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)200720082009
Balance Sheet
Assets67,99363,17366,714
Total Liabilities40,69840,81740,742
Stockholders” Equity27,29522,35625,972
Selected Balance Sheet items
Market value of equity50,48048,11040,111
Current Assets10,7379,91712,454
Current Liabilities17,08611,04411,491
Accounts Receivable5,1974,7045,197
Inventory4,0963,8813,775
Long-term Debt13,62419,35418,537
Retained Earnings12,20913,44014,636
Income Statement
Total Revenues37,24140,49238,754
Cost of Goods Sold24,65127,16424,819
Gross Margin12,59013,32813,935
Income continuing operations2,5901,6782,810
Net income2,5902,8843,021
Selected Income Statement items
Interest Expense6041,2401,237
Tax Expense1,1376581,136
Statement of Cash Flows
Cash from Operations (CFO)3,5714,1415,084
Cash interest paid6289681,308
Cash taxes paid1,3669641,025
Cadbury (£ millions)200720082009
Balance Sheet
Assets11,3388,8958,129
Total Liabilities7,1655,3614,607
Stockholders” Equity4,1733,5343,522
Selected Balance Sheet items
Market value of equity9,5818,24112,266
Current Assets2,6002,6352,125
Current Liabilities4,6143,3882,434
Accounts Receivable1,1971,067978
Inventory821767748
Long-term Debt1,1201,1941,349
Retained Earnings2,6772,4983,502
Income Statement
Total Revenues4,6995,3845,975
Cost of Goods Sold5,5042,8703,210
Gross Margin2,1952,5142,765
Income continuing operations149370275
Net income405364509
Selected Income Statement items
Interest Expense8850172
Tax Expense10530103
Statement of Cash Flows
Cash from Operations (CFO)812469523
Cash interest paid193165122
Cash taxes paid235153163

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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.