Ben & Jerry’s Homemade

I. Point of View

In the point of view of the board of directors, they are faced with making decisions with regards to pending
takeover offers. Moreover, they are faced with a dilemma between social commitment of the founders and
shareholders maximization. This is due to the co-founders belief that, the company’s social orientation requires
corporate independence. Thus, they should make a decision on whether Ben & Jerry’s will continue to
independently pursue its social agenda or accept one of the offers and shift towards greater profit maximization
for its shareholders.

II. Statement of the Problem

The board of directors are in need of a qualitative and quantitative analysis of the company in order to make an
informed decision and evaluation of the pending takeover offers.

III. Analysis

A. Horizontal Analysis

a.1 Income Statement H-Analysis

1994 1995 %Change 1996 %Change 1997 %Change 1998 %Change 1999 %Change
Net Sales 148.8 155.3 4% 167.2 8% 174.2 4% 209.2 20% 237 13%
Cost of Sales 109.8 109.1 -1% 115.2 6% 114.3 -1% 136.2 19% 145.3 7%
Gross Profit 39 46.2
46.2 18% 51.9 12% 59.9 15% 73 22% 91.8 26%
Selling,
general &
administrative
expenses 36.3 36.4 0% 45.5 25% 53.5 18% 63.9 19% 82.9 30%
EBIT 2.8 9.8 250% 6.4 -35% 6.4 0% 9.1 42% 8.9 -2%
Net income -1.9 5.9 411% 3.9 -34% 3.9 0% 6.2 59% 8 29%

a.2 Balance Sheet H-analysis

Working
Capital 37.5 51 36% 50.1 -2% 51.4 3% 48.4 -6% 42.8 -12%
Total Assets 120.3 131.1 9% 136.7 4% 146.5 7% 149.5 2% 150.6 1%
Long term
debt and
obligations 32.4 32 -1% 31.1 -3% 25.7 -17% 20.5 -20% 16.7 -19%
Stockholders'
equity 72.5 78.5 8% 82.7 5% 86.9 5% 90.9 5% 89.4 -2%

Based on the income statement horizontal analysis, in 1994 the company suffered a financial loss but
regained this the year after with 411% increase in its
it s net income by only increase sales by
b y 4%. The drastic positive
impact came from maintaining the same level of cost of sales from last year despite a 4% increase in net sales.
Moreover, the company continuously increased it sales wherein on 1999 it rose to 13% or $237 million sales
compared to the 209.2 million sales.
 B. Vertical Analysis

a.1 Income Statement V-Analysis

1994 % 1995 % 1996 % 1997 % 1998 % 1999 %
Net Sales 148.8 100% 155.3 100% 167.2 100% 174.2 100% 209.2 100% 237 100%
Cost of Sales 109.8 74% 109.1 70% 115.2 69% 114.3 66% 136.2 65% 145.3 61%
Gross Profit 39 26% 46.2 30% 51.9 31% 59.9 34% 73 35% 91.8 39%
Selling, general
& administrative
expenses 36.3 24% 36.4 23% 45.5 27% 53.5 31% 63.9 31% 82.9 35%
EBIT 2.8 2% 9.8 6% 6.4 4% 6.4 4% 9.1 4% 8.9 4%
Net income -1.9 -1% 5.9 4% 3.9 2% 3.9 2% 6.2 3% 8 3%

Based on the vertical analysis on Ben and Jerry’s from 1994 to 1999, the gross margin of the company actually
increased to 39% in 1999 compared to 26% in 1994. With this, the company was able to manage its direct
expenses in order to have more profit that can be used to pay for its operating and other expenses. However,
although there was a 13% impr ovement
ovement in the company’s gross margin over the past 6 years, it can be noted that
selling, general and administrative expenses increased from 24% in 1994 to 35% in 1999. This increase caused
 profit to be at the average of 2-3%. Overall, looking at the changes that in the composition of its income statement,
statement,
the company’s financial performance was able to improve from the losses that was incurred in 1994.

C. Financial Ratio Analysis

1999 1998 1997 1996 1995 1994

Asset turnover 1.6 1.4 1.2 1.2 1.2 1.2
Working 5.5 4.3 3.4 3.3 3.0 4.0
capital
turnover
ROA 3.5% 3.7% 2.6% 2.8% 4.5% 1.4%
ROE 8.9% 6.8% 4.5% 4.7% 7.5% -2.6%
Debt to Equity 18 23 30 38 41 45
Debt to Asset 11.1 13.7 17.5 22.8 24.4 26.9

 The asset turnover of the company remained stable from 1994-1997 because of the erratic movement of
sales growth over these years. For 1998-1999, it increased to 1.6 which indicates the improvement of the
efficiency of the company in using the assets in generating sales which is congruent to the increase in
sales. This is further supported by the improvement in its working capital turnover which also indicates
that the company is utilizing efficiently its current assets and current liabilities in order to generate sales
for the company. The ROA and ROE of the company have also improved over the years in line of the
continuous improvement in its sales and profit from 1994 to 1999. Lastly, in terms of debt, the company
has actual decreased its debt financed assets from 1994 to 1999 given that debt to asset ratio decreased
from 26.9 to 11.1 and this is further supported by the debt and equity ratio which also indicates that assets
are financed more by equity rather than debt.
D. Price/Earnings and Price/Book Value

Based on Exhibit 2, Ben and Jerry’s Homemade Stock Price Performance during November 199 9, Ben and Jerry’s
homemade stock’s price is at S25. In this regards, the following are its P/E and P/BV.

P/E= 25/1.06 P/B= 25/11.82

= 23.58 = 2.11

Investor-Value Measures and Comparable Based on Computation

Price/Earnings Price/Book Price/Earnings Price/Book
Dreyer’s Grand 47.2 7.8
Eskimo Pie 30.7 1.1
TCBY Enterprises 12.5 1.2
Yocream 9.4 1.8
International
Ben and Jerry’s 19.8 1.8 23.58 2.11

Based on this, the stocks of Ben and Jerry’s are undervalued in the market. However, if Exhibit 2 is to be
considered the Ben and Jerry’s Homemade Stock Price Performance is underperforming compared to the industry
from 1996-1998 and slowly gained against
a gainst the industry during the last quarter of 1999.

E. Offer Evaluation

In consideration of the various offer given by different companies to acquire B&J. Looking at it in a financial
standpoint, the offer of Unilever for $36 should be taken by the company. This additional capitalization would
help the company gain capital for further improvements to the company. Also, in terms of the qualitative side,
although B&J has been consistent with its social mission. It would also be best to consider the shareholders
welfare. Accepting there offer would help improve the shareholders’ value of the company. On the brighter side,
 being integrated with Unilever would open more market consciousness for B&J since they will be part of the
company that have wide market exposure. Also, the compan y would not totally lose its identity as Unilever would
offer to maintain select members of its management team. In the meantime, it would be best to restrict also social
commitments as to also evaluate how it would improve the company’s overall value.