An Analysis and Evaluation of The Business and

Financial Performance of GM Over 3 Years

Table of Content
S.NO Title Page
number

PART 1: Project Objectives and Overall Research Approach

1 Reason for choosing this topic 3

2 Reason for choosing the company 3

3 About the company 4

4 About the Industry 4-5

5 Rap Objectives 9

6 Rap Framework 9

PART 2: Information Gathering and Accounting Business Techniques

7 Information gathering 10
8 Sources of information 11
9 Limitations 12
11 Accounting techniques 12
12 Business techniques 13
a) SWOT 13
b) PEST 14
10 Ethical information

PART 3: Analysis Conclusion and Recommendations

13 Horizontal analysis 16
14 Ratio analysis 24
15 Profitability ratios 25

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16 Liquidity ratios 30
17 Activity ratios 34
18 Gearing ratios 39
19 Investor Ratio 42
20 Business analysis 46
21 SWOT analysis 47
22 PEST analysis 48
23 Conclusion 49
24 Recommendations 50

RESEARCH OBJECTIVE &OVERALL

RESEARCH APPROACH

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Reason for choosing the topic

The topic which is being selected for research is topic 8 “the financial & business analysis of
the company over the three years period. This is the key tool used by management and other
stakeholders such as investors, lenders in analyzing companies’ performances soundness and
the future growth prospective.

The reason for the selection of this topic for research is because we have studied this on various
occasions in our academics and being a finance professional it is highly important that we are
able to analyze the financial & business analysis of the company and provide our
recommendations to our employer for better decisions .

Secondly I want to become an investor in near future .To become an investor it is necessary to
analyze the performance of the company. This research will help me to some extent in polishing
my skills to become a rationale investor.

Reason for choosing the company

The company which I have chosen for RAP is GENERAL MILLS(GM) which is one of the
largest flour selling company of us .some of their brands hold no 1 or no 2 position in the market.
They are the sixth largest food company of the world the company holds its position in more
than100 countries and six continent. (generalmills.com, 2017a),

The company have net sales of around 15.6 billion and the sales from joint venture is around 1
billion us dollars which is being operated under new global organizational structure .currently
the company is operated under four operating segments (investors.generalmills.com, 2017a)
(investors.generalmills.com, 2017a)

INDUSTRY ANALYSIS

About the company : GM Inc. is known In the world as a manufacturer and marketer of
branded consumer food which are being sell through retails store(Reuters.com, 2017)

GM was incorporated in 1928 by collaborating with several other local mills but the history of
GM is a long way back when in 1866 a man named Cadwallader Washburn open his first flour

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mill in Mississippi River in Minneapolis and after combination of 27 companies in 16 states
general mill became the largest flour mill company in the world in 1928. The company had 5800
employee at that time and the sale of 123 million (encyclopedia.com, 2017)

. The general mill has more than 100 brands in more than 100 countries They have a very
diversified kind of food product range which includes baking products ,cereals ,dough pastries
snacks yogurt and soup (generalmills.com, 2017b)

Some of their leading brands includes Betty Crocker dessert mixes, Gold Medal flour, Green
Giant vegetables, Pillsbury cookie dough, and Yoplait yogurt which holds no 1 or no 2 positions
in the markets. (vault.com, 2017)

About The Industry

The food industry plays an important role in the US economy which has total accumulated
sales of 1.4 trillion including food consumed at home and away from home this industry share
about 5% of gross domestic product .and 10% of total US employment. (ced.org, 2017)

Background and economic history: this industry grew rapidly in the late nineteenth and early
twentieth century as part of the transformation of the US economy from primarily rural to urban.
After the population mostly became urban in 1920 food system emerged to process, store,
transport and market food to urban population (ced.org, 2017)),

The food processing industry includes grain milling, crop cleaning, grading and packaging,
animal slaughtering and packaging operations, seafood processing, freezing, canning
operations, juice, coffee, tea, diary and all other food manufacturers. (markets.on.nytimes.com,
2017)

This industry is regulated by Food and Drug Administration known as FDA which is primarily
responsible for protecting the public health by assuring the safety, efficacy, and security of
human and veterinary drugs, biological products, medical devices, USA nation's food supply,
cosmetics, and products that emit radiation. FDA comes in part of US department of health and
human services. (usa.gov, 2017)

(usa.gov, 2017)

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Industry sales

The industry Revenue is taken from top 100 companies of US and Canada .

FOOD PROCESSING INDUSTRY SALES IN MILLION $

3,87,500

3,87,000

3,86,500

3,86,000

3,85,500

3,85,000

3,84,500

3,84,000
YEAR 2016 YEAR 2015 YEAR 2014
MILLION $ 3,86,300 3,85,240 3,87,269

MILLION $

(foodprocessing.com, 2017)

The food processing industry sales revenue has shown declining trend from 2014 to 2015
however the sales has shown an increasing trend in 2016.

According to the report issued by PMMI The Association for Packaging and Processing
Technologies in 2016 The U.S. food industry is forecast to grow at a steady rate of 2.9% CAGR
through 2022 this analysis is based on interview taken across the food processing and
packaging industry in the U.S. and overseas, the largest market for this industry is north
America but there are emerging markets which can outperform includes Argentina, Brazil,
China and India. (packagingstrategies.com, 2017)

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MARKET SHARE

Sales

PepsiCo Inc.
Tyson Foods Inc. (10/1/16)
6%
7% 20% Nestle (U.S. & Canada)
7% Kraft Heinz Co.
0%
Coca-Cola Co.
8%
18% Anheuser-Busch InBev
10% JBS USA *

10% Smithfield Foods Inc.

