Corporate Valuation and Strategy - Assignment Example

Finance and Accounting Incorporation of the Heinz Company in 1900 in Pennsylvania succeeded to the partnership business that operated under one name. The name had been developed from a food industry that was established in 1869 in Sharpsburg by Henry Heinz. It has numerous subsidiaries. It produces wide-ranging line of food products across the globe (ANNUAL REPORT, 8). The Company has existed as one of the most competitive companies in the food industry for over 140 years. The Company’s main products include condiments, frozen food, beans, infant nutrition, ketchup and soups. The company’s products are manufactured and packaged in line with the required customer standards to provide safe and wholesome foods to the consumers. Numerous products are prepared from the company’s developed recipes (ANNUAL REPORT, 7) The process of food preparation includes a clear-cut selection of ingredients and prompts inspection it is imperative to note that the products are prepared through numerous ways, which include sterilization, fermentation, blending, homogenization, pasteurization, freezing, chilling drying and labeling. More over, the quality assurance processes are premeditated for each product and applied for quality and compliance with applicable laws. A wide range of raw materials is considered for production of the food products of this company. During the fiscal year 2012, the company is reported to have invested in productivity initiatives intended to increase manufacturing efficiency and effectiveness. This is intended for immense acceleration of the general productivity on the international scale (ANNUAL REPORT, 6). Some of the initiatives included the closure of numerous factories across the globe and decrease in the global labor force. The products of the company are sold through own sales organizations and independent agents or distributors which include retailers, manufacturers, bakeries, mass merchants and food service distributors, restraints and hotels. The intensive compliance of the company with the national, state and may be local government provisions has not caused significant effects on the budget, particularly on the capital expenditures, earnings or cutthroat position of the company. It is fundamental to note that, the company’s estimates on capital expenditures for the milieu control facilities for the remaining part of 2013 and the succeeding fiscal year are not material and no expectations has been hinted to affect the earnings in a material way (ANNUAL REPORT, 9). The Company maintains a regular trend of inspections by diverse governmental agencies in the United States and other nations where the company has subsidiaries. This ensures compliance with the set regulations, which include food and drug rules. The company as a full time global employee capacity of 32,200 as at 31 May. It is observable that income from foreign operations is subject of international currency fluctuations, restrictions on export and imports, international foreign ownership restrictions as well as economic restrictions. Risk factors The following form the material risks identified through the company’s financial statements. These risks could affect the company’s business, financial status, and operations outcomes (ANNUAL REPORT, 11). On the same note the, risks which are not currently not identified are deemed as immaterial to the company’s functionality and operations. Price pressures and cutthroat product in the food business and the financial status of the clientele and suppliers could unfavorably influence the company’s capability to expand or sustain market share in terms of profitability. The operational conditions of the company are characterized by stiff competition, which involve numerous and stable competing companies, which have diverse abilities of withstanding the varying market trends (ANNUAL REPORT, 12). This situation becomes volatile to handle because, a significant trend change in key clientele, product pricing, contractual terms and sales volume is likely to affect the financial outcomes of the company. This kind of trend is expectable because the competing companies have substantial financial and marketing capacities to can change the competitive trend in the market milieu any time. In fact, it is market occupied by giant providers and competition of this magnitude is unavoidable. The food industry form one of the competing sectors of the global economy and so are the players. This trend of competition may cause the company to reduce its prices to retain and attract more customers (ANNUAL REPORT, 12). This move of price reduction, however, might have the unseen uncertainties incase, no new customers join the clientele niche. The company stands to make losses and these are one of the outcomes of the unseen uncertainties, which cause material effects to the company’s financial status. The success of this business depends on the financial capacity and feasibility of the clientele and the suppliers. In essence, a fundamental change in the financial status of both the suppliers and the clientele especially from the events that are beyond control, could affect the company’s performance. The company’s outcome may be unfavorably influenced by monetary and political conditions in the United States and in diverse