CRANK LITE BEV CORP: CRANKING OUT A NEW OPPORTUNITY
CASE STUDY SOLUTION
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pl
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SYNOPSIS
In March 2022, Jack Jelinek and Mikey Woolfson, co-founders and co-owners of CRANK Lite Bev Corp
Sa
(Crank), an Oakville, Ontario-based brewery, were deciding whether they should sell their beer (Crank Lite
Lager) at the Northern Heat Rib Series (Ribfest). Jelinek and Woolfson had worked tirelessly to keep their
business afloat during the pandemic, but knew they still had a long way to go to meet their goals. Selling at
Ribfest could be an opportunity to grow their business; however, there was no guarantee that this would
n
actually be profitable.
tio
OBJECTIVES
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• Analyze a company’s industry, competitors, corporate capabilities, and consumers.
• Create and analyze a statement of cash flows, and subsequently select and analyze relevant ratios.
So
• Complete a qualitative analysis of future expansion opportunities.
• Complete a differential analysis (with sensitivity), and calculate the return on investment and payback
period.
• Create a cash budget for the future opportunities.
• Justify a comprehensive and well-informed decision on the expansion opportunity.
• Determine if the chosen option should be funded through debt or equity financing.
• Create an action plan and contingency plan for the chosen option.
• Project a statement of earnings and a statement of financial position for the chosen option.
The Case Solution Starts From page 7
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pl
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ASSIGNMENT QUESTIONS
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1. Analyze the Canadian brewery industry. How do recent trends affect Crank and its future direction?
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2. Complete an analysis of Crank’s consumers. Who are its consumers? What do they want?
3. Complete an analysis of Crank’s competitors. Who are its main competitors? What is Crank’s
competitive advantage, and is it sustainable?
lu
4. Assess Crank’s corporate capabilities from a qualitative perspective.
5. Create and analyze a statement of cash flows for fiscal year 2021. What implications can be drawn from
the company’s cash flow from operations? What are the largest sources and uses of cash? Are they
So
appropriately matched?
6. Calculate relevant ratios for Crank. What is the year-over-year trend of these ratios? How do they
compare with the industry?
7. Qualitatively assess the Ribfest opportunity with pros and cons.
8. Perform a differential analysis for the Ribfest opportunity and include sensitivity analysis, where
applicable. What is the return on investment and payback period?
9. Perform a cash budget for the six-month period of April to September 2022 relating to the Ribfest
opportunity. Will Crank require financing? If so, how much?
10. As Jelinek and Woolfson, would you pursue the Ribfest opportunity to sell Crank Lite Lager at this
festival? How should the decisions be financed? Justify your choices.
11. Prepare a projected statement of earnings and a projected statement of financial position for Crank
based on your decision for fiscal year 2022.
12. As Jelinek and Woolfson, create an action plan based on your decision. Highlight the primary risks and
explain how you would mitigate these risks.
The Case Solution Starts From page 7
,ANALYSIS
1. Analyze the Canadian brewery industry. How do recent trends affect Crank and its future
direction?
e
Crank competes in the Canadian brewery industry, which is large and stable. Overall, industry conditions
pl
are satisfactory, and students’ analyses to support this statement should include the following:
m
• While the industry’s revenue has decreased, its profit has decreased by a larger amount. This implies
that profit margins are decreasing. This is concerning for small breweries such as Crank, which are
Sa
unable to benefit from economies of scale.
• Provincially, Ontario generates the highest revenue, which bodes well for Ontario-based breweries such
as Crank. However, Manitoba is expected to experience the highest level of growth, which could be a
missed opportunity for Crank as it is currently only selling in Ontario.
• Canned beer currently accounts for 71.8 per cent of sales. Breweries such as Crank that focus on
n
offering canned products can benefit from this.
tio
•
lu
So
The Case Solution Starts From page 7
,11. Prepare a projected statement of earnings and a projected statement of financial position for
Crank based on your decision for fiscal year 2022.
e
A projected statement of earnings and projected statement of financial position has been provided for the
pl
status quo, the low Ribfest scenario, and the high Ribfest scenario
m
Jelinek and Woolfson have projected very optimistic increases in revenue, while simultaneously projecting
relative decreases in COGS expenses. However, this can partially be justified as the increase in revenue can
be supported by Crank entering 52 LCBO locations. While it is fair to question these assumptions, students
Sa
should still use what the case provides them with and discuss the assumptions qualitatively. The net earnings
in the status quo scenario and high Ribfest scenario are projected to increase in profit compared to the prior
year. However, the low Ribfest scenario is projected to generate a net loss.
