INTRODUCTION TO ACCOUNTING & FINANCE In this report, we will analyze the financial performance of two companies: Kraft and General Mills. They are global consumer foods companies that develop different packaged food products. The main goals of these companies are to meet consumers’ needs and preferences while generating superior returns by delivering consistent growth in sales and earnings, coupled with an attractive dividend yield. This report shows how each company meets their goals and which one is in better standing.
The report will give an overview of each company, an explanation of what type of companies we are analyzing, the purpose of each company in terms of its goals and objectives, the products and services each company produces, and what future prospects we see these companies having. The reader should gain an understanding of each company as well. We also analyze the type of industry these companies are competing in. This will help us understand where each company fits in the marketplace. This is important because it places the two companies into a broader picture. The most important part of the financial report is the financial statement analysis.
In this, the annual report of each company was analyzed. It studies the firms’ past earnings to understand their operating performances. It also forecasts future profitability and risk (short-term and long term).
The financial statements give information on how these risks affect expected return. In the end, the reader will have an understanding of the two companies, the industry in which they operate, its financial standing in the past and present, and future profitability. The food processing Industry is an extremely competitive environment.
Chern’s has devised a long term plan to open fifteen new stores in the next five years and to continue from there to grow at an annual rate of 9 percent. Long term hiring goals are needed coupled with organizational approaches and objectives to strategically influence the hiring process. Short term, first the company has to pinpoint the number of employees needed to properly staff all five stores. ...
Consumers have wide variety of choices, which makes it extremely important for the producers to be responsive to quick shifts in consumption patterns. Some of the main competitors in this industry are Campbell’s Soup, PepsiCo, Interstate Bakery, General Mills, and Kraft. Kraft Foods is the largest brand food and beverage company with headquarters in North America and it is the second largest in the world. In the US, it’s best known for its cheese products, especially Kraft Dinner, and Dairy lea. Other brands with a large presence in various parts of the world are Toblerone, Philadelphia, Velveeta, Nabisco, Maxwell House, Oscar Mayer, Jello, Kool-Aid and Capri Sun. Kraft Foods employs over 100, 000 people in 68 countries worldwide.
Kraft Foods has 197 manufacturing facilities worldwide. Kraft Foods has several strategies for long-term success: building superior brand value, transforming their portfolio, expanding the global scale of the business, and driving out cost and assets. More product benefits means innovative packaging, consistent high quality, wide availability, and strong brand images. This way they can shift their product portfolio accordingly.
In terms of global expansion, Kraft Foods is developing business in many international markets while concentrating especially on the fastest growing developing market around the world. General Mills is an international company, similar to Kraft, in the food processing industry. The brands General Mills sells include Betty Crocker, Hagen Days, Nestle, Yo plait, and Pillsbury. In 1990, Cereal Partners Worldwide was started by General Mills and Nestle as a joint venture to market breakfast cereals for Europe and America. The cereals that are distributed by Cereal Partners Worldwide are manufactured by both companies under the Nestle brand. General Mills merged with Pillsbury in 2001 so General Mills now manufactures many of the products that carry the Pillsbury name.
... , among others. Main rivals include Kellogg, Kraft, Conagra Foods, and Sara Lee. General Mills sells its products in three segments: U.S ... section. General Mills runs a leveraged operation where, in average, the total assets are 3 times shareholders equity. Leverage ratio has ... faster pace than assets driven by strong business performance. A slight revamp in the leverage ratio during fiscal 2012 ...
In analyzing each company in itself, and against the other, we would most instantly benefit from acknowledging trends. These trends can be found on the left side of the attached list of calculated ratios. The terms “peak” and “dip” refer to ratios that noticeably peaked or dipped in 2002 with respect to 2001 and 2003. Seemingly random movement of a specific ratio from year to year earned a “-” notation. From this initial comparison, Kraft seems much more sporadic and / or static from year to year. General Mills, on the other hand, follows clear financial trends in our window of observation.
On a most general level, both companies were able to increase their abilities to use assets to generate earnings each year, but with General Mills making better gains. For both companies, the profit margin ratio (for ROA) changed in tune with the actual ROA. This seems to indicate that the improvements in ROA were generally related to improvements in cost control. General Mills, though, got a boost from improved output from existing assets (as indicated in the total assets turnover ratio).
Kraft maintained a constant productivity from current assets. One possible explanation for this might be found in the number of days that each company holds their inventory.
General Mills was able to drastically decrease their average holding time, no doubt decreasing holding costs in relation to sales. Kraft’s inventory hold time did not decrease and stayed relatively constant over the period – mirroring their profit margin ratio for ROA. GM also was able to decrease the time that it took for them to collect on accounts receivable. This could have very well given them the liquidity of assets and cash that was needed to make investments to improve their productivity. Kraft’s collection time was, again, unchanging. The fixed asset turnover ratio also shows how GM became able to squeeze more sales from each dollar of fixed assets than Kraft was.
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What so far sounds like many advantages to GM, really amounts to virtually no difference when it came down to the ROA and profit margin. Where more of a difference can be seen at the general level is in the ROCE and its profit margin. Here GM made huge improvements from 2001, overcoming Kraft in productivity of assets when financing is considered, and also improved their share left for shareholders. But even with these improvements, Kraft still holds an edge in their ability to deliver to shareholders. For both companies, their ROCE exceeds their ROA – indicating that shareholders are benefiting in both companies. An analysis of liquidity is important to perform as well.
First looking at the current ratio of each company, we see that only recently did the two companies reel in their liabilities and obtain ratios over one (thus meaning that assets were greater than liabilities).
While Kraft maintains a more stable ratio hovering at about even, General Mills has made strident gains and ended with a ratio that favors assets fairly heavily. The long-term liquidity picture is very mixed for both companies. While Kraft has less than exemplary numbers when it comes to long-term debt ratios and cash flow, it has an acceptable debt-equity ratio and superb interest coverage. This interest coverage is probably high enough to significantly lessen the level of long-term risk the company offers.
General Mills has excellent ratios for long-term debt and debt-equity, but has the same problems that Kraft has in cash flow. General Mills, on the other hand, has very little interest coverage and is more likely to teeter on the brink of having some long-term liquidity risk. This might be expected due to what seems to be fair amounts of growth and probably investment on General Mills’ part. Kraft’s long-term risk picture might seem a bit rosier because it has remained largely constant throughout our period of observation. In analyzing these two companies. It is clear that both try to maximize profit, minimize cost, while maintaining costumer satisfaction.
Both companies are in the food processing industry and are highly competitive with each other as well as with other competitors in the industry. Kraft and GM both are able to increase their abilities to use assets to generate earning each year. While General Mills makes better gains and maintains improvement in cost control, Kraft maintains a constant productivity from current assets. In general these two companies are successful and we may decisively conclude they will remain competitive within the industry.
Target Corporation: Report on Long-term Financing Policy and Capital Structure with an Acquisition Analysis Introduction This report will be based on the Target Corporation, and will consist of two sections: 1) long-term financing policy and capital structure, and 2) an acquisition analysis. The first section will include: Target's most recent long-term financing decision; an analysis of the ...