Answer 3. Based on the top 50 brewing company list, the brewers included are listed in order based on beer sales volume. We believe that in order to know what makes relative valuation meaningful for setting a bid price for one of the private craft brewers, we need to look at the price to earnings ratio of the companies. We are able to view the full financials for Boston Beer because they are a publicly traded company. Therefore, if we were able to access the sales volumes for the other companies, we would be able to see that their earnings would be pretty proportionate to Boston Beer. This would be the specification that we would use to compare for relative valuation. We could also look at the free cash flow of Boston Beer to compare to the other companies on the list. By using both methods, price to earnings and free cash flow, we have some checks and balances to make sure that the estimates are reasonable.
Answer 4. COVID-19 has taken a toll on almost every industry over the past year. Companies, now more than ever are reminded how important cash is to the survival of the business. While a company may be experiencing net losses each quarter, it is possible for the company to turn the corner as long as there is a positive inflow of cash. For example, in 2018: 2024 – Write My Essay For Me | Essay Writing Service For Your Papers Online, JCPenney reported a net loss for the period as $78 million, but reported a positive cash flow of $181 million. JC Penny was able to do this by borrowing and receiving cash through long-term debt. While this creates another issue for JCP down the line, they were able to offset their losses with the influx of cash and give them some time to turn a profit later on. For firms that are hesitant about increasing their long-term debt, a more practical solution could be to temporarily re-allocate roles within management to ensure there is a team dedicated to maximizing liquidity through cash-optimization. By adjusting where cash is being spent, and what cash is available immediately, companies can make more decisive and impactful decisions that keep the door open for future success following the crisis.
Carmody, K. (Host), Brown, S. (Host), Koller, T. (Host), Owens, A. (Host). (2020, May 26). Cash Preservation in Response to COVID-19 [Audio Podcast]. In Inside the Strategy Room. McKinsey & Company.
https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/cash-preservation-in-response-to-covid-19#
Murphy, B. Chris. (2020, April 24). Is it Possible to Have Positive Cash Flow and Negative Net Income? Investopedia.
https://www.investopedia.com/ask/answers/05/060105.asp
Example for number 4 to follow while answer number 3 and 4:
By highlighting JCP’s positive cash flow and then explaining how they achieved that, you quickly mitigated what might sound terrible to an executive. You also expected hesitancy concerning long-term debt by offering a practical solution with anticipation. Further, I feel this item speaks to anyone in the firm who may read a company newsletter. I find that writing to every level is a well-honed skill, and you nailed that.
We also had a 200-word limit, and I understand how challenging it is to answer every possible unasked question in that space. Reading over your topic, I hope you can clarify a statement in your write-up. You state, “Companies, now more than ever, are reminded how important cash is to the survival of the business.” Would you explain a little more on why cash is so vital to the survival of a business?
I appreciate the time and effort you took to research this article. Thank you!
NB: In my response, I began with praise and honest appreciation (#22) in a friendly way (#13) and then asked a question for clarification (#25), which allows the team to answer this query — exercising grace or ‘saving face’ as Carnegie called it (#26).
