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    Financial Ratios of Sara Lee

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    Using the company Sara Lee, discuss the following:

    - Its history and how it's different from its competitors.

    - Its ratios (current, inventory turnover, accounts receivable turnover, debt to equity, return on assets, return on equity, and gross margin on sales).

    - What do the ratios mean/indicate about the company? Who would be interested in them?

    - Is Sara Lee company doing well? Find industry ratios to compare to if you can.

    - What other information would investors/creditors be able to use when making economic decisions about Sara Lee?

    - Would you invest in Sara Lee?

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    Solution Preview

    Please see the attached file.

    What is the history of Sara Lee? How did it begin? What differentiates this company from its competitors?

    The business started its operations as Earthgrains Company in 1925 and after a few years, in 1928, the firm changed its name to Campbell Taggart Associated Bakeries. The company had grown to 19 bakeries in nine states before the 1930's and during the 1930's, 29 new bakeries added to the firm. During the 1960's, the company became the second largest refrigerated dough products manufacturer in the U.S. It formed a joint venture with Grupo Industrial of Mexico in 1975. Later in the early '80's, the firm was acquired by Anheuser-Busch and changed its name to Earthgrains. The company acquired a bunch of firms until 2000, including Henson-Kickernick, Playtex, Imperial Meats and many others. In 2000, the company announced plans to consolidate bread and bun production from three bakeries into other existing regional bakeries to enhance capacity utilization and better serve the marketplace. In 2001 Sara Lee acquired The Earthgrains Company. In 2005 the firm began to transform into a company focused on its food, beverage, and household and body care businesses around the world. Briefly, the firm performs in many segments and this is one of the most important characteristics that differentiates the company from its competitors. The major competitors of the company in the U.S are Flower Foods, Interstate Bakeries and Pillsbury Company.

    Compute the following ratios for this company.

    (P.S: please refer to Appendix 1 for income statement and balance sheet)

    Financial Ratios for June 2005

    1. Current ratio= Current assets/Current liabilities
    = 5,811/4,968

    2. Inventory turnover ratio = Cost of goods sold/ Average Inventory
    = 4.4

    3. Accounts receivable turnover ratio = Annual credit sales/Accounts receivable

    Solution Summary

    In about 1,097 words, this solution discusses the Sara Lee company, including its history, competitors, and how it is different from them. Computations for all ratios are also provided, along with what these ratios mean and how they compare in the industry. Finally, a discussion regarding who would be interested in this information, if the company is doing well, and whether or not to invest in the inventory is given.