Financial Statement Forecast for General Mills - Essay Example

Financial ment Forecasts This chapter will be divided into 3 parts. The first part will focus on the final forecast parameters. Then it will befollowed by a presentation of the company's pro forma financial statements(McQuaig, 1997). This chapter will followed by a presentation on the financial ratios of the company. Presentation of final forecast parameters/assumptions The General Mills Food and Beverage Company e model ZA in a number of ways in order to generate an acceptable financial forecast for the Company. For the Sales Growth Rate of 2005, we have used the Company's sales growth prediction from the Company's financial statements historical figures(Gray, 1996) from the year 1998 to the year 2005. For the Sales Growth Rate after 2005, we think that the rate will growth at three and one half percent per year. This prediction is based on the assumption that the Company will not acquire other big name brand or product in the near future. We have put together 5 financial parameters(Matz, 1980) in Chart 4.1.1. The 5 parameters are Cost of Good Sold as a percentage of Sales ("CGS%S"); Selling, General, and Administrative Expenses as a percentage of Sales ("SGA%S"); Operating Current Asset as a percentage of Sales ("OCA%S"); Property, Plant, and Equipment as a percentage of Sales ("PP&E%S"); and Other Intangible Assets as a percentage of Sales ("OIA%S"). The percentage of Cost of Goods Sold in relation to the total Sales is ranges from the start in the year 2000 at forty eight percent and fluctuates every year until it reaches its highest percentage of fifty seven percent in the year 2005. The cost of goods sold percentage in relation to Sales then is fixed at fifty six percent starting the following year, 2006, until the last year 2026. The Sales, General and Administrative Expenses percentage in relation to sales starts at the very high twenty seven percent and goes down to twenty six percent in 2001. The percentage then goes further down to its lowest ratio of twenty two percent. The percentage of this expense over sales is finally forecasted to stay at the ratio of twenty three percent starting in the year 2006 until the last year 2026. The Total Current assets percentage over sales starts at a low twenty three percent. The ratio, then, starts picking up until it reaches the next position at twenty nine percent. The ratio then fluctuates mostly in the ratio of twenty seven percent. The ratio reaches further up to thirty seven percent. The new ratio then reaches again a higher ratio of Fifty four percent, sixty percent, and even until the highest ratio of seventy percent until the last year of the forecast 2026. The ratio of net plan, property and equipment (PPE) in relation to sales(Meigs, 1995) is fluctuates. In the year 2000, the ratio is twenty three percent. The ratio goes up to thirty five percent in the year 2002 and even goes down to twenty six percent. This ratio is fixed at twenty six percent starting the year 2006 until the last forecasted year 2026. The ratio of Other Long term operating assets to sales fluctuates from the year 2000 at thirty eight percent until reaches its highest ratio of one hundred twenty four percent in the year 2003. The ratio is then forecasted to be fixed at one hundred two percent within the time period of 2006 to 2026. Based on the Table 1 found after the References Section, the graph is shown below as figure Chart 4.1.1 as follows. For more information concerning the specific values of each ratio, you may refer to Table 4.1.1 of the appendix A. Chart 4.1.1 Trend of 5 financial ratios from 2000 to 2026 To conclude this section, we would like to discuss the Dividend Payout Ratio ("DPOR"). From the chart, we may observe that the company had high DPORs in late 2000 till 2005. Indeed, the Company is among the top food and beverage companies in the United States and around the world both in giving out Dividend to its shareholders(Meigs, 1992) and filling the demands of its discriminating clients. Dividend Pay out Ratio includes in its computation the cash dividends, common share and earnings per share. The Dividend pay out ratio started at nine percent for the year 2000 and the year 2001. The dividend pay out ratio increases to eleven percent in the following years 2002 and 2003. The dividend pay out ratio finally reaches its highest peak in within the time period 2000 to 2004 in the last year