n
The projected statement of financial position interestingly has two plugs. As the case points toward the
tio
lu
So
The Case Solution Starts From page 7
, EXHIBIT -1: STATEMENT OF CASH FLOWS FOR THE YEAR ENDING DECEMBER 31, 2021
OPERATING ACTIVITIES
Net income $ 41
Adjustments to cash basis:
Depreciation $ 2,460
Gain on trade-in (507)
Accounts receivable (7,784)
Inventory 2,127
Accounts payable 6,053
Sales tax payable (recoverable) 2,819
Income tax payable 7 5,175
Net cash flow from operating activities $ 5,216
FINANCING ACTIVITIES
e
pl
m
Sa
n
tio
lu
So
The Case Solution Starts From page 7
, EXHIBIT -12: CRANK LITE BEV CORP STATEMENT OF FINANCIAL POSITION
(HIGH SCENARIO) FOR THE YEAR ENDING DECEMBER 31, 2022
ASSETS
Current assets:
Cash and equivalents Case fact $ 1,000
Accounts receivable Projected beer sales ÷ 360 × 30 days 9,421
Inventory Projected status quo COGS ÷ 360 × 121.1 days 31,428
Total current assets (2021) + differential inventory $ 41,849
Current assets:
Intangible assets $ 1,200
Manufacturing licence 3,105
Less: Accumulated depreciation $2,070 + $1,035 (annual depreciation) (3,105) —
Tent 3,000
Less: Accumulated depreciation $900 + $900 (annual depreciation) (1,800) 1,200
Truck 5,000
Less: Accumulated depreciation $1,050 + $525 (annual depreciation) (1,575) 3,425
e
Ribfest assets Jockey box, uniform, trailer 4,000
Less: Accumulated depreciation Case fact (841) 3,159
pl
Total capital assets $ 8,984
Total assets $ 50,833
m
Sa
n
tio
lu
So
The Case Solution Starts From page 7
CASE STUDY SOLUTION
e
pl
m
SYNOPSIS
In March 2022, Jack Jelinek and Mikey Woolfson, co-founders and co-owners of CRANK Lite Bev Corp
Sa
(Crank), an Oakville, Ontario-based brewery, were deciding whether they should sell their beer (Crank Lite
Lager) at the Northern Heat Rib Series (Ribfest). Jelinek and Woolfson had worked tirelessly to keep their
business afloat during the pandemic, but knew they still had a long way to go to meet their goals. Selling at
Ribfest could be an opportunity to grow their business; however, there was no guarantee that this would
n
actually be profitable.
tio
OBJECTIVES
lu
• Analyze a company’s industry, competitors, corporate capabilities, and consumers.
• Create and analyze a statement of cash flows, and subsequently select and analyze relevant ratios.
So
• Complete a qualitative analysis of future expansion opportunities.
• Complete a differential analysis (with sensitivity), and calculate the return on investment and payback
period.
• Create a cash budget for the future opportunities.
• Justify a comprehensive and well-informed decision on the expansion opportunity.
• Determine if the chosen option should be funded through debt or equity financing.
• Create an action plan and contingency plan for the chosen option.
• Project a statement of earnings and a statement of financial position for the chosen option.
The Case Solution Starts From page 7
, e
pl
m
Sa
ASSIGNMENT QUESTIONS
n
1. Analyze the Canadian brewery industry. How do recent trends affect Crank and its future direction?
tio
2. Complete an analysis of Crank’s consumers. Who are its consumers? What do they want?
3. Complete an analysis of Crank’s competitors. Who are its main competitors? What is Crank’s
competitive advantage, and is it sustainable?
lu
4. Assess Crank’s corporate capabilities from a qualitative perspective.
5. Create and analyze a statement of cash flows for fiscal year 2021. What implications can be drawn from
the company’s cash flow from operations? What are the largest sources and uses of cash? Are they
So
appropriately matched?
6. Calculate relevant ratios for Crank. What is the year-over-year trend of these ratios? How do they
compare with the industry?
