VALUATION OF POWER WATER BEVERAGES
1
The valuation of a company is its price but not the worth. The Power Water Beverages
(PWB) market value reflects the current price for a share or piece of it. If anyone says PWB is
undervalued it mean it is underpriced and if they say the company is overvalued, they imply that
it is overpriced. Valuation is used to denote worth regarding evidence of both market value and
worth. Valuation is critical when one want to attract return on the investment. There is pre-money
and post-money valuation. There are two ways of calculating valuation, namely using the shares
outstanding method and percentage of ownership method.
To start with, valuation is term applied in private venture or equity capital industries before
a financing or investment. If the investment adds cash to the firm, the firm may have various
valuations before and after an investment. In its calculations concerning Power Water Beverages,
the following is the example of the calculation shareholders of PWB Inc. owning 100 shares that
is 100 percent of the equity. If the investor creates $10 million investment into PWB Inc. in the
return for new 20 issued shares the post-money valuation will be:
$10 M * (120/20)
= $10M * 6
= $60 million.
It implies that the pre-money valuation is equivalent to the post-money valuation subtract the
amount of initial investment. In the case it is:
$60 M- $10M
VALUATION OF POWER WATER BEVERAGES
2
= $50 M
The initial company shareholders dilute their ownership to:
100/120 = 83.3 %
The technique or a methodology used is liquidation valuation.
The other example for calculations concerning PWBI as follows when the company is $100
M pre-money worth and the investor creates an investment of $25 M new shares issued. Then the
post-money valuation of this company may be:
$100 million + $ 25 million = $ 125 million
The Investor may now own 20 percent of the company.
In the scenario, the pre-valuation must to be computed as the post-money valuation less
the total amount of money coming in the PWBI from the shares purchase, loans conversion, and
nominal interest.
Considering PWBI with 1 million shares, a convertible loan note for $1 million converting
at 75 percent of the next price, warrant of 200000 shares at $10 each, and ownership of 200000
shares at $4 each the offer given to the company at $8 per share for the $8000000.
Post-money valuation
Post-money valuation at PWBI will be equal to $8 times the current number of shares after
the transaction in the case, 2366667 shares. The value comprises of the initial 1million shares plus
VALUATION OF POWER WATER BEVERAGES
3
1million shares from the new investment, plus another 166667 shares from conversion of loan
($1000000/0.75*8), plus 2000000 shares from the other options. The total converted or diluted
post-money valuation is $18933336.
Pre-money valuation
$18933336 - $800000 -$ 1000000- $800000= $9133336
It is calculated by taking post-money valuation of $1933336 minus $8000000 new investment,
$1000000 loan conversion, and $800000 from exercise of rights.
Besides, the company uses techniques such as action, distribution, and packaging. Because,
the Power Water Beverages team does not possess any experience in the fields of distribution or
production, they opted that the most significant method in entering the United States market sought
the strategic outsourcing partners and to focus their endeavors on sales, marketing, and operations
logistics.
For the exclusive use of M. Al Bahri, 2017.
NA0028
PowerWater Beverages, Inc.
Jeffrey P. Shay, Washington and Lee University
Tony Crawford, University of Montana
Bambi Douma, University of Montana
Joshua Herbold, University of Montana
O
n June 22, 2006, Kent Mawhinney and Chris Murphy sat side-by-side in a golf
cart as they cruised down the 463 yard par five fairway of the fourth hole.
Playing a round of golf at the Quarry Ridge Golf Course in Portland,
Connecticut, had become an annual outing for the two former roommates who graduated from Babson College in 1987. Much had changed since their college years.
Mawhinney had gone on to earn his law degree, had spent some time working in a prestigious Connecticut law firm, and most recently had become a founding partner in the
law firm Markowitz & Mawhinney. Murphy had gone on to start his own consulting
firm, then earned his MBA and eventually a Ph.D. Recently he had been promoted to
an associate professor of entrepreneurship at a state university in the Northwest U.S. This
year, in addition to catching up and reminiscing, Mawhinney and Murphy had some
serious business to discuss.
Mawhinney had contacted Murphy in September 2005 to discuss a business opportunity and ask if Murphy was available to write a business plan. Murphy completed the
first version of the plan for PowerWater Beverages, Incorporated a few months later. He
was then asked to join the startup’s board of directors and he continued to provide consulting services to the company. From September 2005 until June 2006 Mawhinney
negotiated terms with his senior management team, secured commitments from independent representatives who now comprised the company’s national sales force, and
signed contracts with co-packers, suppliers, and distributors. The company now faced significant challenges—challenges that Mawhinney would need to address at the board
meeting the next morning. Mawhinney explained the urgency of these specific challenges
to Murphy:
We’re really facing two major issues that need to be addressed tomorrow, Chris. First,
David [Angliss, PowerWater Beverages’ CPA] estimates that we need to raise $950,000.
We need to determine the valuation for our company, whether this is the appropriate
amount that we should be seeking, and we should assess the various alternatives that we’ve
proposed for investors. Second, the senior management team believes that there are many
other opportunities for PowerWater Beverages’ distilled, oxygenated water product and
would like to hear your recommendations regarding potential markets that we might consider beyond the traditional bottled water segment.
Kent paused for a moment. “And, Chris, do you still think this whole thing is a good
idea? Should we revisit the entire opportunity with the board?”
Copyright © 2009 by the Case Research Journal and by Jeffrey P. Shay, Tony Crawford, Bambi Douma,
and Joshua Herbold
PowerWater Beverages, Inc.
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INTERNATIONAL BOTTLED WATER MARKET
Bottled water, as a beverage product, started primarily in Western Europe, where it had
long been part of the daily consumption ritual. Between 1994 and 2004, in almost every
region of the world, bottled water was one of the most dynamic beverage categories.
Bottled water was often seen as an ideal category by beverage manufacturers because of
the high gross margins, the ease of market segmentation, the possibility of consumers
trading up to higher-end products, and the resulting potential for high growth. In addition, the bottled water market remained highly fragmented, leaving opportunities for
acquisition and investment. By 2005, bottled water had become a truly global beverage,
found in some of the more remote corners of the globe.
In 2004, global bottled water consumption was estimated to have approached 41.1
billion gallons, raising the global rate of consumption by 6.5 percent from the previous
year. Per capita consumption was 6.4 gallons, up three-tenths of a gallon from 2003.
Several European countries boasted per capita consumption levels of well over twentyfive gallons, but much of the developing world had per capita consumption figures still
in the low single-digits.
While Europe was the leading regional consumer of bottled water on a country basis,
North America contained the two largest markets, the U.S. and Mexico. Together these
countries accounted for 28.2 percent of the world market in 2004. Mexico accounted
for 11.5 percent of the global volume at 4.7 billion gallons. In 2004, China stood as the
third largest market with 3.1 billion gallons. Chinese bottled water volume had increased
by double digits in four of the last five years. Brazil slid from third place in 2003 to
fourth place in 2004, even though bottled water volume increased by 15.4 percent to
nearly 3.1 billion gallons. Italy and Germany grew by 3.0 percent and 3.6 percent,
respectively. Italy ended 2004 at 2.8 billion gallons, and Germany at 2.7 billion gallons.
In 2004, the top ten per capita bottled water consumers were European countries.
Italy had the most established bottled water consumption tradition at more than fortyeight gallons per person, consuming about four gallons more per capita than Mexico,
the country with the second highest per capita consumption at 44.5 gallons. The United
Arab Emirates was the only other country with per capita consumption greater than 40
gallons, although Belgium-Luxembourg and France were close. Spain and Germany had
per capita consumption rates of 36.1 and 33 gallons, respectively. The United States
ranked eleventh in per capita consumption.
Bottled water companies were able to make massive volume gains during this time
by successfully tapping into consumer trends around the world. In developed countries
such as the U.S., Canada, and Japan, bottled water became the fastest growing major
beverage category through marketing to the growing health and well-being consciousness of consumers. Many viewed bottled water as not only a way of achieving hydration,
but also as a functional beverage, a healthy alternative to carbonated soft drinks (CSDs)
and juice drinks. In developing countries, bottled water was increasingly positioned as a
safe and relatively affordable alternative to the often unclean and unsafe tap water.
