Financial Analysis of AB InBev

The Anheuser-Busch InBev Company (AB InBev) was established passim the years through mergers and acquisitions. AB InBev is the largest brewery in Jupille, Belgium. They operate in North America, Latin America, second America, Europe, and Asia Pacific. Due to political upheavals in Germany and Bohemia in 1848, many German immigrants colonized in St. Louis, Missouri (Anheuser-Busch, 2011). Eberhard Anheuser was a trained soap maker and became part owner of the Bavarian Brewery. By 1860, he bought the investors shares and the brewery name was changed to E. Anheuser & Co. Adolphus Busch married Lilly Anheuser, Eberhards daughter and later Adolphus purchased half ownership of Anheusers brewery, fitting a partner (Anheuser-Busch, 2011). Due to Buschs innovations, the brewery became the first to use pasteurization, allowing the beer to be shipped long distances without spoiling. By the earlier 1880s, the brewer introduced artificial refrigeration, rail-side icehouses, and refrigerated r ailcars. These innovations allowed the union to grow and distri exclusivelye their beer across the country.To market the beers Busch apply tralatitious selling methods however, Buschs methods were more organized and deliberate than his competitors. Busch pioneered the use of giveaways and premiums, and used his brewery as a showplace for the popular to visit (Anheuser-Busch, 2011). The brewery guild was renamed Anheuser-Busch Brewing Association in 1879 to recognize Adolphus efforts. The association became one of the nations leading breweries in 1901 when it broke the one one thousand thousand barrels of beer gross revenue mark (Anheuser-Busch, 2011).Over the years, the familiarity grew through acquisitions and mergers and became AB InBev. In 1989, a group of investors purchased Brahma, the number two beer in Brazil. In 1999, the strike off took over the number one spot and was combined with its chief competitor to form AmBev. AmBev expanded throughout South America and beca me the third-largest brewer in the world. In cc4, Interbrew, the European beer company, acquired a majority stake in AmBev, which created InBev. In 2008, InBev purchased Anheuser-Busch resulting in the new company AB InBev (Allen & Zook, 2012).Anheuser-Busch (AB InBev) The publicly traded company (Euronext ABI) is based in Leuven, Belgium with Ameri squeeze out Depositary Receipts on the New York Stock Exchange (NYSE BUD) (Anheuser-Busch InBev AB InBev, 2011) and is not only the leading global brewer, but is one of the worlds top five consumer product companies. AB InBevs portfolio contains over 200 brands of beer with fourteen brands that generate over $1 billion per year in revenue. The brewer invests in their great growth potential brands such as Budweiser with 45% of sales originating in North America.The company owns 50 percent equity pertain in Mexicos leading brewer and owner of the Corona brand, the foot soldier Grupo Modelo. With their approximate 116,000 employees base d in twenty-three countries worldwide, AB InBev is geographically diversified, along with a proportionatenessd scene to developing and developed markets, the company has a completive edge. AB InBev is a multinational beverage company and is the largest brewer, with about 25 percent global market share. They are the third largest FMCG company by firm place (AB InBev, 2011).AB InBev was chosen for a fiscal analysis due to its longevity and innovated ideas and marketing. It is hoped that AB InBevs financial records will show that their innovated methods will show a continuous financial growth. The Annual Report For this analysis, AB InBevs 2011 annual report is used and it compares 2010 and 2011. The audit was performed by Pricewaterhouse Coopers. The report is in megs and AB InBev byword a $2,197m in profit gain from 2010 to 2011 and a $1,114m in capital flow from operating activities in the beginning changes in working capital and use of provision.The change in working capit al was $1,183m resulting in an append of $2,581m of silver flow from operating activities. There was a negative improver in the investiture and financial backing activities, $185m and $2,239m respectively. In 2010, AB InBev had a mesh topology increase in interchange and property equivalents of $602m and $759m in 2011. Overall, in 2011 AB InBev realized $39 billion revenue (AB InBev, 2011). The Balance Sheet When assessing the financial report, it may be difficult to see positive revenue. In revise to understand, one must know how interpret the financial asseveration as a whole.The balance sheet provides information about AB InBevs as sites, liabilities, and shareowners equity. Assets are things that a company understructure sell or use. These items include physical property, inventory, equipment, etcetera Intangibles are also assets things that cannot be touched, but nevertheless have value, i. e. patents and trademarks, investments the company makes. And of course c ash in is the main(prenominal) asset. Liabilities are beats that the company owes to others. These fares can include a loan secured to launch a new product, convey for use of a factory, or notes owed to a supplier, etc.Liabilities also include future obligations, i. e. goods or services promised to be provided in the future. Shareholder equity (or capital or crystallize worth) is the money that would be left if a company sold all of its assets and paid off all their liabilities. Any money left over belongs to the owners (or shareholders) of the company. The balance sheets equation is Assets = Liabilities + Shareholders equity (Garrison, Noreen, & Brewer, 2010). The balance sheet is set up with the assets listed and tallied on the left side, while liabilities and shareholders equity on the right.The assets are usually listed in order of how quickly they can be converted into real cash. Current assets are things that the company plans to convert to cash inside one year, i. e. in ventory. Noncurrent assets are things that are expected to be converted to cash long-acting than a year. Noncurrent assets include fixed assets (not available for sale, i. e. office furniture). Liabilities are usually listed according to their due dates. Liabilities are either current or semipermanent. Current liabilities are debts that the company expects to pay off within a year on the other hand, long-term liabilities are due in more than a year.Shareholders equity (SE) is the get along invested by the owners. SE is calculated by subtracting the companys earnings or losses from the owners investment in the companys stock (Garrison, Noreen, & Brewer, 2010). In assessing AB InBevs balance sheet for 2011, the company had $39,046 million in revenues, a 4. 