DECISION CASE 9-1

1) General Mills current ratio for 2010: Total current Assets (2010) / Total current liabilities
(2010)
3,480.0 / 3,769.1 = 0.923
General Mills current ratio for 2009: Total current Assets (2009) / Total current liabilities
(2009)
3,534.9 / 3,606.0 = 0.98
2009 was the only year General Mills had a liquidity ratio of less than one (0.98), which
means General Mills has struggled to meet short-term obligations. The General Mills Current
Ratio continued to fall to (0.923) in 2010. This means that the situation is getting worse.
General Mills struggles to generate cash. Focusing on the situation, the current assets of
general mills decreased from 3,534.9 to 3,480.0, and the current liabilities increased from
3,606.0 to 3,769.1 at the same time, which is not good for any company. This means that
they may not have enough liquidity to trade and face serious problems as a result. General
Mills should take appropriate measures to deal with this situation.

2) Kellogg's current liabilities is $3,184 in 2010 compared to $2,288 in 2009. Kellogg's debt has
risen sharply, but so has its total current assets, from $2,558 to $2,915. To better understand
their position, we need to find Kellogg's current ratio in 2010 which is 2,915/3,184 = 0.916.
Kellogg's financial position in 2010 was comparable to that of General Mills, but in 2009
Kellogg was in a much better position. This means that Kellogg's current liabilities is
significantly higher than that of General Mills.

3) For Kellogg's:
They use a combination of insurance and self-insurance for worker’s compensation,
general liabilities, automobile liabilities, product liabilities etc. Although these
matters are subject to uncertainty and the outcome is not predictable with
assurance. Kellogg's established accruals for those matters where losses are
probable and reasonably estimable. If there are any other claims and legal
proceedings pending against the company for which accruals are not established. It
is possible that some of these matters could result in an unfavourable judgement
and could require payment of claims. Based on current information, management
does not expect any claims or legal proceedings pending against the company to
have an impact on the Company's consolidated financial statements.

For General Mills:

They do not have any contingent liabilities for lawsuits or litigation.

DECISION CASE 9-3

1) Accrual of a contingent liability is recorded if the contingency is likely and the amount of the
liability can be reasonably estimated. From the Walmart's contingent liabilities
(Braun/Hummel vs Wal-Mart Stores, Inc.,) case – On November 14, 2007, when the trial
judge entered a final judgement of approx. $188 million in favour of Braun/Hummel. Then
that was the date when the contingent liabilities was recorded. So, that amount should be
reduced from the financial statement of Walmart. Although If company believes that it has
substantial factual and legal defences to the claims, they can file notice of appeal and may
include that Contingent liability amount to their financial statement later.
 2) Disclosure of an environmental issue in notes that accompany the financial statements is all
that is required by the company because for Accrual the amount of liabilities should be
recorded with a reasonable estimation which is not the case.

DECISION CASE 10-1

1) Long-term debt, Deferred income taxes & other liabilities are listed as long-term liabilities by
General Mills. Long term debt decreased from 5,754.8 in 2009 to 5,268.5 in 2010. Deferred
income taxes decreased from 1,165.3 in 2009 to 874.6 in 2010. Other liabilities increased
from 1,932.2 in 2009 to 2,118.7 in 2010. Total long-term labilities decreased from 12,458.3 in
2009 to 12,030.9 in 2010.

2) Debt-to-equity ratio = Company’s' total liabilities / Shareholders equity

Times interest earned ratio = Earnings before interest, taxes, depreciation, and
amortization / interest expense

2008 2009 2010

Times interest earned ratio 5.58 6.07 6.49
Debt-to-equity ratio - 2.41 2.23

Generally, a good debt to equity ratio is around 1 to 1.5. For 2009 we can observe that the
Debt-to-equity ratio is quite high for General Mills, which means that it would take a longer
time to fulfil obligations to creditors.

