%
2008
2009
2010
2011
2012
2013
2014
4.38%
6.00%
9.97%
4.52%
5.16%
6.43%
7.90%
6.34%
Shifting to the equity section, common stock was projected at 94,000 based on the fact
that it has not changed from 94,000 since 2010 and the quarter three 2014 report had a common
stock value of 94,000. Additional paid-in capital was projected based upon its historical trend of
minimal growth over that past six years and retained earnings was simply estimated by including
current year net income with last years ending retained earnings.
As with Boston Beer, we used the long term debt account as a plug to bring our financial
statement into balance. After projecting all of the necessary accounts, we projected $183,126,000
in total assets, $71,786,000 in total liabilities, and $111,340,000 in total equity.
o Our projections for intangible assets were based off of 2008-2014 averages.
o Our projections for accumulated other comprehensive loss were based off of 2008 2014
averages.
After the completion of Craft Brew Alliances balance sheet projection, we gained further
confidence based on how closely we tracked the historical trends in the debt to equity and debt to
asset ratios as seen in the table below.

35
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
D/E 86% 76% 68% 52% 53% 53% 64% 65% 64% 62% 65% 65%
D/A 46% 43% 40% 34% 35% 35% 39% 40% 39% 38% 39% 39%
2020
64%
39%
Valuation Analysis
The next part of this analysis is to value both companies forever. There are two different
models that can be used to determine the value of a company. These two models are the
dividend model and the residual income model. Since neither SAM nor BREW pays dividends,
the residual income model was used to calculate an exact value on both companies.
Residual income is the excess of the book value of a firm multiplied by the cost of
capital. In simpler terms, the residual income is the difference between a companys expected
earnings and their actual earnings for a given year. The first step of the residual income model is
to determine the book value of the company at the beginning of each year. After that, one must
determine the required, or expected, earnings for that year. To compute the required earnings,
simply multiply the book value at the beginning of the year by the cost of capital. Then, take the
difference between the expected earnings and the projected earnings to find the residual income.
This process must be repeated for every year until the growth rate levels off. In order to
calculate the actual value of the company as of right now, one must find the present values of the
residual incomes for the finite period. Once the growth rate levels off, find the value of the
company for the infinite period. To compute this, calculate the present value of the residual
income perpetuity. After all of the present values have been calculated, then find the sum of
these values. Once the sum of the present values is found, add the beginning retained earnings of
the current year. When that total is computed, the half-year convention is applied. To apply the
half-year convention, multiply the total value by one, plus half of the cost of capital. Once this
step is complete, it produces the current value of the company using the residual income model.
To calculate the present value of SAM, the residual income model was used. Before
calculating the residual income, the cost of capital needed to be computed.
We took the
difference between the return on the market of 0.115 and the risk free rate of 0.0182 and
multiplied the difference (market risk premium) by the beta of 0.16. We then added that number
to the risk free rate to give a cost of capital of 0.033688. Once we found the cost of capital, also