6% increase, and a earn profit of $22,412 million. It is stated in the annual report that a selective price increase was interpreted in the last quarter in anticipation of higher(prenominal) commodity approachs. Cost of Sales (C oS) change magnitude by 1. 6%.This increase was due according to AB InBev in part to lower aluminium can costs in Latin America and procurement nest egg and implementation of their best habituate programs in North America. The total operating expenses increase by 3. 7%. This was partly due to diffusion expenses increasing by 9. 2%. Brazil had higher transportation costs, while Latin America South saw higher labor costs and higher transport tariffs in Ukraine and Russia. Sales and marketing expenses increased by 4. 1% because, specifically in North America, more investments in brand offset savings in non-working money. Administrative expenses increased by 0. % due to fixed cost savings in the fall in States offset by salary increases and expansion costs in mainland China and Brazil. Other operating income was $694 million compared to $64 million in 2010 mainly because of tax incentives in China and Brazil (AB InBev, 2011). The Income Statement An income bid shows how much rev enue a company take in and the costs associated with earning verbalize revenue. The stooge line of an income relation normally shows the companys gelt losses or earning. This statement tells how much the company has make or disconnected over the accounting period, usually for a year or a component thereof.Income statements reports earnings per share (EPS). (To calculate EPS, the total net income is dual-lane by the number of outstanding shares of the company). An income statement also shows how much shareholders would receive if the company distributed all of the net earnings for the accounting period however, most companies reinvest their earnings (Garrison, Noreen, & Brewer, 2010). Income statements begin with the total amount of revenue made during an accounting period and hence descend certain costs and operating expenses associated with earning said revenue. The bottom line tells how much the ompany earned or lost during the period. The beginning is the gross revenue ( or sales). The next line is the amount the company does not expect to cumulate (referred to as allowances), i. e. discounts, or returns. After deducting these allowances from the gross revenues (or sales), the result is net revenues. The next lines are operating expenses. Although these expenses can be listed in various order, the line after(prenominal) net revenues is usually costs of sales. Costs of sales is the amount the company has spent producing the goods or services sold during the accounting period.Subtracting cost of sales from net revenues gives a subtotal of gross profit (also known as gross moulding) (Garrison, Noreen, & Brewer, 2010). The operating expenses are listed next on the income statement. These expenses support a companys operations, i. e. salaries, marketing, etc. Because operating expenses cannot be linked to the production of products or services being sold, they are different from costs of sales (Garrison, Noreen, & Brewer, 2010). Depreciation is also d educted. Depreciation is the amount of wear and tear on assets (machinery, tools, etc. ) that are used over long term.This amount is blossom forth over the periods they are used and is called depreciation or amortization. After this deduction from the gross profit, the income from operations is arrived. This amount is before interest and income tax expenses (Garrison, Noreen, & Brewer, 2010). The next section allows companies to account for interest income and interest expense. Interest income is earned from interest-bearing savings accounts, money market funds, etc. Interest expenses are monies paid in interest on loans, etc. Some companies show these separately and some combine the two.The income and expenses are totaled and then deducted from the operating profit to arrive at operating profit before income tax (EBIT). Finally, income tax is subtracted and the bottom line of net profit or net loss (also known as net income, net earnings, or net operating income) is calculated (Ga rrison, Noreen, & Brewer, 2010). On AB InBevs income statement, sales are the uniform as on the balance sheet. (AB InBev, 2011). In North America, EBITDA increased 1. 5%, $6. 573 million with a margin expansion increase up to 42. 9%, driven by growth in overhead cost reductions and gross profit.In the combined statement (the gathering of all AB InBevs companies), the EBIT for 2011 is $12,607 million and an EBITDA of $15,357 million (AB InBev, 2011). Cash Flow Statements While a balance sheet is a snapshot and the income statement shows if the company made a profit or lost money, a cash flow statement shows if the company generated cash. Cash flow statements shows the inflow and outflows of the companys cash. This statement is very important because it proves that the company has generous money to pay expenses, purchase assets, and stay competitively profitable.Whereas other financial statements shows an absolute dollar amount at a particular time, a cash flow statement show change s during the accounting period. The cash flow statement uses the information from both balance sheet and income statement. Cash flow statements are divided into three major sections operating activities, investing activities, and financial backing