at forty six percent. Chart 4.1.2 Trend of the Dividend Payout Ratio from 1996 to 2006 ( Industry) Chart 4.1.3 Trend of the DividendPayout Ratio from 1996 to 2006 (General Mills) The Dividend Pay Out Ratio in industry above, however, shows an opposite picture. In the food and beverage industry where General Mills belong, the Dividend Payout ratio reaches one of the highest ratio during the year 2002 and then decreases until it reaches its lowest dividend pay out ratio in the year 2004, if we compare the two All the above are caused by the increase and decrease in sales. As volume of sales increases, then the corresponding expenses also increases. As the volume of sales decreases, then the corresponding expenses and costs also decreases. According to the Stock market news Market Watch entitled "General Mills profit past view; outlook affirmed"in its Sept 21, 2006 issue, Dan Burrows mentioned that "Packaged food and cereal maker General Mills Corp. said Thursday that fiscal first-quarter income rose past Wall Street's view, helped by sales and volume gains." General Mills is engaged in the food and beverage service where is it well known of the popular products Cheerios cereal to Progresso soups, said profit advanced to $267 million, or 74 cents a share, from $252 million, or 64 cents, a year ago. Analysts' average estimate stood at earnings of 67 cents a share, according to Thomson First Call. The news further stated that "Sales for the three months ended Aug. 27 increased to $2.86 billion from $2.68 billion, and ahead of analysts' view for $2.76 billion. Worldwide unit volume grew 4%, said the Minneapolis company. "This is a solid start to the year, driven by good unit volume and sales gains in each of our three operating segments," said Chairman and Chief Executive Steve Sanger in a news release. "The sales strength reflects continued growth momentum in our established businesses, along with new product introductions under way in markets around the world." General Mills affirmed its fiscal 2007 outlook for earnings of $3.03 to $3.08 a share. Analysts' estimate stands at $3.06. 'Although the market may be surprised that General Mills did not raise its full year earnings-per-share guidance, we believe that this most likely reflects understandable conservatism on the company's part early in the fiscal year [and] provides General Mills with somewhat added flexibility,' Morgan Stanley analyst David Adelman wrote in a note to clients." The above chart shows that there is a strong demand for the General Mills products. The General Mills food company is optimistic that the current year 2006 will have the same profitable results as the prior year 2005 where there is an prior agreed conservative and easily reachable sales and operations organizational goals and objectives. The business empire of General Mills in the United States Domestic retailing generated a retail operating profit increased by eight percent to $447,0000,000 and on its five percent growth to $1,910,000 billion. The volume sales of General Mills expanded by three percent when simultaneously, Yoplait yogurt Progresso soups and Hamburger Helper dinner were mixed together to increase the net income of the company. In its international department, General Mills had encountered a drop in its operating profit by as much as five percent to fifty six million US dollars. Sales had increased by as much as thirteen percent with the amount of five hundred five million US dollars because of the volume sales increase of seven percent. The company has its own bakeries and also its food service businesses. These food and beverage section of General Mills has reached an operating profit seven percent with the corresponding amount of Twenty nine million US dollars. This is shown by the sales amount of four hundred forty five million US dollars. Volume also rose by four percent at this time. The first quarter performance of General Mills for the year 2006 is very strong resulting to the stock market shares of General Mills shares to gain 3.3 percent or $1.73 resulting to the price fifty four and 75/100 US dollars.