14%
Molson Coors Co.D
General Mills Inc. (5/28/17)

(foodprocessing.com, 2017)

As per the revenue of the top ten companies of 2016 in US and Canada GM has 6% market
share and is ranked 10th largest company of US and Canada in terms of Revenue.

RAP OBJECTIVES

Following are the rap objective:

 Analyze financial performance of the company over three years from periods 2014
till 2016 using Horizontal analysis and Ratio analysis
 Assessing the business performance of GM using SWOT and PEST analysis
 Compare the performance of GM with its competitor Kellogg’s over three years
periods 2014-2015, 2015-2016 and 2016-2017
 Finally to provide conclusion and recommendation which is based on the analysis
performed

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 RAP FRAMEWORK

To established the above mentioned objective the RAP is started with the reason for
choosing the topic and company following with the industry analysis and market
share of the company

Information gathering and sources of information used to develop RAP is an

important exercise the next section includes the details for the same along with the
ethical consideration

After this the RAP includes the financial analysis of the company which includes
Horizontal analysis and ratio analysis followed by the non-financial analysis which
includes SWOT and PEST Analysis

Conclusion and Recommendation is provided based on the RAP is at the end

INFORMATION GATHERING AND ACCOUNTING /BUSINESS TECHNIQUES

Information is define as data which is accurate, timely, specific and organized for a purpose
.presented in a context which give meaning and relevance to it. Information leads to increase
in understanding and decrease uncertainty (businessdictionary.com, 2017)

SOURCES OF INFORMATION USED

 ANNUAL REPORT: Annual report is used as this is the source of information which
include financial as well as non-financial information further its reliance is increased as
it is audited by external auditor .Audit report of GM 2015, 2016 and 2017 has been used
and for its competitor annual Kellogg’s annual report of 2014, 2015 and 2016 has been
used.
 COMPANY’S WEBSITE: company websites is one of the sources where information is
available regarding the company which are not available in annual report such as history,
news blogs . has been used in RAP

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  OTHER WEBSITE: other websites has also been used for further relevant information
like competitor websites and government official websites Reuters .

 NEWS PAPERS : newspaper are the key source of information various newspaper
has been visited to find details about the company such as New York Times and wall
business journal .

LIMITATION OF INFORMATION GATHERING

 Audit report which has been issued by the company is internal document. it normally tells
the good side of the company . in various circumstances the management tries to window
dress the results in order to attract the investors to invest in the company
 Company websites does not provide all the information regarding the industry thus the
information is limited. it may be the case that the website is not updated regularly and
give outdated information
 There is a junk of information available on internet it is very difficult to obtain accurate
updated and reliable information
 Books are generally based on principles or theoretical aspects. It only tells the idealistic
situations with limitations. practical aspects are not covered in it

 News and media are negatively biased in most of the cases they creates hypes.
Sometime it can be media trial as well. information from media are normally incomplete

ACCOUNTING & BUSINESS TECHNIQUES

HORIZONTAL ANALYSIS

Horizontal analysis is also called trend analysis which shows the change in amount of
corresponding financial statement over a period of time (accountingformanagement.org, 2017),

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LIMITATION OF HORIZONTAL ANALYSIS

 It is based on historical data and it is not always accurate

 It also assumes that no new influence is entered in the situation
 The use of this approach assumes that the events that influenced the performance
variable prior to the learning program are still
(accountingformanagement.org, 2017)

RATIO ANALYSIS

Ratio analysis is a tool used by individuals to carry out an evaluative analysis of information in
the financial statements of the company .these ratios are calculated for the current year and
then it is compared with the previous years or other companies in the industry to reach
conclusions (readyratios.com, 2017)

TYPES OF RATIOS

PROFITABLITY RATIO

This ratio measures the ability of the business to make profit for its owners
(accountingexplained.com, 2017)

LIQUIDITY RATIO

This ratio analyze the business liquidity i.e. the ability of the business to covert its asset into
cash to pay off their obligations without any delays (accountingexplained.com, 2017)

SOLVENCY /GEARING RATIO

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This ratio asses the financial viability of the business in the long run i.e. it analyses the company
to pay off its long-term debts (accountingexplained.com, 2017)

ACTIVITY RATIOS

The efficiency of the operation of business is asses through activity ratios such as it tell how
effectively the inventory was converted into sales or the receivables were recovered from the
customer

(accountingexplained.com, 2017)

INVESTORS RATIO

Investor ratio is defined as the ability of the business to generate return for its owners or owner
of the business as the owner tied its capital and take risk by investing in the business

(double-entry-bookkeeping.com, 2017)

LIMITATIONS

 the ratio analysis is based on historical actual results this does not be prudent that it will
continue in future
 if the rate of inflation differs in the period the figures will not be comparable with each
other
 different companies have their own accounting policies comparing the ratio of them or
different companies might not give accurate results

(accountingtools.com, 2017)

SWOT ANALYSIS

It is a business analysis technique perform by an organization on its product ,service and

market to decide best way for the future growth

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STRENGTH: These are the internal factors that are favorable for achieving organizations
objective (free-management-ebooks.com, 2017)

WEAKENSS: Weaknesses refers to the internal factors that are not favorable for achieving
organizational objective (free-management-ebooks.com, 2017)

OPPORTUNITIES: It refers to the external factors which are favorable in achieving

organizational objective (free-management-ebooks.com, 2017)

THREAT: This refers to the external factors that are unfavorable in achieving the organizations
objective (free-management-ebooks.com, 2017)

LIMITATIONS

The limitations of SWOT are as follows

 It is difficult to analyze what is relevant for an organization or not ,the information which
are collected
 There is no list of priority in the SWOT and it seems like opportunities and threat balance
each other same is the case with strength and weakness
 The classification of prevailing organization culture should be classified as strength or
weakness in subjective in nature

(free-management-ebooks.com, 2017),

PEST ANALYSIS

Pest analysis is tool used to measure and asses market for particular product or business in a
given time frame. Pest analysis it is used by business to make strategic business decisions by
studying various factors which migh influence business such as Political, economic, social
&technological.

