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c  


  
 
Y

c  
6   

Liquidity ratios measure the firm¶s ability to pay shot term liabilities
using the short term assets and answer the question that, can the firm
make required payments?

  
One of the most important and frequently used ratios is the current ratio that can be measured by
dividing the total current assets from the total current liabilities.

½  
½ 
 Y
½  

Y Y Y Y  Y


  Y
   Y  Y  Y
Y

Y 1129.2 1832.1 0.61 ---

Y 1076.9 1558.8  Y
Y

The firm¶s current ratio reveals that its short term obligations are more than the short term
resources available and pours light on the fact General Mills despite of having a rising current
ratio is still incapable of efficiently paying off its short term liabilities in time. And comparison
with the industry average, General Mills Inc.¶s current ratio lies below the industry average of
1.0

 
 
Another more conservative measure of liquidity ratios is the Acid Test Ratio which is more or
less the same as current ratio but it excludes the inventory account from the current assets and
shows even more accurate liquidity position of a firm.

½     
 
 Y
½  

Y  Y Y Y  Y


  Y
   Y  Y  Y
Y

Y 1018.6 1832.1 0.55 ---

Y 637.9 1558.8 Y Y

   Y


c   
  
 
Y

The firm¶s quick ratio also reveals that it is also not able to efficiently pay off its liabilities
because the short term obligations exceed more than double of the available resources for
making the payment also there is a declining trend in the quick ratio of the firm, however the
industry average is equal to General Mills Inc.¶ quick ratio which means that it has average
current assets relative to the industry standard.

a  6   



Leverage ratiosare used to calculate the financial leverage of a
company to get an idea of the company's methods of financing or to
measure its ability to meet financial obligations.

    

Debt to Equity Ratio shows the extent to which a firm is financed through debt or the extent to
which company is using borrowed money.

 >
>  
 Y
   

Y  Y  Y  YY  Y


  Y  Y  Y  Y
Y

Y 3925.1 1151.2 3.40 ---

Y 3432.3 1218.5 
Y
YY
Y

General Mills¶ Debt to Equity Ratio reveals that the firm relies mostly on debt or money
borrowed from creditors. There is a decline in the ratio yet it is highly unfavorable for creditors
because it increases the risk and leaves less margin of protection. The ratio 2.81 tells us that
creditors are providing $ 2.81 for every $ 1 provided by the shareholders. Also there is a major
difference in between the firm and the industry average of 1.45 which is also not favorable for
the firm as well as for the creditors.

  

 

Debt to Asset is also similar to the Debt to Equity ratio. It reveals that how much percentage of
the firm¶s assets is financed through debt.

 >
> 
 Y
  

   Y


c   
  
 
Y

Y  Y  Y  YY  Y


  Y   Y  Y  Y
Y

Y 3925.1 5198.3 0.75 ---

Y 3432.3 4650.8 Y Y

The firm¶s ratio 0.73 tells us that 73% of General Mills is financed through debt and just 27% of
the remaining assets are financed using shareholders equity, which indicates high financial risk
and is highly unfavorable for creditors because there is less margin of protection for the
creditors.

      

The capitalization ratio measures the debt component of a company's capital structure, or
capitalization to support a company's operations and growth.

 >
 ½ 

 ½ 

Y  Y  Y !  " Y  Y


  Y !  " Y  Y  Y
Y

Y 3925.1 2568.4 1.52 ---

Y 3432.3 2486.8
Y Y

The company¶s capitalization ratio, despite of having a declining trend is yet very high and it
tells us that a higher proportion of debt is used for the permanent financing for the firm as
opposed to investor fund and with the increase in the proportion of debt, the risk and chances of
bankruptcy also is high.

  

aoverage ratios tell us about how much the firm is capable of
recovering the receivables or in how much time a firm is able to
recover its receivables.


    

This ratio measures the firm¶s ability to meet its interest payments and thus avoid bankruptcy


 ½ 

 ½

   Y


c   
  
 
Y

Y #Y  Y  Y  Y


$% Y &%Y  Y
 Y
Y

Y 770.4 73.6 10.46 ---

Y 786.3 58.2

Y
 Y

For the year 1994 the ratio of General Mills is 13.51 which shows that the firm is capable of
easily paying off the interest expenses incurred and also the firm¶s interest coverage ratio shows
an increasing trend which again goes in the favor of the General Mills and there is a greater
margin of security for the creditors and in comparison with the industry average of 10.9 the
company again has the upper hand and shows that despite of relying more on debt financing still
the company is able to easily pay off the interest expenses.

