Vincor

CHAPTER

Financial Statements and

Business Decisions

1

LEARNING

OBJECTIVES

After studying this chapter, you should be able to:

1. Recognize the information conveyed in each

of the four basic financial statements and

how it is used by different decision makers

(investors, creditors, and managers). p. 3

2. Identify the role of generally accepted

accounting principles (GAAP) in determining

the content of financial statements. p. 18

3. Identify the roles of managers and auditors in

the accounting communication process. p. 21

4. Appreciate the importance of ethics,

reputation, and legal liability in accounting.

p. 23

I

n June 2006, Constellation Brands Inc., the world’s biggest wine maker,

purchased Vincor International Inc.—Canada’s largest wine producer—for

$1.58 billion. Vincor has wineries in British Columbia, Ontario, Quebec,

New Brunswick, California, Washington State, Western Australia, and

New Zealand, and is one of the largest wine importers, marketers,

and distributors in the United Kingdom. Vincor markets wines

F O C U S C O M PA N Y:

Vincor International Inc.

VALUING AN ACQUISITION USING

FINANCIAL STATEMENT INFORMATION

produced from grapes grown in the Niagara Peninsula of

Ontario, the Okanagan Valley of British Columbia, and vineyards

around the world. The company makes and sells several brands,

including Inniskillin ice wine, a specialty wine made from grapes

picked frozen on the vine. In addition to its premium wines,

Vincor also sells cider and wine coolers. The company’s estate

wineries are supported by an international distribution network

and dedicated sales and marketing forces.

The price Constellation Brands paid was decided by

considering the value of the economic resources owned by

Vincor International, its debts to others, its ability to sell

goods for more than the cost to produce them, and its ability

to generate the cash necessary to pay its current bills. Much of

this...