Basics of Financial Statement Analysis: Statements

Transcription

1 Basics of Financial Statement Analysis: Statements The current presentation covers the first part of the basics of financial statement analysis. In this first part we will learn how to manipulate entire financial statements for additional information. The presentation is laid out as general steps for conducting financial analysis. 1. Organize financial data in the form of income statements and balance sheets 2. Construct common-size statements 3. Construct comparative statements 4. Construct comparison statements We will cover each of the above steps in some detail in the current presentation. The next presentation will continue these steps to include financial ratios. An Excel File containing all calculations for this presentation has been posted to our course webpage. You can use the file to see how I constructed the statements.

2 1. Construct the financial statements from the raw financial data using a spreadsheet program (e.g., Excel). The financial statements provide one way to summarize how an organization has financially performed during a period of time (i.e., income statement, cash flow statement) and how it stands at a point in time (i.e., balance sheet). Charlie's accounts during August and on the first day of September Account Amount Balance on Car Loan on Sept. 1 9,000 Balance on Student Loan on Sept. 1 18,000 Value of Car on Sept. 1 21,700 Cash on Hand on Sept. 1 $1,275 Dividends earned on Stock Holdings for the month 175 Food & Entertainment for the month 500 Gas for the month 275 Interest Earned on Savings Deposit 25 Interest Paid on Car Loan during month 50 Interest Paid on Student Loan during month 100 Monthly Rent 1,800 Monthly Salary $4,000 Monthly Taxes 200 Savings Account Balance on Sept. 1 5,025 Value of Stocks on Sept. 1 4,000 Work Related Luncheons during month 325 Recall how we took Charlie s raw financial data (from boxes of receipts if you like) and summarized it all in a useful way.

3 Charlie's Income Statement for the Month of August Charlie's Balance Sheet as of September 1 Revenue ASSETS Monthly Salary $4,000 Cash $1,275 Interest Earned on Savings Deposit 25 Savings Account 5,025 Dividends earned on Stock Holdings 175 Stocks 4,000 Total revenue 4,200 Car 21,700 Total Assets 32,000 Expenses Food & Entertainment 500 LIABILITIES Gas 275 Balance on Car Loan 9,000 Interest Paid on Car Loan 50 Balance on Student Loan 18,000 Interest Paid on Student Loan 100 Total Liabilities 27,000 Monthly Rent 1,800 Monthly Taxes 200 EQUITY Work Related Luncheons 325 Net Worth 5,000 Total expenses 3,250 Net Income 950 It should be clear by now that the above statements provide a more useful way of looking at Charlie s financial situation than the raw data does. Why do we want to put the statements into a spreadsheet, such as Excel?

4 2. Construct common-size financial statements. We put the financial statements into a spreadsheet so that we can easily manipulate the statements and make calculations (e.g., ratios). A common-size statement normalizes all accounts by putting them into a relation with one of the accounts. Though there might be different accounts to use as the common one, the typical method for each statement is the following. INCOME STATEMENT state all accounts as a percentage of TOTAL REVENUE BALANCE SHEET state all accounts as a percentage of TOTAL ASSETS We will do an example of each using General Mills, a cereal producer among other packaged consumer goods. First, we can look at General Mills income statement. We ll notice that most actual income statements at least for corporations take on a specific structure. Revenue - COGS. = Gross Profit - SGA Expenses - Other Operating Expenses. = Operating Income (or, EBIT) +/- Interest Income (Expenses). = Income (or, Earnings) Before Taxes - Taxes. = Net Income

5 General Mills, Income Statement (in millions) 2009 Total Revenue 14,691 Cost of Revenue, Total 9,458 Gross Profit 5,234 Selling/General/Administrative Expenses 2,960 Unusual Expense (Income) -49 Other Operating Expenses, Total 0 Operating Income (EBIT) 2,323 Interest Income (Expense) (390) Income Before Tax 1,933 Income Tax - Total 720 Net Income 1,213 By themselves, the numbers may still not mean a great deal though certainly they give us a clue as to how General Mills performed during their fiscal year What if we add a few more years worth of income statements?

