Anheuser-Busch



|Anheuser-Busch |

|Prepared by: |

|Adam Kiersey |

| |

| |

|Financial Systems Management |

|Prepared for: |

|Sherrie Bertram |

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Introduction

I have preformed a financial analysis for Anheuser-Busch during the fiscal years of 2004 to 2007 through analyzing the organization’s annual 10K and 10Q reports from Securities Exchange Commission. I analyzed the company’s income statements, balance sheets, statements of cash flows, and statements of owners’ equity. I conducted a horizontal analysis using the past four fiscal years of operation and prepared a three year financial ratio analysis for Anheuser-Busch. I compared their financial data ratios of Anheuser-Busch with their major competitors, Heineken and MolsonCoors, and well as their industry averages.

Anheuser-Busch SIC code is 5181, which indicates that it competes in the beer and ale business. Its financial reporting year ends each December 31. Anheuser-Busch is the producer of various beverages including the Budweiser family, the Natural Light family, the Michelob family (malt liquor), 180 Blue (energy drink), and Bacardi (specialty malt beverages). It also owns Sea World, Discovery Cove Vacations, and Busch Garden Vacations. Anheuser-Busch is headquartered in St. Louis, MO. August A. Busch IV is the current president and CEO (Lexis Nexis).

Anheuser-Busch currently holds 48% of the beer market share in the United States. It also owns a 50% stake in Mexico's top brewer, Grupo Modelo, the producer of Corona and Negra Modelo (Aspen and Gellar, 2008). Also, in 2008 Anheuser-Busch accepted an acquisition offer from a Belgium brewer, InBev, which was finalized on November 20, 2008.

Horizontal Analysis

Chart 1: Anheuser-Busch Chart 2: Anheuser-Busch [pic][pic]

During the last four years, Anheuser-Busch’s sales have continued to steadily increase. From 2004 to 2007 sales increased by a total of 11.728%. The largest sale increase came between the years of 2006 to 2007 where sales increased by 6.163%. This increase in sales was mainly due to the 6% increase in the price per barrel within the United States. International sales increased 10% due to the 50% equity investment with Grupo Modelo which has continued to claim the greater part of international profits.

Between the fiscal years of 2004 to 2005 net income decreased 17.66%. This was from an increase in commodity price increase for items such as raw materials (i.e. aluminum and glass). There was a 12% increase in energy cost due to the shutdowns of refineries and oil and natural gas platforms along the Gulf Coast. From 2005 to 2006 net income increased 12.7%. The increases came partly from a $7.8 million dollar gain from deferred income taxing from state income tax reform legislation.

Chart 3: Anheuser-Busch Chart 4: Anheuser-Busch [pic][pic]

Between the fiscal years of 2004 to 2005 there was a decrease of 15.42% in earnings per share. This large decrease was caused by the loss of net income from this year, which was previously discussed. From 2005 to 2006 earnings per share increased 13.8%, this increase also came from a $7.8 million dollar gain from deferred income taxing from state income tax reform legislation. During 2006 between 2006 and 2007 Anheuser-Busch saw an increase of 10.98% in earnings per share. This increase was caused by a decrease in the amount of basic weighted-average common shares.

Anheuser-Busch year-end market price per share is consistent throughout the past four years. Between the years 2004 to 2005 Anheuser-Busch experienced a decrease of 15.3%. This can be explained by the 15.4% decrease in earnings per share during the same period (Historical Stock Quotes).

Chart 5: Anheuser-Busch Chart 6: Anheuser-Busch

[pic][pic]

Anheuser-Busch’s assets steadily increased each year except for 2006, when it decreased slightly by 1% or $177.8 million. This is because of the decrease of 45.6% in deposits and other assets from 2005 to 2006. The largest increase of 4.76% in total assets came from 2006 to 2007. This increase is mainly from the amount of cash, including inventory and accounts receivable.

The total cash for Anheuser-Busch remained consistent from 2004 to 2006. However in 2007 there is an increase in total cash is from an 8.5% increase in operating activities, a 5.4% increase in investing activities, and a 4.9% increase in financing activities. This resulted in an overall increase of 29.1%.