Moreover, since the two largest countries, China (1.3 billion people) and India (1.1 billion people), were considered developing countries, these national markets and others of
significant size presented highly attractive markets for bottled water companies (see
Table 1).
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Table 1 July 2005 Population Estimate (United Nations)
Rank
Country/Territory
—
World
Population (in 000,000s)
1
People’s Republic of China
1,315,8
2
India
1,103.4
3
United States of America
298.2
4
Indonesia
222.8
5
Brazil
186.4
6
Pakistan
157.9
7
Russia
143.2
8
Bangladesh
141.8
9
Nigeria
131.5
10
Japan
128.1
11
Mexico
107.0
12
Vietnam
84.2
13
Phillippines
83.1
14
Germany
82.7
15
Ehtiopia
77.4
16
Egypt
74.0
17
Turkey
73.2
18
Iran
69.6
19
Thailand
64.2
20
France
60.5
6,464.8
While much of the world’s bottled water market remained highly fragmented and
controlled by local brands, consolidation was rapidly occurring. Four large beverage
companies dominated much of the market. Nestlé and Danone were the perennial leaders of the industry; both centered their operations around the core markets of Western
Europe and the United States. Recently, with growth increasing in the developing
world, Nestlé and Danone took their rivalry to Asia, Latin America, and other areas.
Danone appeared to have partially retreated from the U.S. market to focus on some of
these other developing markets.
CSD giants PepsiCo and Coca-Cola claimed the top two spots in the U.S. bottled
water market. Both companies were increasingly devoting resources and energy to
developing their global bottled water businesses. While they did not pose an immediate threat to Nestlé and Danone in Europe, they had to be considered serious threats in
the less developed and often high-growth bottled water markets of Asia, Eastern Europe
and South America.
THE U.S. BOTTLED WATER MARKET
Bottled water was the second largest commercial beverage category by volume in the
United States in 2005. Total U.S. bottled water volume exceeded 7.5 billion gallons, a
10.7 percent advance over 2004, which translates into 26.1 gallons per person, up over
two gallons from 23.8 gallons per capita the year before. Additionally, wholesale dollar
sales for bottled water exceeded $10 billion in 2005, a 9.2 perent increase over 2004.
In recent years, U.S. volume growth increased more rapidly than dollar sales and the
industry’s performance remained unrivaled. This reflects the impact of polyethylene
PowerWater Beverages, Inc.
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terephthalate (PET) bottled water multi-pack promotions, which were increasingly popular sales promotions and were central to volume growth.
Domestic non-sparkling water’s 7.2 billion gallons represented 95 percent of total
volume in 2005. The segment, which comprises diverse components with very different
performances, grew at a faster rate than the overall market in 2005. The most vital piece
of the non-sparkling segment is the retail PET segment. PET bottled water was the star
of the U.S. packaged water industry and consistently outperformed all other segments.
It was primarily the single-serve PET segment that drove overall category enlargement.
Leading companies have formed new distribution arrangements in order to capitalize on
the growing PET segment while attempting to revive other segments. PET volume
increased from 1.4 billion gallons in 2000 to almost 4 billion gallons in 2005, increasing its share of volume from 29 to 53 percent.
In 2005, Nestlé Waters North America remained the largest bottled water company
in the country, with $3.1 billion in wholesale dollar sales. Nestlé owned major regional
brands like Poland Spring, Arrowhead, and Zephyrhills, which accounted for more than
31 percent of total bottled water sales in 2005. Pepsi-Cola’s Aquafina, the number one
brand for the last several years, became the U.S. bottled water business’s first billiondollar brand in 2004. The brand sustained strong growth in 2005, when wholesale
dollar sales neared $1.3 billion. In 2005, Coca-Cola’s retail PET brand, Dasani, joined
Aquafina with sales greater than $1 billion. Both companies began offering flavored versions of their flagship waters; these products are developing and comprise only a small
portion of sales.
U.S. bottled water sales fluctuated according to a seasonal cycle that follows outdoor
temperatures. During warmer months people tend to engage in more outdoor activities
and consume greater quantities of water. There was a core target market group who exercised indoors and outdoors year-round regardless of the temperature. According to a survey conducted by the International Bottled Water Association in 2000, thirty-three percent of what U.S. consumers drink every day can cause dehydration. And, while most
people were aware of the importance of water consumption to their overall health, 63
percent of U.S. consumers didn’t know that the U.S. Food and Drug Administration
(FDA) regulated bottled water as a food product. In general, U.S. consumers chose bottled water because it was perceived to be safer and of higher quality than tap water. The
survey found that 56 percent of bottled water users cited taste and 55 percent cited convenience as the strongest influence on their decision to drink bottled water. More than
a third of bottled water users cited trust in its treatment (37 percent) and source (35 percent) as reasons that influenced them strongly. Seventy-one percent of U.S. consumers
felt that the quality of bottled water was high and half believed that using bottled water
to prepare tea, coffee, and powdered beverages improved the taste.
U.S. residents drank more bottled water annually than any other beverage, other
than CSDs. The gap between the two top categories was narrowing as bottled water continued to advance and CSDs either barely grew or declined. Average per capita intake of
bottled water grew by at least one gallon annually and has more than doubled in the past
decade. Per capita consumption of CSDs decreased slightly for several consecutive years.
Bottled water users were significantly more health conscious and cited health as a reason
for beverage consumption twice as often as others (15 versus 7 percent). Geographically
in the U.S., residents of Los Angeles (3.2 eight-ounce servings) and San Diego (3.2)
drank the most bottled water during the course of a day. Detroit residents drank the
least bottled water (1.3). Residents of San Diego drank the most bottled and tap water
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overall (6.9 servings), followed by Dallas (6.5), Los Angeles (6.4), and New York (6.4).
The least amount of total water was consumed in Detroit (5.4) and Seattle (5.6).
Bottled water’s share of the U.S. beverage market was poised to grow, while CSDs
were projected to lose ground. Bottled water’s share of the non-alcoholic beverage market could advance from less than 22 percent in 2005 to nearly 29 percent in 2010. The
CSD market would remain larger, with a 38 percent share (down from 43 percent in
2005), but bottled water should make major gains on the largest beverage category (see
Exhibit 1 for specific U.S. market statistics). According to life-stage statistics the largest
percentage of dollars spent annually on bottled water was by maturing families with
children between the age of six and twelve at 22 percent, middle-aged childless couples
between age thirty-five and fifty-four at 18 percent, and empty-nesters over fifty-five
with no children at home at 9 percent.
Exhibit 1. U.S. Bottled Water Market Statistics
Volume and Producer Revenues
2001—2005
Year
Millions of Gallons
2001
5,185.3
Annual % Change
--
Millions of Dollars
$6,880.6
Annual % Change
--
2002
5,795.7
11.8%
$7,901.4
14.8%
2003
6,269.8
8.2%
$8,526.4
7.9%
2004
6,806.7
8.6%
$9,169.5
7.5%
2005
7,537.1
10.7%
$10,012.5
9.2%
Source: Beverage Marketing Corporation
Per Capita Consumption
2001—2005
Year
Gallons Per Capita
2001
18.7
Annual Change
--
2002
20.7
10.8%
2003
22.1
7.0%
2004
23.8
7.6%
2005
26.1
9.6%
Source: Beverage Marketing Corporation
POWERWATER BEVERAGES, INCORPORATED
Recognizing increased consumer demand for pure water and concerns regarding contaminated natural water supplies, former Olympic swimmer and software entrepreneur
Duncan Cleworth founded PowerWater Systems, Inc. in 1999 in Toronto, Canada.
Cleworth believed that there was a niche opportunity in the bottled water industry for
a super-premium bottled water. After rigorous research he realized that market penetration would require a product differentiated from competitors based on characteristics
that extended beyond being “pure.” As a result, Cleworth obtained the rights to a unique
proprietary process that dissolves medical grade oxygen molecules into distilled (i.e.,
PowerWater Beverages, Inc.
5
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pure) water. Cleworth began marketing his company’s super-premium, oxygenated and
distilled bottled water product called PowerWater later that year in Canada.