6 General Mills, Income Statements (in millions) Total Revenue 14,691 13,652 12,442 11,712 11,308 Cost of Revenue, Total 9,458 8,778 7,955 7,545 7,326 Gross Profit 5,234 4,874 4,487 4,167 3,982 Selling/General/Administrative Expenses 2,960 2,625 2,390 2,179 1,998 Unusual Expense (Income) Other Operating Expenses, Total Operating Income (EBIT) 2,323 2,228 2,058 1,958 2,262 Interest Income (Expense) (390) (422) (427) (399) (455) Income Before Tax 1,933 1,806 1,631 1,559 1,807 Income Tax - Total Net Income 1,213 1,184 1,071 1,021 1,146 We can now compare accounts over several years. We see a fairly steady growth in total revenue and gross profit. Operating Income and Net Income took dips between 2005 and 2006, but then began increasing each year. For each year let s divide each account (or, row) by total revenue for that year, then put the numbers in percentage form.

7 General Mills, Common-Size Income Statements Total Revenue 100.0% 100.0% 100.0% 100.0% 100.0% Cost of Revenue, Total 64.4% 64.3% 63.9% 64.4% 64.8% Gross Profit 35.6% 35.7% 36.1% 35.6% 35.2% Selling/General/Administrative Expenses 20.1% 19.2% 19.2% 18.6% 17.7% Unusual Expense (Income) -0.3% 0.2% 0.3% 0.3% -3.7% Other Operating Expenses, Total 0.0% 0.0% 0.0% 0.0% 1.2% Operating Income (EBIT) 15.8% 16.3% 16.5% 16.7% 20.0% Interest Income (Expense) -2.7% -3.1% -3.4% -3.4% -4.0% Income Before Tax 13.2% 13.2% 13.1% 13.3% 16.0% Income Tax - Total 4.9% 4.6% 4.5% 4.6% 5.8% Net Income 8.3% 8.7% 8.6% 8.7% 10.1% To understand how useful common-size statement can be, take a look at the bottom line. Net Income as a percent of total revenue has dropped significantly since In 2005, General Mills made $10.10 in profit (or, net income) for every $100 in sales (revenue). Or, put another way, if they sold a box of cereal for $3, they made a profit on it of 30 cents. In 2009, when they sold the same box of cereal for $3, they would have made of a profit of just under 25 cents --- compared with 2005, they lost a nickel in profit for every $3 box of cereal! What caused the drop? They were making very similar Gross Profit relative to Revenue. Thus, the cost of the cereal relative to what they were selling it for remained about constant. However, there operating income (EBIT) relative to revenue dropped significantly. We can see that the SGA expenses rose relative to their revenue. This seems to be the best explanation for the drop in net income relative to revenue. Now, we have something to investigate. Why is their SGA rising so much relative to their revenue? We cannot answer this question by looking at the income statements themselves, but we have been able to identify a possible problem. It is not obvious that this issue would have popped out by just looking at the income statements themselves. Let s turn to the balance sheet for General Mills (we ll jump to multi-year balance sheets).