Chart 7: Anheuser-Busch

For the 3 years, 2005-2007, Anheuser-Busch had minimal fluctuation in their current ratio as it stayed between .81 and .89. The current ratio for 2005 was .8871 with current assets around 1.7 billion and current liabilities above 1.9 billion. The next year the company’s current ratio decreased to .8145. The main cause for this was an increase in the current liabilities, from 1.9 billion dollars to over 2.2 billion dollars. This was because accounts payable increased by 200 million dollars and also a 100 million dollar increase in accrued salaries, wages, and benefits. Due to the liabilities increasing and the current assets unchanged, the current ratio decreased. The year 2007 saw the current ratio increase to.8788. This was due to current assets increasing by 9.63% and current liabilities unchanged. The increase in current assets for fiscal year 2007 is mainly because of the increase in cash and cash equivalents, and inventory.

Quick Ratio: Chart 8

[pic] The quick ration, or acid ratio, is an indicator of a company's short-term liquidity.  To find the quick ration you take the current assets subtract the inventories and then divide that by the current liabilities. The quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio is, the better the position of the company. The quick ratio for Anheuser-Bush shows that there was no change from 2004 to 2005. There was a drop from 2005 to 2006 by 4%. This was caused by an increase in inventories and current assets as well as an increase in current liabilities. There was an increase from 2006 to 2007 by 3% in the quick ratio that shows that the company did better in the fiscal year 2007.

Total Asset Turnover

Chart 9: Anheuser-Bush

Total asset turnover is the amount of sales generated for every dollar's worth of assets. It is calculated by dividing sales in dollars by assets in dollars. The formula for asset turnover is revenue/assets. Asset turnover measures a firm's efficiency at using its assets in generating sales or revenue; the higher the number the better. It also indicates pricing strategy: companies with low profit margins tend to have high asset turnover, while those with high profit margins have low asset turnover. From 2004 to 2005 the total asset turnover decreased by .01 and from 2005 to 2006 the ratio went up from .91 to .96. This was an increase of .05.

Chart 10: Anheuser-Bush

Anheuser-Busch debt ratio changed dramatically each year. In the year 2005 Anheuser-Busch debt ratio was .798 with total debt at 13.2 billion dollars and total assets at 16.55 billion dollars. In the following year, 2006, the debt ratio decreased by 4.83% to .7595. This number can be explained due to total debt decreasing from $13.2 billion to $12.4 billion and total assets unchanged. The fiscal year 2007 saw the debt ratio increase by 6.96% to .8162. Looking at the statement, total debt for Anheuser-Busch increased from $12.4 billion to $14 billion and total assets increased from $16.3 billion to $17.1 billion. The $1.6 billion increase in total debt can be credited to substantial increases in accounts payable and long term debt.

Chart 11: Anheuser-Busch

Anheuser-Busch return on total assets had minimal change from 2005 to 2007, ranging from low of 10.5370% and high of 12.3305%. The fiscal year of 2005 saw net income at $1.7 billion and total assets at $16.5 billion, a ratio of 10.5370%. Year 2006 net income increase by over $200 million and total assets decrease to under $16.4 billion, which is the cause for the increase in return on total assets. 2007 net income increased from $1.9 billion to $2.1 billion. There was an increase in total assets by 4.53% to $17.15 billion.

Chart 12: Anheuser-Busch

Return on Common Equity

Return on common equity is the amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. ROE is expressed as a percentage and calculated as:

Return on Equity = Net Income/Shareholder's Equity

Net income is for the full fiscal year (before dividends paid to common stock holders but after dividends to preferred stock.) Shareholder's equity does not include preferred shares.

The return on common equity in 2005 was 3.5% and went down to 3.3% in 2006. From 2006 to 2007 the return on common equity went down again to 3.2%.

Chart 13: Anheuser-Busch

Anheuser-Busch return on total stockholders’ equity changed dramatically in the 3 years. There was a decrease in the return on stockholders’ equity by 2.28% due to stockholders’ equity increasing by 15.12% from 2005 to 2006. In 2006, the return on stockholders’ equity was 49.8946% with net income of $1.96 billion and stockholders’ equity of $3.9 billion. 2007 saw a significant increase of 17.22% jump in return on stockholders’ equity. This was due to an increase in net income of $150 million and a decrease in stockholders’ equity from $3.9 billion to $3.15 billion. Also there was a 16.9% increase in treasury stock due to Anheuser-Busch purchasing their own common stock. This put the return on stockholders’ equity percent at 67.1183%.