In 2005, Kent Mawhinney and a group of investors recognized growing U.S. consumer demand for bottled water and, more specifically, for “pure” water. For example,
several studies reported in the popular press and on television that the bottled water
being sold on the market was no better than normal tap water. Consumers were
shocked by these reports and became more discriminating on the bottled water they
were willing to purchase. In an effort to capitalize on growing consumer demand for a
super-premium water, Mawhinney and his investors founded PowerWater Beverages,
Incorporated (PWBI), a C-Corporation with headquarters in Rocky Hill, Connecticut,
to pursue this opportunity. PWBI began by negotiating an agreement with PowerWater
Systems, Inc. Under the agreement, PWBI owned the rights, title, and interest in a trade
secret industrial design to produce pure distilled oxygenated water. PWBI’s exclusive
license allowed the company to produce and distribute PowerWater throughout the
world, except Canada. PWBI aimed to become the premier bottled water provider and
name brand for active and health conscious consumers in the United States and around
the world by offering optimally hydrating, pure, great tasting water that outperformed
alternatives available on the market (see Exhibit 2 for the full mission statement).
Exhibit 2
PWBI’s Mission Statement
PowerWater Beverages aims to become the premier bottled water provider and name brand for active and
health-conscious consumers in the United States and around the world by offering optimally hydrating, pure,
great tasting water that outperforms alternatives available on the market.
PowerWater Beverages will establish, build, and maintain a reputation in the marketplace for producing and
delivering the best quality bottled water. PowerWater Beverages will achieve this by leveraging its unique proprietary process, its rigorous efforts to maintain an understanding of market trends and needs, and its abilities to
continually develop innovative water products and packaging to meet the diverse needs of specific market segments.
In pursuit of PowerWater Beverages’ goals, the company resolves to treat shareholders, strategic outsourcing
partners, retailers, and end customers, with the utmost care and concern. These groups see PowerWater
Beverages as the vehicle for significant benefits through wealth and better health creation.
The PowerWater Product
PowerWater was produced through a unique proprietary and patented process that dissolves medical grade oxygen molecules into distilled (i.e., pure) water. This process produced water that optimized hydration, had significantly low levels of total dissolved
solids (TDS), and was designed to improve taste.
While all bottled waters are purified to some degree in order to remove contaminants, PWBI’s rigorous purification system provided the purest water available (for more
explanation of the process and the results, see Exhibit 3). PowerWater’s unique four-step
process:—filtration, distillation, purification and oxygenation—set a new standard in
water purity. This process produced a product with the following characteristics:
∑ Removed of micro-sized particles, heavy metals, inorganic and organic impurities,
and micro-organisms and bacteria from the water.
∑ Super-oxygenated pure distilled water with medical-grade oxygen by means of a proprietary process that hydrates the body over twice as fast as most drinking water.
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Exhibit 3 PowerWater Beverages’ Rigorous Purification Process
The Importance of Bottled Water Purity
One of the most widely accepted measures of purity in water is the level of total dissolved solids (TDS). TDS includes any minerals,
salts, metals, cations, or anions dissolved in water (i.e., anything present in water other than pure water molecules). TDS is measured in units of parts per million (PPM). The TDS measure represents the total amount of impurities dissolved in the water and is
unaffected by simple filtration. The chart below provides a TDS scale and corresponding ratings of common waters.
Water purity is critical for the hydration process. The body must process and filter out all solids from water before it can deliver clean,
pure water to the cells.
PowerWater’s Unique Production Process
PowerWater starts its journey from the source. It is then fed through food grade polymer piping to a Carbon filter. This removes any
foul taste, chlorides, and some heavy metals. The treated water then passes through a dual salter and filtration unit. This softens the
water as well as removes any organic matter, inorganic matter and remaining metals. The water then passes through another filter to
ensure that the TDS is less than 10 ppm. Now the water enters the distiller. This process removes all remaining impurities, including
micro organisms and bacteria. The result is TDS under 1 ppm. Finally, the water is chilled and infused with medical grade oxygen
under pressure by a proprietary “Oxy Transfer Process” resulting in PowerWater. The Oxy Transfer Process (OTP), a proprietary
process, enables small streams of oxygen bubbles to be stripped down to molecules and dispersed within the stream of distilled
water. Prior to bottling, PowerWater is treated with ultra-violet light to ensure elimination of any micro-organisms and bacteria.
PowerWater, with TDS < 1ppm, can potentially hydrate the body twice as fast as most water.
PowerWater Precipitator Demonstration
TDS are not visible to the naked eye and therefore most consumers are not aware of the extent to which they exist in bottled water
available on the market and in household tap water. PowerWater has developed the following demonstration for use with consumers,
retailers, and distributors to clearly illustrate what people are drinking when they purchase other bottled waters. The demonstration is
available on the company’s Web site and in marketing materials. In addition, each of the independent sales representatives has the
equipment to provide such demonstrations on site. These demonstrations have proven to be very effective in the field and often
result in sales.
To test TDS, a precipitator is placed in two glasses. One glass contains a leading bottled water and the other contains PowerWater. The
electrodes on the precipitator cause dissolved solids to come out of
suspension. After one minute discoloration occurs in the leading brand
as the solids begin to separate from the water. PowerWater is clear.
After 1 Minute
PowerWater Beverages, Inc.
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Exhibit 3 (continued)
After 2 minutes
After two ,minutes, discoloration increases in the
leading brand and a greenish cloud forms.
PowerWater remains clear.
After 3 minutes
After three minutes, a thick green and brown film
forms on the surface of the leading brand’s water.
PowerWater is still clear.
Production, Packaging, and Distribution
Since the PWBI team did not possess experience in the areas of production or distribution, the team decided that the most prudent method for entering the U.S. market was
through strategic outsourcing partners for these areas and to concentrate their efforts on
marketing, sales, and operations logistics.
Mawhinney negotiated co-packer and distribution agreements with industry leaders,
and signed contractual agreements with well-known independent sales representatives
throughout the United States. The co-packer PWBI used for producing its product was
located in Kiamesha, New York, and had a distribution radius of 750 miles. Leisure
Time Beverages, Inc., produced PowerWater based on their strong reputation in the
market and experience working with other organizations seeking to outsource production of bottled waters. Leisure Time had been providing water to its customers since
1884 and had a very positive reputation in the market for producing its own and private
label bottled water. Strategically, PWBI planned to maintain outsourcing relationships
with co-packers that were located within 750 miles of its distribution points. Such locations were deemed critical to maintain control over shipping costs. Planned Florida and
California co-packers would be able to cover the balance of the country because of more
favorable distribution costs. However, PWBI’s plans for the next three years included
only markets that could be serviced through production at Leisure Time Beverages.
Depending on the capacity and equipment of each of its planned co-packers, PWBI
aimed to roll out a plan that required the following for each co-packing site:
•Plant to include distillation capacity of 50+ gallons per hour
•Holding tanks of 10,000 gallons minimum
•Oxy Mass Transfer Oxygen generator (PowerWater exclusive trade secret)
•Chilling capacity to 38 degrees
•Label applicator for clear poly roll-fed label
•Bottling speed of 350 bottles per minute
•Capable of registered film wrapping
•Computerized palletizer
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Potential co-packers generally had all of the capabilities listed above, except for the
Oxy Mass Transfer Oxygen generator. Because the oxy-masher used a propriety process,
ownership would remain with PWBI. Once a co-packing agreement was reached, PWBI
would pay for the oxy-masher and its installation on the co-packer’s premises (a $45,000
to $50,000 total cost). No capital investment would be required of the co-packer.
Each of PWBI’s co-packing agreements included specific details regarding the overall parameters for the specific end product. Each PowerWater selling unit, actually a 24count case, had specific guidelines that were outlined in the agreement. These specific
parameters were critical for PWBI to maintain a high-quality product that was consistent with its focus on the super-premium segment of the bottled water industry.
Co-packers were responsible for installing the necessary equipment for producing
PowerWater at their facilities, sourcing the PET bottles and label printing, making and
testing PowerWater, filling and packaging bottles, and shipping them to regional distributors. Distributors played a critical role through providing warehousing of product so
that it was ready and available for retailers and/or shippers to pick up. Many distributors
also played a critical liaison role between PowerWater and its retailers.