8 General Mills, Balance Sheets (millions) 5/31/2009 5/25/2008 5/27/2007 5/28/2006 5/29/2005 Assets Cash and Short Term Investments Total Receivables, Net 1,146 1, ,034 Total Inventory 1,347 1,367 1,174 1,055 1,037 Prepaid Expenses Other Current Assets, Total Total Current Assets 3,535 3,620 3,054 3,041 3,055 Property/Plant/Equipment, Total - Net 3,035 3,108 3,014 2,997 3,111 Goodwill, Net 6,663 6,786 6,835 6,652 6,684 Intangibles, Net 3,747 3,777 3,694 3,607 3,532 Long Term Investments Other Long Term Assets, Total 332 1,253 1,269 1,567 1,684 Total Assets 17,875 19,042 18,184 18,075 18,066 Liabilities & Shareholders' Equity Accounts Payable ,136 Accrued Expenses 1,181 1,041 1,799 1, Notes Payable/Short Term Debt 812 2,209 1,254 1, Current Port. of LT Debt/Capital Leases ,734 2,131 1,638 Other Current Liabilities, Total Total Current Liabilities 3,606 4,856 5,845 6,138 4,184 Total Long Term Debt 5,755 4,349 3,218 2,415 4,255 Deferred Income Tax 1,165 1,455 1,433 1,690 1,851 Minority Interest ,139 1,136 1,133 Other Liabilities, Total 1,932 1,924 1, Total Liabilities 12,700 12,826 12,865 12,303 12,390 Common Stock Additional Paid-In Capital 1,250 1,149 5,842 5,737 5,691 Retained Earnings 7,236 6,511 5,745 5,107 4,501 Treasury Stock - Common -2,473-1,658-6,198-5,163-4,460 Other Equity, Total Total Equity 5,175 6,216 5,319 5,772 5,676 Liabilities & Shareholders Equity 17,875 19,042 18,184 18,075 18,066

9 For presentation purposes, we will look at the common-size balance sheet in two (equal) parts. Below, we have the asset portion of the common-size balance. Every account as been divided by total assets then stated in percent. General Mills, Common-Size Balance Sheets 5/31/2009 5/25/2008 5/27/2007 5/28/2006 5/29/2005 Assets Cash and Short Term Investments 4.3% 3.5% 2.3% 3.6% 3.2% Total Receivables, Net 6.4% 7.2% 5.2% 5.0% 5.7% Total Inventory 7.5% 7.2% 6.5% 5.8% 5.7% Prepaid Expenses 1.1% 1.0% 2.4% 2.1% 1.1% Other Current Assets, Total 0.4% 0.1% 0.4% 0.3% 1.2% Total Current Assets 19.8% 19.0% 16.8% 16.8% 16.9% Property/Plant/Equipment, Total - Net 17.0% 16.3% 16.6% 16.6% 17.2% Goodwill, Net 37.3% 35.6% 37.6% 36.8% 37.0% Intangibles, Net 21.0% 19.8% 20.3% 20.0% 19.6% Long Term Investments 3.1% 2.6% 1.7% 1.2% 0.0% Other Long Term Assets, Total 1.9% 6.6% 7.0% 8.7% 9.3% Total Assets 100.0% 100.0% 100.0% 100.0% 100.0% We can immediately see that their current asset (i.e., short-term assets) have been growing relative to the total assets. Thus, the noncurrent assets (or, long-lived assets, fixed assets) have been decreasing relative to total assets. We would want to know if this has been done on purposes or as a result of something else. For example, inventory is rising relative to total assets. Is this a sign that they are not managing their inventories well? Also, account receivables have been rising relative to total assets. Are they not doing a good job collecting from those that owe them? These are the types of questions that can arise once we construct a common-size balance sheet. Let s look at the bottom half of the common-size balance sheet.