   

Activity ratio, also known as the efficiency or turnover ratios,
measures how efficiently the firm is using its assets.

 
   

This ratio provides insight of the quality of the firm¶sreceivables and tells us that within one
accounting period how many times the receivables are collected.

½
   
 Y
   

Y 'Y  &  Y  &  Y  Y


 Y &Y  Y
(  Y
Y

Y 8134.6 309.7 26.26 ---

Y 7777.8 287.4 Y Y
Y

This ratio tells us that during the year 1994 the Account Receivables have been turned over for
about 27 times and there is shorter period of time in which the company receives its collections.

      

This ratio tells us theapproximate amount of time that it takes for a business to receive payments
owed, in terms of receivables, from its customers and clients.

   Y


c   
  
 
Y

> 
½    

      

Y  Y Y )Y   Y  Y


Y &Y * Y  Y
Y

Y 365 26.26 13.89 ---

Y 365 27.06
Y 
Y

The companies ratio tells us that it takes almost 13.48 days for General Mills to recover the
accounts receivables and pours light on the fact that General Mills turn it¶s A/R into cash within
almost half month and the company has greater availability of cash and the company also holds a
shorter period of time of collection period than the industry average of 31.7 days and tells us that
the company holds some strict policy for receivables.

     

A ratio showing how many times a company's inventory is sold and replaced over a period of
time and also indicates the effectiveness of the inventory management practices of the firm.

½  !"   
   
 Y
 

Y +(Y &Y &Y  Y


&Y  Y
Y

Y 4297.6 488.3 8.80 ---

Y 4123.2 439  Y Y

General Mills¶ inventory turnover 9.39, which is significantly high, indicates the efficiency of
the firm¶s inventory management team and also pin points towards the fact that the firm¶s
inventory is also highly liquid. aomparison with the industry average of 5.5 also tells us some
favorable results, that General Mills is more efficient in inventory management than the industry.

 


   

Asset turnover measures a firm's efficiency at using its assets in generating sales or revenue. It
also indicates the pricing strategy of a company as companies with low profit margins tend to
have high asset turnover, while those with high profit margins have low asset turnover.

#
   
 Y
  

   Y


c   
  
 
Y

Y 'Y  Y   Y  Y


(  Y   Y &Y  Y
Y

Y 8134.6 5198.3 1.56 ---

Y 7777.8 4650.8
Y
Y

General Mills¶ Asset turnover ratio, which is 1.67 for the year 1994, tells us that the company is
very efficient in utilizing it assets togenerate sales and revenues. The ratio is not very high which
indicates that the company is also earning a significant amount of profit. The industry average of
assets turnover is 1.4 which shows us that General Mills is more efficient in utilizing its assets
then the industry itself.

    

The class of financial metrics that are used to assess a business's ability
to generate earnings as compared to its expenses and other relevant
costs incurred during a specific period of time.

    

Gross Profit ratio is used to assess a firm's financial health by revealing the proportion of money
left over from revenues after accounting for the cost of goods sold. Gross profit margin serves as
the source for paying additional expenses and future savings.

"   !
"   !$
 Y
#

Y + Y 'Y(  Y + Y*, Y  Y


*, Y -% Y  Y
Y

Y 3837.0 8134.6 47% ---

Y 3654.6 7777.8 Y Y

General Mills¶ Gross profit margin is 46% for the year 1994 which is a considerably high profit
margin and tells us about the pricing strategy of the firm that it uses price skimming rather than
penetration and triggers only a small target market. Also there is a steady declining trend in the
gross profit margin of the company which indicates that the cost of production of the company is
also rising steadily.

    Y


c   
  
 
Y

—     

The profit margin tells us how much profit a company makes for every $1 it generates in sales.
The difference in gross profit and net profit margin indicates the firm¶s operating expenses.

#  !!%
#  !$
 Y
#

Y '*Y 'Y(  Y 'Y*, Y  Y


-% Y  Y
Y

Y 506.1 8134.6 6.22% ---

Y 495.6 7777.8 Y Y

The Net Profit Margin tells us the net income per dollar of sale and for General Mills 6.37 cents
out of every $1 sales constitutes after tax taxes. General Mills¶ net profit margin is above the net
profit margin of the industry average of 5.0% which indicates that it has a higher level of sales
profitability than most of the other companies in the industry. Also the difference in the Gross
profit margin and the net profit margin which is about 40% of sales, also informs us about the
operating expenses and interest expenses of the company.