36
known as the capital asset pricing model (CAPM), we were able to calculate the residual income.
Starting with 2014, we found the residual income for every year up until 2034, which is when we
anticipate the growth rate to level off. We used the year 2034 as the first year of the perpetuity.
We then found the present value of the residual income for the finite period, which was
$1,432,478.01. After that we calculated the present value of the residual income perpetuity
starting in 2034, which was $4,236,724.82. We then took these two numbers and added them to
the beginning book value of SAM of $302,085. After applying the half-year convention to this
total, we found the current value of SAM to be $6,071,868.
To find the present value of BREW, we followed the exact same process that we used to
calculate the value of SAM. First, we used the risk free rate of 0.0182, the return on the market
of 0.115, and the beta of 0.44 to calculate the CAPM, for which we got 0.060792. Then, we used
the CAPM rate to calculate the residual incomes from 2014 to 2021. We expect that the growth
rate will level off as of 2021. After calculating the residual incomes, we found the present value
of the finite period to be $26,739.86. Then, we calculated the present value of the residual
income perpetuity starting in 2021 to be $582,837.79. We then took these two numbers and
added them to the original book value of $111,232. After applying the half-year convention to
this total, we found the value of BREW to be $742,719.38.
In order to further analyze these companies, we can compare the value of the company to
its current stock price. By taking the total value of the company and dividing it by the number of
shares outstanding, we can determine if the current market price is undervalued or overvalued.
We determined the total value of SAM to be $6,071,868. As of Monday, November 17th, SAM
had 12,980 shares outstanding. By dividing the total value by the number of shares outstanding,
the implied price per share using the residual income model is $467.79. On November 17th,
SAM had a closing market price of $257.71. According to the residual income model, the
current market price of SAM is grossly underpriced. We determined the value of BREW to be
$742,719.38.
As of Monday, November 17th, BREW had 19,070 shares outstanding.
By
dividing the total value by the number of shares outstanding, the implied price per share is
$38.95. On Monday, BREW had a closing market price of $13.85, meaning that BREW is also
underpriced. When a company is underpriced, you can make the assumption that there is more
37
room for them to grow. You want to buy stock when the price is undervalued and you want to
sell stock when the price is overvalued.
Conclusion
After completing our analysis of SAM and BREW, we strongly believe that BREW is the
stronger company. Based on some of our key financial ratios, including profitability and risk,
SAM is performing at a more promising level. However, we believe that BREW is trending in
the right direction and that their stock price will continue to grow. SAM is already a wellestablished company with a significant brand portfolio. Because SAM is such a large company,
their potential growth is limited. They are already producing at a level that is capped by the 6
million barrel limit. BREW, on the other hand, is only producing about 2 million barrels of beer
annually. The craft beer industry is rapidly increasing. SAM prides themselves on being a craft
brewer so they are unable to produce more than 6 million barrels. BREW will be able to take
advantage of the growing market and increase at a faster rate than SAM.
BREWs relationship with Anheuser-Busch has both positive and negative impacts.
Anhueser-Busch currently owns 32.3%, which, as mentioned previously, technically disqualifies
it from being called a craft brewery. More importantly to prospective investors, however, is that
fact that it appears that Anhueser-Busch is poised to take majority or full ownership of the
company. This should concern investors because it means that no matter the size of their
investment, they will always have a non-controlling interest in the firm, resulting in ownership of
value only, not the decision making processes which will prove critical in the coming years as
the craft beer industry faces new challenges in consumer taste and market trends. Additionally,
association with such a large mainstream company will certainly impact the firms image as a
craft brewery, especially among the firms primary market segment. SAM has developed,
through shrewd marketing and consistent management, a firm following in that segment and
among other more casual consumers. Despite the companys large size, they are dedicated to
their craft beer roots and attempt to portray an image of boutique quality and care in their
product successfully. While these are some reasons for concern, there are many reasons why
Anheuser-Busch can help BREW grow. Because BREW is a smaller company, they dont have
the proper resources for rapid growth.
This is where Anheuser-Busch comes into play.
Anheuser-Busch has allowed BREW to distribute beer all over the country. BREWs association

38
with Anheuser-Busch has made them a more popular brand. With their ability to grow and their
connections with AB, BREW has unlimited potential to grow. The choice in which company to
invest is tied to the amount of risk tolerance that investors have. If investors are looking for a
safe investment with limited returns, we would recommend investing in SAM. However, if
investors are willing to take a risk and are looking for unlimited returns, we would strongly
encourage investors to choose Craft Brew Alliance.
Our projections and valuation favor a return on BREW of 281% compared to SAMs
182%. As attested to by our key financial ratios, financial statement restatements and growth
models, SAM is the less risky of the two businesses. A .16 beta suggests a company that is very
loosely, positively correlated with the market. In other words, demand for SAMs goods is
relatively inelastic when compared to BREW and other beer companies (as well as most other
consumables). This means that in good markets or poor markets that the company will be
providing value to its shareholders and that an investor that buys SAM today is much more likely
to be unaffected by a slow market. While investing in BREW is a riskier decision, our belief is
that BREW will indeed grow and give investors the types of returns that one can only dream of.
39
Bibliography
Brewers Association. Education. November 2014 <http://www.brewersassociation.org>.
Craft Brew Alliance, Inc. 2013 Annual Report. 10-K. Portland, 2013.
. "BREW Investor Presentation." 2014.
. Investor Relation. November 2014 <http://craftbrew.com>.
New York University. Annual Return on Stock, T.Bonds and T.Bills: 1928 - Curreny. November 2014
<http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html >.
The Boston Beer Company, Inc. 2013 Annual Report. 10-K. Boston, 2013.
. Investor Relation. November 2014 <http://www.bostonbeer.com/phoenix.zhtml?c=69432&p=irol-
overview>.
U.S. Department of Treasury. Daily Treasury Yield Curve Rates. November 2014
<http://www.treasury.gov/resource-center/data-chart-center/interest-
rates/Pages/TextView.aspx?data=yield>.
Wahlen, James M., Stephen P. Baginsk and Mark T. Bradshaw. Financial Reporting, Financial Statement
Analysis, and Valuation: A Strategic Perspective. 7th. Mason: Cengage Learning Inc., 2008.
40
Appendix A Restated Financial Statements