P: it stands for political environment which includes rules and regulation given by government
on particular industry or business. It also includes tax policy, exemptions if specified
employment laws, environmental laws

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E: E is for the economic environment. It analyze the macro economy such as interest these
factors helps in accessing demands, costing of product expansion and growth

S : s stands for social enviroment . this also discusses the demographics of the country as
well as target customers in the respective locations .this further includes the study of population
growth, age distribution, career attitude

T : T in pest analysis is for technological advancement in involves the study of factors for
technological advancement ,rate at which the technology gets obsolete

(economictimes.indiatimes.com, 2017)

LIMITATIONS

 Pest can only identify and analyze the external environment while ignoring internal
environment
 The analysis on PEST can be changed in less than a one day time and may affect the
present and future of the project

( (businessnewsdaily.com, 2017)

 Pest analysis require extensive research and external data which is difficult to obtain
to reach accurate decisions
 It is based on assumption and prediction which are subjective

( (pestleanalysis.com, 2017)

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ANALYSIS CONCLUSION &
RECOMMENDATIONS

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HORIZONTAL ANALYSIS

GENERAL MILL SALES

18,000.00
17,630.30
17,500.00

17,000.00
16,563.10
16,500.00

16,000.00
15,619.80
15,500.00

15,000.00

14,500.00
2017 2016 2015
General Mills 15,619.80 16,563.10 $17,630.30

General Mills Linear (General Mills) Linear (General Mills)

In 2015 to 2016 sales decline from 17.6b to 16.5b which is approx. 6% decline in total sales of
General mills (GM). The 6% decrease in decline in sales can be further segmented. The 4%
decrease in sales can be observed due to remeasurerment occurred as a result of the value of
US dollar over other currencies and the sale of green giant plant. vault.com, 2017

However, the 2% decline is on constant currency basis the reason behind the decline is that
the food preference of customer is changing is recent times.

(investors.generalmills.com, 2016)

In 2016 to 2017 the sales decline by 5.7% from 16.56 billion to 15.62 billion the major reason
due to which the sales drop was the sales of green giant production line of North America which
impact the volume sale of the company. (GM Annual Report, 2017, p. 13)

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The company also have significantly cut on advertising spending and promotional campaigns
on their existing products which has also impacted sales and this is one of the reason that the
GM sales saw decline (bakeryandsnacks.com, 2017)

SEGMENTAL SALES

12000

10000

8000

6000
North America Retail Convinience stores
4000 Food service
2000 Europe & Australia
Asia & Latin America
0
2017 2016 2015

Asia & Latin America Europe & Australia Food service North America Retail Convinience stores

(GM Audit report, 2017 p.86)

GM have implemented new global organizational structure worldwide in order to manage and
enhance its agility in rapidly changing consumer environment (marketrealist.com, 2017)

North America Retail Segment: this section sees decline in sales by 6% from 2015 to 2016
and a further decline by 7% from 2016 to 2017. The major reason for the decline are the
company US Meal & Baking unit the sale of which decline further and the impact increases with
the divesture of the green giant plant and the US Yogurt unit also not performing well during the
period. (investors.generalmills.com, 2017c)

Convenience Stores & Foodservice Segment: This segment showed decline in percentage
sales by 3% from 2015 to 2016, a further decline in percentage sales was observed from 2016
to 2017 by 3%. The reason was the decline in revenue of the three units which includes US
meals and baking unit, US Yogurt sales which partially offset the sales of other 6 platforms.
(investors.generalmills.com, 2017c)

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 Europe & Australia Segment: The segment sees decline in sales by 6% from 2015 to 2016
and a further decline in sales is observed in 2016 to 2017. The major reason for the decrease
is the foreign currency losses due to devaluation of the currency and decline in the sales
of Yoplait yogurt (investors.generalmills.com, 2017c)

Asia & Latin America Segment: The sales have decreased from 2015 to 2016 by 10%,
however this segment shows a rising trend from 2016 to 2017 by 1.3% the increase was due
to the sale of Häagen-Dazs ice cream which sees growth in china. (investors.generalmills.com,
2017c)

PRODUCT WISE SALES

(GM Annual Report, 2017, p. 86)

The yogurt shows a declining trend in sales from 2938 million in 2015 to 2403million in 2017.
This was majorly due to shifting preference of consumer from protein-rich and thicker Greek
yogurts which affects significantly on the sale. To come out of the crises in the respective
product the company introduced a new product which name was “French yogurt Oui by Yoplait”
so that the changing preference of the customer can be catered. (reuters.com, 2017)

The cereal sales have decreased 1.4 % from 2015 to 2016 and a further decrease was 2.13%
from 2016 to 2017. The reason behind was the preference of the customer is changing and the
customers are more attracted towards natural food rather than artificial ingredients GM have
also considered to remove artificial flavor from the cereals and will be making cereals from all
natural ingredients. (usatoday.com, 2017).

