Instructor:

Dr. Michael Favere-Marchesi

Case Study
Molson Coors
Brewing Company
Student: Duc Manh Nguyen
Rohit Mangla

Main objectives
Classified Income statements
Earning persistence
Operational performance
ratios

Concepts a
Major classifications on
IS
Revenue, Net revenue (minus excise taxes)
Gross profit ( by subtracting COGS)
Operating expenses
Non-operating expenses/income
Income before tax(EBT)
Income after net-tax items( extraordinary
income, income from discontinued operations)
EPS, Diluted EPS

Concept - b
Classified IS under US
GAAP
To make IS easier for users to
read and analyze the expenses
and incomes
It provides categories for expenses
by function
It uses sub-total in calculating
income, expenses
It is more detailed than the singlestep IS

Concept c
Persistent Income
It excludes the infrequent or unusual,
extraordinary items in income statement.
Analyst normally adjust for better forecast
future cash flow
It is necessary to understand how the current
income is generated.

Concept d
Comprehensive Income
Comprehensive income = Change in owners
equity due to operating income + Change in
owners equity due to gain from non owners
sources.
(Source of non owners equity : marketable
securities intended for sale, transactions in
foreign currency (gain/loss), pension plans
(overfunded/ underfunded)

Process e
Net Sales vs Sales
Net Sales = Total sales return of defected
products discounts (payment schemes)
allowance ( misplaced/damaged in transit
goods)
Sales/Gross Sales any kind of sale in a given
period of time with out any deductions of any
sort.
It gives more clear picture about the sales done
by the company.

Process e
Net Sales vs Sales
Various programs run by Molson Coors which
result in reduction of sales
Price Promotion, Rebate and coupons.
Slotting or listing fees paid to customers
(these programs are considered as reduction in
sales by MCBC)
It is also a good measure check the trend in
defects/returns etc.

Process f, part I
Special items on IS
The items that are not indicative of their core
operations, they are still classified as operating
expense and are not necessarily non-recurring.
Infrequent or unusual items
Impairment or asset abandonment-related losses
Restructuring charges and other atypical
employee-related costs.
or Fees on termination of significant operating
agreements and gains (losses) on disposal of
investments.

Process f, part II
Special items on IS
Separate line item
Readers can easily compare core-operating and
special expense part.
Easier to analyze the pure operating income

Classify as Operating Expense

Red flag: Indicates instability of the business.

Process g
Other income(expense),
net
Other income (expense), net
is expense or gain from
financing or investment
activities like interest expense
for the debt, interest income.
It should not be included in
operating activities

Process h
Statement of comprehensive
income
Comprehensive income = $ 760.2 Million
Net Income (Operating Income) = $ 572.5 Million
24.6 % of the comprehensive income comes from
unrealized activities.
ii. They are the income that must bypass the net income
in the income statement because they have not realized.
They are foreign currency translation adjustments,
unrealized gain/losses on derivatives instruments,
pension and other postretirement benefit adjustment,
the changes in equity due to non-owner sources.

Analysis I
Non-persistent items on
IS
Special items: it contains restructuring
cost, impairment asset or asset
abandonmentTherefore, they could
occur again but very likely fluctuate.
Income from discontinued
operations: non recurring item
Other income(expense), net: They
could occur again but very likely fluctuate.

Analysis j
Income taxes
Effective tax rate = tax expense/ taxable
income = 84/ 654.5 = 12.8% (year 2013)
The persist tax rate could be 12.8%
Because the increase in 2012 effective tax is
only due to the increased statutory corporate
income tax rate in Serbia from 10% to 15%,
leads to the change between book value and tax
basis of intangible assets purchased through
acquisitions, leads to increasing DTL and
increases valuation allowance to 6%.

Analysis k
Estimation of persistent
income

Analysis L
i. non operating items
on IS

Other income (expense), net

Interest expense

Interest income

Other income (expense), net

Income from discontinued operations

Net loss (income) attribute to noncontrolling interest

Analysis L
ii. Total after-tax non-operating
item

Analysis L
iii. Net operating profit after
tax

Analysis L
iii. Net operating profit after
tax
NOPAT accounts for the fact that this
company has a large amount of tax
saving due to an essential part of debt
in Liabilities. It is a better measure of
income from leveraged firms.

Analysis m
i. nonoperating items in
BS
Non-operating assets: cash. It does not
contribute to the future generation of operating
cash flow for firms. It would be excluded in the
valuation of firm based on a discounted future
earning cash flows model.
Non-operating liabilities: Long-term debt (which
already included capital lease) considered to be
financial liabilities. This is basically the leverage
part of the firm, it should not be included when
calculating net operating assets.

Analysis m
ii. Net operating assets

Analysis m
ii. Net operating assets
Net operating assets figure is useful for
comparison to the net operating profit of a
business .
In short, the net operating assets concept is
intended to reveal the relationship between
core earnings and core net assets, ignoring all
financial engineering. This is an excellent
basis of comparison when examining the
financial structures of the businesses in an
industry.

Analysis n
Return on net operating
asset

Analysis o
Operating profit margin and
Net operating asset turnover

Analysis o
Operating profit margin evaluates how
effective a firm is operating.
Net operating asset turnover measures the
efficiency of how a company is using its
operating assets to generate operating
income.
These ratios could be compared within the
company over time or with other company in
the industry, the higher the better.

Analysis p
RNOA= Persistent net
operating income / net
operating Assets

Analysis p
RNOA= Persistent net operating income /
net operating Assets

The new RNOA shows a more reliable results as it increases

slightly from 2012 to 2013.
The old RNOA decreases nearly 1% over the period. That is
due to the inclusion of Special items, which was
considered to be non recurring item in the new RNOA
calculation.
As stated in the footnote 1: Although we believe these
items are not indicative of our core operations, the items
classified as special items are not necessarily nonrecurring. Therefore, the classification of this item as
operating expenses is also not necessarily unbiased. As we
are predicting the future profitability, we should use a
stricter rule to calculate operating expenses.