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Craft Brew Alliance, Inc. Message Board

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  • jad1148 jad1148 Mar 31, 2010 5:40 AM Flag

    sdenver - 10-K?

    Sdenver,

    Thank you for the D&A explanation. I felt really stupid for asking the question after reading your answer. Obviously both groups within the company, the folks in COS and the folks in GS&A, contribute separately and partially to the combined D&A expense line item.

    What's bothering me is that D&A is such a large fraction of EBITDA.

    I'm attempting to guesstimate Free Cash Flow to the Firm, ignoring changes in working capital and using a more normal Effective Tax Rate, ETR, as follows:

    FCFF = ( EBITDA - D&A ) x ( 1 - ETR ) + D&A - CapEx

    FCFF = ( 10.824 - 7.313 ) x ( 1 - 0.400 ) + 7.313 - 2.303

    FCFF = 7.117

    That implies that there is roughly 65 cents of FCFF within a dollar of EBITDA. That's outside my comfort range. If you were to capitalize that at 5% that would imply an EV/EBITDA ratio of 13 (0.65/ 0.05) which might make sense for AAPL, GOOG, and KO, but is not credible for a small brewer, in my opinion. A more realistic EV/EBITDA of 8 implies a FCFF/EBITDA of 40%. That's what I was expecting to find.

    Perhaps the correct answer is that EBITDA is too low relative to D&A instead of my original assumption that D&A is too high relative to EBITDA.

    I'm not comfortable with the current CapEx to Depreciation ratio ( 2.303 / 6.378 = 0.36 ) either. I would expect the ratio to fall within the range 1.00 to 1.50 eventually, when HOOK becomes a mature, stable company.

    In summary, the current numbers are just not working for me and I would hesitate to value the company based on them.

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