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The sale of baking mixes and ingredient unit have decreased by 1.9% from 2015 to 2016 and
a further impact in decline in sale is observed in 2016 to 2017 by 2.9%. The major reason for
the decline was the cut on promotional and advertising expense in comparison to its competitor
which impacted sale of the unit (GM Audit Report, 2017 p.13)

The vegetable product showed a significant decline in sales by 43.2% from 2015 to 2016 and
a further decrease in sales occurred from 2016 to 2017 by 41.6 %. The GM sold its green giant
plant to B & G Food Inc for 765M. The plant was generating good revenue for GM vegetable
products. This became the cause for the decline in the sales of vegetable products.

(mankatofreepress.com, 2017)

The super-premium ice cream brand sales have decline by 4.9% from 2015 to 2016, the reason
for the decline was the decrease in sale of Haagen-Dazs ice cream internationally (cfo.com,
2017) . However, the sale increase by 0.98 % from 2016 to 2017, the reason for the increase
in sale was GM sales of Haagen-Dazs was increased in china markets

(investors.generalmills.com, 2017c)

The snacks sales have showed decline in sales by 2.7% from 2015 to 2016 this was due to the
impact of the decline in sales yogurt and cereals however in 2016 to 2017the snacks product
line showed some increasing trend (usatoday.com, 2017)

Dough sale have decline in years from 2015 to 2016 by 3% and a further decline showed in
2016 to 2017 by 7.1%.. The reason for decline was primarily due to market index pricing on
dough products. The GM as part of its restructuring process also reduces their refrigerated
dough capacity and exit our Midland, Ontario, Canada and New Albany, Indiana facilities.
(Audit report 2017 pp.3,57) (GM Annual Report, 2017, pp. 13,57)

Convenient meal also showed declining trend from 2015 to 2016 by 1.1% and further decrease
was observed from 2016 to 2017 by 4.5% the reason for the decline was that the company sold
its Martel ,Ohio manufacturing facility and entered into co packing arrangement with the
purchaser and recorded a pretax loss of 13.5 million (bizjournals, 2017)
from .The.

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sales.GM.

COMPETITOR SALES KEYLOGGS

TOTAL SALES
20000
18000
16000
14000
12000
10000
8000
6000
4000
2000
0
2016-2017 2015-2016 2014-2015
General Mills 15619.8 16563.1 17630.3
Kellogs 13014 13525 14580

General Mills Kellogs

The Kellogg’s shown a decline in sales from 2014 to 2015 by 7.2%. The sales was decrease
from 14,580m to 13,525m. Comparing to GM the sales of Kellogg’s are more affected . The
reason for the decline in sales was the decrease in demand for its breakfast food and snacks
which includes cornflakes and Froot loops. Moreover reason which impacted revenue was the
strong dollar which impacted sales revenue further the announcement by the British
government which weakens British pound due to the exit from European union which also
impacted sales (fortune, 2017)

The company also suffered from the foreign currency devaluation, the adverse impact of
Venezuela economy worsen the company results as the economy shrank by 7.1% and inflation
was at its peak of 141% according to their central bank (blogs.wsj, 2017) which impacted results
of Kellogg’s

The sale further decline from 2015 to 2016 by 3.7%. The major impact in decline was due to
the impact in morning food segment of US .Moreover the sale of Snacks also shown decline in

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US market however Kellogg’s Cheez-it and pringles showed consumption growth which leads
to lower impact than previous year. (forbes.com, 2017)

RATIO ANALYSIS

Gross profit margin (GPM)

GPM is a profitability ratio which measures the percentage of sales over cost of goods sold
(myaccountingcourse, 2017) ,

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 GROSSPROFIT MARGIN
37.00
36.50
36.00
35.50
35.00
34.50
34.00
33.50
33.00
32.50
32.00
2017 2016 2015
General Mills 35.62 35.20 33.74
Keloggs 36.54 34.61 34.73

General Mills Keloggs

(Ratio.Annexure)

The GPM as percent of net sales has increased by 140 basis point from 33.74 % to 35.2 % in
2015 to 2016 this happened due to decrease in cost of sales .the GM was able to decrease
cost of sales by 948 Million out of which 486 million$ was due to product mix drove. 369 Million
was due to low sales volume and a further decrease in cost of sales was due to mark to market
position of grain inventory and certain other commodities (GM Annual Report, 2017, p. 15)

The GPM have increased from 42 basis points from 2016 to 2017 this was due to decline in
cost of sales. The GM was able to manage its cost of sales and record decrease of 678 million
was noticed in which 814 million was due to decrease in lower volume, and 137 million increase
was attributable to product rate mix (GM Annual Report, 2017, p. 15)

Kellogg’s gross margin have decreased slightly by 12 basis point from 2014 to 2015 however it
increased by 1.93 % from 2015 to 2016 the reason behind the increase was decrease in cost
of sales. Kellogg’s introduced of project k which is an efficiency and effectiveness program
which helped Kellogg’s in saving of around 180 million$ in 2015 and 300 million$ in 2016.
(zacks.com, 2017) out of which 75 to 80 % of the saving belong to cost of goods sold (report,
2015, p. 37)

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NET PROFIT MARGIN(NPM)

NPM is a leftover of sales after all the expense have been deducted it also measures the
business profit which is extracted from sales

(accountingtools.com, 2017)

NET PROFIT MARGIN

12.00

10.00

8.00

6.00

4.00

2.00

0.00
2017 2016 2015
General Mills 10.61 10.25 6.93
Kellogs 5.33 4.54 4.33

General Mills Kellogs

(Ratio, Annexure)

NPM of 2015 was 6.93% which was increased to 10.2 %. This happened majorly due to GM
take steps in cutting cost in selling & distribution expense.GM have cut cost on the products of
high margins such as Progresso soups and Pillsbury dough, regardless of that it impact the
GM sales volume this became the reason for increase in NPMs.

