Instructions Big Rock Brewery Inc. is a regional producer of craft beers and cider. The company's products are sold in nine provinces and territories in Canada. The attached excel file contain extracts from Big Rock's 2016 annual report. Required a. Calculate the ratios that the management of Big Rock Brewery have indicated they monitor in relation to their management of capital. b. Write a short report commenting on the results of the ratio calculations in part a. c. In addition to the ratios, refer to Note 3.11 and in your own words explain how Big Rock accounts for keg deposits. 1 2 3 BIG ROCK BREWERY INC. Selected notes to the financial statements 3.11 KEG DEPOSITS Big Rock requires that customers pay deposits for kegs purchased which are reflected as a liability on the Corporation's Consolidated Statement of Financial Position. The deposits are subsequently refunded to customers via invoice credits or cash payments when kegs are returned. In the normal course of business, there are a percentage of kegs which are never returned for refund. As a result, Big Rock performs an analysis based on factors such as total kegs produced, current inventory rates and average keg turnover. In addition, return percentages are calculated and tracked to estimate an average keg turnover rate. Together, this information is used to estimate a keg deposit liability at each reporting date. Any adjustments required to the keg liability account are recorded through revenue. 23. CAPITAL RISK MANAGEMENT The Corporation defines its capital to include: common shares plus short-term and long-term debt, less cash balances. There are no externally imposed capital requirements on Big Rock. The Corporation's objectives are to safeguard the Corporation's ability to continue as a going concern, to support the Corporation's normal operating requirements and to maintain a flexible capital structure which optimizes the cost of capital at an acceptable risk. This allows management to maximize the profitability of its existing assets and create long-term value and enhance returns for its shareholders. The Corporation manages the capital structure through prudent levels of borrowing, cash-flow forecasting, and working capital management. Adjustments are made by considering changes in coonomic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Big Rock may issue new shares, issue or renegotiate its debt, acquire or dispose of assets or adjust the amount of cash and cash equivalents. Capital requirements of the Corporation are managed by the preparation of an annual expenditure budget which is approved by the Board of Directors and monitored on a regular basis by Management. The budget is updated as necessary depending on various factors, including capital deployment, results from operations, and general industry conditions In addition, the Corporation monitors its capital using ratios of carings before interest, taxes, depreciation and amortization (EBITDA) to net debt (debt less cash) and (ii) EBITDA to interest, debt repayments and dividends, EBITDA to net debt is calculated by dividing debt minus cash by EBITDA. EBITDA to interest, debt repayments and dividends is calculated by dividing the combined interest, debt repayments and dividend amounts by EBITDA. These capital management policies, which remain unchanged from prior periods, provide Big Rock with access to capital ut a reasonable cost. RIG ROCK BREWERY INC. Consided Suments of inte ari As a Dember 2016 Note ASSETS Non-currentes Property.plant and 45.900 Ele 6 4054 46 335 10 11 12 13 Current Landheld for sale 1.819 4915 14 15.36 15 Accounts receivable Propadan deposits 555 17 1.294 410 20 RX14 55.20 19 51315 21 22 23 Totalt LIABILITIES AND SHAREHOLDERS EOLITY EOLITY Sharcholders capital Cards Arsland deficit LE 113.121 1.48 112.12 13 7540 LIABILITIES Lorem och Share-based payment liabilities Lease incentive ability Deferred income taxes IS 20 S119 336 186 181 30 31 10.097 Accounts par dalies Current les prvable 1017 4 10 55 9 Hari ndttednes| 19 Total liabilities and shareholders' city $5.00 5315 Statement of financi... Statement of incon + BIG ROCK BREWERY INC. Consolidated Sulements of Comprehensive Loss to shown of Comedian aurrera er shares) Year ended December 30 Note 2016 2015 Nel revenue 41.126 Cost of sales 24,477 21,819 Gross profit Expenses Selline expenses 6 12647 13. IKT General and administrative 5,720 5.212 Depreciation and mortization 376 Operating expenses 18.919 18.775 Operating loss 11.01 Finance expens 10 Other income 121 Less before income taxes Income tax expense recovery 9 (272) 275 Deferred (39) Netloss and comprehensive less 11.075) Nellos per share Basic and diluted 10 000 8 201 64% ement of financi... Statement of incom... + BIG ROCK BREWERY INC. Consolidated Statements of Financial Position in hands of Canadian dollars Ast December Nats ASSETS Non-current Property, plant and equipment Intangible assets 12 25.99 336 25115 10 11. 12 13 ons Current Land for sale Inventories Accounts receivable Prepaid experts and deposits Cach 15 5,144 1294 410 16 555 15 16 17 18 19 55.200 20 Totalt LIABILITIES AND SHAREHOLDERS EQUITY EQUITY Sharcholderscapital Contributed surplus Accumulated deficit 12 22 23 24 11311 1418 LIABILITIES 19 5399 10 Long term dicht Share-based payment liabilities Lease incentive liability Deferred increases 30 156 > 9 43 32 10.40 34 Cerret Accounts payable and accrued liabilities Current taxes payable Current portion of lord Bank indebedness 212 9 19 2017 4 14 Total liabilities and shareholders equity 7 55.20 STUS Statement of financi... Statement of incon Instructions Big Rock Brewery Inc. is a regional producer of craft beers and cider. The company's products are sold in nine provinces and territories in Canada. The attached excel file contain extracts from Big Rock's 2016 annual report. Required a. Calculate the ratios that the management of Big Rock Brewery have indicated they monitor in relation to their management of capital. b. Write a short report commenting on the results of the ratio calculations in part a. c. In addition to the ratios, refer to Note 3.11 and in your own words explain how Big Rock accounts for keg deposits. 