Craft Brew Alliance [BREW]
CONSOLIDATED BALANCE SHEETS
(USD $)
In Thousands, unless otherwise specified
Current assets:
Cash or Cash Equivalents
Accounts receivable, net
Inventories
Deferred income tax asset, net
Other current assets
Total current assets
Property, equipment and leasehold
improvements, Net
Goodwill
Intangible and other assets, net
Total assets
Current liabilities:
Accounts payable
Accrued salaries, wages and payroll taxes
Refundable deposits
Other accrued expenses
Current portion of long-term debt and capital
lease obligations
Total current liabilities
Long-term debt and capital lease obligations,
net of current portion
Fair value of derivative financial instruments
Deferred income tax liability, net
Other liabilities
Total liabilities
Common shareholders' equity:
Common stock, $0.005 par value. Authorized
50,000,000 shares; issued and outstanding
18,972,247 and 18,874,256
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total common shareholders' equity
Total liabilities and common shareholders'
equity
FY 2013
(Restated)
FY 2012
(Restated)
FY 2013
FY 2012
FY 2011
2,726
11,370
16,639
1,345
3,403
35,483
5,013
10,512
11,749
1,250
3,809
32,333
2,726
11,370
16,639
1,345
3,403
35,483
5,013
10,512
11,749
1,250
3,809
32,333
795
13,326
9,446
894
2,816
27,277
116,903
12,917
17,693
$182,996
115,307
12,917
17,562
$178,119
104,193
12,917
17,693
$170,286
102,852
12,917
17,562
$165,664
100,725
12,917
17,989
$158,908
14,742
4,616
8,252
1,381
12,255
5,267
7,896
1,066
14,742
4,616
8,252
1,381
12,255
5,267
7,896
1,066
10,994
4,524
7,400
1,436
710
30,920
642
28,370
710
29,701
642
27,126
596
24,950
22,540
17,719
584
71,764
23,651
219
17,156
528
69,924
11,050
17,719
584
59,054
12,440
219
17,156
528
57,469
13,188
572
15,210
479
54,399
95
136,972
(25,835)
111,232
94
136,030
(135)
(27,794)
108,195
95
136,972
(25,835)
111,232
94
136,030
(135)
(27,794)
108,195
94
135,091
(356)
(30,320)
104,509
$182,996
$178,119
$170,286
$165,664
$158,908
41
The Boston Beer Company [SAM]

Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Current Assets:
Cash and cash equivalents
Accounts receivable, net of allowance for
doubtful accounts of $160, $125 and $66 as
of December 28, 2013, December 29, 2012
and December 31, 2011, respectively
Inventories
Prepaid expenses and other assets
Deferred income taxes
Total current assets
FY 2013
(Restated)
FY 2012
(restated)
FY 2013
FY 2012
FY 2011
$49,524
$74,463
$49,524
$74,463
$49,450
42,001
56,397
10,644
5,712
164,278
31,479
44,361
6,628
5,411
162,342
42,001
56,397
10,644
5,712
164,278
31,479
44,361
6,628
5,411
162,342
23,233
34,072
14,605
4,363
125,723
275,149
9,556
3,683
$452,666
198,366
4,656
2,538
$367,902
266,558
9,556
3,683
$444,075
189,948
4,656
2,538
$359,484
143,586
1,802
1,377
$272,488
34,424
28,303
34,424
28,303
18,806
53
62
53
62
69,900
107,017
60,529
90,709
69,900
104,377
60,529
88,894
48,243
67,049
32,394
20,463
32,394
20,463
17,349
6,535
4,635
150,581
7,169
4,470
122,811
584
4,635
141,990
566
4,470
114,393
3,345
87,743
128
173,025
128
157,305
128
173,025
128
157,305
128
138,336
(417)
129,349
302,085
$452,666
(883)
88,541
245,091
$367,902
(417)
129,349
302,085
$444,075
(883)
88,541
245,091
$359,484
(838)
47,119
184,745
$272,488
88
40
87
41
88
40
87
41
87
41
Property, plant and equipment, net