(Burrows, 2006) In the Marketwatch news dated Sept 21, 2006, Ms. Abby Deveney's article entitled "Pre- open moves Stocks looked set for post-Fed gains. Data showed that weekly jobless claims rose by 7,000 to 318,000, though the four-week average of continuing claims hit its lowest level in a month. Global markets" She stated also that the packaged food and cereal maker giant General Mills had a first quarter income for the year 2006 thereby increases to more than what has been forecasted in the Stock Exchange thereby intensifying its forecasted 2007 and onwards sales. General Mills stock price(Larson, 1995) at this time and hour is 55.90. Presentation of the Company's Pro Forma Financial Statements This section will start by presenting the Historical Balance Sheet of the Company and the Pro Forma Balance Sheet of the Company. Then it will follows by presenting the Historical Income Statement and the Pro Forma Income Statement of the Company. We are not going to discuss every item on the financial statements; instead we will only focus on some important items discuss them in detail. 4.2.1 Historical and Pro Forma Balance Sheets. The chart on Total Asset Ratio below shows that the total assets for the year 2000 is $4,573,700 while the total assets for the year 2001 is $4,091,000 and the total assets for the year 2002 is $16,227,000. The total assets for the year 2003 is $18,227,000 and for the last year in this study, 2005 is $ 18,066,000. The main reason for the increase in assets is because the company has now generated income for the company to buy more assets. Chart 4.2.1.1 Total Asset Ratio for the year 2000 to 2006 Chart 4.2.1.1 Common Stock for the year 2006 to 2011 The Projected Common Stock amounts for the General Mills company is estimated at $5,772,000 for the year 2006 which has increased to $6,329,931 in the following year 2007. For the year 2008, the common stock has increased further to $6,897,912 before it reached the next level which is $7,514,677 for the year 2009. For the year 2010, the common stock has further increased to $8,182,698 which is the highest amount before it has been over reached by the 2011 common stock amount of $8,682,264. The increase in common stock due to the addition of new investors that put their money in General Mills after seeing that the company has generated a net income and become stable for the past few years in operation. 4.2.2 Historical and Pro Forma Income Statement and Statement of Equity In this section, we are going to pick out and discuss two items from the Income Statement and from the Statement of Equity. The 2 items are Gross Profit, and Dividends. Chart 4.2.2.1 Trend of Gross Profit from 2000 to 2006 The Operating profit for the year 2000 is $1,099,000 before it has increased to $1,216,000 the following year 2001. The operating profit in the year 2002 increases to $1,404,000 before it again increases to $1,925,000 in the year 2003. For the year 2004, the operating profit is $2,043,000 while the year 2005 had a bigger amount at $1,992,000. The biggest amount, however, occurred in the current year 2006 when the amount totaled $1,996,000. The reason for the increase is because the company has now established a name for quality and fast and low priced goods and services. Chart 4.2.221 Trend of Dividends for the year 2000 to 2011 The Company, General Mills, generated dividends amounting to $485,00 for the year 2006 which has increased to $502,081 in the following year 2007. The next year, the dividends given to common stockholders amounted to $519,762 (2008) which has increased further to $538,065 in the year 2009. For the year 2010, the dividends received amounted to 576,623. The major reason for the continuous and consistent increase is that the company has been able to establish itself a company that can deliver the goods on time and with quality service. Presentation on the Financial Ratios of the Company This section will focus on the discussing the historical and predicted Financial Ratios of the Company. Chart 4.3.1 Trend of Debt to Equity Ratio The ratio of Total Debt to equity is computed by dividing the total sum of the short term debt and long term debt by the common stock amount. Symbol 1 represents year 10 while symbol 10 represents year 2000. The only noticeable difference in the above graph is that the year 2001 has a higher ratio because the common stock is pegged at ($288,800). There could be an error because this could have been positive $288,000. The best ratio for the total debt to equity ratio is a one to one relationship. When the total debt is lesser or greater than the equity, this is bad for the company. The company has the following total debt to equity ratio: the year 2000 has ratio of -11.29 whereas the year 2001 has the ratio of 65.92 while the