1 2 3 BIG ROCK BREWERY INC. Selected notes to the financial statements 3.11 KEG DEPOSITS Big Rock requires that customers pay deposits for kegs purchased which are reflected as a liability on the Corporation's Consolidated Statement of Financial Position. The deposits are subsequently refunded to customers via invoice credits or cash payments when kegs are returned. In the normal course of business, there are a percentage of kegs which are never returned for refund. As a result, Big Rock performs an analysis based on factors such as total kegs produced, current inventory rates and average keg turnover. In addition, return percentages are calculated and tracked to estimate an average keg turnover rate. Together, this information is used to estimate a keg deposit liability at each reporting date. Any adjustments required to the keg liability account are recorded through revenue. 23. CAPITAL RISK MANAGEMENT The Corporation defines its capital to include: common shares plus short-term and long-term debt, less cash balances. There are no externally imposed capital requirements on Big Rock. The Corporation's objectives are to safeguard the Corporation's ability to continue as a going concern, to support the Corporation's normal operating requirements and to maintain a flexible capital structure which optimizes the cost of capital at an acceptable risk. This allows management to maximize the profitability of its existing assets and create long-term value and enhance returns for its shareholders. The Corporation manages the capital structure through prudent levels of borrowing, cash-flow forecasting, and working capital management. Adjustments are made by considering changes in coonomic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Big Rock may issue new shares, issue or renegotiate its debt, acquire or dispose of assets or adjust the amount of cash and cash equivalents. Capital requirements of the Corporation are managed by the preparation of an annual expenditure budget which is approved by the Board of Directors and monitored on a regular basis by Management. The budget is updated as necessary depending on various factors, including capital deployment, results from operations, and general industry conditions In addition, the Corporation monitors its capital using ratios of carings before interest, taxes, depreciation and amortization (EBITDA) to net debt (debt less cash) and (ii) EBITDA to interest, debt repayments and dividends, EBITDA to net debt is calculated by dividing debt minus cash by EBITDA. EBITDA to interest, debt repayments and dividends is calculated by dividing the combined interest, debt repayments and dividend amounts by EBITDA. These capital management policies, which remain unchanged from prior periods, provide Big Rock with access to capital ut a reasonable cost. RIG ROCK BREWERY INC. Consided Suments of inte ari As a Dember 2016 Note ASSETS Non-currentes Property.plant and 45.900 Ele 6 4054 46 335 10 11 12 13 Current Landheld for sale 1.819 4915 14 15.36 15 Accounts receivable Propadan deposits 555 17 1.294 410 20 RX14 55.20 19 51315 21 22 23 Totalt LIABILITIES AND SHAREHOLDERS EOLITY EOLITY Sharcholders capital Cards Arsland deficit LE 113.121 1.48 112.12 13 7540 LIABILITIES Lorem och Share-based payment liabilities Lease incentive ability Deferred income taxes IS 20 S119 336 186 181 30 31 10.097 Accounts par dalies Current les prvable 1017 4 10 55 9 Hari ndttednes| 19 Total liabilities and shareholders' city $5.00 5315 Statement of financi... Statement of incon + BIG ROCK BREWERY INC. Consolidated Sulements of Comprehensive Loss to shown of Comedian aurrera er shares) Year ended December 30 Note 2016 2015 Nel revenue 41.126 Cost of sales 24,477 21,819 Gross profit Expenses Selline expenses 6 12647 13. IKT General and administrative 5,720 5.212 Depreciation and mortization 376 Operating expenses 18.919 18.775 Operating loss 11.01 Finance expens 10 Other income 121 Less before income taxes Income tax expense recovery 9 (272) 275 Deferred (39) Netloss and comprehensive less 11.075) Nellos per share Basic and diluted 10 000 8 201 64% ement of financi... Statement of incom... + BIG ROCK BREWERY INC. Consolidated Statements of Financial Position in hands of Canadian dollars Ast December Nats ASSETS Non-current Property, plant and equipment Intangible assets 12 25.99 336 25115 10 11. 12 13 ons Current Land for sale Inventories Accounts receivable Prepaid experts and deposits Cach 15 5,144 1294 410 16 555 15 16 17 18 19 55.200 20 Totalt LIABILITIES AND SHAREHOLDERS EQUITY EQUITY Sharcholderscapital Contributed surplus Accumulated deficit 12 22 23 24 11311 1418 LIABILITIES 19 5399 10 Long term dicht Share-based payment liabilities Lease incentive liability Deferred increases 30 156 > 9 43 32 10.40 34 Cerret Accounts payable and accrued liabilities Current taxes payable Current portion of lord Bank indebedness 212 9 19 2017 4 14 Total liabilities and shareholders equity 7 55.20 STUS Statement of financi... Statement of incon