10 Liabilities and Shareholders' Equity 5/31/2009 5/25/2008 5/27/2007 5/28/2006 5/29/2005 Accounts Payable 4.5% 4.9% 4.3% 3.7% 6.3% Accrued Expenses 6.6% 5.5% 9.9% 8.5% 5.3% Notes Payable/Short Term Debt 4.5% 11.6% 6.9% 8.3% 1.7% Current Port. of LT Debt/Capital Leases 2.8% 2.3% 9.5% 11.8% 9.1% Other Current Liabilities, Total 1.7% 1.2% 1.5% 1.6% 0.8% Total Current Liabilities 20.2% 25.5% 32.1% 34.0% 23.2% Total Long Term Debt 32.2% 22.8% 17.7% 13.4% 23.6% Deferred Income Tax 6.5% 7.6% 7.9% 9.3% 10.2% Minority Interest 1.4% 1.3% 6.3% 6.3% 6.3% Other Liabilities, Total 10.8% 10.1% 6.8% 5.1% 5.4% Total Liabilities 71.1% 67.4% 70.7% 68.1% 68.6% Common Stock 0.2% 0.2% 0.3% 0.3% 0.3% Additional Paid-In Capital 7.0% 6.0% 32.1% 31.7% 31.5% Retained Earnings 40.5% 34.2% 31.6% 28.3% 24.9% Treasury Stock - Common -13.8% -8.7% -34.1% -28.6% -24.7% Other Equity, Total -4.9% 0.9% -0.7% 0.2% -0.6% Total Equity 28.9% 32.6% 29.3% 31.9% 31.4% Total Liabilities & Shareholders Equity 100.0% 100.0% 100.0% 100.0% 100.0% Remember that we are dividing all accounts in a year (e.g., 2009) by the total assets in that year (e.g, 2009). But we know that this means that we are dividing by the total liabilities and equity as well, since they always equal total assets. One way to think about the above is that it tells us how General Mills is financing its total assets. We see, for example, that over this time period they have relied more on debt (liabilities) than on equity. Moreover, we see that their current liabilities as a percent of total assets are falling, implying that the increased reliance on debt is really in the form of longer-term liabilities. Is this correct? The Total Long Term Debt account has increased from 23.6% in 2005 to 32.2% in 2009.

11 3. Construct comparative statements showing the growth (i.e., percentage change) in each account between years. I have to admit that I often consider not doing this step. However, I usually end up talking myself into it because (1) it s easy to do once we have the statements in Excel and (2) my eyes might miss something important. This type of statement simply calculates the percentage change in the accounts between two time periods. The general equation is simply the following. Percentage Change = Ending Beginning Beginning Thus, if in 2005 you had income of $25,000 and in year 2006 income of $28,000, the percentage change would be 12%. Ending Beginning 28,000 25,000 Percentage Change = = =.12 12% Beginning 25,000 (You can format cells in Excel so that they are in percentage terms, thus the 12% at the end of the above) We do this for all accounts on the income statement and balance sheet. It turns out to be quite easy and quick to do in Excel --- just enter the formula once, then copy/paste it. Let s see how General Mills income statement would look in this form.

12 General Mills, Comparative Income Statements Total Revenue 7.6% 9.7% 6.2% 3.6% Cost of Revenue, Total 7.7% 10.3% 5.4% 3.0% Gross Profit 7.4% 8.6% 7.7% 4.6% Selling/General/Administrative Expenses 12.8% 9.8% 9.7% 9.1% Unusual Expense (Income) % -46.2% 30.0% % Operating Income (EBIT) 4.3% 8.3% 5.1% -13.4% Interest Income (Expense) -7.5% -1.2% 7.0% -12.3% Income Before Tax 7.0% 10.7% 4.6% -13.7% Income Tax - Total 15.8% 11.1% 4.1% -18.6% Net Income 2.4% 10.5% 4.9% -10.9% Actually, if you recall what we noticed in the common-size statement, we are seeing the same problem here. The SGA expenses are growing much faster than total revenue, and slowing down growth in EBIT and Net Income. Just a little note here, your eyes are likely to jump to the big changes in the account Unusual Expense (Income). But, be careful about drawing any significant conclusions from this. This account simply is not very large. You will often see huge jumps in some accounts when looking at this type of statement. It is worth immediately going back to the original statement or the common-size to see if it shows anything of significance. The Unusual Expense (Income) account amounted to about 0.3% of total revenue for much of this time period thus, we might not want to focus a great deal of attention on it. Let s look at the balance sheet (in parts again).

