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. Exhibits 10.17A to 10.17D contain extracts from Big Rock’s 2016 annual report.

EXHIBIT 10.17A Big Rock Brewery Inc.’s 2016 Consolidated Statements of Financial Position

EXHIBIT 10.17B Big Rock Brewery Inc.’s 2016 Consolidated Statements of Comprehensive Loss

EXHIBIT 10.17C Big Rock Brewery Inc.’s 2016 Consolidated Statements of Cash Flows

EXHIBIT 10.17D Excerpt from Big Rock Brewery Inc.’s 2016 Annual Report

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 economic 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 (i) earnings 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 at a reasonable cost.

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.”

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BIG ROCK BREWERY INC. Consolidated Statements of Financial Position (In thousands of Canadian dollars) As at December 30 Note 2016 2015 ASSETS Non-current assets $ 45,999 $ 42,608 Property, plant and equipment 11 Intangible assets 12 336 456 46,335 43,064 Current Land held for sale 13 1,819 Inventories 14 5,144 4,935 Accounts receivable 1,294 15, 26 2,221 Prepaid expenses and deposits 16 410 555 Cash 207 540 8,874 8,251 $ 55,209 Total assets $ 51,315 As at December 30 Note 2016 2015 LIABILITIES AND SHAREHOLDERS' EQUITY EQUITY Shareholders' capital 17 $113,121 $113,121 Contributed surplus 18 1,438 1,255 Accumulated deficit (77,289) (76,836) 37,270 37,540 LIABILITIES Non-current Long term debt 19 5,339 3,485 Share-based payment liabilities 18 336 134 Lease incentive liability 20 186 181 Deferred income taxes 4,632 4,399 10,493 8,199 Current Accounts payable and accrued liabilities 21,26 3,937 3,870 Current taxes payable 4 55 Current portion of long term debt 19 662 404 Bank indebtedness 19 2,843 1,247 7,446 5,576 Total liabilities and shareholders' equity $ 55,209 $ 51,315