Lindt, Callebuat And Hershey Harvard Case Solution & Analysis

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The management believes that the company has performed up to its standards and they back it up with the most recent financial results as that of December 31, 2013. The managerial state that the company’s net sales have been increased by 7.6% as compared of last year due to increase in volume of sales in the United States and other key international markets.

The advertising expense has increased by 21.3% for the current year, which was incurred to provide support and visibility to the core brands of the company in the market along with the launching of new products, whereas the EPS has also increased at a higher rate than expected exceeding the long term growth targets.

The management continues to state that the investments they had made have brought productivity and cost saving to the company providing the company with a more efficient and effective model, this enables the management to provide results to the shareholders which are predictable and consistent. On the final note the cash flow from operations and the financial position of the company remain solid and would continue to be so.

Goodwill and Other Intangible Assets

The intangible assets of the company consist of trademarks which the company obtained through acquisitions of businesses, these trademarks have an indefinite life. The company does not amortize trademarks whose useful life is determined to be indefinite.

The company does conduct impairment test for all other intangible assets it holds which have an indefinite life and goodwill, the evaluation is done on the 4th quarter of each year or conducted when a situation arises that indicate a possibility of impairment.

CASH FLOW ANALYSIS

The company has been able to generate a very positive cash flow from the operating activities having a total figure of $1.1million in 2013 which is a substantial growth considering the $0.58million in the year 2011, which means the company’s operations are performing very well and are generating good results. Whereas there is an outflow in both the investing and financing activities of the cash flow.

The investing activities show an outflow because of the fact that the company has manufactured a new facility in Malaysia, along with a Next century program and other expenditures such as purchase of manufacturing equipment and improvement of manufacturing efficiency.

Financing activity is showing an outflow because the company has made a repayment of its exceedingly high debt and has also repurchased shares from the market to enhance shareholder confidence.

Yet with an outflow of Investing and financing activities the overall cash flow has an inflow, showing that the company has sufficient cash and would continue to generate more in the future.

AUDITORS & AUDIT REPORT

The year ended financial statement of the year 2011, 2012 and 2013 are audited by the KPMG LLP, this is an independent accounting firm registered as public.

In the opinion of the independent auditors of the KPMG LLP the financial statements of the Hershey’s company present fairly, in all the respects of materiality and are in accordance with the US generally accepting accounting principles, the company has received a positive unqualified opinion.

FINANCIAL ANALYSIS

The sales of the company have a 5 year compound growth rate of 6.8%, the sales of the company have increased from $5,132,768 in 2008 to $ 7,146,079 in 2013 showing that the company is on a growing trend. Whereas the cost of sales has only increased by 2.7% in the last 5 years, which means the company has efficient, cost control and is on a high profit generating trend.

The increase in sales is a result of the increased advertisement expenditures, which have shown a 29% compound growth in the last 5 years, which is completely relevant, whereas the selling marketing and administrative expenses have shown a 12.4% compound growth rate.

The company has reduced its interest expense to $88,356 from $95,569 in the year 2013 means that the company has paid off some of its liabilities, a company only pays off its liability when it feels that it is in a strong financial position and the financial statements do dictate that position.

The company’s income has had a 21.4% compound growth rate in the last 5 years, even though the sales have shown 6% growth, means that the company has had strong cost control this is also seen on the EPS of the company which was $1.4 in 2008 and has increased to $3.7 in 2013 showing a growth rate of 21.7% this shows that the company will continue to increase profits..................................

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