nations where subsidiaries exists. The diverse and dynamic nature of the economic and political trends in the United States and other nations where the company has subsidiaries form one of the key factors that would influence the financial position of the company now and in the future (ANNUAL REPORT, 12). These conditions are not predictable and the effects caused to the company are usually unplanned. These conditions include dynamism and continued change in the appropriate laws in diverse fields that enclose the food industry. For instance, laws concerning food and drugs, taxation, environmental and accounting standards always experience a dynamic trend. More over, the export and import restrictions influence the company’s performance in the United States, and such countries like Venezuela. Increases in the expenditure and limitations on the accessibility of raw materials could unfavorably affect the company’s financial outcomes The company requires diverse raw materials to actualize its operations as food Industry Company. Such raw materials range from potatoes, cucumbers, onions, fruits, tomatoes and vegetables (ANNUAL REPORT, 2012). Accessibility and low costs of these raw materials contributes to better performance of the company. More over, the availability and cost of the packaging materials remains a necessity and a contributory factor to the company’s performance. Te government tendency of policy fluctuation is contributory factor to the high prices and unavailability or shortage of these raw materials. In such cases, the company is required to budget more for the materials. Liquidity and financial position As indicated in the financial statements, a decline in cash generated from operating activities was recorded, from $1.58 billion to $1.49 billion. This decline reflects the cash shock of spending on output initiatives and adverse activities of accounts payable and accrued taxes from incomes (ANNUAL REPORT, 24). However, the total amount of cash used in financing activities totaled to$363 million, which was a decline from $483. The financial position of the company indicates an unfavorable liquidity level viable for business continuity and expansion of the market share. Similarly, the rate on invested capital indicated at 16.8% in 2012 a decline from 19.3% in 2011. This unfavorable impact was due to the 240 basis points resulted from the productivity initiatives. Indicators from the forecasts made The forecasts indicate that the company has to continue monitoring the credits markets to determine the apposite blend of long-term and short-term debts going ahead. (ANNUAL REPORT, 26). This forecast also indicates that the company has capacity to meet its cash requirements for operations, which include capital spending. This is due to the strong and steady operating cash flow and the existing cash balances. In addition, contractual forecasts indicate that the company has future purchase obligations related to contracts for materials, services and property. The forecast indicate that, a few of the contracts are long term while a greater percentage is shot term. The long-term obligations are based on minimum purchase requirements, which might be impacted by the dynamic trend in the contract sector. Similarly, the interest arose because of the company’s borrowing and investment activities intended to sustain the liquidity and fund business operations (ANNUAL REPORT, 27). However, the nature of the long term and short-term debts are destined to vary in tandem with the future business requirements, which are characterized by the forecasted intensive investments in marketing strategy and apt management in all the subsidiaries across the globe. A further indication is that of the uncertainty in determining the company’s deferred tax liability linked with the undistributed earnings. This is because the determination is impractical. Sensitivity analysis On the other hand, sensitivity analysis on the company’s financial position and general operations reveals that the company calculates its yearly tax rate based on the legislative tax rates and tax forecast opportunities accessible to its jurisdictions attributed to income earning. It is observable that fundamental judgment is required in establishing the company’s annual tax and evaluating attributed reservations to its tax point (ANNUAL REPORT, 28). Moreover, the analysis indicates a significant quantity undistributed earnings of foreign subsidiaries, which are regarded as being indefinitely reinvested. The difficulty arise because of the company’s belief that, it is impractical to compute the deferred tax liability linked with the undistributed earnings since there exist a significant quantity of improbability with respect to the earnings as well as the home withholding tax. Further more, the issue of inputs costs, the forecast indicate that the company may experience the efforts of cost inflation in the future (ANNUAL REPORT, 34). The 2010, 2011 and 2012 wide spread inflationary increase in commodity input prices experienced by the company is forecasted to continue to the near future until when a considerable stability in the input costs is achieved, and this may sound impractical due to the dynamic economic trend experienced across the globe. List of References H.J HEINZ, Company Annual Report of April 2012 Read More