Retailers were very important in the PowerWater distribution channel. Retailers generally sought products that generated increased profits per unit per amount of shelf
space. During a new product’s introduction into the market, many retailers featured the
product in newpaper advertisements and often offered coupons to stimulate sales. Initial
retailer reactions were that PowerWater presented an appealing bottled water option to
retailers because it had a high margin. This was contrary to the margins other bottled
waters offered and many retailers claimed that they actually lost money on these products relative to the amount of space they required.
PWBI recognized the need to establish a national network of sales representatives
without incurring the costs associated with a full-time sales force. The most effective way
to accomplish this was to develop and train a network of independent sales representatives in strategic locations across the U.S. PWBI initially secured agreements with representatives in Massachusetts, Rhode Island, and Maryland that would establish market
presence in the Northeastern U.S. region (see Table 2).
Table 2
PWBI Initial Independent Sales Representatives
Name/Company
City
Action Sales and Marketing, Inc.
Sandwich
State
MA
Cain Associates,Inc.
Woburn
MA
IFB of New York, Inc.
Ellicott City
MD
Fresh Foods Sales and Marketing
Framingham
MA
Meucci and MacGregor Associates
Newport
RI
Transportation in the beverage industry can be the most costly component of operations. PWBI understood that absolute control of these costs was critical. The company
maintained control over these costs through building on its already established network
of regional warehouses and partnering with well-established, premier logistics providers.
In particular, the company partnered with Associated Warehouses (a.k.a. Barrett
Distribution, Inc.), a premier provider of third party logistics services located in
Franklin, Massachusetts. Barrett Distribution, whose services included public warehousing, contract warehousing, fulfillment services, and transportation services to manufacturers, distributors, and retailers in a variety of industries, agreed to warehouse up to 500
PowerWater Beverages, Inc.
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pallets of the PowerWater product for a nominal fee per pallet. Barrett Distribution utilized virtually all major carriers and was able to leverage its own buying power to secure
transportation rates for PWBI.
PWBI also partnered with C&S Wholesale Grocers, Inc., located in Keene, New
Hampshire. C&S offered wholesale food distribution to grocery chains and large independent food stores throughout the U.S., providing 53,000 food and nonfood items to
4,000 corporate customers, including produce, meat, dairy products, delicatessen products, fresh/frozen bakery items, health and beauty aids, candy and tobacco. C&S customers included such food giants as: Pathmark, Safeway, Giant Food Stores, Shaw’s
Supermarkets, Stop and Shop, A&P Food Mart, Big Y Foods, BJ’s Warehouse, Great
American, SavMart/Foodmax, Demoulas, and independent store/supermarket
owner/operators.
PWBI was set to begin producing and selling its product in the third quarter of 2006.
Through corporate and independent sales representative efforts, PWBI secured agreements to have its product on the shelves at several major retail outlets (Table 3).
In addition, PWBI was actively negotiating with several other companies and expected PowerWater to broaden its market penetration in the near future (Table 4).
Table 3 Retail and Restaurant Outlets Selling PWBI’s Product
Retailer
Number of Stores
Locations
Big Y Supermarkets
52
CT, MA
Shaw’s Supermarkets
212
New England
Christies
30
MA
Discount Drug Mart
60
OH
Franklin Dist.
100+ stores
CT
American Grocer Dist.
60
MA, NH
Table 4 Companies with which PWBI was negotiating contracts
Retailer
Home Depot
10
Number of Stores
Locations
Over 2,200
Nationwide
Bozzuts Dist. IGA
Over 300
Food Bag
Over 30
Frank Banco Dist.
Over 300
NJ, NY, PA
Publix
Over 100
FL
Price Chopper
Over 100
New England, NY, and PA
Ohio Wine
Over 25
Quick Chek
Over 100
Saeway
Over 1,700
Pine State Traders & Dist.
Over 3,000
Trader Joes
Over 200
New England
CT
OH
NJ
Across USA
New England
AZ, CA, CT, DE, IL, IN, MD,
MA, MI, MN, NY NJ, NM,NY,
OH, OR, PA, VA, WA
J. Polep Dist.
Over 700
New England
Wakefern
Over 300
Metro New York/Long Island
Pathmark
Over 60
Long Island
King Cullen
Over 40
Long Island
XTRA Mart
Over 300
New England, MD, VA, NY, PA
Case Research Journal • Volume 29 • Issue 3 and 4 • Summer/Fall 2009
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For the exclusive use of M. Al Bahri, 2017.
PowerWater was offered to consumers in the United States in high quality 20-ounce bottles that included a sports or standard cap (sports caps were considered an attractive feature for younger consumers, while standard caps appealed to older consumers) and labeling. The product’s characteristics were designed to be attractive to 18–54 year old active
men and women who were in the middle-to-upper income segment of the market. This
market is generally college educated, physically active and health conscious. In addition,
women within this category make the majority of purchasing decisions for household
food and beverages. PWBI’s primary target market included nearly half (49 percent) of
the available market segments.
Marketing Plan
Despite limited resources for marketing its product during the startup phase, the PWBI
management team believed in its marketing plan. PWBI would continue to introduce
its product at tradeshows in 2007 and would focus on establishing relationships with
additional potential independent sales representatives and retailers interested in selling
its product. The modest booth at tradeshows would focus on providing live demonstrations comparing TDS found in competitors’ products versus PowerWater. The team was
confident that this powerful demonstration would garner interest from representatives
and retailers. They believed that participating in these tradeshows would establish
enough of a foundation to forgo these shows in the next few years.
The PWBI team was also well versed in what it took to secure commitment from
retailers to sell its product. Rather than paying slotting fees (fees paid by a product company to a retailer in exchange for shelf space in the store), PWBI believed that it could
continue to gain entry into retail establishments through a combination of providing
margins larger than its competitors and also giving early stage discounts to stores who
would agree to take on the product. In addition, PWBI would participate in store incentive programs that attracted consumers through coupons in local newspapers. PWBI
projected that discounts and incentives would be 24 percent of sales. The company had
already experienced success with this strategy and this also allowed the company to circumvent slotting fees.
The key component behind PWBI’s marketing plan, however, rested with establishing a strong network of independent sales representatives. These representatives offered
established connections with retailers and thus the opportunity to gain market entrance.
In addition, the PWBI team believed that an established network would allow the company to maintain lower budgets for advertising, promotion, and marketing. In essence,
the team believed that its best investment was in these representatives.
The Senior Management Team
During the past year, Mawhinney had been instrumental in formulating the strategic
direction of the company, assembling the PowerWater team, and implementing an
aggressive plan to promote and secure significant market share in the ultra-pure water
segment. He relied on his past law experience—which included complex negotiations
and litigations as well as providing assistance to a wide array of companies—in creating
and implementing targeted strategies to achieve market penetration and growth.
Mawhinney held 17.5 percent of the common stock in PWBI. To fund the startup of
PowerWater Beverages, Mawhinney had secured $370,000 from key management team
PowerWater Beverages, Inc.
11
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members and early investors in the form of promissory notes that were to be paid within the next twelve to eighteen months.
Mawhinney recruited Nehal Baaquie, a high energy sales executive with a B.S. from
Notre Dame University, to assemble and train a team of sales professionals to market
PowerWater and future line extensions. As a principal with N.F.B. Assoc., Inc. before
joining PWBI, Baaquie sold a wide array of products including Sharpie® pens, Kodak®
film and various specialty food and beverage items. He had overseen a multitude of sales
forces, both domestically and internationally. Baaquie had experience in exporting millions of dollars of goods each year to countries throughout Asia, Africa, and Western
Europe.
PWBI also attracted Theodore Munson—a detail-oriented executive who attended
Southern Connecticut State University—who had over twenty-five years’ experience
developing a major manufacturer’s business. Munson’s role at PWBI was to develop line
extensions and formulate strategic alliances with distributors, co-packers, and investors.
Munson had a 3 percent ownership in the company.
Tom DiMarco, a graduate of Ripon College with a degree in Economics, was
brought on board to oversee PWBI’s national production facilities and distribution operations including logistics. DiMarco was responsible for all aspects of the company’s proprietary purification process in addition to overseeing all of the company’s marketing
campaigns including print, broadcast, and community outreach programs. DiMarco
was one of three founders of PureTech Waters of America, which developed and marketed Vital H2o. Under DiMarco’s watch, that brand became a regional powerhouse
servicing both the home and business markets. DiMarco held 5 percent of the common
stock in PWBI.
