Background of Redhook Ale Brewery

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Growth Rates

Historical

Forecast

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

Total Sales

337%

23%

53%

44%

54%

55%

59%

42%

37%

39%

137%

67%

COGS

176%

0%

34%

45%

51%

83%

80%

26%

18%

22%

168%

38%

SG&A

-15%

3%

28%

29%

31%

81%

17%

40%

-6%

31%

26%

119%

Looking at the sales forecast, the sales growth rate that Redhook has applied to their Ale product is conservative and follows the downward trend that Redhook was experiencing in the first 9 months of 1990. However, Redhook is aggressive in their forecasts for Lager sales, for both the Draft Lager and Bottled Lager. Redhook forecasts Draft Lager sales at over $1.2 million in the first year with a sales growth rate of 80% in the second year. The company forecasts Bottled Lager sales at over $7.5 million in the first year, outperforming the Bottled Ale sales by almost 33%, and predicts a sales growth rate of 125% in the second year. These expectations are optimistic and Redhook does not provide alternative forecasts for lower sales expectations or unexpected events. If Redhook’s Lager sales forecasts are lowered to match the performance of their Ale sales, the forecasted net income for the company is negatively impacted and could prevent the company from meeting its loan obligations.

Redhook has selected COGS growth rates that might underestimate the actual COGS for the forecasted period. The company has decreased the COGS growth rate substantially in 1990, with low rates throughout the forecasted period, with one exception in 1993 when the new plant would begin operating. The COGS growth rates do not seem to follow the forecasted growth rate in sales, which also leads to the possibility that these costs are underestimated. Also, the company’s SG&A expenses do not increase at the rate expected given the forecasted increase in sales. With growth rates actually declining over the same period (1992-93) the total sales are expected to increase substantially due to the role-out of the new product.

Financial Ratios

Historical

Forecast

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

Debt/Equity

54%

195%

90%

66%

100%

34%

95%

81%

18%

16%

77%

61%

38%

Operating Margin

-14%

28%

41%

49%

48%

50%

40%

32%

34%

42%

48%

50%

89%

Current Ratio

2.8

1.5

2.1

2.5

2.0

3.9

2.1

2.2

6.6

7.4

2.3

2.6

3.7

Taking a critical look at Redhook’s financial ratios gives insight into the viability and success of the company. Although Redhook’s Debt/Equity ratio has fluctuated, the