For 2010 The ratio is also quite high but Since its comparatively less than previous year So, its
better than previous year

The Times Interest Earned (TIE) ratio measures a company's ability to meet its debt
obligations on a periodic basis. We can clearly observe that General Mills' Times Interest
ratio is quite high i.e., Company’s' income with respect to its expense in interest is 5.58 times
higher in 2008 with constantly increases till 2010. It is a positive indicator and it reveals that
company is performing well to meet its obligations on its long-term liabilities.

DECISION CASE 10-2

1) For General Mills (2010)

Debt-to-equity ratio = Company’s' total liabilities / Shareholders equity
= 12,030.9 / 5,402.9
= 2.23
For Kellog’s (2010)
Debt-to-equity ratio = Company’s' total liabilities / Shareholders equity
= 9693 / 2158
= 4.49
As Kellog’s debt-to-equity ratio is quite high compared to general mills which indicates that
Kellog’s is taking too much debts for its operations. Which might not be beneficial for the
shareholders as it would take a longer time to fulfil the obligations.

2) For Kellog’s
The total long term liabilities for Kellog’s decreased from 6637 (in 2009) to 6509 (in
 2010). Although its long term debt (from 4,835 to 4,908) and Deferred income taxes
(from 425 to 697) increased but its pension (from 430 to 265) and other liabilities
(from 947 to 639) decreased significantly.

For General Mills

The total long term liabilities for General mills' decreased from 8852.3 (in 2009) to
8261.8 (in 2010). Although its other liabilities (from 1,932.2 to 2,118.7) increased but
its long term debt (from 5,754.8 to 5268.5) and Deferred income taxes (from 1,165.3
to 874.6) decreased significantly.

As both companies are decreasing their long-term debts so it will have a positive impact on
their cash flows.

3) For Kellog’s
Most important sources of cash disclosed in the financial activities portion of the
statement of cash flows are assurances of long-term debt (987) and Net issuances of
common stock (204), While most important uses of cash disclosed in financial
activities portion of the statement of cash flows are common stock purchases (1,052)
and cash dividends (584)
For General Mills
Most important sources of cash disclosed in the financial activities portion of the
statement of cash flows are changes in notes payable (235.8),proceeds from
common stock issued on exercised options (388.8) and tax benefit on exercised
options (114), While most important uses of cash disclosed in financial activities
portion of the statement of cash flows are payment of long-term debt (906.9),
purchases of common stock for treasury (691.8) and dividends paid (643.7)
For Kellog’s
The total long term liabilities for Kellog’s decreased from 6637 (in 2009) to 6509 (in
2010). Although its long term debt (from 4,835 to 4,908) and Deferred income taxes
(from 425 to 697) increased but its pension (from 430 to 265) and other liabilities
(from 947 to 639) decreased significantly.
For General Mills
The total long term liabilities for General mills' decreased from 8852.3 (in 2009) to
8261.8 (in 2010). Although its other liabilities (from 1,932.2 to 2,118.7) increased but
its long term debt (from 5,754.8 to 5268.5) and Deferred income taxes (from 1,165.3
to 874.6) decreased significantly.

DECISION CASE 11-1

1) For Kellog’s
The number of shares of common stock issued was 419,272,027 shares at $0.25 in
2010 while 419,058,168 shares were issued at $0.25 in 2009, Common stocks
authorised was 1,000,000,000 at $0.25 while common stock in treasury outstanding
was 53,667,635 in 2010 and 37,678,215 shares in 2009
For General Mills
The number of shares of common stock issued was 754.6, at $0.10 par value while
common stock in treasury, at cost, share of 98.1 and 98.6 was outstanding with
amount of 2,615.2

2) For Kellog’s
 The balance of the retained earnings increased in 2010 from 5,481 to 6,122.
Retained earnings balance depends on opening balance, net income and dividends
paid.
For General Mills
The balance of the retained earnings increased in 2010 from 7,235.6 to 8,122.4.
Retained earnings balance depends on opening balance, net income and dividends
paid.

3) Stockholders’ equity of Kellog’s is 2,158 While the Stockholders equity of General Mills' is
5,402.9