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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


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 A

Property Plant and Equipment 2,448,000 3,302,000 3,142,000 A

Adjustments To Net Income -24,000 53,000 302,000 B

Changes In Accounts Receivables 18,000 -14,000 -196,000 C

Changes In Liabilities -389,000 -106,000 -281,000

Changes In Inventories -106,000 108,000 23,000 D

Inventory 1,050,000 2,492,000 2,694,000 D

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 E

Investments 663,000 - - F

Other Cash flows from Investing Activities 434,000 990,000 305,000 G

Long Term Investments - - - H

Total Cash Flows From Investing Activities 568,000 365,000 -233,000 I

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 J

Net Borrowings 759,000 1,131,000 -516,000

Other Cash Flows from Financing Activities -650,000 - - K

Total Cash Flows From Financing Activities -913,000 -8,000 -1,215,000 L

Effect Of Exchange Rate Changes 128,000 86,000 -7,000 M

Change In Cash and Cash Equivalents $289,000 $1,698,000 ($124,000)

Goodwill 2,722,000 3,052,000 3,202,000 N

Intangible Assets 1,037,000 1,185,000 1,679,000 O

**red items are imported from Balance Sheet for comparison purposes

Cash from Operating Activities:

A. 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.

B. Adjustments to Net Income? The Balance sheet shows deferred long term assets charges of $310, which could relate to this positive cash flow adjustment.

C. 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.

D. 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:

E. Capital Expenditures: large cash expenditures also show investment in the business and support the growth strategy.

F. 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).

G. Other Cash flows from investing activities вЂ" shows shrinkage in business. This amount also requires further explanation and is not found on the income statement.

H. Long Term Investments: from Balance Sheet, no long-term investing also shows a business



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