Kraft Foods Inc.

Analysis
A good understanding of financial statements is an important factor in evaluating a
company. The ability to decipher the information within a financial statement would give
a better understanding about a company such as: the financial health of the company, if
the company is a good investment, if the company should be extended loans and under
what terms. It will be important evaluating the financial statement ratios of the Kraft
Foods and using this information to evaluate why the company needs a loan, and in what
ways the loan will affect the company. Lets first take a look at some of the financial
ratios that will be used to evaluate the need for the additional funds in the form of a loan.

Liquidity Ratio Analysis

The current ratio for Kraft Foods is 3.63 (212,201/58,355). The company has a current
ratio above 1, meaning it has enough current assets to cover its liabilities. The companies
working capital figure would be (212,201- 58,355), equating to 153,846. Debts to assets
ratio equal (857,856/191,921) for a ratio of 4.46

Solvency Ratio Analysis

A look at Krafts long-term viability is necessary to gain confidence in becoming a
creditor. Solvency Ratios measure the ability of the company to survive over a long
period of time. (Kimmel, Weygandt, Kieso, 2009, pg. 54) The Debt to Total Assets
Ratio measures how much, as a percentage, of the financing has been provided by
creditors instead of those that own the business. As of 2007, here is this measurement for
Kraft:
This means only 15% of their total financing is from creditors. This is a healthy
amount. A second way to gain insight into the solvency of the company is to look at the
Cash Debt Coverage Ratio. This analysis looks at what percentage of debt can be
covered by one year of operation. In 2007, Kraft has the following ratio:
This means almost 66% of the companys total outstanding debt to creditors is covered
by a year of operational income, which is a healthy rate. In general, a value below .40
times is cause for additional investigation of a companys liquidity. (Kimmel,
Weygandt, Kieso, 2009, pg. 621).

Profitability Ratio Analysis

It is helpful to view Krafts profitability in order to gain confidence for investing. These
ratios measure the income or operating success of a company for a given period of
time. (Kimmel, Weygandt, Kieso, 2009, pg. 674) One of the most common is the
Price-earnings Ratio. Here is the 2007 P-E ratio:
This value means investors are willing to pay more per share of stock. (Kimmel,
Weygandt, Kieso, 2009, pg. 676) Kraft is looks to be a strong investment. Another
valuable tool for gaining insight into the companys profitability is the Profit Margin
Ratio.
This ratio measures the percentage of each dollar of sales that results in net

income. (Kimmel, Weygandt, Kieso, 2009, pg. 250) This means 1/10 of every dollar
sold ends up as profit. This is solid, as a look at Hersheys profit margin is 10.12% in the
2nd quarter of 2012. (Y Charts, 2012)

Justification for Loan

Kraft Foods is seeking to expand and enhance the product line currently
distributed. These changes will optimize how the corporation operates to produce and
distribute the line of products offered by Kraft Foods. Implementing advance methods to
production, such as innovated technology used in the process of making products,
incorporating new methods to packaging, distribution, revamping the workforce to
support the needs of the business will also improve how the company operates internally.
This loan package supported by the companys financial statements, auditors report, and
creative long-lived company history will secure a request for a loan.
Once the loan is generated, the company will initiate new product and increase financial
stability within the company to perform the needed tasks that will increase net earnings
for the company and the shareholders. As noted in the financial documents earnings for
the company decreased from 2006 to 2007. The loan is necessary to initiate internal
structural changes guaranteed to increase return and maximize financial stability. The
period of the loan requested will be paid in increments of quarterly distributions of The
Kraft Incorporation. According to the companys financial statements, shareholders
equity has continued to increase through 2007 documents with the corporation, and the
company is confident that repayment of this loan will be swift. Through the loyalty of
long-time customers, creative marketing, and superior financial divisions throughout the
company, Kraft Incorporation projects positive investment opportunities. Supplying
applicable data in a loan proposal is crucial, such as outlining the purpose of the loan,
how the company will disburse payments, and the corporation projections of financial
stability when implementing changes (How to Apply for a Small Business Loan, n.d.).

Loan Funds Usage

Kraft Inc. could benefit, both short-term and long-term, from an influx of loan funds
particularly in the areas of expansion and advertising. Specifically, Kraft Inc. could
expand its advertising and promotions to a nostalgia market, especially those adults who
were constant customers as children.
Obviously, Kraft Inc. promotes its candy mostly to children because of the large market
available there. This should continue as the main area for advertising
programs. However, the nostalgia factor opens the door to additional markets by
reminding former child customers how much they enjoyed biting into that bowl of Mac
N Cheese as children.
Adults who were children in the 1960s, 1970s, and 1980s, might not have eaten a Kraft
Inc. product in years, even if they buy them for their own children. Reminding them of
their youths through a new nostalgia advertising campaign could expand the market and
grow sales.
The company could use the loan funds to first design the adult nostalgia sales campaign,

and then purchase ad space in such nostalgia magazines as Nostalgic America, Nostalgia
Magazine, and Reminisce. The ad campaign also should include television commercials
targeted to older generations of people. According to J. Walter Thompson Specialized
Communications, Mature Market Group, todays 50-plus market holds more than $1.6
trillion in buying power, yet less than 10 percent of todays advertising focuses on people
over the age of fifty (Kaiser, 2012, p. 2).

Impact of Loan Funds

Any company receiving loan funds can flounder if the corporate officers do not take care
how they spend the money. For this reason, Kraft Inc. needs a very specific plan before
making the loan request for how it will use the funds. Administrators should make
certain that upon future business forecasts, the company can repay any loan without
stretching or denying its own business interests.

Conclusion
Kraft Foods Incorporated is a well-established company with an empowered history. The
ratio analysis of the financial statements for Kraft Foods has shown that it is a good
company to invest in. The liquidity, solvency, and profitability ratios all show to have
healthy numbers and rates for the company. The company is in the process of
implementing strategic tactics that will increase profits throughout the company. Kraft
Foods expects the loan and has proven to be a good investment from their past and
current profits. The company believes, if given the loan, the new advertising goals will
create more profits and lead to expansion. Kraft Foods believes it is a solid investment,
and the company will produce more profit for the company and shareholders when given
loan funds.

References
Gordon, M. J., and Gordon, E. R. (2007) Letter To Our Shareholders. Accounting: Tools
for Business Decision Making by Paul D. Kimmel, Jerry J. Weygandt, and Donald E.
Kies