Rounding out the senior management team was David Angliss, CPA and certified
valuation analyst. His role was to direct all corporate accounting including preparing,
analyzing, and reporting financial results to management. Angliss also assisted with the
development of the company’s budgetary plans for expansion. He had thirty-three years
of public accounting experience and had operated his own accounting, auditing, and tax
practice. He also had extensive experience in manufacturing and wholesale distribution.
Angliss had a 5 percent ownership in the company.
In addition to Mawhinney, Munson, and Angliss, two others with ownership interests sat on the board of directors. Dr. Chris Murphy owned 2 percent of the common
stock in PWBI and Terry Grech, a successful entrepreneur from Virginia, owned 30 percent of the common stock. PowerWater Systems, Inc. held a 30 percent ownership in
the company (Duncan Cleworth was also the honorary chairman of the board) and
Daniel Grech (son of Terry Grech) owned 7.5 percent.
PWBI utilized a unique “virtual organization” structure. This structure allowed the
executive team to operate from geographically dispersed locations and thereby promoted
enhanced market presence and offered potential retail customers increased and efficient
access to members of the executive team (see Exhibit 4).
COMPETITION
Most of PWBI’s direct competition came from PET bottled waters with similar superpremium market positioning. Penta, one of the most successful premium bottled waters
on the market, was PWBI’s closest competitor. Like PowerWater, Penta used an extensive and scientifically based filtration process to transform ordinary water into pure
12
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water with TDS less than .5 parts per million (ppm). Most of its bottling was done at
its own facility in Carlsbad, California, and promotion was heavily based on endorsements and sponsorships of sports teams (many Olympic sports including water polo
and swimming) and other celebrities. Penta was the most expensive bottled water in the
U.S. market with a suggested retail price for a 1.0-liter bottle of $2.79. Aspen Pure, an
entrepreneurial company based in Aspen, Colorado, was also establishing its presence
with a five-step filtration process and a lower price ($1.59 for a 1.0-liter bottle). Iceland
Spring, which claimed to have the lowest TDS of imported premium waters at 58 ppm,
sold a 1.0-liter bottle for a price between $1.49 and $1.79. PowerWater, with a TDS of
less than 1 ppm, was priced at $1.00–$1.20 for a 20 ounce bottle, which translates to
$1.69–$2.03 per liter. Retailers reported that initial consumer reaction to the product
was very positive and retailers were already inquiring about additional orders and the
company’s ability to meet demand, should it continue to grow.
Indirect competition came from products with premium positioning that were
slightly less niche-oriented and had considerable power and market share. For example,
Aquafina and Dasani, PepsiCo and Coca-Cola’s main bottled water offerings, claimed
TDS of 10 ppm and 20 ppm, respectively, through filtering from municipal sources.
Both of these waters sold for less than the premium brands described above. O
Beverages, a New England area company launched in 2004, had also entered the market with a product that was said to guarantee TDS of less than 3 ppm.
Exhibit 4
PWBI Organizational Chart
Board of Directors
Terry Grech
Theodore Munson
Dr. Chris Murphy
Kent Mahwinney
President
David H. Angliss
Kent Mawhinney
(South Windsor, CT)
VP Sales
VP Business Dev.
CFO
Nehal F. Baaquie
Theodore Munson
David Angliss
Tom DiMarco
(Cromwell, CT)
(Avon, Ct)
(Rocky Hill, CT)
(Rocky Hill, CT)
VP Ops. & Mark
Independent Sales
Representatives
PowerWater Beverages, Inc.
13
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FINANCIAL INFORMATION
PWBI had developed financial projections that management believed were conservative and reasonable to achieve in its first three years of operations, based on
the fact that the company had already negotiated production, sales, and distribution agreements using the underlying assumptions and had already begun to sell
the product with success in the marketplace (Table 5).1
The company expected to grow from 4 truckloads in the first month to 26
truckloads in the end of the twelfth, resulting in a modest 201 total truckloads during the year. During the second year of operations, the company expected to build
on the 26truckload mark established in month twelve and grow by 3 truckloads per
month during years two and three, resulting in 546 and 978 truckloads in each of
these years, respectively. PWBI’s management team believed these targets to be
conservative.
Capital Requirements
PWBI was seeking $950,000 in capital from one or several qualified investors. These
funds, as described below, would be used to facilitate continued expansion, implementation of the company’s marketing plan, and working capital required to grow the
company. More specifically, the proposed infusion of $950,000 would be used for the
following:
1. Capital equipment expenditures necessary to secure additional co-packers in new
markets such as the southeastern and southwestern markets of the United States.
Securing additional co-packers in these markets would expand product reach and
significantly reduce shipping costs to these markets by having an in-market production contract.
2. Funds necessary to continue implementing the company’s strategic marketing
plan and further expand the product’s mindshare in the marketplace.
3. Working capital such as inventory and accounts receivable investments generated
by a fast growing start-up firm.
Financial statements (see Exhibits 5–12) were used as PWBI determined valuation and capital needs.
Table 5
Financial Assumptions
Assumption
Amount
Cases per pallet
60
Pallets per truck load
24
Pallets per half truck load
11
Price per case
$15.00
Totals sales price per pallet
Totals sales price per truck load
14
$900.00
$21,600.00
PowerWater Beverages, Inc.
Case Research Journal • Volume 29 • Issue 3 and 4 • Summer/Fall 2009
14
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Proposed Investment Options
As a result of its prudent and well-planned ownership structure, PWBI had the flexibility to offer several investment opportunities which included, but were not limited to, the
following:
1. Issuance of common stock in exchange for invested capital—Investors would receive
common shares of stock in an amount relative to the company’s current and projected valuation. The terms of investment would be subject to negotiation.
2. Issuance of common stock with a promissory note in exchange for invested capital—
Investors selecting this option would receive a reduced number of common stock
shares in an amount relative to the company’s current and projected valuation and
take into consideration that the investor would also receive repayment of the investment through a promissory note. The terms of the promissory note would include
a 4 percent per annum return over a five-year payback period. Repayment of the
promissory note would be funded through three mechanisms:
a. Forgoing licensing fees that would otherwise be paid to PWBI from overseas producers and marketers who are interested in securing the rights to production and
distribution of PowerWater. Individuals from China and India have already
expressed interest.
b. Normal cash flow from operations.
c. Acquisition of PWBI by another company or individual.
3. Issuance of preferred convertible stock—PWBI was open to discussions with
investors interested in preferred convertible stock. This stock would be convertible
to common stock based on a predetermined rate. The terms were subject to negotiation.
Blind Tee Shot
Mawhinney finished hole number four with a fifteen-foot putt for par. Murphy wasn’t
as fortunate; he missed a four foot putt for par and had to settle for bogey. As
Mawhinney approached the tee box for the fifth hole, he realized how the hole mirrored
the challenges that PowerWater faced and that would be addressed at the board meeting the next day. The tee box stood on top of a hill and the fairway proceeded downhill
and curved around to the right behind a line of trees. This was truly a blind tee shot.
The golfer had to visualize where he wanted to end up and then trust this visualization
to make his best effort to hit the ball to a place unseen. Mawhinney smiled as he
approached the tee box and thought about how similar this shot was to starting
PowerWater. He had a vision of what the company could be and what it would take to
get it there but the future, like his tee shot, was risky and uncertain. Did the company
need $950,000 at this point in time? They also needed to determine an appropriate valuation for the company and this, like the tee shot, seemed to be based totally on speculation. What would investors be seeking in return for this much capital? These questions, along with other opportunities for the PowerWater product lingered in his head
as he proceeded to initiate his backswing.
NOTES
1
Exhibit 12 at the end of the case includes all major assumptions used to develop
PowerWater’s projected financials.
PowerWater Beverages, Inc.