activities. (Garrison, Noreen, & Brewer, 2010). AB InBevs financial report consolidates the activities, followed by a breakdown of the activities including explanations.Operating activities rose from $9,905million to $12,486 million investing activities increased from a negative $2,546m in 2010 to negative $2,731m in 2011 and financing activities rose from $6,757m to $8,996m in 2011. However, the net increase in cash and cash equivalents increased from $602m to $759m (AB InBev, 2011). Operating activities. The first section of a cash flow statement analyzes inflow from net income or loses. This section usually reconciles the net income (taken from the income statement) to the actual cash the company received from and used in its operating activities.This process adjusts net income for any non-cash items, i. e. adding depreciation expenses back, and for any cash that was a source or a use provided by other operating assets and liabilities (Garrison, Noreen, & Brewer, 2010). AB InBevs financial report of cash flows shows an increase in operating activities. This increase is due to a higher profit and strong contribution from changes in the working capital. The increase in working capital is the result of on-going trade initiatives furthermore, there is an increase in trade payables that are linked to higher capital expenditures.These expenditures have longer payment harm (AB InBev, 2011). Investing activities. Investing activities shows the inflow from all investing activities. These activities usually include purchases or sales of long-term assets, i. e. property, plant, and equipment (PPE) as well as investment securities. If a company buys machinery, this activity would be listed as a cash outflow because cash wa s used. However, if the company sold some investments from their portfolio the proceeds would be an inflow from investing activities because it is a source of cash (Garrison, Noreen, & Brewer, 2010).AB InBevs investing activities were $2,731m in 2011, compared to 2010 which was $2,546m. This increase is by higher capital expenditures mainly in Brazil and China. To partially offset this increase, the company sold short-term debt securities. The company invested in 2010 to facilitate liquidity and capital preservation in Brazil. Net capital expenditures were $3,256m in 2011 and $2,123 in 2010. This increase is primarily linked to investments for expansion in China and Brazil in order to image demands in the growing market.Approximately 57% was used to improve production facilities while 33% was used for logistics and commercial investments. Ten percent was used for purchase of hardware and software and improving administration (AB InBev, 2011). funding activities. The last section i s financing activities. This part of the cash flow statement shows the typical sources of inflow, including cash brocaded by selling stocks or bonds and scoop uping funds from a bank (Garrison, Noreen, & Brewer, 2010). Cash inflow from financing activities was $8,996m in 2011, compared to 2010s $6,757m.The 2011 amount reflects higher dividend payouts, net repayments, and settlements of derivatives that were not part of a hedge. AB InBev could borrow enough to meet its liquidity needs the companys policy is to rely on cash flows from operating activities to fund its continuing operations (AB InBev, 2011). Analysis of AB InBevs Financials According to the 2011 annual report, Anheuser-Busch InBev saw a year of solid performance and progress. AB InBev experienced growth, expanded their EBITDA margin, grew EPS, and made strides in de-leveraging the balance sheet.AB InBev experienced a strong growth from their three well-known global brands Budweiser, Stella Artois, and Becks. These bran ds were up by 3. 1%. Stella Artois volumes increased by 5. 9%, with a 24% surge in sales in the United States, 13% in Argentina, and 200% in Brazil. The company come ups to expand and grow in China and Brazil. The company raised its dividends to 1. 20 euros per share, a 50 % increase. These results were achieved despite weak consumer confidence in several(prenominal) markets and increases in commodity prices. Faced with adverse conditions, our people did what they do best.They took ownership of the situation, focused on what they can impact, and did not let short-term factors distract from our long-term goals of connecting with consumers, driving shareholder value, and working toward our dream to be the Best Beer Company in a Better World (AB InBev, 2011). The United States shows signs of an economic recovery. An increase in US profits are supported by the companys new NFL sponsorship. Felipe Dutra, AB InBevs CFO said the increase could also have something to do with the unseasonab ly mild weather (AB InBev, 2011). The newly launched Bud fall down Lime and Bud Light Platinum performed well.Dutra said We believe we have the right brands to exploit that opportunity, before, during and after the Olympic games. Budweiser has also extended sponsorship of the soccer World Cup through 2018. AB InBev will continue to rely heavily on their strategic brands (AB InBev, 2011). Conclusion A fundamental part of their culture is never being entirely satisfied with their results we always challenge ourselves to dream bigger and achieve more. . . (AB InBev, 2011). With continued global growth and expansion and early payoffs of debt, AB InBev will continue to see profits. The companys innovated persuasion will carry it into the millennium.ReferencesAllen, J., & Zook, C. (2012, May 4). The strategic principles of repeatability How nonnegotiable fuel growth. How can a company sustain profitable growth? brief. Retrieved fromhttp//www.bain.com/publications/articles/the-strategic- preincipels-of-repeatability.aspx Anheuser-Busch Dedication to our craft. (2011). http//anheuser-busch.com/index.php/our-heritage/history/ Anheuser-Busch InBev. (2011). ABInBev Annual Report 2011 Annual report. Brouwerijplein, Leuven AB InBev. Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2010). Managerial Accounting (13th ed.). New York, NY McGraw-Hill/Irwin.