Other assets
Goodwill
Total assets
Current Liabilities:
Accounts payable
Current portion of long-term debt and
capital lease obligations
Accrued expenses and other current
liabilities
Total current liabilities
Deferred income taxes
Debt and capital lease obligations, less
current portion
Other liabilities
Total liabilities
Stockholders' Equity:
Common Stock
Additional paid-in capital
Accumulated other comprehensive loss,
net of tax
Retained earnings
Total stockholders' equity
Total liabilities and stockholders' equity
Common Stock Classes
Common Stock - Class A
Common Stock - Class B
42
Appendix B Ratios
Ratios
COGS to Sales %
SG&A to Sales %
Turnover Ratios
Inventory Turnover
Current Ratio
Quick Ratio
Days Inventory Held
Days AP Outstanding
Liabilities to Shareholder's Equity
Ratio
FY
2013
BREW
FY
2012
Change
FY 2013
FY 2012 Change
0.62%
1.25%
1.43%
1.09%
2.6437
71.95%
25.93%
0.86%
1.71%
1.86%
1.49%
2.4845
70.45%
26.52%
-28.0%
-27.1%
-23.0%
-26.7%
6.4%
2.1%
-2.2%
8.58%
9.52%
42.59%
9.52%
4.9643
47.92%
28.13%
9.28%
10.25%
40.19%
10.25%
4.3285
45.67%
29.18%
-7.6%
-7.1%
6.0%
-7.1%
14.7%
4.9%
-3.6%
0.496
16.38
9.08
1.54
0.502
14.20
11.25
1.57
-1.2%
15.3%
-19.3%
-1.5%
0.901
20.12
7.03
3.12
0.906
21.21
6.76
3.39
-0.6%
-5.2%
4.0%
-8.0%
1.1476
0.4559
0.2853
22.3
40.2
9.1884
39.7
46.3057
7.9
1.1397
0.5472
0.4916
25.7
32.4
10.0613
36.3
58.2944
6.3
0.7%
-16.7%
-42.0%
-13.3%
23.9%
-8.7%
9.5%
-20.6%
25.9%
1.5351
0.8552
0.5057
18.1
51.9
10.9074
33.5
11.9215
30.6
1.7897
1.1679
0.6043
17.2
54.0
10.8142
33.8
9.3650
39.0
-14.2%
-26.8%
-16.3%
5.4%
-3.9%
0.9%
-0.9%
27.3%
-21.4%
0.3922
0.3926
-0.10%
0.3327
0.3338
-0.35%
0.6452
0.2686
0.3672
4.5527
0.6463
0.2775
0.3841
4.5659
0.4985
0.5011
0.1260
0.1158
0.1442
0.1310
454.4260 394.7217
0.1194
0.2108
-0.17%
-3.21%
-4.39%
-0.29%
43.38%
-0.52%
8.83%
10.10%
15.13%
19.23%
SAM
43
0.7314
0.9055
Appendix C Projected Financial Statements

Projected Income Statement
(in thousands)
2013
Revenue
Less excise taxes
Net revenue
Cost of goods sold
Gross profit
Operating expenses:
Selling, general, and administrative expenses
Operating income
Other (expense) income, net:
Income from equity method investments
Gain on sale of equity int. in Fulton Street Brewery
Interest income (expense), net
Other (expense) income, net
Total other (expense) income, net
Income before provision for income taxes
Provision for income taxes
Net income
2014
2015
2016
$192,433
13,253
179,180
128,919
50,261
$205,903
13,916
191,988
136,311
55,676
$222,376
14,890
207,486
145,240
62,246
$237,942
15,979
221,962
153,154
68,808
46,461
3,800
55,594
83
60,041
2,204
64,244
4,564
(464)
(73)
(537)
3,263
1,304
$1,959
(432)
(177)
(609)
(527)
200
$(727)
(400)
(312)
(712)
1,492
567
$925
(350)
(468)
(818)
3,747
1,424
$2,323