15
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Exhibit 5
PWBI’s Projected Income Statements
PowerWater Beverages, Inc. Income Statement
6/30/2007
6/30/2008
6/30/2009
$4,341,600
$11,793,600
$21,124,800
Cost of goods sold
2,637,924
7,306,571
13,311,026
Gross margin
1,703,676
4,487,029
7,813,774
Net sales
Selling, general & administrative costs:
Commissions
494,942
1,344,470
2,408,227
Salaries and wages
0
275,000
575,000
Payroll expense
0
55,000
115,000
585,000
800,000
800,000
Promotions and marketing
35,000
42,000
42,000
Trade show expense
25,000
0
0
Miscellaneous
52,700
82,900
133,150
Advertising
Depreciation
25,000
23,200
21,900
1,217,642
2,622,570
4,095,277
486,034
1,864,459
3,718,496
29,548
29,548
28,484
Earnings before taxes
456,486
1,834,911
3,690,012
Federal and state income taxes
182,594
733,964
1,476,005
$273,892
$1,100,947
$2,214,007
Total SG&A expenses
Earnings before interest and taxes
Interest Expense
Net income
16
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For the exclusive use of M. Al Bahri, 2017.
Exhibit 6
PWBI’s Projected Balance Sheets
PowerWater Beverages, Inc. Balance Sheets
End of Initial Year
6/30/2007
6/30/2008
6/30/2009
130,926.64
$ 1,000,451.23
2,655,393.71
613,920.00
1,413,552.00
2,533,296.00
Assets
Current Assets
Cash
$
15,558.96
Accounts receivable
$
1,732.80
Inventory
Total Current Assets
-
27,648.00
64,074.24
87,995.29
17,291.76
772,494.64
2,478,077.47
5,276,685.00
Furniture & Equipment
Furniture
Equipment
6,908.00
6,908.00
6,908.00
6,908.00
45,545.54
95,545.54
95,545.54
140,545.54
Gross Fixed Assets
52,453.54
102,453.54
102,453.54
147,453.54
Less accumulated depreciation
(5,889.32)
(30,889.32)
(54,089.32)
(75,989.32)
Net Fixed Assets
46,564.22
71,564.22
48,364.22
71,464.22
63,855.98
$ 844,058.86
$ 2,526,441.69
$ 5,348,149.22
$
$
$ 1,101,047.19
$ 2,038,747.33
Total Assets
$
Liabilities & Stockholders' Equity
Accounts payable
-
506,311.34
Loans Payable
369,350.76
369,350.76
356,050.76
26,050.76
Total Liabilities
369,350.76
875,662.10
1,457,097.95
2,064,798.09
Stockholders' Equity
Common stock
600.00
600.00
600.00
600.00
Retained earnings
(306,094.78)
(32,203.24)
1,068,743.74
3,282,751.14
Total Equity
(305,494.78)
(31,603.24)
1,069,343.74
3,283,351.14
$ 844,058.86
$ 2,526,441.69
$ 5,348,149.22
Total Liabilities & Stockholders’ Equity
$
63,855.98
PowerWater Beverages, Inc.
17
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Exhibit 7
PWBI’s Projected Cash Flow Statements
PowerWater Beverages, Inc. Cash Flow Statements
6/30/2007
6/30/2008
6/30/2009
Cash flows from operating activities
Net income
$ 273,892
$1,100,947
$2,214,007
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation & amortization
25,000
23,200
21,900
(612,187)
(799,632)
(1,119,744)
(Increase) in inventory
(27,648)
(36,426)
(23,921)
Increase in accounts payable
506,311
594,736
937,700
(Increase) in accounts receivable
Increase in accrued expenses
Increase (decrease) in income taxes payable
-
-
-
(108,524)
(218,122)
(184,065)
165,368
882,825
2,029,942
(50,000)
-
(45,000)
(50,000)
-
(45,000)
Debt repayments
-
(13,300)
(330,000)
Proceeds from financing
-
-
-
-
(13,300)
(330,000)
115,368
869,525
1,654,942
Total adjustments
Net cash provided by (used in) operating activities
Cash flows from investing activities
Cash paid for equipment
Net cash provided by (used in) investing activities
Cash flows from financing activities
Net cash provided by (used in) financing activities
Net increase (decrease) in cash and equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
18
15,559
130,927
1,000,451
$ 130,927
$1,000,451
$2,655,394
Case Research Journal • Volume 29 • Issue 3 and 4 • Summer/Fall 2009
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(4,494)
(528,418)
(462,106)
(651,071)
EBIT
EBITDA
Source: Pratt Stats at www.bvmarketdata.com/
MV Equity to Book Value of Equity
NA
0.53
1.85
MV Equity to Sales
MV Equity to Gross Profits
MV Equity Valuation Ratios
NA
MVIC to Book Value of Equity
NA
0.98
0.27
NA
23.06
57.04
NA
NA
MVIC to EBIT
MVIC to EBITDA
1.13
0.53
1.85
MVIC to Sales
0.31
(51,831)
(123,134)
9,643
486,169
1,796,563
MVIC to Gross Profits
MVIC Valuation Ratios
Book Value of Invested Capital
Book Value of Equity
(1,160,668)
(1,160,668)
1,973,864
Gross Profits
Net Income
(23,846)
6,931,883
Sales
550,000
3,656,418
478,697
3,656,418
MV of Equity (Price)
8/25/2004
7/1/2004
CT
LLC
S Corp
MD
2.12
5.87
1.50
2.17
NA
NA
5.98
1.53
2,453,002
2,354,594
(2,727,45)
(1,946,500)
(2,366,573)
852,701
3,332,340
5,001,592
5,100,000
6/17/2004
C Corp
ID
Distributor of water,
Production and
Distributor of water, juices,
juices, and ready to drink and ready to drink teas. distribution of bottled
teas.
water
Aloha Water
Company
Essentia Water, Inc.
9.22
2.10
1.11
9.50
10.53
47.92
2.16
1.15
421,193
329,108
(19,629)
(297,082)
65,264
1,445,937
2,723,172
3,035,316
3,127,401
9/11/1997
C Corp
NY
19.27
2.10
1.33
20.12
NA
NA
2.20
1.39
132,294
71,454
(116,609)
(11,156)
(109,010)
654,165
1,033,425
1,376,660
1,437,500
3/20/2000
S Corp
HI
NA
45.08
11.81
NA
NA
NA
45.08
11.81
(132,883)
(132,883)
(688,150)
(594,709)
(644,437)
177,466
677,221
8,000,000
8,000,000
1/21/2000
S Corp
WA
Distributor of purified Manufactures and distribBottling, sale,
distribution of spring water to homes and utes electrolyte and alkaline enhanced bottled
offices
water
water products
Master Distributors, Inc. Finish-Line Distributors, Trinity Springs, Ltd. Excelsior Spring Water
LLC
Company, Inc.
Market Value Information from Recent Sale Transactions of Non-public Companies in the Bottled Water Industry
Market Value of
Invested Capital (MVIC)
Sale Date
Organizational Form
State
Exhibit 8
For the exclusive use of M. Al Bahri, 2017.
PowerWater Beverages, Inc.
19
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20
65.23
Revenue ($MM)
2.17
MVIC to Book Value of Equity
0.54
0.95
1.05
MVIC Equity (Price)
to Sales
MV Equity (price) to
Gross Profits
MV Equity (price) to Book
Value of Equity
MVIC Valuation Ratios
5.63
MVIC to EBITDA
10.95
1.96
MVIC to EBIT
1.12
MVIC to Sales
72.76
8.53
2.02
1.56
10.54
19.42
87.66
2.50
1.92
15.78
0.57
1.50
1.56
33.60
0.18
0.81
6.64
12.92
6.32
0.09
8.21
12.77
$4.25
37.04
MVIC to Gross Profits
MVIC Valuation Ratios
Market Value Invested
Capital MVIC ($MM)
Book Value per Share BVPS
Stockholder Equity ($MM)
EBITDA ($MM)
EBIT ($MM)
Gross Profit ($MM)
2.08
35.26
NI ($MM)
$1.64
ELDO
VPS
Market Capitalization ($MM)
Eldorado
Artesian
Springs Inc.
