Case
Teaching Notes
Supplementary Resources
Abstract
Sweeney Brewing Company (SBC), a family-owned business in St. Paul, Minnesota, is contemplating its sale. The family has hired a team of MBA students to help determine the appropriate sales price based on a multiple of sales or EBITDA. The possible sale of the entity is contingent upon addressing the individual or joint sale of three intersecting businesses: (1) the brewery; (2) the taproom; and (3) the event center. The financial objectives for this sale were set forth by the grandson of the SBC founder, CEO William (Bubby) Sweeney. The sales price is built around the financial projections for the next three years and the continued growth of the business, despite a plethora of microbreweries in the area.
| Statement of Comprehensive Income for the Period Ending December 31, 2019 (USD) | ||
|---|---|---|
| December 31, 2019 | December 31, 2018 | |
| Revenues | 5,269,750 | 4,851,250 |
| Cost of sale | 2,017,578 | 1,823,950 |
| Gross profit | 3,252,172 | 3,027,300 |
| Selling & administrative expenses | 948,555 | 897,481 |
| Other expenses | 105,395 | 97,025 |
| Finance costs | 42,960 | 61,200 |
| Income before tax | 2,155,262 | 1,971,594 |
| Income tax expenses | 646,579 | 591,478 |
| Net income | 1,058,683 | 1,380,116 |
| Statement of Equity for the Period Ending December 31, 2019 (USD) | ||
|---|---|---|
| Capital stock | Retained earnings | |
| At December 31, 2017 | 3,500,000 | 2,100,890 |
| Net income | 1,380,116 | |
| Stock issued | ||
| Dividends paid | (27,602) | |
| At December 31, 2017 | 3,500,000 | 3,453,403 |
| Net income | 1,508,683 | |
| Stock issued | ||
| Dividends paid | (30,174) | |
| At December 31, 2018 | 3,500,000 | 4,931,913 |
| Statement of Financial Position at December 31, 2019 (USD) | ||
|---|---|---|
| December 31, 2019 | December 31, 2018 | |
| Assets | ||
| Current assets | ||
| Cash | 2,145,048 | 1,356,676 |
| Accounts receivable | 89,000 | 84,000 |
| Inventories | 838,817 | 784,760 |
| Prepaid expenses | 32,000 | 28,000 |
| Total current assets | 3,104,865 | 2,253,435 |
| Investments | ||
| Marketable securities | 3,900,000 | 3,460,000 |
| Bond receivables | 1,000,000 | 1,000,000 |
| Total investments | 4,900,000 | 4,460,000 |
| Property, plant & equipment | ||
| Land | 100,000 | 100,000 |
| Buildings | 900,000 | 900,000 |
| Equipment & machinery | 3,700,000 | 3,700,000 |
| Accumulated depreciation | (2,530,000) | (2,530,000) |
| Total property, plant & equipment | 2,170,000 | 2,400,000 |
| Intangibles | ||
| Patents, net | 660,000 | 675,000 |
| Trademarks, net | 450,000 | 475,000 |
| Total intangibles | 1,110,000 | 1,150,000 |
| Total assets | 11,284,865 | 10,263,435 |
| Liabilities | ||
| Current liabilities | ||
| Accounts payable | 581,580 | 544,100 |
| Accrued liabilities | 146,000 | 234,000 |
| Current portion LT debt | 171,840 | 244,800 |
| Total current liabilities | 899,420 | 1,022,900 |
| Long-term (LT) debt | ||
| Bank indebtedness | 1,200,000 | 1,800,000 |
| Lease obligations | 232,000 | 240,000 |
| Total LT liabilities | 1,432,000 | 2,040,000 |
| Equity | ||
| Capital stock | 3,500,000 | 3,500,000 |
| Retained earnings | 5,453,445 | 3,700,535 |
| Total equity | 8,953,445 | 7,200,535 |
| Total liabilities & equity | 11,284,365 | 10,263,435 |
| Statement of Cash Flow for the Period Ending December 31, 2019 (USD) | ||
|---|---|---|
| December 31, 2019 | December 31, 2018 | |
| Operating activities | ||
| Net income | 1,508,683 | 1,380,116 |
| Depreciation expense | 230,000 | 230,000 |
| Amortization expense | 40,000 | 40,000 |
| Change in accounts receivable | (5,000) | (6,000) |
| Change in inventory | (48,288) | (5,200) |
| Change in prepaid assets | (4,000) | 1,000 |
| Change in accounts payable | 33,480 | 25,843 |
| Change in accrued liabilities | (88,000) | (82,000) |
| Cash provided for operations | 1,666,875 | 1,583,759 |
| Investing activities | ||
| Purchase of securities | (440,000) | (350,000) |
| Cash used for investing | (440,000) | (350,000) |
| Financing activities | ||
| Payment on bank debt | (672,960) | (500,000) |
| Payment on lease obligation | (8,000) | (8,000) |
| Payment of dividends | (30,174) | (27,602) |
| Cash used for financing | (711,134) | (535,602) |
| Net increase/(decrease) in cash | 515,741 | 698,156 |
| Cash, beginning of the year | 1,629,307 | 411,388 |
| Cash, end of the year | 2,145,048 | 1,109,544 |