Analysis of Income Statement, Balance Sheet, and Cash Flow Statement

INCOME STATEMENT

Anheuser-Busch’s revenue increased net of an excise tax of $2,240,700,000 in 2006 and $2,303,000,000 in 2007, from $15,717,100,000 in 2006 to $16,685,700,000 in 2007, a 6.2% increase. The revenue increase in a large part is due to increased international sales in China, Canada, and Mexico. As a result of increased revenue, gross profit increased from $5,552,100,000 to $5,849,600,000 which is a 5.4% increase from 2006 to 2007.

Anheuser-Busch’s general and administration expenses had a 5.3% increase from 2006 to 2007 increasing from $2,832,500,000 in 2006 to $2,982,100,000 in 2007. In 2007 there was a $26,500,000 gain on the sale of certain beer distribution rights in Southern California. Anheuser-Busch’s operating income increased from $2,719,600,000 in 2006 to $2,894,000,000 in 2007, a $174,400,000 increase.

There was a 7.6% increase in Anheuser-Busch’s total net income which included the provision for income taxes. These taxes were $900,500,000 in 2006 and $969,800,000 in 2007, a 7.7% increase. The increase in net income is due in a large part to increased International sales, which accounts for 20% of sales. Anheuser-Busch also implemented price increases and discount reductions effectively increasing domestic sales by $308,000,000. Net income was also impacted by a onetime tax event offered in 2005 and 2006. Anheuser-Busch’s total net income increased from $1,965,200,000 in 2006 to $2,115,300,000 in 2007.

BALANCE SHEET

Current Assets increased from $1,829,500,000 in 2006 to $2,024,500,000 in 2007, a 10.7%. Current liabilities also increased by $57,700,000; from $2,246,100,000 in 2006 to $2,303,800,000 in 2007. The main factor affecting current liabilities is accounts payable. In 2006 accounts payable was $1,462,300,000 and 2007 it was $1,464,500,000 compared to the other current liabilities of 819,800,000 in 2006 and $839,300,000 in 2007. In regards to current asset, accounts receivable and inventories account for most of this number. Accounts receivable increased from $720,000,000 in 2006 to $805,200,000 in 2007 and inventories increased from $694,900,000 to $723,500,000.

Plant and equipment had a .9% decrease, from $8,916,100,000 in 2006 to $8,833,500,000 in 2007. Retirement benefits decreased from $1,191,500,000 in 2006 to $1,002,500,000 in 2007, a 15.9% decrease.

Anheuser-Busch had a substantial increase in long-term debt from 2006 to 2007. It increased from $7,653,500,000 in 2006 to $9,140,300,000 in 2007, a 19.4% increase.

Total shareholders’ equity decreased from $3,938,700,000 in 2006 to $3,151,600,000 in 2007. This decrease is due in a large part to the amount of treasury stock purchased from 2006 to 2007. In 2006, Anheuser-Busch had $16,007,700,000 in treasury stock where as in 2007; they acquired $18,714,700,000, a 16.9% increase.

CASH FLOWS

Net cash flows provided by operating activities increased from $2,709,400,000 in 2006 to $2,939,600,000 in 2007. This increase is due to several factors. In 2007, depreciation and amortization increased from $988,700,000 in 2006 to $996,200,000. Also, undistributed earnings of affiliated companies decreased from $341,800,000 in 2006 to $249,100,000 in 2007. Also in 2007, Anheuser-Busch’s working capital increased by $23,500,000.

Net cash used for investing activities increased from $913,500,000 in 2006 to $984,100,000 in 2007, a 7.7% increase. This is mostly due to the increase in capital expenditures from $812,500,000 in 2006 to $870,000,000 in 2007.