(cnbc.com, 2017),

NPM continue to increase from 2016 to 2017 by 3% the reason for the increase is the
announcement of management to change in corporate structure and achieve further efficiencies

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and management is expecting to generate 70 to 80 million cost saving till fiscal year 2018 the
effects of the initiative can be seen in net profit margin . (simplysafedividends, 2017) s

Kellogg NPM showed an increase from 4.3% to 5.3% from 2014 to 2016 while the sales is
decreasing the company has initiate cost cutting measures to increase its NPM. ( (abqjournal.com,
2017)). Some of the saving was gained from the project k and further will be achieved by zero
based budgeting which will generate savings of 450 to 500 million$ from 2016 till 2018
(zacks.com, 2017).The company has also cut its advertisement expense significantly 1094
million$ to 735 million which led the company to show better NPMs. (Annexures). The company
was also able to manage its tax in Europe and paid no tax despite the sale of 900millionpound
which also helped to boost the net profit margin (mirror.co.uk, 2017)

RETURN ON CAPITAL EMPLOYED

It is a profitability ratio that measures the company profitability for the capital which is employed
in the business

( (myaccountingcourse.com, 2017)

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 RETURN ON CAPITAL EMPLOYED
18.00
16.00
14.00
12.00
10.00
8.00
6.00
4.00
2.00
0.00
2017 2016 2015
General Mills 16.48 17.08 12.75
Kellogs 16 15 12

General Mills Kellogs

(Ratio, Annexure)

GM ROCE has increased by 4 from 2015 to 2016 despite the fact that the company sales are
declined operating profit has increased by 30.3% due to cost cutting and restructuring initiative
(marketrealist.com, 2017). On the other hand there was a slight decrease in equity being
noticed as the company purchased its shares amounting 435million$, non-current liability also
decreased by 3.2% as the company paid its part of long term loan during the period which
cause the ROCE to rise significantly. (GM Annual Report, 2017, pp. 65,11)

General Mill noticed decline in ROCE in 2016 to 2017 by 0.6% which shows that the company
is trying to maintain its ROCE despite the sales decrease. Further the company is converting
its capital from equity shares to loan as company purchased 25 million shares as part of its
share repurchase program and the long term debt has increased to 10885 million during the
period .

Kellogg’s ROCE is increased by 3 %from 2014 to 2015. The major reason behind the increase
is the decrease in non-current liability by 6.9% and the company has announced its share buy
repurchase plan of buying 1.5billion$ of shares till January 2016 (investor.kelloggs.com, 2017)
out of which 11 million share were repurchase in 2015 of amount 731 million$ which lead to
the increase of ROCE (report, 2015, p. 41)

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However, it increased by 1% in 2015 to 2016 as the operating profit is increased by 27.8%, this
happened due to reduction in the cost from project k and zero based budgeting increasing
efficiency (wsj.com, 2017) which impact in the increase in ROCE. Despite the decrease in sales

CURRENT RATIO

Current ratio is a liquidity and efficiency ratio that measures an organization ability to pay
off its current liability with its current asset

(myaccountingcourse.com, 2017)

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 CURRENT RATIO

2017 2016 2015

General Mills 0.76 0.79 0.77
Kellogs 0.66 0.56 0.77

General Mills Kellogs

(Ratio, Annexure)

The most acceptable current ratio for any company is 2 but it may vary from industry to industry.
In some industries 1.5 is also acceptable.

(readyratios.com, 2017)

GM current ratio for 2015 is 0.77 which is increased by 2% to 0.79. When tracing back, cash
and cash equivalent has increased by more than 100% from 2015 to 2016 which helped the
company to improve the current ratio. Major increase in cash was achieve by divestures form
various business majorly the green giant vegetable brand . (startribune.com, 2017).

However, the ratio decrease from the period 2016 to 2017 to 0.76 %. The reason for such
increase can be analyzed as there is a significant increase in notes payable which is used to
pay portion of the long term debt leads to possible decrease in the ratio. (GM Annual Report,
2017, p. 69)

Kellogg’s show a significant decrease in the current ratio from 2014 to 2015 from 0.77 to 0.56.
When observed in the financial statement the liabilities has increase significantly including notes
payable which increased by 45%. Further accounts payable has increase by 24% and company

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has paid the current maturities of long-term debt while the current asset showed a declining
trend. However, the current ratio increases to 0.66 in 2016 as the liabilities decrease during the
period.

QUICK RATIO

Quick ratio is describe as the company’s ability to meet its short term liability using its most
liquid asset.

(readyratios.com, 2017)

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 QUICK RATIO
0.60

0.50

0.40

0.30

0.20

0.10

0.00
2017 2016 2015
General Mills 0.48 0.50 0.44
Kellogs 0.38 0.35 0.47

General Mills Kellogs

(Ratio, Annexure)

The inventory constitute 41% of current asset in 2015 which was decrease to 34.5 % of current
asset in 2016 the decrease in inventory is due to decrease in existing product sales (cnbc.com,
2017) further it also shows. That the current asset of GM is less dependent on inventory
.removing inventory from the current ratio will tell the quick ratio. Quick ratio of food processing
industry is 0.22 on average (csimarket.com, 2017) GM has better quick ratio then the industry.