year 2002 has the ratio of 2.57 while the year 2003 has the ratio 2.12 while the year 2004 has the ratio 1.57. The year 2005 has the ratio 1.09 and the year 2006 has the ratio 1.05. The year 2007 has the ratio .93 and the ratio for the year 2008 has the ratio .837 and the year 2009 has the ratio .75 while the last year 2010 has the ratio .66. Chart 4.3.2 Trend of Net Profit Margin The net income divided by the sales is used to arrive at the ratios in the above. For the year 2002 the ratio is .058 and for the year 2003 the ratio is .087 while the ratio for the year 2004 is .12. The ratio for the year 2005 is .11 while the ratio for the year 2006 is .093 and the ratio for the year 2007 is .088. The ratio for the year 2008 is .087 while the ratio for the year 2009 is .089. The ratio for the last year 2010 is .092. The ratio has been evenly fluctuating within the range of .058 and .12. since the company has been among the top food and beverage companies as evidenced by its listing in the stock exchange where any new investor in join the company, the company continues to generate income and thereby satisfy the shareholders' need to earn dividend income. The net income(Raiborn, 1993) is used to pay the dividend needs of the shareholders. The Profit Margin is defined as Earnings Available to Common Shareholders/ Sales. As we have also explained in previous sections, the drop in Profit Margin in 2001 is the direct result of the acquisition activities in 2001, at the same time; the Company lowered the DPOR to around 52% in order to save cash for repaying Long-term Debt in the future. As a result, we can see that the Profit Margin rebounded in 2002 and 2003. For the future Profit Margin, we assumed that the current DPOR will remain more or less the same. The increase in EAC will be greater than the Dividend Payout; therefore the Profit Margin will increase in the future. REFERENCES: McQuaig D., Bille P., College Accounting, Houghton Mifflin, N.Y., 1997 Larson K., Miller P., Financial Accounting, Irwin Press, Boston & London, 1995 Gray, W., Hospitality Accounting, Prentice Hall, N.Y., 1996 Matz, A., Usry, M., Cost Accounting Planning and Control, South Western Publishing, NY, 1980 Meigs et al., Financial Accounting, McGraw Hill N.Y. & London, 1995 Meigs R., Meigs W., Financial Accounting, McGraw-Hill, N.Y. & London, 1992 Raiborn et al., Managerial Accounting, West Publishing, N.Y., 1993 http://www.investorguide.com/stock.cginame=GIS TABLE 2000 2001 2002 2003 2004 Cost of Goods sold 0.48 0.48 0.56 0.55 0.56 Sales, general and administrative expense (SGA) 0.27 0.26 0.22 0.24 0.22 Total current assets 0.23 0.26 0.43 0.3 0.29 Net plant, property, & equipment (PPE) 0.27 0.28 0.35 0.28 0.28 Other long-term operating assets 0.38 0.38 1.24 1.1 1.05 2005 2006 2007 2008 2009 Cost of Goods sold 0.57 0.56 0.56 0.56 0.56 Sales, general and administrative expense (SGA) 0.22 0.23 0.23 0.23 0.23 Total current assets 0.27 0.27 0.27 0.27 0.27 Net plant, property, & equipment (PPE) 0.27 0.26 0.26 0.26 0.26 Other long-term operating assets 1.04 1.02 1.02 1.02 1.02 2010 2011 2012 2013 2014 Cost of Goods sold 0.56 0.56 0.56 0.56 0.56 Sales, general and administrative expense (SGA) 0.23 0.23 0.23 0.23 0.23 Total current assets 0.27 0.27 0.27 0.26 0.37 Net plant, property, & equipment (PPE) 0.26 0.26 0.26 0.26 0.26 Other long-term operating assets 1.02 1.02 1.02 1.02 1.02 2015 2016 2017 2018 2019 Cost of Goods sold 0.56 0.56 0.56 0.56 0.56 Sales, general and administrative expense (SGA) 0.23 0.23 0.23 0.23 0.23 Total current assets 0.43 0.49 0.54 0.57 0.6 Net plant, property, & equipment (PPE) 0.26 0.26 0.26 0.26 0.26 Other long-term operating assets 1.02 1.02 1.02 1.02 1.02 2020 2021 2022 2023 2024 Cost of Goods sold 0.56 0.56 0.56 0.56 0.56 Sales, general and administrative expense (SGA) 0.23 0.23 0.23 0.23 0.23 Total current assets 0.62 0.65 0.67 0.7 0.73 Net plant, property, & equipment (PPE) 0.26 0.26 0.26 0.26 0.26 Other long-term operating assets 1.02 1.02 1.02 1.02 1.02 2025 2026 Cost of Goods sold 0.56 0.56 Sales, general and administrative expense (SGA) 0.23 0.23 Total current assets 0.75 0.78 Net plant, property, & equipment (PPE) 0.26 0.26 Other long-term operating assets 1.02 1.02 TABLE 1 DIVIDEND PAY OUT RATIO YEAR 2000 2001 2002 2003 2004 ( Cash Dividends ) ( Common Share ) 0.55 0.64 0.78 0.87 0.98 --------------------------- Earnings Per Share 6.32 6.90 7.24 8.21 2.13 DPOR 0.09 0.09 0.11 0.11 0.46 Read More