(in thousands)
2017
Revenue
Less excise taxes
Net revenue
Cost of goods sold
Gross profit
Operating expenses:
Selling, general, and administrative expenses
Operating income
Income from equity method investments
Gain on sale of equity int. in Fulton Street Brewery
Net income

44
2018
2019
2020
$254,598
17,145
237,452
161,468
75,985
$269,874
18,215
251,659
168,612
83,047
$286,066
19,348
266,718
176,034
90,684
$300,369
20,349
280,020
182,013
98,007
68,741
7,243
72,866
10,182
77,238
13,446
81,100
16,907
(325)
(634)
(959)
6,284
2,388
$3,896
(300)
(787)
(1,087)
9,095
3,456
$5,639
(275)
(949)
(1,224)
12,223
4,645
$7,578
(250)
(1,092)
(1,342)
15,566
5,915
$9,651

Projected Balance Sheet
(in thousands)
2013
2014
2015
2016
$2,726
11,370
16,639
3,403
1,345
35,483
104,193
17,693
12,917
$1,500
13,930
24,279
3,300
1,600
44,609
108,000
17,600
12,917
$1,500
14,825
26,407
3,300
1,800
47,832
110,000
16,452
12,917
$2,000
15,351
25,526
3,500
2,000
48,377
113,000
17,000
12,917
Total Assets
Liabilities and Stockholders' Equity
Accounts Payable
Current Portion of Long-Term Debt and Capital
Leases
Refundable Deposits
Accrued Salaries, Wages, and Payroll Taxes
Other Accrued Expenses
Total Current Liabilities
Deferred Income Taxes
Debt and Capital Lease Obligations, less Current
Portion
Other Liabilities (Including FV of Derivatives)
Total Liabilities
Common Stock
Additional Paid-In Capital
Accumulated Other Comprehensive Loss, net of Tax
Retained Earnings
$170,286
$183,126
$187,201
$191,294
14,742
18,581
20,749
19,144
710
8,252
4,616
1,381
29,701
17,719
1,200
8,500
7,113
2,200
37,594
18,000
787
8,900
7,682
2,500
40,618
20,000
855
9,300
8,220
2,800
40,319
20,000
11,050
584
$59,054
15,192
1,000
$71,786
12,419
1,050
$74,087
13,488
1,050
$74,857
95
136,972
(25,835)
94
138,018
(210)
(26,562)
94
139,000
(343)
(25,636)
94
140,000
(343)
(23,314)
Total Stockholders' Equity
$111,232
$111,340
$113,115
$116,438
Total Liabilities and Stockholders' Equity
$170,286
$183,126
$187,201
$191,294
Assets
Current Assets:
Cash and Cash Equivalents
Accounts Receivable, net
Inventories
Other Current Assets
Total Current Assets
Property, Plant, and Equipment, net
Equity Investments
Intangible and Other Assets
Goodwill
45

(in thousands)
2017
2018
2019
2020
$3,000
15,912
23,067
5,000
3,000
49,979
118,000
17,000
12,917
$5,000
16,867
21,076
6,000
3,500
52,444
129,000
18,000
13,000
$6,000
17,337
20,710
8,000
4,000
56,047
140,000
18,000
13,000
$6,000
20,025
20,224
10,000
5,000
61,248
150,000
20,000
13,000
Total Assets
Accounts Payable
Current Portion of Long-Term Debt and Capital
Leases
Refundable Deposits
Accrued Salaries, Wages, and Payroll Taxes
Other Accrued Expenses
Debt and Capital Lease Obligations, less Current
Portion
Other Liabilities (Including FV of Derivatives)
Total Liabilities
Common Stock
Accumulated Other Comprehensive Loss, net of Tax
Retained Earnings
$197,896
$212,444
$227,047
$244,248
18,996
22,482
23,471
22,752
716
9,700
8,795
3,000
41,208
22,000
883
10,100
9,323
3,200
45,987
23,000
956
10,500
9,882
3,500
48,309
25,000
1,294
11,000
10,376
4,000
49,422
25,000
11,304
1,050
$75,562
13,933
1,050
$83,970
15,086
1,100
$89,495
20,423
1,200
$96,045
95
142,000
(343)
(19,417)
95
142,500
(343)
(13,779)
95
144,000
(343)
(6,201)
96
145,000
(343)
3,450
$122,335
$128,473
$137,551
$148,203