Inventory constitute 37% of the current asset this has increased from the previous year this may
be due to introduction of new product during the period (bizjournals.com, 2017)which cause the
rise in inventory .thus decrease in quick ratio however its better than the industry average

the

Current ratio of Kellogg’s has decreased by 25% from 2014 to 2015. The major reason was the
decrease in the cash equivalent by 43% and the current liabilities have increased by 31%, which
causes the drastic impact on company liquidity however, it has improved by 8% in 2016 but is

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still below the ideal ratio which means that the company needs to take measures to increase
the quick ratio.

ACTIVITY RATIO

DEBTOR TURNOVER DAYS

Debtor’s turnover ratio measure an average collection period

(efinancemanagement.com, 2017)

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 DEBTORS TURNOVER
40

35

30

25

20

15

10

0
2017 2016 2015
General Mills 33 30 29
Kellogs 35 36 32

General Mills Kellogs

(Ratio, Annexure)

The receivable days is almost the same from 2015 to 2016 it means that the company provides
credit for 1month to its stakeholders GM sales are declining .

The receivable days has been increased to 33 days during period from 2016 to 2017 This is an
indication that the debtors days are increasing despite the s decline in sales receivable have
increased to 1430 million GM is giving more credit to his customer because the demand for the
GM product has decline this will help to increase in sales (money.usnews.com, 2017)

Kellogg’s receivable days have increased during 2014 to 2015 by 4 days, despite the fact that
the sales are decreasing in the period. The company is trying to increase sale by giving increase
credit period. However, it reduced to 34 days in 2016 which shows that the credit controls
department has taken measures to reduce the days of receivable.

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INVENTORY TURNOVER

This is an activity ratio which measures the efficiency of company inventory

(finstanon.com, 2017)

INVENTORY TURNOVER
56

54

52

50

48

46

44
2017 2016 2015
General Mills 54 48 48
Kellogs 55 52 49

General Mills Kellogs

(Ratio, Annexure)

The inventory turnover days are maintain by GM from 2015 to 2016 to 48 days as there were
more than 50 new products introduction in 2015 (preparedfoods.com, 2017) which was offset
by the sale of green giant plant (startribune.com, 2017)which cause the inventory to maintain

However the inventory days have increased by six days from 2016 to 2017 can be concluded
by the introduction of more than 20 new products in 2016 which cause new inventories and
the rise in inventory days (bizjournals.com, 2017)

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Kellogg’s inventory turnover period has increased from 49 days to 52 days in 2014 to 2015
respectively. A further increased to 55 days in 2016. Inventory increase will impact the holding
cost of the company there are also chances that the stock get obsolete as the sales are
declining and if it continues to increase this will increase the cost of sales.

CREDITORS TURNOVER DAYS

It is an activity ratio which tell in how many days a company takes to pays its supplier.

( (accountingtools.com, 2017),

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 CREDITORS TURNOVER
100
90
80
70
60
50
40
30
20
10
0
2017 2016 2015
General Mills 77 70 53
Kellogs 89 79 59

General Mills Kellogs

(Ratio, Annexure)

Creditors are the free source of finance. The company is taking 53 days to pay its suppliers
which is increased to 70 days in 2016 the company has planned to introduce more than 50 new
product during the period for which the company is able to arrange material on better credit
term (preparedfoods.com, 2017)b.

GM planned to introduce 20 new products from 2016 to 2017 which cause the increase in
creditor’s period to 77 days as more raw material is needed for making new products.
(bizjournals.com, 2017) it

Kellogg’s has increased from 59 days to 79 days from 2014 to 2015, which shows that company
is taking long time to pay its supplier and reducing the working capital cycle but further increase
in working capital cycle in 2016 to 89 days which is beneficial for the company as the quick ratio
is already below the ideal ratio this will help company is maintaining its reserve for further
investing.

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LEVERAGE RATIO

DEBT TO EQUITY RATIO

It measure the risk associated with the company’s financial structure it tell what is the proportion
of debt with respect to its equity

( (accountingtools.com, 2017)

DEBT TO EQUITY RATIO

450.00
400.00
350.00
300.00
250.00
200.00
150.00
100.00
50.00
0.00
2016-2017 2015-2016 2014-2015
General Mills 190.57 165.53 172.28
Kellogs 403.27 364.61 258.51

General Mills Kellogs

(Ratio, Annexure)

The GM has 172% debt compared to its equity which is decreased to 166% in 2016 this is
because the company was able to manage the average debt balance by changing the mix of
debt . (GM Annual Report, 2017, p. 16) the company also arrange funds from the selling of
green giant and raise 765million of proceed which helped to reduce the ratio and fund the
operational activities (vault.com, 2017)

In 2016 to 2017 the debt has increased to 191%, as the company has raised additional loan of
585 million the company is using its debt to pay its shareholder in form of share repurchase
arrangement. this can affects the long term prospects of the company (seekingalpha.com,

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2017).GM also acquires and build no of products each year to build its diversified portfolio
which requires fund previously includes Green Giant Veggie Chips, Totino's Pizzeria Rolls, and
GoGurt Twisted, many others this is the major cause of increase (www.vault.com, 2017)

The Kellogg’s debt to equity ratio has increased by 106% from 2014 to 2015. Which is indication
that company is funding its business through debt reliance as debt is considered cheap source
of finance the funds are used for operating, investing and financing activities however such a
significant increase was also due to decline in equity as the company has also repurchased its
11 million shares in 2015 for about 731 million$ (report, 2015). Further the ratio increased by
10% from 2015 to 2016

INTEREST COVER

The interest coverage ratio is used to measure the company ability to pay its debtors the interest
payment in the timely manner.

