General Mills Inc. Executive Summary

I used WACC as the discount factor, we expect the rate of return to be higher than it, the same at least. The WACC reflects the average risk and overall capital structure of the entire firm [2]. It’s the required return and it presents how much the company pays for the capital it finances. In this case, the cost of equity is 10.33%, the cost of debt is 6.50%. I calculated WACC using those numbers and got a result of 8.49%.

General Mills, Inc. has three segments. U.S. Retail sells ready-to-eat cereals, meals, yogurt, organic foods, etc. The International segment includes retail business in Canada, Europe, Latin America and the Asia/Pacific region. Bakeries and Foodservice sells to retail and wholesale bakeries, and convenience stores. The company makes money through producing various food and products and distributing them all over the world.

This is the assessment of the historical and future performances of the two companies in order to fully project internal and external factors that will affect the forecasts. The purpose is to identify trends, year to year changes, in order to assess whether the two companies’ performance are stable or sporadic and highly volatile.

General Mills is one of the major producers in consumer foods and it started off in 1866 with two flour mills (General Mills). In 1928 the company merged several smaller milling companies together to create packaged food and began to form the company that it is today (General Mills, Inc.). General Mills has not shied away from selling, acquiring and establishing new brands to stay competitive in the global markets (*). In the past, General Mills has tried selling not just food but toys, jewelry and apparel (General Mills, Inc.). Today General Mills has a never ending list of food products from Cheerios and Cinnamon Toast Crunch to Progresso soups and Haagen-Dazs ice cream. The current mission for the company “is to make lives healthier, easier and richer. General Mills is Nourishing Lives (*).” They plan on achieving their mission by these three statements:

In 1860, General Mills entered the market as a flour producer that revolutionized the industry by producing flour that had superior baking properties. Great customer satisfaction coupled with their ability to maintain quality enabled them to develop other products that were not considered agricultural commodities. By the 1960s, they were marketing beloved children's products that included Play-Doh, Easy Bake Ovens, Spirograph, Monopoly and Nerf balls (General Mills, website). The popularity of these products enticed General Mills to create memorable characters such as Betty Crocker and the Pillsbury Doughboy, which have become icons in American history. Throughout the years, General Mills

The company’s value proposition or long term vision for the company remained constant from the start up of the company to the initial entry into the CPG market to the expansion of the school meals to the re-entry into the CPG market despite the challenges the company faced along the way. As the company expands its product lines and grows in the school meals business and the CPG market in grocery stores, as long as the brand continues to provide high quality and affordable healthy foods meal and snack to under-served communities and can mitigate against competition, rising costs and deviating from their target families, the company can retain and build a strong value proposition that reflects their long term vision. It may be that by expanding and growth that some avenues the company takes may deviate from the vision but there are many options for the company that can address under-served community needs for healthy options further than just family meals and snacks to areas like meals that address dietary restrictions and the medical restrictions that elderly people have that can be filled by the company and that will add the vision of a trusted, healthy, affordable meal option for every member of the family. This can be further achieved by investing in shared value creation that benefits all parties involved in activities like catering and event hosting and establishing urban farms. These new channels build the brand and are aligned with the long-term vision while as the same time creating economic and social value for the many communities in which the company operates. Furthermore, all these recommendations that were further described in analysis are built on the foundation that the company has built since its conception and further

General Mills is a brand that is known all around the world. They are the creators of fourteen different brands which include baking products such as Pillsbury, meals such as Betty Crocker, vegetables such as green giants, and yogurt such as Yoplait. As one can see, General Mills is one of the top companies that produce food in the U.S and in 70 other countries which include Australia, and Canada. They strive on their brands being known for the quality which goes back to 1880 when they first received the Gold Medal Flour award. Still to this day General Mills Gold Medal Flour has remained number 1 in selling their brand flour in the United States. Altogether General Mills has made an exceptional name for themselves and all of their products.

Using CAPM the required return on equity and the cost of equity is 18.05%. With an after tax cost of debt of 5.85%, WACC is 13.78%

The present value for the cash flows is found as per the WACC (9.26%) to arrive at the enterprise value.

The Weighted Average Cost of Capital (WACC) is the rate at which the firm is expected to pay for capital raised by issuing debt and equity to finance its assets. It is the minimum return that the company should earn to satisfy the needs of the debt holders and shareholders of the company. It is calculated by proportionally weighing each category of capital such as common stock, preferred stock, long term and short term debts, bonds etc. It is the discount rate used to calculate the present value of the future cash flows when the risk pertaining to that particular cash-generating unit is similar to that of the overall firm

The expectations of the weighted average cost of capital (WACC) varies when using market values of equity versus book value of equity because they are fundamentally different when attempting to analyze a business for investment endeavors. Book value and market value can determine if a stock or business venture is a practical one. Book value is simply the value of a business on its books or sometimes known as the accounting value. In comparison, the market value is determined by market investors and is the more meaningful value because it is the value placed on a stock despite what the book value is. These values can differ considerably and depends of various factors intrinsic to understanding overall value. Industry or sector type, financial strength or confidence of the business to generate profit plays a role in market value where these are not considered in the book value. For example, if the book value is greater than market value, investors will consider the value of the company is worth less in the financial market than what the book value states. In essence, the opportunity to gain stock in a business can be a valuable investment if the market perception is ultimately wrong. On the other hand, the dynamics of market value is often higher for stronger companies as earning power will inflate the market value than the actual book value. This connection is important to consider as a company’s market value can change on any given day versus the book value. There will be

So, by our calculations, the Widget Company 's equity has a fair value of $215.3 million. That 's it - the DCF valuation is complete.

With the economy and the market constantly fluctuating, the actual rate of return fluctuates with the market. The discounted rate gives a weighted average cost of capital (WACC) of 9% (Example 1). The divisions will ultimately affect the company and the WACC will fluctuate along with the divisional costs of capital. The risks involved within the divisions are reflected in the risks that the company overall chooses to invest.

On a firm-wide level, the resulting cost of equity is found to be 11.30% and the WACC is 8.50%.

Furthermore, I have also illustrated the trends of the last four years via graphs and a brief explanation of the figures are also given below the each graph. Moreover, I have also done the cash flow analysis that shows the current liquidity condition of the company and it also indicates the main cash sources. Besides this, I have also focused on information which is not related to finance that shows the code of conduct, economic responsibilities as well as social responsibility of the company.