Financial Analysis – Sara Lee Corp
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Sara Lee Corp
Sara Lee operates as a global manufacturer and marketer of brand-name packaged foods and household products. Their products are distributed in grocery stores, drug stores, and food-service outlets. In February 2005, the firm embarked on mission to centralize and streamline its organization. Several less profitable business segments and brands were divested. Although Sara Lee owns well-known brands such as Sara Lee, Hillshire Farms, and Jimmy Dean, its products are segmented, making it difficult to achieve pricing power. Sara Lee is also feeling the pressure of rising commodity costs and changes in consumer trends. Many industry analysts are skeptical as to whether the restructuring initiative and strategy shift will give way to positive results and market growth. In an attempt to determine the current and future state of Sara Lee’s economic environment the cash flow statement and bankruptcy prediction model will be reviewed as well as a fundamental, traditional, and technical analysis performed. The purpose of this report and its findings will be used to determine if the company is worthy of receiving funding from lending institutions and if their stock should be invested in and if so when.
A trend analysis is typically used in predicting future stock movements, it is also useful to analyze the earnings trends and compare these results to cash from operating activities.
Trend Analysis:
Significant business divesture explains the reduction in sales revenue between 2005 & 2006; however the severe reduction in free cash flow raises concern. Cash is king and a lack there of causes liquidity concern and questions the ability of the company to remain operational. In an attempt to explain this cash limiting turn of events, the cash flow statement needs to be analyzed.
Cash Flow Analysis
SARA LEE CORP
Statement of Cash Flows
PERIOD ENDING
30-Jun-07
1-Jul-06
2-Jul-05
Net Income
504,000
555,000
719,000
Operating Activities, Cash Flows Provided By or Used In
Depreciation
539,000
701,000
737,000
Property Plant and Equipment
2,448,000
3,302,000
3,142,000
Adjustments To Net Income
-24,000
53,000
302,000
Changes In Accounts Receivables
18,000
-14,000
-196,000
Changes In Liabilities
-389,000
-106,000
-281,000
Changes In Inventories
-106,000
108,000
23,000
Inventory
1,050,000
2,492,000
2,694,000
Changes In Other Operating Activities
-36,000
-42,000
15,000
Total Cash Flow From Operating Activities
506,000
1,255,000
1,331,000
Investing Activities, Cash Flows Provided By or Used In
Capital Expenditures
-529,000
-625,000
-538,000
Investments
663,000
Other Cash flows from Investing Activities
434,000
990,000
305,000
Long Term Investments
Total Cash Flows From Investing Activities
568,000
365,000
-233,000
Financing Activities, Cash Flows Provided By or Used In
Dividends Paid
-374,000
-605,000
-464,000
Sale Purchase of Stock
-648,000
-534,000
-235,000
Net Borrowings
759,000
1,131,000
-516,000
Other Cash Flows from Financing Activities
-650,000
Total Cash Flows From Financing Activities
-913,000
-8,000
-1,215,000
Effect Of Exchange Rate Changes
128,000
86,000
-7,000
Change In Cash and Cash Equivalents
$289,000
$1,698,000
($124,000)
Goodwill
2,722,000
3,052,000
3,202,000
Intangible Assets
1,037,000
1,185,000
1,679,000
**red items are imported from Balance Sheet for comparison purposes
Cash from Operating Activities:
Depreciation & Property Plant & Equipment: depreciation is less than PP&E, as it should, both PP&E and depreciation have decreased since 2005 due to business line divestitures.
Adjustments to Net Income? The Balance sheet shows deferred long term assets charges of $310, which could relate to this positive cash flow adjustment.
Changes in receivables, amount is positive in 2007 and significantly reduced between 2005 & 2006. Positive amounts = collecting more than sold, this is mostly related to fewer sales due to 40% loss of revenue base but it could also be related to an improvement in collection procedures.
Changes in inventory, there is a sharp decline from ’06 to ’07 on the balance sheet due to divested businesses. The change in cash flows in �07 supports building inventory in order to support changing industry trends.
Cash from Investing Activities:
Capital Expenditures: large cash expenditures also show investment in the business and support the growth strategy.
Investments? If I was auditing SLE I would require disclosure of this amount. There is nothing on the income statement that explains this cash gain. (The Income Statement is attached for review in Appendix A).
Other Cash flows from investing activities — shows shrinkage in business. This amount also requires further explanation and is not found on the income statement.
Long Term Investments: from Balance Sheet, no long-term investing also shows a business