Vermont Pure
Holdings
11.36
30.02
12.16
11.36
137.14
173.98
30.02
12.16
480.00
1.70
42.27
3.50
2.76
15.99
4.63
39.46
480.00
28.36
19.50
6.44
28.36
22.15
34.42
19.50
6.44
3,560.00
2.23
125.51
160.72
103.44
182.54
94.19
552.40
3,560.00
$39.44
HANS
JSDA
$18.54
Hansen Natural
Corp.
Jones Soda
Co.
4.55
3.55
1.11
4.55
12.56
17.74
3.55
1.11
595.14
3.44
130.86
47.38
33.55
167.67
24.21
536.43
595.14
$13.08
FIZ
National
Beverage
Corp.
2.29
5.16
0.63
3.07
9.65
652.69
6.92
0.84
1,501.19
6.81
488.70
155.60
2.30
216.90
(10.60)
1,780.00
1,120.00
$15.60
COT
Cott Corp.
3.12
3.97
1.99
4.02
14.26
22.48
5.12
2.56
37,656.87
14.02
9,374.30
2,640.00
1,675.03
7,360.00
1,040.00
14,710.00
29,220.00
$55.78
CSG
Cadbury
Schweppes plc
Market Value Information for Public Companies in the Bottled Water and Soft Drink Industry
Share Price
Exhibit 9
7.10
7.55
4.81
7.47
15.79
20.05
7.94
5.06
126,470.40
7.46
16,920.00
8,010.00
6,308.00
15,920.00
5,240.00
24,970.00
120,210.00
$52.08
KO
Coca-Cola
Co.
7.01
5.59
3.03
8.12
14.58
19.49
6.48
3.51
125,506.17
9.46
15,477.00
8,610.00
6,439.00
19,380.00
5,780.00
35,770.00
108,360.00
$66.54
PEP
PepsiAmerics
Inc.
10.16
8.84
4.21
11.21
27.19
35.38
9.75
4.64
88,370.51
3.01
7,886.20
3,250.00
2,498.01
9,060.00
1,620.00
19,030.00
80,090.00
$30.70
DA
Groupe
DANONE
For the exclusive use of M. Al Bahri, 2017.
Case Research Journal • Volume 29 • Issue 3 and 4 • Summer/Fall 2009
This document is authorized for use only by Musab Al Bahri in Entrepreneurial Finance-1 taught by Williams, University of Missouri - Kansas City from January 2017 to July 2017.
Source: Pratt Stats at www.bvmarketdata.com/
Source: RMA Annual Statement Studies 2006–2007 www.rmahq.org
7.97
2
4.93
100.0%
-54.6%
154.6%
31.6
123.0%
100.0%
0.0%
7.7%
92.3%
4.6%
52.0%
35.6%
0.1%
-0.3%
0.0%
-0.3%
0.8%
0.5%
0.8%
1
Return on Assets (ROA)
100.0%
-82.6%
Stockholders Equity
Total Liabilities and Equity
182.6%
0.0%
182.6%
Total Liabilities
Long-term Liabilities
Current Liabilities
100.0%
0..0%
Total Assets
9.0%
Other Noncurr Assets
91.0%
Fixed Assets
Total Curr Assets
4.5%
58.4%
Inventory
Other Curr Assets
28.1%
TradeRec
Cash Equivalents
0.0%
-9.4%
Net Income
Balance Sheet
0.0%
-9.4%
1.8%
Taxes
EBT
Interest Expense
-7.6%
Operating Profit
25.7%
Selling and Admin. Expense 35.1%
1.0%
28.5%
Gross Profit
Depreciation
27.1%
71.5%
72.9%
100.0%
100.0%
0.88
100.0%
62.1%
37.9%
2.6%
35.3%
100.0%
2.4%
76.5%
21.1%
0.0%
8.8%
10.4%
1.8%
-81.8%
0.0%
-81.8%
10.8%
-71.0%
12.6%
84.0%
25.6%
74.4%
100.0%
Finish-Line
Trinity Springs,
Distributors, LLC1
Ltd.1
COGS
Master Distributors,
Inc1
1.43
100.0%
17.3%
82.7%
4.8%
77.8%
100.0%
0.8%
71.9%
27.3%
1.7%
7.9%
16.5%
1.1%
-0.7%
0.3%
-0.4%
2.8%
2.4%
8.5%
42.2%
53.1%
46.9%
100.0%
Excelsior Spring
Water Company,
Inc1
2.10
100.0%
14.5%
85.5%
12.3%
73.%
100.0%
0.0%
78.4%
21.6%
0.0%
0.0%
16.2%
5.5%
-11.3%
0.0%
-11.3%
0.7%
-10.5%
9.5%
64.4%
63.3%
36.7%
100.0%
Aloha Water
Company1
1.24
100.0%
-24.2%
124.4%
0.0%
124.4%
100.0%
0.0%
51.5%
48.5%
6.3%
14.5%
17.6%
10.1%
-101.6%
0.0%
-101.6%
6.5%
-95.2%
7.3%
114.0%
26.2%
73.8%
100.0%
Essentia Water,
Inc.1
2.3
100.00%
49.00%
8.30%
8.70%
34.00%
100.00%
16.90%
31.70%
51.50%
2.90%
21.50%
21.70%
5.40%
7.20%
NA
NA
NA
8.60%
3.70%
19.20%
31.50%
68.50%
100.00%
Bottled Water
Companies
NAICS 3121122
Common Size Financial Data from Recent Private Sales and for Peer Group of Private Bottled Water Firms
Net Sales
Income Statement
Exhibit 10
For the exclusive use of M. Al Bahri, 2017.
PowerWater Beverages, Inc.
21
This document is authorized for use only by Musab Al Bahri in Entrepreneurial Finance-1 taught by Williams, University of Missouri - Kansas City from January 2017 to July 2017.
22
3.2%
Source: http://finance.yahoo.com/ and www.wsj.com
Net Income
3.2%
0.0%
Discontinued Operations
0.0%
Net income from Continuing Ops
2.0%
Minority Interest
5.2%
Income Tax Expense
Income before Tax
5.0%
10.2%
Earnings before Interest and Taxes
Interest Expense
0.0%
10.2%
Total Other Income/Expenses Net
Operating Income or Loss
46.6%
1.3%
Total Operating Expenses
0.0%
Others
45.3%
0.0%
56.8%
43.2%
Non Recurring
Selling General and Administrative
Research Development
Gross Profit
100.0%
VPS
-0.1%
0.0%
-0.1%
0.0%
-0.2%
-0.3%
3.1%
2.8%
0.5%
2.3%
77.6%
6.0%
0.0%
71.6%
0.0%
79.9%
20.1%
100.0%
ELDO
11.5%
0.0%
11.5%
0.0%
-2.3%
9.2%
0.0%
9.2%
2.3%
6.9%
33.3%
0.0%
0.0%
33.3%
0.0%
40.3%
59.7%
100.0%
JSDA
18.0%
0.0%
18.0%
0.0%
12.0%
30.0%
0.0%
30.1%
0.4%
29.6%
22.7%
0.0%
0.0%
22.7%
0.0%
52.3%
47.7%
100.0%
HANS
4.3%
0.0%
4.3%
0.0%
2.5%
6.8%
0.0%
6.8%
0.3%
6.5%
26.0%
0.0%
-0.2%
26.1%
0.0%
32.4%
67.6%
100.0%
FIZ
-0.1%
0.0%
-1.0%
-0.2%
-0.9%
-1.9%
1.9%
0.0%
0.1%
0.1%
12.1%
0.0%
2.2%
9.9%
0.0%
12.2%
87.8%
100.0%
COT
13.9%
7.6%
6.3%
0.0%
2.7%
9.2%
2.6%
11.8%
0.3%
11.5%
39.1%
0.7%
1.3%
37.1%
0.0%
50.6%
49.4%
100.0%
CSG
21.1%
0.0%
21.1%
0.0%
6.2%
27.3%
0.9%
28.2%
1.6%
26.2%
39.9%
0.0%
0.0%
39.9%
0.0%
66.1%
33.9%
100.0%
KO
Common Size Income Statements from Publicly Traded Firms in the Bottled Water and Soft Drink Industry
Cost of Goods Sold
Total Revenue
Exhibit 11a
PEP
16.1%
0.0%
16.1%
0.0%
3.8%
19.9%
0.7%
20.6%
0.5%
18.3%
36.8%
0.5%
0.0%
36.4%
0.0%
55.1%
44.9%
100.0%
DA
9.4%
1.1%
8.3%
-1.5%
2.6%
12.6%
1.6%
14.2%
0.8%
13.4%
35.3%
0.0%
0.2%
34.2%
0.9%
48.7%
51.3%
100.0%
For the exclusive use of M. Al Bahri, 2017.