13 General Mills, Comparative Balance Sheets Assets Cash and Short Term Investments 14.7% 61.7% -35.5% 12.9% Total Receivables, Net -16.3% 43.6% 4.5% -11.8% Total Inventory -1.5% 16.4% 11.3% 1.7% Prepaid Expenses 2.1% -56.3% 17.5% 85.7% Other Current Assets, Total 330.3% -75.4% 34.0% -76.0% Total Current Assets -2.4% 18.5% 0.4% -0.5% Property/Plant/Equipment, Total - Net -2.4% 3.1% 0.6% -3.7% Goodwill, Net -1.8% -0.7% 2.8% -0.5% Intangibles, Net -0.8% 2.3% 2.4% 2.1% Long Term Investments 13.2% 56.3% 50.7% Other Long Term Assets, Total -73.5% -1.3% -19.0% -6.9% Total Assets -6.1% 4.7% 0.6% 0.0% Just as an example, recall what we said about the composition of assets when looking at the common-size balance sheets. There was some concern about inventory and accounts receivable (they were growing relative to total assets). Now, notice how between 2008/2009 the accounts receivables seemed to be brought under control. Inventory is a slightly different matter. The growth in inventory did turn negative (thus, they held less inventory), but total assets shrank even more. Again, my purpose here is to just point a few things out as examples of things to think about when looking at these statements. As a check, should we pay significant attention to the enormous growth in the account Other Current Assets, Total? Let s look at the bottom half of the balance sheet in terms of the annual growth in the accounts.

14 Liabilities and Shareholders' Equity Accounts Payable -14.3% 20.5% 15.6% -40.8% Accrued Expenses 13.4% -42.1% 16.8% 60.1% Notes Payable/Short Term Debt -63.2% 76.1% -16.6% 402.7% Current Port. of LT Debt/Capital Leases 15.0% -74.5% -18.6% 30.1% Other Current Liabilities, Total 32.5% -18.9% -3.8% 95.3% Total Current Liabilities -25.7% -16.9% -4.8% 46.7% Total Long Term Debt 32.3% 35.1% 33.3% -43.2% Deferred Income Tax -19.9% 1.5% -15.2% -8.7% Minority Interest 0.0% -78.7% 0.3% 0.3% Other Liabilities, Total 0.4% 56.4% 33.1% -4.4% Total Liabilities -1.0% -0.3% 4.6% -0.7% Common Stock 0.0% -24.6% 0.0% 0.0% Additional Paid-In Capital 8.8% -80.3% 1.8% 0.8% Retained Earnings 11.1% 13.3% 12.5% 13.5% Treasury Stock - Common 49.1% -73.2% 20.0% 15.8% Other Equity, Total % % % % Total Equity -16.7% 16.9% -7.8% 1.7% Total Liabilities & Shareholders Equity -6.1% 4.7% 0.6% 0.0% What does this tell you? Return to the common-size balance sheet results to see if the above reinforces some points.

15 4. Compare the particular organization under analysis to a similar group. If interested in analyzing Earlham College s financial situation, for example, we might choose to compare them to colleges in the Great Lakes College Association (GLCA). Alternatively, we might compare Earlham to colleges/universities with overlapping student applications. The point is that defining the comparison group can be difficult, just as defining the market a corporation operates within can be difficult. This definition of similar groups, or competitors, will be left for other courses (e.g., Strategic Planning & Marketing) within management. For now, we want to focus on the technical aspects of making the comparisons. Continuing with our General Mills example, we will use other corporations operating within a similar sector (or, market) as our comparison. I have made two assumptions in doing this here. First, I will use only a few of the possible competitors with General Mills specifically, Kellogg and Post both of which operate in the cereal and snack food markets. Second, I will add an indirect competitor in Kraft corporation. Kraft produces snack food and other consumer food-related items. The first assumption is intended to keep the size of the tables down to a manageable level to allow for easier interpretation. The second assumption, Kraft as competitor, is made to incorporate a larger corporation. Let s begin by comparing their income statements.