Anheuser-Busch’s net cash used for financing activities slightly increased from $1,802,500,000 in 2006 to $1,891,500,000 in 2007. This increase is due to several factors. One key factor is the increase in debt. It increased from $334,800,000 in 2006 to $1,708,200,000. Another factor is the dividends paid to shareholders increasing from $871,600,000 in 2006 to $932,400,000 in 2007. Acquisition of treasury stock was also a main factor increasing from $745,900,000 in 2006 to $2,707,100,000 in 2007.

Thorough Analysis of Statement of Cash Flows

In 2005 Anheuser-Busch’s net cash during the year decreased from $228,100,000 to $225,800,000; a $2,300,000 decrease. In 2006 their net cash decreased from $225,800,000 at the beginning of the year to $219,200,000 at the end of the year; a $6,600,000 decrease. And in 2007 Anheuser-Busch’s net cash increased from $219,200,000 to $283,200,000; a substantially large increase of $64,000,000. This section will analyze why these numbers fluctuated. Anheuser-Busch’s cash flows from operating activities continued to increase over the past three years. The table below is a list of areas provided from the Anheuser-Busch annual report in regards to their operating activities.

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|Cash Flows from Operating Activities (in millions): Anheuser-Busch | |

| | |200| |200| |200|

| | |5 | |6 | |7 |

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| Companies |(288.0) | |(341.8) | |(249.1) | |

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| change in Working Capital |2,651.6 | |2520.6 | |2,963.1 | |

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| Capital |50.3 | |188.8 | |(23.5) | |

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Due to several factors, from the fiscal years 2005 to 2007, Anheuser-Busch’s net cash provided by operating activities increased from $2,701,900,000 to $2,939,600,000; a net increase of $237,700,000. Anheuser-Busch’s net income increased substantially each year. Net income was a major factor, increasing continuously from 2005 to 2007, an increase of $1,744,400,000 to $2,115,300,000. Depreciation and amortization was also a large factor in the cash provided by operating activities which increased consistently from 2005 to 2007, with a $17,200,000 total increase.

In 2005, stock compensation expense was $134,100,000 and decreased to $122,900,000 in 2006. But, in 2007, it increased to 135,900,000. Undistributed earnings of affiliated companies took a large part in the operating cash flow increasing from $288,000,000 in 2005, to $341,800,000 in 2006, to $249,100,000 in 2007.

Net cash used for investing activities has decreased from $1,088,400,000 to $913,500,000 in 2005 to 2006. In 2007 net cash used from investing activities increased from $913,500,000 in 2006 to $984,100,000 in 2007. The following table was provided from Anheuser-Busch’s Consolidated Cash Flow Statement and shows the main areas of their investing activities.

| Cash Flows from Investing Activities (in millions): Anheuser-Busch |  |

| | |200| |200| |200|

| | |5 | |6 | |7 |

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From fiscal years 2005 to 2006, net cash used for investing activities decreased from $1,088,400,000 to $913,500,000. From fiscal years 2006 to 2007, net cash used for investing activities increased from $913,500,000 to $984,100,000. 2005’s net cash from investing activities of $1,088,400,000 is due in large part to capital expenditures which decreased by $324,200,000 from 2005 to 2006 and increased from 2006 to 2007 by $57,500,000. Proceeds from the sale of a Spanish Theme Park and gains from sales of distribution rights in South California in 2007 affected net cash used from investing activities by $89,900,000. Also in 2006 and 2007, Anheuser-Busch formed new business acquisitions which also affected net cash used for investing activities.

Net cash used for financing activities has continued to increase from $1,615,800,000 in 2005 to $1,891,500,000 in 2007. The following table from Anheuser-Busch’s Consolidated Statement of Cash Flows shows some of the main factors affecting their cash used for financing activities.

| Cash Flows from Financing Activities (in millions): Anheuser-Busch |  |

| | |200| |200| |200|

| | |5 | |6 | |7 |

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| | | | | | | |

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Debt was one factor that affected Anheuser-Busch’s cash used for financing activities. In 2007, there was a $1,708,200,000 increase in debt where as in 2006 there was a $328,500,000 decrease. Dividends paid to shareholders continued to increase by $131,600,000 from fiscal year 2005 to 2007. Another key factor in the cash used for financing activities was the acquisition of treasury stock. In 2007, the acquisition of treasury stock increased from $745,900,000 in 2006 to $2,707,100,000 in 2007.