   
 

Return on Investment or Return on Assets is a performance measure used to evaluate the


efficiency of an investment or to compare the efficiency of a number of different investments. To
calculate ROI, the benefit of an investment is divided by the cost of the investment and the result
is expressed as a percentage or a ratio.

#  ! !%


   &

  

Y '*Y  Y .Y  Y


  Y  Y
Y

Y 506.1 5198.3 9.73% ---

Y 495.6 4650.8
Y Y

General Mills¶ ROI lies above the industry average of 8.7% which indicates good performance in
generating profits on the assets of the firm. It tells us that General Mills employ fewer assets to
generate $1 sales than other firms in the industry which again goes into the favor of General
Mills.

   !Y


c   
  
 
Y

    

Return on Equity Ratio indicates the profitability to the shareholders of the company after
considering all expenses and taxes ora company¶s profitability by revealing how much profit a
company generates with the money shareholders have invested.

#  ! !%


   

  ' 

Y '*Y ($$  /Y .Y  Y


 YY  Y
Y

Y 506.1 1151.2 43.95% ---

Y 495.6 1218.5 Y
 Y

General Mills¶ have a strong ROE ratio which tells us that the company has good and effective
expense management system and also the company often undertakes strong investment
opportunities. And also the company¶s ROE ratio is significantly above the industry average of
about 20%.

® 
Y The firms
  Y   tell us that the firm is not highly liquid and a significant
amount of the company¶s aurrent Assets consist of inventory account but at the same
time the company does not invest much in the inventory account in accordance to the
industry average and may face difficulties like stock outs.
Y a   Y
&%Y  tell us that General Mills rely mostly on debt financing and
high proportion of debt is used for permanent financing and about 73% of the firm¶s
assets are financed through debt which is not favorable for lenders.
Y &%Y  tell us that General Mills, despite of relying more on debt is able to pay
off the interest expenses efficiently and is more reliable than many firms in the industry.
Y The  & Y  tell us that General Mills is very efficient in managing the inventory
then many other firms in the industry and also it highlights the fact that General Mills is
very efficient in utilizing its assets to generate sales and revenues and at the same time it
is able to recover the credit sales and convert them into cash.
Y The *,  Y   tell us that the firm favors investing more in fixed assets to
ensure great profitability than in current assets. Also the firm¶s gross profit and net profit
margin are considerably better than the industry average and the firm is very effective in
generating profits while utilizing its assets and shareholders¶ equity.

   "Y


c   
  
 
Y

c  $%& 
   
  ®    ®  
Y

-(Y
Y
Y
Y
Y  Y
Y $ $ $ $ $
(  Y 8134.6 7777.8 100 100 100
  YY0!  1Y
aost of Sales 4297.6 4123.2 52.83 53.01 53.2
Selling and Admin Expenses 2578.2 2516.3 31.69 32.35 30.1
Depreciation and Amortization 274.2 247.4 3.37 3.18 3.2
Net Interest 73.6 58.2 0.90 0.74 1.7
Unusual expenses 67 (11.8) 0.82 (0.15) (0.7)
Y
 Y YY0!  Y 7290.6 6933.3 89.62 89.14 87.9
Y
 % Y,2Y  %Y 844 844.5 10.37 10.85 6.5
!  Y ,Y0 Y
2Y0 Y 337.9 338.9 4.15 4.35 4.1
Y
 % Y,2Y  %Y 506.1 505.6 6.22 6.50 6.5
!  Y
  Y!  Y,Y0 Y --- (10) --- (0.12) (2.1)
Y
'Y % Y 506.1 495.6 6.22 6.37 4.1

   
   ®   ® 
Y

-(Y
Y
Y
Y
Y  Y
Y $ $ $ $
Y  1Y
aash and aash Equivalents 0.2 100 0.003 2.15 ---
Receivables 309.7 287.4 5.95 6.17 ---
Inventories 488.3 439 9.39 9.43 ---
Prepaid Expenses 110.6 108.2 2.12 2.32 ---
Deferred Income Taxes 220.4 142.3 4.23 3.059 ---
Y

   #Y


c   
  
 
Y

 YY  Y 1129.2 1076.9 21.72 23.15 32.0


Y

3Y#  %YY !2Y 3092.6 2859.6 59.49 61.48 43.4


.$Y  Y 976.5 714.3 18.78 15.35 24.6
Y
 Y  Y 5198.3 4650.8 100 100 100

   
  ®   ® 

-(Y
Y
Y
Y
Y  Y
Y
   1Y
Accounts Payable 650.4 617 12.51 13.26 ---
aurrent Portion of Long Term Debt 115.2 64.3 2.21 1.38 ---
Notes Payable 433.3 339.6 8.33 7.30 ---
Accrued Taxes 178.3 139.7 3.42 3.00 ---
Accrued Payroll 165.6 158.8 3.18 3.41 ---
Other aurrent Liabilities 289.3 239.4 5.56 5.14 ---
Y
 YY
   Y 1832.1 1558.8 35.24 33.51 32.70
Y