$197,896
$212,444
$227,047
$244,248
Assets
Current Assets:
Accounts Receivable, net
Inventories
Other Current Assets
Equity Investments
Intangible and Other Assets
Goodwill
46

(in thousands)
2013
2014
Revenue
Less excise taxes
Net revenue
Cost of goods sold
Gross profit
Operating expenses:
Advertising, promotional and selling expenses
General and administrative expenses
Impairment of long-lived assets
Settlement proceeds
Total operating expenses
Operating income
Net income
2015
2016
$793,705
54,652
739,053
354,131
384,922
$988,300
62,436
925,864
463,104
462,760
$1,116,779
67,575
1,049,204
527,344
521,860
$1,194,954
70,702
1,124,252
566,431
557,821
207,930
62,332
1,567
271,829
113,093
256,579
75,000
1,800
333,379
129,381
288,699
83,224
371,922
149,938
308,242
87,133
395,375
162,446
31
(583)
(552)
112,541
42,149
$70,392
31
31
129,350
47,860
$81,491
31
31
149,907
56,965
$92,942
31
31
162,415
61,718
$100,697

(in thousands)
2017
2018
Revenue
Less excise taxes
Net revenue
Cost of goods sold
Gross profit
Operating expenses:
Advertising, promotional and selling expenses
General and administrative expenses
Impairment of long-lived assets
Settlement proceeds
Total operating expenses
Operating income
Net income

2019
2020
$1,266,651
73,570
1,193,081
602,280
590,801
$1,329,983
76,103
1,253,880
633,946
619,934
$1,383,183
78,231
1,304,952
660,546
644,406
$1,424,678
79,891
1,344,787
681,293
663,494
326,166
90,718
416,884
173,917
342,000
93,884
435,884
184,051
355,299
96,544
451,844
192,562
365,673
98,619
464,292
199,202
31
31
173,886
66,077
$107,810
31
31
184,020
69,927
$114,092
31
31
192,531
73,162
$119,370
31
31
199,171
75,685
$123,486
47

2013
2014
(in thousands)
Assets
Current Assets:
Accounts Receivable
Less: Allowance for Doubtful Accounts
Inventories
Prepaid Expenses and Other Current Assets
Other Assets
Goodwill
Total Assets
Accounts Payable
Current Portion of Long-Term Debt and
Capital Leases
Accrued Expenses and other Current
Liabilities
Debt and Capital Lease Obligations, less
Current Portion
Other Liabilities
Total Liabilities
Common Stock
Accumulated Other Comprehensive Loss,
net of Tax
Retained Earnings

$55,000
62,223
431
75,840
16,000
6,327
214,959
380,000
9,200
3,683
$607,842
$55,481
70,312
487
86,360
20,000
7,225
238,891
470,000
10,000
3,683
$722,574
$60,000
85,354
591
94,405
18,000
7,828
264,996
550,000
12,000
4,000
$830,996
34,424
50,687
57,718
56,643
53
60
70
80
72,540
107,017
32,394
93,346
144,093
30,116
105,226
163,014
34,195
111,861
168,585
37,048
6,535
4,635
$150,581
3,180
6,000
$183,389
3,731
6,250
$207,190
1,308
6,500
$213,441
128
173,025
130
214,000
130
242,109
130
273,584
(417)
129,349
$302,085
$452,666
(420)
210,743
$424,453
$607,842
(541)
273,686
$515,384
$722,574
(541)
344,383
$617,555
$830,996
2016
$49,524
42,161
160
56,397
10,644
5,712
164,278
275,149
9,556
3,683
$452,666
2015
48