Competitive and Industrial Analysis

From researching Anheuser-Busch I found that the SIC code is 5181 which indicates that they are in the beer and ale business. Using the SIC code you find that Anheuser Busch’s two main competitors are Heineken and Molson Coors.

Using different ratios of each company and the industry norms Anheuser-Busch is able to see where they compare to its competitors and to the industry average. When looking at the industry average, the companies are compared using the medium quartile.

Current Ratio

Years Anheuser-Busch Heineken Molson Coors Industry

2007 0.8788 1.0571 1.0238 1.7

2006 0.8145 0.8737 0.8101 1.6

When looking at the current ratio you see that Anheuser-Busch is significantly lower than its competitors and the industry average. Both Anheuser-Busch and its competitors are below the industry average. Anheuser-Busch’s financial statements show that for 2007 and 2006 that of their current assets, 36 percent and 39 percent of these assets consisted of inventory. While Molson Coors inventory only accounted for 20 percent in 2007 and 21 percent in 2006.

Debt Ratio

Years Anheuser-Busch Heineken Molson Coors Industry

2007 0.8162 0.6146 0.4685 0.5260

2006 0.7595 0.6645 0.4987 0.5760

Anheuser-Busch’s debt ratio is much higher by significant amounts when comparing theirs to their competitors and the industry average. Anheuser-Busch compared to its competitors has a great amount of long term debt. Anheuser-Busch has over 9 billion in 2007 and over 7 billion in 2006, while Molson Coors has just over 2 billion in both years and Heineken has only 1.5 billion in 2007 and just over 2 billion in 2006. Anheuser-Busch’s debt ratio jumped from 2006 to 2007 this is due to the buyback of about 17 percent of treasury stock which comes out to $2.5 billion.

Return on Total Assets

Years Anheuser Busch Heineken Molson Coors Industry

2007 0.1233 0.1036 0.0394 0.109

2006 0.1199 0.0735 0.0336 0.103

As illustrated above you see that Anheuser-Busch is above both of their competitors and also above the industry average as well. When you compare Anheuser-Busch to Heineken and the industry average you see that they are keeping close to each other. Anheuser-Busch’s return on total assets as been gradually increasing over the years, if you look at their sales you can see that they have been going up as well, this is that a direct relation to this ratio.

Return on Stockholder’s Equity

Years Anheuser Busch Heineken Molson Coors Industry

2007 0.6712 0.2687 0.0742 0.222

2006 0.4989 0.2189 0.0670 0.235

Anheuser Busch had a steady return on stockholder’s equity. When comparing Anheuser Busch to its competitors you see that they have a much higher return than both the competitors and the industry average. When you look at all three companies’ net income you see that Anheuser Busch makes roughly 1 billion dollars more than Heineken and 1.5 billion more than Molson Coors.

Sales (in thousands)

Years Anheuser- Busch Heineken Molson Coors Industry

2007 16,685,700 11,829,000 6,190,592 17,808,693

2006 15,717,100 10,796,000 5,844,985 17,437,359

As depicted above in the sales chart you see that Anheuser-Busch is higher than both its competitors, but much higher than Molson Coors. Comparing Anheuser-Busch to the industry norm you see that they are lower than that of the industry norm.

Net Income (in thousands)

Years Anheuser-Busch Heineken Molson Coors Industry

2007 2,115,300 1,212,000 497,192 707,496

2006 1,965,200 761,000 361,031 940,119

As you analyze the net income chart you see that Anheuser-Busch is significantly ahead of Heineken and Molson Coors. Comparing Anheuser-Busch to the industry average you can see that they are well ahead of them when it comes to net income.

Earnings per share

Years Anheuser-Busch Heineken Molson Coors Industry

2007 2.83 2.47 2.78 N/A

2006 2.55 1.55 2.11 N/A

Anheuser-Busch’s earnings per share is above both Heineken and Molson Coors. Anheuser-Busch’s, as well as its competitors have both gone up from 2006 to 2007. Heineken shows the best improvement from 2006.