%Y2Y  Y 1417.2 1268.3 27.26 27.27 19.30


,Y2Y0 Y 297.4 262 5.72 5.63 4.10
,Y2Y0 0Y
  Y 189.8 195.6 3.65 4.20 ---
.$Y
   Y 188.6 147.6 3.62 3.17 15.0
Y
 Y
   Y 3925.1 3423.3 75.50 73.60 71.0
22Y(YY*Y.!  Y 122 0 2.34 0
Y
($  /Y Y
aommon Stock 251 358.7 4.82 7.712 5.30
Retained Earnings 2457.9 2284.5 47.28 49.12 42.10
aommon Stock at treasury (1334.4) (1196.4) (25.66) (25.72) (18.4)
Unearnedaompensation (160.2) (167.5) (3.08) (3.60) ---
aumulative Foreign aurrency Adjt (63.1) (60.8) (1.21) (1.30) ---
Y
 Y Y 1512.2 1218.5 29.09 26.19 29.00
Y
 Y YY
 Y 5198.3 4650.8 100 100 100

   'Y


c   
  
 
Y

c   ( )
   
   ®  
Y

2 Y
Y
Y
Y
Y
(  Y 8134.6 7777.8 100 95.61
  YY0!  1Y Y
aost of Sales 4297.6 4123.2 100 95.94
Selling and Admin Expenses 2578.2 2516.3 100 97.59
Depreciation and Amortization 274.2 247.4 100 90.22
Net Interest 73.6 58.2 100 79.07
Unusual expenses 67 (11.8) 100 (17.61)
Y
 Y YY0!  Y 7290.6 6933.3 100 95.09
Y
 % Y,2Y  %Y 844 844.5 100 100.05
!  Y ,Y0 Y
2Y0 Y 337.9 338.9 100 100.29
Y
 % Y,2Y  %Y 506.1 505.6 100 99.90
!  Y
  Y!  Y,Y0 Y --- (10) ---
Y
'Y % Y 506.1 495.6 100 97.92

   
  ® 
Y

-(Y
Y
Y
Y
Y
Y $ $ $ $
Y  1Y
aash and aash Equivalents 0.2 100 100 50000
Receivables 309.7 287.4 100 92.79
Inventories 488.3 439 100 89.90
Prepaid Expenses 110.6 108.2 100 97.83
Deferred Income Taxes 220.4 142.3 100 64.56
Y

   Y


c   
  
 
Y

 YY  Y 1129.2 1076.9 100 95.36


Y

3Y#  %YY !2Y 3092.6 2859.6 100 92.46
.$Y  Y 976.5 714.3 100 73.14
Y
 Y  Y 5198.3 4650.8 100 89.46

   
  ® 
Y

-(Y
Y
Y
Y
Y
Y
   1Y
Accounts Payable 650.4 617 100 94.86
aurrent Portion of Long Term Debt 115.2 64.3 100 55.81
Notes Payable 433.3 339.6 100 78.37
Accrued Taxes 178.3 139.7 100 78.35
Accrued Payroll 165.6 158.8 100 95.89
Other aurrent Liabilities 289.3 239.4 100 82.75
Y
 YY
   Y 1832.1 1558.8 100 85.08
Y

%Y2Y  Y 1417.2 1268.3 100 89.49
,Y2Y0 Y 297.4 262 100 88.09
,Y2Y0 0Y
  Y 189.8 195.6 100 103.05
.$Y
   Y 188.6 147.6 100 78.26
Y
 Y
   Y 3925.1 3423.3 100 87.21
22Y(YY*Y.!  Y 122 0 100 0
Y
($  /Y Y
aommon Stock 251 358.7 100 142.90
Retained Earnings 2457.9 2284.5 100 92.94
aommon Stock at treasury (1334.4) (1196.4) 100 89.65
Unearnedaompensation (160.2) (167.5) 100 104.55
aumulative Foreign aurrency Adjt (63.1) (60.8) 100 96.35
Y
 Y Y 1512.2 1218.5 100 80.57
Y
 Y YY
 Y 5198.3 4650.8 100 89.46

   Y