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Kraft Foods Inc- Company Analysis

Abstract

Kraft Foods Inc is the manufacturer and marketing packaged beverages and foods in 150 nations around the globe and is having its headquarters at U.S.A. This research essay analyses its financial performance in detail and also deliberate its mission, objectives, corporate social responsibility and its environment compliances.

Introduction

Financial statements of a company offer a wealth of statistics that can be employed by financial analysts, managers, investors, lenders, customers, customers and regulators.

Kraft Foods Inc profitability ratios for the last three years

Profitability Ratios 12/31/2007 12/31/2006 12/31/2005 Industry Average
ROA % (Net) 4.19 5.41 4.48 3.58
ROE % (Net) 9.27 10.52 8.85 7.93
ROI % (Operating) 10.37 11.85 11.92
EBITDA Margin % 14.01 15.77 16.51

Profitability ratio indicates combined effects of asset management, liquidity and debt on operating results.

Kraft Foods Inc Liquidity ratios for the last three years

Liquidity Indicators 12/31/2007 12/31/2006 12/31/2005 Industry Average
Quick Ratio 0.34 0.39 0.42 1.17
Current Ratio 0.63 0.79 0.93 1.57

Current ratio is the most commonly employed indicator of short-term solvency of any business. Kraft’s current ratio is declining and company should analyze the reasons for the same.

Activity Ratios of Kraft Foods Incorporation for the last three years

Activity Ratio 12/31/2007 12/31/2006 12/31/2005 Industry Average
Total Asset Turnover 0.6 0.61 0.58 0.80
Receivables Turnover 8.22 9.47 9.85 9.40
Inventory Turnover 9.8 10.03 10.05 6.80

Inventory Turnover is a rough estimation of each item of Kraft’s inventory which is traded off and replenished or turned over. Thus, Kraft’s inventory turnover was 9.8 times during the year 2007. This ratio helps to assess whether Kraft is holding excess inventory or not.

Leverage

Ratios of Kraft Foods Inc for the last three years.
Leverage Ratios 12/31/2007 12/31/2006 12/31/2005 Industry Average
LT Debt to Equity 0.47 0.25 0.29 0.28
Total Debt to Equity 0.7 0.3 0.33 0.54
Interest Coverage 7.17 8.87 7.47 6.00

Interest coverage ratio indicates a company’s ability to pay its interest obligations out of its earnings before interest and taxes. Kraft is having sufficient income to meet its interest cost. (Mergent Online 2009)

Mission

Kraft Foods Inc (herein after referred as ‘Kraft’) is the manufacturer and marketing packaged beverages and foods in 150 nations around the globe is having its headquarters at U.S.A. Kraft is the owner of nine brands and is having annual revenue of over $ 1 billion. About fifty additional brands owned by them which is also fetching around annual revenue of more than $100 million. Kraft’s some famous products include beverages, snacks, convenient meals, cheese and different packaged grocery merchandises. Kraft is having lion’s share of its revenue from its foreign operations. In 2007, about two-fifths of its sales and in 2006, about 39% of its sales were accomplished in foreign nations. As of 2007, Kraft has offered direct employment to 103,000 employees. Kraft owns 181 manufacturing facilities around the globe and operates 6 leased processing and manufacturing facilities. Kraft operates about eleven R&D centers to introduce innovative, new products and to enhance the quality of existing products. (Form 10K, 2007, 2)

Kraft’s selective financial indicators

$ In millions. (Form 10K, 2007, 24)

2007 2006 2005
Net Revenues 37241 34356 34113
Net Earnings 2590 3060 2632

Objectives

During February 2008, Kraft announced its new operating structure as its approach to rephrase the organization for growth. Kraft is positioning its resources where decisions are arrived at that impact its consumers. Its shared service and corporate functions are employed to rationalize its organisations and spotlighting them of main activities that can more effectively substantiate the main objectives of its business units. The main aim of the restructuring is to streamline, simplify and enhance accountability with the definitive aim of creating reliable growth for Kraft products. Due to streamlining process, Kraft is able to save substantial employee’s cost as it had downsized about 700 positions in 2007 as Kraft has centralized its operational functions from it’s headquarter.

Strategies

Kraft investment strategy is footed on a belief that its equity will surpass its debt securities in the long run. Hence, Kraft has sketched its U.S plan assets in the ratio of 70: 30 ratios between equity and debt obligations. Thus, lesser allocation is made to international and high yield debt securities to avoid losses. Outside the U.S, Kraft is engaged in investment strategy subject to host country rules and regulations.

For organizational growth, Kraft’s strategy is to engage in divestitures and acquisitions. Integration of some major existing retail outlets or competitors may impact Kraft’s profitability and margin. Further, Kraft’s product sales are footed on its capacity to estimate, identify and understand transformations in preferences of consumers. If Kraft fails to introduce new or innovative products in tune with its consumer’s preferences, it may loose its existing market share to its competitors.

Food industry consists of intensive competition. (Hunger, 2006, 10). Since Kraft is functioning under highly competitive scenarios, its profitability may be affected due to threats imposed by lower-priced competitors especially in the period of economic downturns. Hence, Kraft is to peruse aggressive marketing, introduction of new products to safeguards its present mark share or to expand in new markets.

Diversity

Kraft respect diversity of all categories, style, thought, ethnicity, experience, gender and race. Kraft strongly believes that a diverse employee group will turn it as a vibrant corporation, promotes innovation and makes it closer to its customers. Kraft is encouraging women occupying middle management positions and in 2007, women held about 34% of middle management positions in Kraft on international basis. Kraft also enhanced the representation of color people in its payroll. For instance, in U.S alone, in 2007, about 20% of its permanent employees were held by colored employees as compared to 19% in the year 2006.

Corporate Social Responsibility

Kraft’s CSR includes prevention of polluting materials and encouragement of natural resources sustainability. In Europe, by transforming the Kraft’s milk chocolate’s package paved to poignant reductions in packaging materials that required to be cleared off. Kraft in its Richmond, VA plant, as part of U.S Department of Energy’s motto, has saved about 16 billion BTU’s per annum. (www.kraftfoodscompany.com ,2007)

Environmental Regulations

Kraft is subject to various local, state, federal and foreign national regulations and laws for the safeguarding of the environment. Some of Kraft’s subsidiaries were charged under active superfund and other identical class actions in U.S alone pertaining to their current operations as of December 31, 2007. Kraft has evolved a specific environmental adherence scheme across its global business units intended to cater applicable environmental compliance needs.

Conclusion

Kraft Foods Inc made concrete progress in implementing its long-run growth plans, which spotlights on modifying the organization for development, restructuring its categories, utilizing its sales capabilities and minimizing cost without sacrificing on quality. (Form 10K, 2007, 19).

References

Hunger, J.D., & Wheelen, T. (2006). Essentials of Strategic Management. London: Prentice Hall.

Kraft Foods Inc (2007) Company Fact Sheet. Web.

United States Securities and Exchange Commission (2008) Form 10k of Kraft Food Inc.

Yahoo Finance! (2009) Summary for Kraft Foods Inc. Web.

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