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Financial Analysis of Anheuser-Busch Inbev, Sab Miller, Heineken and Carlsberg

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Financial Analysis of Anheuser-Busch Inbev, SAB Miller, Heineken and Carlsberg

Anheuser-Busch Inbev, SAB Miller, Heineken and Carlsberg are the four leading companies in the beer market with a combined market share of about 50%. All of them has great revenues, but are they really profitable and liquid?

Each firm has low current and quick ratio values as well as a negative working capital, which can indicate that they do not have enough current assets to cover their short term obligations. To find this out further analysis is required regarding that how fast they can collect their receivables and how many times a year they need to pay their suppliers. These ratios are also important to determine their working capital policy. All the above mentioned companies have aggressive working capital policy, which means that they tend to use their customers' money to maintain their inventory. This requires a high inventory turnover, also a high receivable turnover and a low payable turnover.

Finally their long-term financial policy does deserve a word. Every business finances its operation with a bigger proportion of debt than equity. They do it for a reason: debt is cheaper than equity, because the interest paid is tax-deductible and also can generate additional earnings to shareholders. On the other hand it has its disadvantages as well, such as the risk of bankruptcy.


In three parts I will examine the companies' performance, liquidity, working capital policy and debt management compared with each other to find out if it is worth to invest in the food and beverage industry, especially in beer. In part one we can find out how liquid the firms are. In the second part I'll examine their working capital policy, while the third part of the assignment reveals the debt management of each company.

Part 1: Performance and liquidity analysis

To measure a company's performance and liquidity we need to look into the company processes and compare them with the industry norms where the firm operates, or pick some competitors from the same segment and examine their results in comparison with our company's performance to determine its financial strength, effectiveness of money spent on operations, etc. To do this we can calculate different ratios. In this part I will examine each of the above mentioned companies using the tool of ratio analysis.

1.1. Liquidity

Current Ratio

The current ratio measures a company's ability to pay back its short-term debt with its current assets (Investopedia, 2011). Basically it interprets a firm's financial strength. The more liquid the current assets are, the lower the current ratio is. 1.5 is an acceptable value for most industry, but as the above graph shows, here almost all the data is below 1, which means that the companies' working capital is negative. Those firms have this below 1 value, which have inventories that can be immediately converted into cash. If we take a closer look on the businesses' inventory turnover, it can be seen that they sell their inventory quite quick. For instance Anheuser-Busch Inbev clears its inventory approximately every 50 days, what is about 7.3 times a year. Carlsberg has a little bit lower turnover with the average value of 6.8 times per year. Also if we examine the accounts receivable turnover results, both of the companies collect their receivables faster than they clear their inventories.

In this case there is no reason for major concern regarding the low value of the current ratios; even though it looks like that none of the firms can pay off their liabilities when they come due. Although during the examined period the values were fluctuating, they stayed in the same interval (between 0.6-0.8), except of Heineken, which had a slightly better current ratio than the others: it went over 1 in 2006.

Quick Ratio

The quick ratio is similar to the current ratio. It also reflects to the firm's short-term liquidity. However it excludes the inventory, so we are calculating with assets, which are instantly convertible into cash. It tells us if a business can create cash literally in a matter of hours or days. The industry norm is 0.7 (MSN Finance, 2011), as the graph demonstrates all the companies are under this value, except of Heineken, like previously. Anheuser-Busch has a very weak performance in 2008, because a huge amount of short-term loan was taken: it popped up from $985 million to $11.301 million from 2007 to 2008. SAB Miller had the highest rate in 2005, but with an average of 0.4, it is the weakest "player". The graph shows, that they are hardly able to meet their short-term obligations.

The calculated cash asset ratio is also a measure of a firm's liquidity. It shows the company's ability to cover its short-term debt with only cash and cash equivalents. The figures are similar to the two previously discussed ratios.

Values regarding the working capital will be discussed in part 2.

1.2. Profitability

Profit Margin

It is a measure of how much income is kept in the company as compared to the total revenue, "in other words, this ratio compares net income with sales" (McClure, 2011).

The graph interprets clearly, that AB Inbev has the greatest net profit margin compared to the other three firms. It almost reaches the industry average (22.8%) with its 21%. It means that Anheuser-Busch made 21% profit on each dollar of revenue. Carlsberg shows a steady growth, while Heineken, as well as SAB, are fluctuating over the examined years.

Return on Equity (ROE) & Return on Assets (ROA)

Return on equity reveals a firm's efficiency in using the investor's money, return on assets shows how much money a business generated for every EUR/USD/DKK of its assets (Investopedia, 2011). The difference between the two ratio is the amount of debt a company has, in other words ROE and ROA would be the same if a firm would have no debt according to the equation of the balance sheet: Assets=Equity+Liabilities.

Comparing these four companies we can say that both the ROE and ROA values tended to be fluctuated. We can notice one strong oddity: AB Inbev dramatically outperformed the others in 2007. Anheuser-Busch had a ROA of 9% in 2005, which was constantly



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