Year-end market price per share

Years Anheuser-Busch Heineken Molson Coors Industry

2007 52.34 31.95 51.62 N/A

2006 49.20 23.60 76.44 N/A

As you look at the year-end market price per share you see that Anheuser-Busch is the highest in 2007, significantly over Heineken, while Molson Coors is keeping close. Anheuser- Busch is increasing from 2007, as is Heineken, but Molson Coors dropped significantly.

Anheuser-Busch’s Financial Strengths

Anheuser-Busch is a strong, financial company with many strengths. Below are a few strengths that Anheuser-Busch possesses.

• Anheuser-Busch and InBev merger will create the world’s leading brewer eclipsing SABMILLER (Anheuser-)

• Gross sales continue to increase from 2006 to 2007, increasing from $17,957,800,000 to $18,988,700,000 due to an increasing number of international sales

• Total assets increased from $16,377,200,000 in 2006 to $17,155,000,000 in 2007 due to investments in affiliated companies, plant and equipment, and intangible assets

• Basic earnings per share increased from 2006 to 2007 increased from $2.55 in 2006 to $2.83 in 2007, an 11% increase, due to a decrease in basic weighted-common shares

• Cash and cash equivalents increased by 29.2% from 2006 to 2007

• Anheuser-Busch after the merger with InBev will offer over 300 beer brands, which estimates an increase in sales (Anheuser-)

• Anheuser-Busch’s cash flow provided by operating activities consistently increased from 2005 to 2007, with a total increase of $237,700,000, which provides cash flows for their entire company.

Anheuser-Busch’s Financial Weaknesses

Anheuser-Busch is a strong company but we still have found a few weaknesses.

• In 2007, Anheuser-Busch’s debt increased by $1,486,800,000, a 19.4% increase

• Anheuser-Busch has a high debt ratio compared to their top competitors, and its increasing

Summary

The financial data of Anheuser-Busch has been increasing each year with the exception of 2004-2005. Reviewing the horizontal analysis of sales, net income, total assets, and total cash, Anheuser-Busch has been increasing steadily throughout the years. From 2004 to 2007 sales have increased by a total of 11.728%. Net income has had minimal change with the exception of a decrease in net income from ’04-’05, due to the decrease of the domestic market share. It has recovered and increased back to its net income of 2004. Earnings per share has also increased steadily from 2005-2007. There was a decrease in EPS from ’04-’05 which was also due to the decrease in domestic market share, but is now at $2.83 in 2007, .18 cents higher than in 2004.

Revenues increased from $15,717,100,000 in 2006 to $16,685,700,000 in 2007, a 6.2% increase. Gross profit increased by 37.8% as a result in 2006 to 2007. Net cash flows provided by operating activities increased from $2,709,400,000 in 2006 to $2,939,600,000 in 2007.

Overall Anheuser-Busch is a strong company that is financially stable. Being bought out in November 2008 by Inbev should not hurt the company’s sales but has the potential to increase sales as Anheuser-Busch Inbev will become the largest brewer in the world.

Works Cited

Anheuser Busch Cos Inc Financial Information. Lexis Nexis.

Anheuser-Busch Press Release.

Aspin, C, & Geller, M (2008, June 17). 'Poison pill' may spoils Anheuser-Busch bid. The International Herald Tribune. Pg 17

Blackden, Richard. “BREWING Anheuser’s weakened poison pill lures InBev” The Daily Telegraph (London) 27 October 2008.

Historical Stock Quotes

InBev Website. < >

Heineken Cos Inc Financial Information. Lexis Nexis.

Jolly, David. “InBev seeks to throw out Anheuser-Busch Board” New York Times. 11 November 2008. Page 12.

Lexis Nexis Website.

“Marises Granted at Least $120M in Lawsuit” The Washington Post. 27 October 2008.

Molson Coors Brewing Co Financial Information. Lexis Nexis.

Sorkin, Andrew Ross. “InBev said to consider bid for Anheuser-Busch”. The New York Times. 24 May 2008. Pg 2

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Quick Ratio

Chart 8: Anheuser-Bush

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