Kellogg's Financial Statement Case Study 116i63

Financial Statement Case Study

Khoa Huynh Professor LaRosa Samantha Schoenberg Business 101 October 30, 2009

CONTENTS I.

Company Profile A) B) C)

II. III. IV.

Letter to Shareholders Income Statement 6 Balance Sheet 7

2

Financial Statement Data Sheet Financial Statement Analysis 9 Interpretive Analysis A) B) C) D)

V. VI.

1

Liquidity 10 Return on Assets 11 Key Pieces of Information Recommendation 13

Key Take Away Work Cited 15

14

12

8

Company Profile Company Name: Chairman: James Jenness CEO and President: David Mackay Location: Battle Creek, MI, United States Industry: Food Processing Products: Baking products, beverages, cereal, cookies, crackers, eggo, frozen breakfast, fruit flavored snacks, pop tarts, snack and bars, special K, syrup, and vegetarian. Stock Ticker: (NYSE: K)

Interpretive Analysis Liquidity Liquidity is one of Kellogg’s fundamental strength. Liquidity is a business ability to turn assets into cash to meet all of its payment obligations. Kellogg’s experienced an increase in liquidity from 2007 to 2008. In 2008, based on current ratio where figures are found on the annual report, Kellogg’s has a liquidity of .71X compared to 2007, .67X. This mean for every $1.00 that Kellogg had in current liabilities, the company had $0.71 of current assets in 2008 on hand and $0.67 of current assets in 2007 on hand. By borrowing money for major acquisition and other significant transaction, Kellogg used that as their main source of liquidity. This will allow them to invest more in their company; either in inventory, employees, or pay back some of their long term debts. Short term, the company can access new capital and manage working capital requirements to strengthen their cash flow.

Return on Assets Return on Assets shows how much income a company produces for every dollar invested in assets. Kellogg’s experienced an increase in Return on Assets from 2007 to 2008. In 2008, Kellogg’s Return on assets shows 10.5% compare to 2007, 9.7%. This increase in Return on Assets shows that the company is using their assets more effectively than in the previous year. For example, the inventory (assets) slot in the financial data chart show that Kellogg is spending less money on inventory in 2008 than in 2007. However they are making more money in sales in 2008 than in 2007. Using the Inventory Turnover ratio, it was determine that in 2008, Kellogg is cycling through their inventory 14 times a year. This is one more cycle than in 2007, this mean they are producing more products (assets) and also getting rid of it faster. If Kellogg’s continues to show a higher percentage in ROA, Kellogg’s can reduce its long term debt. As far as short-term performance, Kellogg’s can invest in more assets to meet demands.

Key Pieces of Information Profit margin, debt to asset, and earning per share are three key components that help provide a better understanding of Kellogg’s financial health, performance, and management decision making. This measure determines the amount of profit a company earns for every dollar of sales. The higher the profit margin the better the cost controls within the organization. Kellogg’s profit margin is 9% in 2008 and 9.4% in 2007. Kellogg made less profit in 2008 than in 2007. To find the profit margin, net income and sales must also be acquired. Net income show the amount of income left after taxes and sales are the total amount of product sold. These two components are also key information on the company’s health and measure the cost control within the company (net income and sales can be seen in the financial data chart). Breaking the ratio for profit margin down to net income and sales gives us visual of more specific aspect of the company. Another key component is debt to asset. Debt to asset provides information about how much debt Kellogg’s is using. In 2008, Kellogg’s used 38.2% of debt to finance their company. In 2007, Kellogg used 28.7%. To find the percentage for debt to asset, the total debt and the total assets have to be acquired and can also be seen in the chart above. Again, these smaller components in debt to assets really help give us a better visual of how the company is doing. Another important factor that helps provide a better understanding of Kellogg’s financial health, performance, and management decision making is earning per share because yearly changes in earnings per share, in combination with other economy wide factors, determine a company’s overall stock price. Therefore if

the company financial health, performance, and management decision making is good, it should be positively correlated to the earnings of each stock. Kellogg’s is definitely making better decisions because their stock has risen from $2.63 in 2007 to $2.74 in 2008.

Recommendation I would buy and advise clients who aren’t looking for immediate profit but intentions are long term investment to buy this stock based on the compiled data from the annual report and ratio analysis. Although Kellogg profit margin is lower in 2008 than the previous year, there are other important aspects to focus on like the earning per share and the dividends per share. Kellogg earnings and dividends are higher in 2008 than in 2007. This shows that Kellogg stock is steadily continuing to increase in value. Other ratios give insight to how the well the company is operating. Kellogg is definitely doing well in other aspect other than the profit margin.

Key Take Away Analyzing financial data, interpreting the analysis, doing research, and composing the data all benefit my future career in business. Doing this assignment before entering the work field will help me understand the type of work that is expected of me as a worker. It provides great experiences to help further my growth as a business major. Reading the income statement and differentiating that with the balance sheet help me understand and locate the different data that lies under each category. Analyzing the Financial Statement allow me to evaluate the relationship between the balance sheet and the income statement. This will help me as a business person when I have to figure out how to make my company or the company I work for produce better result. Doing research and composing the data will help me understand the type of relationship that each data piece will have with one another and that in turn will help me find solution to any problem that I encounter. With that in mind, this project is a great hand’s on assignment that will benefit my future career in business.

Work Cited "Coco." Kelloggs. Web. 29 Oct 2009. . "Cookies." Kelloggs. Web. 29 Oct 2009. . "Flakes." Kelloggs. Web. 29 Oct 2009. . "Kelloggs." Marlerblog. Web. 20 Oct 2009. . "Rice Krispies." milton train works. Web. 29 Oct 2009. . McGraw-Hill, Irwin. ing and Financial Statement. M. New York : McGraw-Hill Companies Inc., 2009. 299-320. Print. Murray, Barbara. "Hoovers." Kelloggs. Hoovers, Web. 21 Oct 2009. . "Smack Frog." Gremlin Dog. Web. 29 Oct 2009. . "Special K." Tampa Bay Run. Web. 29 Oct 2009. . "Sun Torch." Kellogg's. Web. 29 Oct 2009. .

"Tony The Tiger." Static. Web. 29 Oct 2009. . . "Toucan Sam." Blog Spot. Web. 29 Oct 2009. .