2017
2018
(in thousands)
Assets
Current Assets:
Accounts Receivable
Less: Allowance for Doubtful Accounts
Inventories
Prepaid Expenses and Other Current
Assets
Other Assets
Goodwill
Total Assets
Accounts Payable
Current Portion of Long-Term Debt and
Capital Leases
Accrued Expenses and other Current
Liabilities
Debt and Capital Lease Obligations, less
Current Portion
Other Liabilities
Total Liabilities
Common Stock
Accumulated Other Comprehensive
Loss, net of Tax
Retained Earnings
Total Liabilities and Stockholders'
Equity

2019
2020
$65,000
97,435
675
109,505
$70,000
110,832
767
125,534
$80,000
138,318
958
132,109
$90,000
142,468
986
136,259
18,000
8,381
297,646
622,699
14,000
4,000
$938,345
20,000
8,869
334,467
701,535
16,000
5,000
$1,057,002
25,000
9,279
383,749
772,000
20,000
5,750
$1,181,499
35,000
9,599
412,025
854,000
31,000
6,000
$1,303,025
50,190
52,829
55,045
56,774
70
60
55
50
117,947
168,207
39,665
123,322
176,211
41,976
127,838
182,938
43,918
131,360
188,184
45,432
1,000
6,750
$215,622
924
7,000
$226,111
881
7,500
$235,237
600
8,000
$242,217
130
300,942
130
325,017
130
351,019
130
372,080
(541)
422,192
$722,723
(541)
506,284
$830,891
(541)
595,654
$946,262
(541)
689,140
$1,060,809
$938,345
$1,057,002
$1,181,499
$1,303,025
49
Appendix D Valuation
Net income/Retained Earnings Projections
Year
Net Income
Beg R/E
$(727)
$(25,835)
2014
$925
$(24,991)
2015
$2,323
$(22,547)
2016
$3,896
$(18,853)
2017
$5,639
$(13,811)
2018
$7,578
$(7,333)
2019
$9,651
$691
2020
$10,134
$10,300
2021

Year
2014
2015
2016
2017
2018
2019
2020
2021(T+1)
Beg. R/E
(25,835.00)
(24,991.44)
(22,547.16)
(18,853.47)
(13,811.33)
(7,332.71)
691.06
10,300.05

Residual Income Projection
Cost of Cap. Expected NI Projected NI
0.060792
(1,570.56)
(727.00)
0.060792
(1,519.28)
925.00
0.060792
(1,370.69)
2,323.00
0.060792
(1,146.14)
3,896.00
0.060792
(839.62)
5,639.00
0.060792
(445.77)
7,578.00
0.060792
42.01
9,651.00
0.060792
626.16
10,133.55

INFO
RFR
Beta
R on MKT
CAPM
NPV of Residual Income
PV of Residual income perpetuity
Book Value
Value
Shares Outstanding
Implied Price/ Shares

50
0.0182
0.44
0.115
6.079%
$26,739.86
$582,837.79
111,232
$742,719
19,070
$38.95
Residual Income
843.56
2,444.28
3,693.69
5,042.14
6,478.62
8,023.77
9,608.99
9,507.39

Net income/Retained Earnings
Projections
year
Net Income
Beg R/E
$81,394
$129,349
2014
$92,942
$206,385
2015
$100,679
$292,375
2016
$107,810
$383,204
2017
$114,092
$478,105
2018
$119,370
$576,090
2019
$123,486
$676,053
2020
$127,191
$776,764
2021
$131,006
$877,787
2022
$134,936
$979,223
2023
$138,985
$1,081,171
2024
$143,154
$1,183,733
2025
$147,449
$1,287,010
2026
$151,872
$1,391,102
2027
$156,428
$1,496,110
2028
$161,121
$1,602,138
2029
$165,955
$1,709,286
2030
$170,934
$1,817,659
2031
$176,062
$1,927,359
2032
$181,343
$2,038,491
2033
$184,970
$2,151,162
2034

51
Year
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
T+1
Beg. R/E
129,349.00
206,385.49
292,374.78
383,204.26
478,104.87
576,090.47
676,053.14
776,764.26
877,787.20
979,222.61
1,081,171.04
1,183,733.13
1,287,009.65
1,391,101.61
1,496,110.38
1,602,137.79
1,709,286.19
1,817,658.62
1,927,358.84
2,038,491.48
2,151,162.13