(myaccountingcourse.com, 2017) ,

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 INTEREST COVER
10.00
9.00
8.00
7.00
6.00
5.00
4.00
3.00
2.00
1.00
0.00
2016-2017 2015-2016 2014-2015
General Mills 8.70 8.91 6.59
Kellogs 3.44 4.81 4.90

General Mills Kellogs

(Ratio, Annexure)

GM interest cover has increase from 7 to 9 times, The reason can be traced in the statement
of profit and loss where the company profit before interest and tax has increased 630m which
is the reason for the same. The reason was the company has focused on cost cutting measures
which lead to high impact on the operating profit margins.

However, it was maintain to 9 times from 2016 to 2017, since the finance cost has decreased
in that period from 304m to 295 m and the operating profit also showed a declining trend during
the period.

Kellogg’s has maintain the interest cover to 5 times from 2014 to 2015, despite the fact that the
sales are declining. The company maintains its operating profits by cutting costs but the interest
cover decrease to 4 times in 2016. The finance cost has increased during the period by 78%
but operating profit does not increase in comparison to finance cost if the trend continues the
bank may imposed covenants against the loan and the company has to face liquidity crises.

INVESTORS RATIO

EARNING PER SHARE(EPS)

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Earning per share ratio measures the company net income which is distributable theoretically
to the common stock.

( (accountingtools.com, 2017)

EARNING PER SHARE

3.00

2.50

2.00

1.50

1.00

0.50

0.00
2016-2017 2015-2016 2014-2015
General Mills 2.82 2.83 2.02
Kellogs 1.96 1.72 1.76

General Mills Kellogs

(Ratio, Annexure)

Despite the fact that company sales have decrease over the period from 2015 to 2016, EPS
has increased from 2.02 to 2.83 which is 40% higher. the reason behind the increase is that the
company has run a strong share buyback plan which helps GM to maintain an increasing trend
in earning per share despite the fact that the sales are declining (seekingalpha.com,
2017).further the cost cutting measures and tight control on expense leads to such increase in
eps (reuters.com, 2017),a

The EPS has decreased by 0.4% from 2016 to 2017 however the EPS was not declined to the
extent as comparison to sales the reason was the strong buy back scheme which was adopted
previously by the company.it purchase approx. 25m shares about 2.3% of share outstanding
in 2017 (vuru.co, 2017) .

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EPS of Kellogg’s has decreased by 2.27% over the period from 2014 to 2015. The reason can
be trace in the net attributable income which is decreased by 2.9% and the weighted number
of shares decreased by 1.1% which leads to the reason of decreasing EPS. In 2015 to 2016
EPS is increased by 14% as the net attributable income has increased by 35% and the weighted
number of shares has also decreased by 2M.

PRICE EARNING RATIO

Price earnings ratio is called the market prospect ratio the calculate the market value of the
stock relative to its EPS

( (myaccountingcourse.com, 2017)

PRICE EARNING RATIO

45.00
40.00
35.00
30.00
25.00
20.00
15.00
10.00
5.00
0.00
2016-2017 2015-2016 2014-2015
General Mills 20.33 22.22 27.80
Kellogs 41.62 41.90 37.30

General Mills Kellogs

(Ratio, Annexure)

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The price earnings ratio has deteriorated from 2015 to 2016 by 24%. This means that the
investors are losing confidence in the company. The major reason for losing confidence is that
the company is highly geared and the sales of the company is also showing the declining trend.

The ratio further fall down 9 % in 2016 to 2017, which shows that the company is unable regain
the confidence of the investor. However, this time the decrease was not with that intense which
was in 2015 to 2016. The company should take measures to control or gain confidence of the
investor by making strategies as the sales are declining if if this trend continues this can impact
the company share price.

Price earnings ratio of Kellogg’s is much higher than that of GM and has increased by 4.6% in
2014 to 2015, which show that investor confidence has increased on Kellogg’s despite the fact
that the sales shows a declining trend. In 2015 to 2016 price earning ratio still maintain at
41times which is an indication that the manages to maintain the investors’ confidence

DIVIDEND YEILD

Dividend is the financial ratio which is used to calculates the quantum of cash dividends paid
out to its shareholder in comparison to market value per share

( (economictimes.indiatimes.com, 2017)

Dividend Yeild
4.000%

3.500%

3.000%

2.500%

2.000%

1.500%

1.000%

0.500%

0.000%
2016-2017 2015-2016 2014-2015
General Mills 3.350% 2.831% 2.974%
Kellogs 2.500% 2.740% 2.740%

General Mills Kellogs

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 (Ratio, Annexure)

GM dividend yield has decreased by 6.6% from 2015 to 2016 as the closing stock price has
increased 12% during the period but DPS is only increased by 6.5%. The decreasing trend in
dividend yield shows that the investors are getting less dividend in comparison to the investment
made in the company.

However, in 2016 to 2017 GM shows an increase of 7% in its dividend yield, this is due to
increase in dividend per share by 7.8%, however, the closing share price is decreased 9%. The
decrease in share price is an indication that the investor are losing interest in the company
which can also be observed in price earnings ratio which is also declining.

Kellogg’s dividend yield shows a declining trend from 2014 to 2016 by 13.7%. The decrease in
the dividend yield can be tracked as the closing share price shown an increase by 6.79% from
2014 to 2015 and a further increase of 13% from 2015 to 2016. However, DPS also increase
during this period but the increase was not as much as comparable to share price. DPS increase
by 4.2% from 2014 to 2015 and 3% increase from 2015 to 2016 despite the fact the dividend
yield is decreasing.