Case Research Journal • Volume 29 • Issue 3 and 4 • Summer/Fall 2009
This document is authorized for use only by Musab Al Bahri in Entrepreneurial Finance-1 taught by Williams, University of Missouri - Kansas City from January 2017 to July 2017.
For the exclusive use of M. Al Bahri, 2017.
Exhibit 11b Common Size Balance Sheets from Publicly Traded Firms in the Bottled Water and Soft Drink Industry
VPS
ELDO
JSDA
HANS
FIZ
COT
CSG
KO
PEP
DA
Assets
Current Assets
Cash and Cash Equivalents
2.3%
1.4%
29.0%
37.6%
19.3%
1.2%
2.4%
8.1%
5.5%
3.9%
Short Term Investments
0.0%
0.0%
34.0%
7.2%
0.0%
0.0%
1.1%
0.5%
3.9%
15.3%
Net Receivables
9.9%
13.7%
17.6%
20.9%
23.0%
18.9%
9.5%
9.0%
12.4%
12.9%
Inventory
2.1%
4.8%
12.1%
19.2%
15.8%
11.5%
6.6%
5.5%
6.4%
4.2%
Other Current Assets
0.8%
1.1%
1.5%
0.7%
4.3%
0.9%
3.3%
5.0%
2.2%
0.0%
Total current assets
15.2%
20.9%
94.1%
85.6%
62.3%
32.5%
23.1%
28.2%
30.5%
36.2%
Long Term Investments
0.0%
8.8%
0.0%
0.0%
0.0%
0.0%
0.2%
22.6%
12.8%
11.2%
Net Property Plant and Equipment
13.2%
66.6%
4.5%
2.3%
25.7%
31.6%
16.4%
23.0%
32.4%
17.8%
Goodwill
25.1%
67.4%
0.0%
0.0%
0.0%
6.0%
13.9%
40.5%
4.7%
15.3%
Intangible Assets
3.3%
1.3%
0.4%
11.7%
0.8%
21.1%
18.2%
12.5%
6.2%
5.2%
Other Assets
0.9%
2.5%
0.0%
0.5%
5.3%
0.9%
0.5%
8.5%
2.0%
0.7%
Deferred Long Term Asset Charges
0.0%
0.0%
0.9%
0.0%
0.0%
0.0%
1.1%
0.6%
0.8%
3.9%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
Total Assets
Liabilities
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
Current Liabilities
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
Accounts Payable
6.9%
8.8%
11.7%
19.8%
27.9%
16.4%
17.9%
18.8%
17.6%
22.5%
Short/current Long Term Debt
4.2%
7.1%
0.1%
0.3%
0.0%
9.6%
13.3%
10.9%
0.9%
2.4%
Other Current Liabilities
0.9%
1.5%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
4.4%
0.0%
12.0%
17.4%
11.8%
20.1%
27.9%
26.0%
31.2%
29.7%
22.9%
25.0%
Long Term Debt
Total Current Liabilities
38.9%
49.2%
0.0%
0.0%
0.0%
24.2%
16.5%
4.4%
8.5%
33.5%
OtherLliabilities
3.2%
3.6%
0.0%
0.0%
0.0%
4.0%
0.0%
3.7%
6.3%
15.4%
Deferred Long Term Liability Charges 3.9%
8.1%
0.0%
3.3%
8.1%
5.1%
5.0%
2.0%
1.8%
1.7%
Minority Interest
0.0%
0.0%
0.0%
0.0%
0.0%
1.8%
0.1%
1.2%
0.0%
1.4%
Total Liabilities
58.4%
74.8%
11.9%
23.4%
40.1%
57.1%
56.5%
43.5%
48.4%
64.9%
0.0%
Stockholders’ Equity
Common Stock
Retained Earnings
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
87.4%
0.1%
0.2%
24.0%
2.4%
2.9%
0.1%
0.8%
-29.9%
2.5%
-5.3%
64.9%
57.4%
14.8%
21.7%
111.7%
83.0%
38.0%
Treasury Stock
-0.6%
0.0%
0.0%
-0.5%
-8.2%
0.0%
0.0%
-73.8%
-25.9%
-8.3%
Capital Surplus
72.2%
22.7%
5.9%
12.2%
10.5%
2.6%
10.7%
20.0%
2.0%
1.2%
Other Stockholder Equity
-0.1%
0.0%
0.2%
0.0%
0.1%
.5%
8.8%
-4.3%
-7.8%
3.5%
Total Stockholder Equity
41.6%
25.2%
88.1%
76.6%
59.9%
42.9%
43.5%
56.5%
51.6%
35.1%
TotalLiabilites and Equity
100.0%
100.0%
87.7%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
Return on Assets (ROA)
0.81
1.27
0.83
2.13
2.37
1.55
0.68
0.80
1.17
0.83
Source: http://finance.yahoo.com/ and www.wsj.com
PowerWater Beverages, Inc.
23
This document is authorized for use only by Musab Al Bahri in Entrepreneurial Finance-1 taught by Williams, University of Missouri - Kansas City from January 2017 to July 2017.
For the exclusive use of M. Al Bahri, 2017.
Exhibit 12
PowerWater Beverages, Inc. Assumptions Used in Developing Projections
General shipment and revenue projections
Cases per pallet
Pallets per truck load
Pallets per half truck load
Pallets per container
Sales price per case
60
24
11
20
$15.00
Total sales price per pallet
Total sales price per truck load
Total sales price per half truck
Total sales price per container
$900.00
$21,600.00
$9,900.00
$18,000.00
Monthly truck loads first year
month 1
4
month 7
20
month 2
6
month 8
22
Truck loads sold first year (total)
Truck loads sold in second year
Truck loads sold in third year
Cost per case (increase 3% per year)
Total cost per pallet
Total cost per truck load
Total cost per half truck
Total cost per container
Freight per truck load
Warehousing per pallet
Discounts and store incentive
month 3
9
month 9
23
month 4
12
month 10
24
month 5
14
month 11
25
month 6
16
month 12
26
201
546
978
year 1
year 2
$4.80
$4.94
$288.00
$296.64
$6,912.00
$7,119.00
$3,168.00
$3,263.00
$5,760.00
$5,933.00
$800.00
$824.00
$9.50
24% of sales
Inventory in truck loads year 1
Inventory in truck loads year 2
Inventory in truck loads year 3
4
9
12
year 3
$5.09
$305.54
$7,333.00
$3,361.00
$6,111.00
$849.00
$27,648.00
$64,074.24
$87,995.29
Selling and general administration costs
Employee Costs
Salaries:
Management
1st year
none
Payroll expense
Commissions
2nd year
$275,000
3rd year
$575,000
20% of management salary
15% of sales less discounts and incentives
Advertising
Promotion and marketing
Trade show expense
Miscellaneous SG&A
Web site and Internet fees
Travel expenses
Insurance
Legal and professional fees
Repairs and maintenance
Meals and entertainment
Office supplies
Telephone
Licenses, dues, and subscriptions
Meeting expenses
1st year
$35,000
$25,000
1st year
$2,000
$1,800
$2,100
$27,000
$1,800
$5,000
$5,400
$3,000
$500
$4,000
2nd year
$42,000
2nd year
$2,000
8,100
6,000
40,500
3,150
5,000
12,150
6,000
3rd year
$42,000
3rd year
$2,000 pd qtrly
12,150 annually
12,000 annually
60,750 annually
4,950 annually
5,000 annually
24,300 annually
12,000 annually
annually
annually
Interest expense
Loans payable
8% annually
Taxes
Federal and state income taxes
24
40% of taxable income
Case Research Journal • Volume 29 • Issue 3 and 4 • Summer/Fall 2009
This document is authorized for use only by Musab Al Bahri in Entrepreneurial Finance-1 taught by Williams, University of Missouri - Kansas City from January 2017 to July 2017.
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