Residual Income Projection
Cost of Cap. Expected NI Projected NI
0.033688
4,357.51
81,394.00
0.033688
6,952.71
92,942.00
0.033688
9,849.52
100,679.00
0.033688
12,909.38
107,810.00
0.033688
16,106.40
114,092.00
0.033688
19,407.34
119,370.00
0.033688
22,774.88
123,486.00
0.033688
26,167.63
127,190.58
0.033688
29,570.90
131,006.30
0.033688
32,988.05
134,936.49
0.033688
36,422.49
138,984.58
0.033688
39,877.60
143,154.12
0.033688
43,356.78
147,448.74
0.033688
46,863.43
151,872.20
0.033688
50,400.97
156,428.37
0.033688
53,972.82
161,121.22
0.033688
57,582.43
165,954.86
0.033688
61,233.28
170,933.50
0.033688
64,928.86
176,061.51
0.033688
68,672.70
181,343.35
0.033688
72,468.35
184,970.22
Residual Income
77,036.49
85,989.29
90,829.48
94,900.62
97,985.60
99,962.66
100,711.12
101,022.95
101,435.40
101,948.44
102,562.09
103,276.52
104,091.96
105,008.77
106,027.40
107,148.40
108,372.42
109,700.22
111,132.64
112,670.65
112,501.87

INFO
RFR
Beta
R on MKT
CAPM
NPV of Residual Income
PV of Residual income perpetuity
Book Value
Value
Shares Outstanding
Implied Price/ Shares

52
0.0182
0.16
0.115
3.369%
$1,432,478.01
302,085
$1,763,780
12,980
$135.88

The Brewing Industry at A Glance

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The Brewing Industry at A Glance

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Fall

The Brewing Industry at a Glance

The Brewing Industry

Brewing Industry: Boston Beer Company, Inc.

Economic Attributes Framework

Economic Attributes: Demand

Economic Attributes: Supply

They provide an opportunity to continually experiment with new

Economic Attributes: Manufacturing

Economic Attributes: Marketing

Economic Attributes: Investing & Financing

Restatement of the Financial Statement

Cash Flow Trend - SAM

Cash Flow Trend - BREW

Profit Margin for ROA

Return on Common Equity (ROCE)

Profit Margin for ROCE

Capital Structure Leverage

Profit Margin for ROA

Return on Common Equity (ROCE)

Profit Margin for ROCE

Capital Structure Leverage

Accounts Receivable Turnover

Fixed Asset Turnover

Accounts Receivable Turnover

Fixed Asset Turnover

Liquidity (Short-term) Risk

Risk Ratios (Short Term Liquidity Risk)

Risk Ratios (Short Term Liquidity Risk)

Solvency (Long-term) Risk

Risk Ratios (Long Term Solvency Risk)

Liabilities to Asset Ratio

Liabilities to Shareholder's Equity Ratio

LT Debt to LT Capital Ratio

LT Debt to Shareholder's Equity Ratio

Interest Coverage Ratio

Operating CF to Total Liability Ratio

Risk Ratios (Long Term Solvency Risk)

Liabilities to Shareholder's Equity Ratio

LT Debt to LT Capital Ratio

LT Debt to Shareholder's Equity Ratio

Interest Coverage Ratio

Operating CF to Total Liability Ratio

Days Inventory Held

Accounts Payable Turnover

Revenues to Cash Ratio

Days Revenues in Cash

Days Receivable Outstanding

Days Inventory Held

Accounts Payable Turnover

Revenues to Cash Ratio

Days Revenues in Cash

Financial Statement Performance Analysis

Financial Statement Projections

Income Statement Boston Beer Company

Income Statement Craft Brew Alliance

Balance Sheet Boston Beer

1.3925% 1.1022% 0.6009% 0.2833% 0.3955% 0.3795%

Balance Sheet Craft Brew Alliance

Current Debt Portion /

17.63% 13.29% 11.38% 11.73% 9.94%

As of Monday, November 17th, BREW had 19,070 shares outstanding.

This is where Anheuser-Busch comes into play.