BUSINESS ANALYSIS

SWOT ANALYSIS

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STRENGTH

 Brands such as Betty Crocker dessert mixes, Gold Medal flour, Pillsbury cookie dough,
and Yoplait yogurt hold 1st or 2nd position in the market, maintains customers loyalty and
trust and are the known brands in the market and reach high volume sale. (hoovers.com,
2017)
 The GM has a history of paying dividends for 119 years with an increase from its previous
year (investors.generalmills.com, 2017)
 The company has more than 100 products which they market all around the world.

 \
 GM enjoys more than 150 years of growth with strong brand image all over the world

WEAKNESESS

 GM is selling goods in more than 130 markets around the globe due to this reason
the company has to face heavy foreign currency losses
 The company is selling in more than 130 markets around the globe but has major
dependency on US market for its revenue
 The company is largely dependent on few customers in the US Markets such as
Walmart
 The GM gearing has increased significantly from 172% to 190% if continued further
can create problems for the company (Ratio ,Annexure)

OPPORTUNITIES

 The GM can joint venture with many local food companies to provide flavor of local
cuisine of their existing product in entering new foreign markets.
 Rising demands of cereal around the globe is an opportunity for GM to further innovate
products in the respective category to earn more revenue and attract customers
 Old population is increasing and this can be a an opportunity for GM to excel in this
segment of the market and develop products

(mbaskool.com, 2017),

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 THREAT

 The foods products are highly perishable goods and if expired can cause damage to
customers health and have to face penalties and reputational damage such as a shopper
suits the company when company recalls 1.8m boxes of gluten-free’ cheerios that
contained wheat ( (businessinsider.com, 2017).
 Private store brands are preferring less processed healthy food which can impact the
company sales in future. ( (mbaskool.com, 2017)

PEST ANALYSIS

POLITICAL

The GM is operating in more than 100 countries of the world and their political situation can
have a severe impact in the company’s future profits. Changing in political situation and
uncertainty in European market have an impact on company cost of doing business .
(swotandpestle.com, 2017)

ECONOMICAL

The economic condition has a severe impact on company future prospect whether favorable or
unfavorable such as dynamics in the consumer foods industry. The markets including changes
in inflation rates, interest rates, tax rates, changes in the legal and regulatory environment
including labeling and advertising regulations and litigation all these factor will impact the sales
of GM .

The markets or countries which are in recession will has to face low sales the countries where
the currency is devaluing due to recession. GM has to face foreign exchange losses such as in
UK who has taken decision to exit European Union this will have impact on sales of the relevant
segment.

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 SOCIAL

The company have started its restructuring program which lead to cut 600 jobs to reduce its
cost which is leading to multiple decrease in jobs and affecting employment.
(startribune.com, 2017)

US market customer are changing their preference of food and are more inclined toward
organic meals and are changing their preference from inorganic food which have a high
impact on company sales. (organicconsumers.org, 2017)

TECHNOLOGICAL

In today’s world technology is a useful tool in engaging customers same as with GM. It use
its digital transformation to update the customers, stakeholder regarding their products and
services.

They also used technology to save the company from lawsuit as campaign was lodged on
internet that liking the GM brand online will void the right to sue the idea was later on
rejected by the court but still companies are using digital means to save cost and
reputational damage to companies. (nytimes.com, 2017)

CONCLUSION

Following are the conclusion which can be drawn from the above analysis.

Sales have shown a decreasing trend over the three years periods same is the case with the
competitor Kellogg’s which also showed a declining trend in sales over the three years it is
notice that the US customers food preference are changing which is the major cause of the
impact.

The company profits have however increased over the three years period GPM is slightly less
than its competitor but NPM has is far more better than its competitor Kellogg’s this means that
the company is successfully able to cut its operating cost to increase the NPMs .the company
is also paying better return on capital employed than its competitor.

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The liquidity position of the company is relatively stable and there are no such fluctuations which
can cause the company in liquidity crises however the ratio is less than the ideal ratio but better
than its competitor .The competitor ratio has decline significantly which was recover later in
year 2016.

Cash management cycle: the inventory days has increased by 6 days over three years which
is one day extra than its competitor. receivable days are better than the competitor the credit
turnover period has increased significantly which has significantly reduce the cash management
cycle the company is exploiting its brand name to arrange the free source of finance however
Kellogg’s cash management cycle has reduce to 0 days in 2016 better than GM.

GM is highly geared company and the gearing is increased during the three years period to
190% the company is generating funds from debt rather than shares as this is a cheaper source
of finance however it is better than Kellogg’s whose gearing has reached 403% this can be a
situation where a company should reconsider its position.

GM EPS is far better than Kellogg’s however price earning ratio is decreasing which is showing
that the investor confidence on GM is decreasing on the other hand Kellogg’s price earning
ratio has increased which is an indication that the Kellogg’s is successful in gaining the
confidence of the investor.

 RECOMMENDATIONS

The company can spend more amount on research and analyze the changing customer needs
and preferences and act accordingly to maintain its sales revenue.

They can also focus on finding new segment where there is less competition in the market such
as the old age people food products.

Customer confidence is decreasing which can be shown in the price earnings ratio of the
company in order to overcome the situation the company can engage investors and make
them inform about the future prospects of the company in order to gain their confidence.

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There are various developing economies in the world which has high growth rate the company
can excel and spend money in those market such as china India to increase sale revenue.

GM is also facing foreign currency exchange losses the company should hedge different foreign
exchange currency in order to reduce foreign exchange losses.

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