7. Qualitatively assess the Ribfest opportunity with pros and cons.
8. Perform a differential analysis for the Ribfest opportunity and include sensitivity analysis, where
applicable. What is the return on investment and payback period?
9. Perform a cash budget for the six-month period of April to September 2022 relating to the Ribfest
opportunity. Will Crank require financing? If so, how much?
10. As Jelinek and Woolfson, would you pursue the Ribfest opportunity to sell Crank Lite Lager at this
festival? How should the decisions be financed? Justify your choices.
11. Prepare a projected statement of earnings and a projected statement of financial position for Crank
based on your decision for fiscal year 2022.
12. As Jelinek and Woolfson, create an action plan based on your decision. Highlight the primary risks and
explain how you would mitigate these risks.
The Case Solution Starts From page 7
,ANALYSIS
1. Analyze the Canadian brewery industry. How do recent trends affect Crank and its future
direction?
e
Crank competes in the Canadian brewery industry, which is large and stable. Overall, industry conditions
pl
are satisfactory, and students’ analyses to support this statement should include the following:
m
• While the industry’s revenue has decreased, its profit has decreased by a larger amount. This implies
that profit margins are decreasing. This is concerning for small breweries such as Crank, which are
Sa
unable to benefit from economies of scale.
• Provincially, Ontario generates the highest revenue, which bodes well for Ontario-based breweries such
as Crank. However, Manitoba is expected to experience the highest level of growth, which could be a
missed opportunity for Crank as it is currently only selling in Ontario.
• Canned beer currently accounts for 71.8 per cent of sales. Breweries such as Crank that focus on
n
offering canned products can benefit from this.
tio
•
lu
So
The Case Solution Starts From page 7
,11. Prepare a projected statement of earnings and a projected statement of financial position for
Crank based on your decision for fiscal year 2022.
e
A projected statement of earnings and projected statement of financial position has been provided for the
pl
status quo, the low Ribfest scenario, and the high Ribfest scenario
m
Jelinek and Woolfson have projected very optimistic increases in revenue, while simultaneously projecting
relative decreases in COGS expenses. However, this can partially be justified as the increase in revenue can
be supported by Crank entering 52 LCBO locations. While it is fair to question these assumptions, students
Sa
should still use what the case provides them with and discuss the assumptions qualitatively. The net earnings
in the status quo scenario and high Ribfest scenario are projected to increase in profit compared to the prior
year. However, the low Ribfest scenario is projected to generate a net loss.
n
The projected statement of financial position interestingly has two plugs. As the case points toward the
tio
lu
So
The Case Solution Starts From page 7
, EXHIBIT -1: STATEMENT OF CASH FLOWS FOR THE YEAR ENDING DECEMBER 31, 2021
OPERATING ACTIVITIES
Net income $ 41
Adjustments to cash basis:
Depreciation $ 2,460
Gain on trade-in (507)
Accounts receivable (7,784)
Inventory 2,127
Accounts payable 6,053
Sales tax payable (recoverable) 2,819
Income tax payable 7 5,175
Net cash flow from operating activities $ 5,216
FINANCING ACTIVITIES
e
pl
m
Sa
n
tio
lu
So
The Case Solution Starts From page 7
, EXHIBIT -12: CRANK LITE BEV CORP STATEMENT OF FINANCIAL POSITION
(HIGH SCENARIO) FOR THE YEAR ENDING DECEMBER 31, 2022
ASSETS
Current assets:
Cash and equivalents Case fact $ 1,000
Accounts receivable Projected beer sales ÷ 360 × 30 days 9,421
Inventory Projected status quo COGS ÷ 360 × 121.1 days 31,428
Total current assets (2021) + differential inventory $ 41,849
Current assets:
Intangible assets $ 1,200
Manufacturing licence 3,105
Less: Accumulated depreciation $2,070 + $1,035 (annual depreciation) (3,105) —
Tent 3,000
Less: Accumulated depreciation $900 + $900 (annual depreciation) (1,800) 1,200
Truck 5,000
Less: Accumulated depreciation $1,050 + $525 (annual depreciation) (1,575) 3,425
e
Ribfest assets Jockey box, uniform, trailer 4,000
Less: Accumulated depreciation Case fact (841) 3,159
pl
Total capital assets $ 8,984
Total assets $ 50,833
m
Sa
n
tio
lu
So
The Case Solution Starts From page 7
