The following information from the financial statements of Kraft Foods and Cadbury PLC is available…

AFS1-2 Kraft Acquires Cadbury PLC

The following information from the financial statements of Kraft Foods and Cadbury PLC is available for the three years prior to their merger. Evaluate the performance of each company leading up to the year of the acquisition (2010). Note that Cadbury”s financial statements are in millions of pounds, while Kraft”s statements are in millions of dollars.

Kraft Foods ($ millions) 2007 2008 2009
Balance Sheet
Assets 67,993 63,173 66,714
Total Liabilities 40,698 40,817 40,742
Stockholders” Equity 27,295 22,356 25,972
Selected Balance Sheet items
Market value of equity 50,480 48,110 40,111
Current Assets 10,737 9,917 12,454
Current Liabilities 17,086 11,044 11,491
Accounts Receivable 5,197 4,704 5,197
Inventory 4,096 3,881 3,775
Long-term Debt 13,624 19,354 18,537
Retained Earnings 12,209 13,440 14,636
Income Statement
Total Revenues 37,241 40,492 38,754
Cost of Goods Sold 24,651 27,164 24,819
Gross Margin 12,590 13,328 13,935
Income continuing operations 2,590 1,678 2,810
Net income 2,590 2,884 3,021
Selected Income Statement items
Interest Expense 604 1,240 1,237
Tax Expense 1,137 658 1,136
Statement of Cash Flows
Cash from Operations (CFO) 3,571 4,141 5,084
Cash interest paid 628 968 1,308
Cash taxes paid 1,366 964 1,025
Cadbury (£ millions) 2007 2008 2009
Balance Sheet
Assets 11,338 8,895 8,129
Total Liabilities 7,165 5,361 4,607
Stockholders” Equity 4,173 3,534 3,522
Selected Balance Sheet items
Market value of equity 9,581 8,241 12,266
Current Assets 2,600 2,635 2,125
Current Liabilities 4,614 3,388 2,434
Accounts Receivable 1,197 1,067 978
Inventory 821 767 748
Long-term Debt 1,120 1,194 1,349
Retained Earnings 2,677 2,498 3,502
Income Statement
Total Revenues 4,699 5,384 5,975
Cost of Goods Sold 5,504 2,870 3,210
Gross Margin 2,195 2,514 2,765
Income continuing operations 149 370 275
Net income 405 364 509
Selected Income Statement items
Interest Expense 88 50 172
Tax Expense 105 30 103
Statement of Cash Flows
Cash from Operations (CFO) 812 469 523
Cash interest paid 193 165 122
Cash taxes paid 235 153 163

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  1. Use the method described in Appendix A to evaluate the health of the target company, and point out any trends that might have been worrisome to Kraft. Also indicate any strengths in the firm”s performance.
  2. Use the method described in Appendix A to evaluate the health of Kraft Foods, and point out any positive or negative trends.

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