16 Competitors Income Statements (millions) General Mills Kellogg Post Kraft Total Revenue 13,652 12,822 2,824 42,201 Cost of Revenue, Total 8,778 7,455 2,318 28,186 Gross Profit 4,874 5, ,015 Selling/General/Administrative Expenses 2,625 3, ,082 Unusual Expense (Income) ,116 Operating Income (EBIT) 2,228 1, ,817 Interest Income (Expense) (422) (320) 0 32 Income Before Tax 1,806 1, ,849 Income Tax - Total Net Income 1,184 1, ,121 Looking at the standard income statements can be useful though, honestly it never does much for me. However, it might be even better if we use common-size statements. Remember, the common-size income statement will divide all accounts by total revenues this is done for each corporation. Thus, by dividing each account for a particular corporation by that corporation s total revenue we are normalizing the income statement. Notice how difficult it is to compare corporations to Kraft, which is huge by comparison.

17 Competitors Common-Size Income Statements General Mills Kellogg Post Kraft Average Total Revenue 100% 100% 100% 100% 100% Cost of Revenue, Total 64.3% 58.1% 82.1% 66.8% 67.8% Gross Profit 35.7% 41.9% 17.9% 33.2% 32.2% Selling/General/Administrative Expenses 19.2% 26.6% 11.6% 21.5% 19.8% Unusual Expense (Income) 0.2% 0.0% -2.0% 2.6% 0.2% Operating Income (EBIT) 16.3% 15.2% 8.3% 9.0% 12.2% Interest Income (Expense) -3.1% -2.5% 0.0% 0.1% -1.4% Income Before Tax 13.2% 12.7% 8.3% 9.1% 10.8% Income Tax - Total 4.6% 3.8% 3.1% 1.7% 3.3% Net Income 8.7% 9.0% 5.2% 7.4% 7.6% Now it is easy to see that Kellogg does the best in terms of making a direct profit (i.e., Gross Profit) from sales. For every $1 in sales, Kellogg makes 41.9 cents while General Mills makes 35.7 cents and Post and Kraft do even worse (Post much worse). On the other hand, Kellogg s SGA expenses are the largest when stated in terms of their sales revenue. I have added a column for the average of the group as a whole for a reference point. If we re interested in General Mills we can now easily compare how it does relative to the average for the group. Let s turn to the balance sheets again, we ll present them by upper and lower halves for presentation purposes only.

18 Balance Sheets (millions) General Mills Kellogg Post Kraft Assets Cash and Short Term Investments ,244 Total Receivables, Net 1,369 1, ,704 Total Inventory 1, ,729 Prepaid Expenses Other Current Assets, Total ,689 Total Current Assets 3,620 2, ,366 Property/Plant/Equipment, Total - Net 3,108 2, ,917 Goodwill, Net 6,786 3,637 2,454 27,581 Intangibles, Net 3,777 1,461 1,190 12,926 Long Term Investments Other Long Term Assets, Total 1, ,288 Total Assets 19,042 10,946 5,344 63,078 We were concerned about General Mills accounts receivables and inventory. Does this tell us anything? My answer is that it probably does, but very difficult to see right now.

19 Liabilities and Shareholders' Equity General Mills Kellogg Post Kraft Accounts Payable 937 1, ,373 Accrued Expenses 1, ,754 Notes Payable/Short Term Debt 2,209 1, Current Port. of LT Debt/Capital Leases Other Current Liabilities, Total ,255 Total Current Liabilities 4,856 3, ,044 Total Long Term Debt 4,349 4,068 1,669 18,589 Deferred Income Tax 1, ,064 Minority Interest Other Liabilities, Total 1,924 1, ,181 Total Liabilities 12,826 9,498 2,932 40,878 Common Stock Additional Paid-In Capital 1, ,920 23,563 Retained Earnings 6,511 4, ,345 Treasury Stock - Common -1,658-1, ,714 Other Equity, Total 177-2, ,994 Total Equity 6,216 1,448 2,412 22,200 Liabilities & Shareholders Equity 19,042 10,946 5,344 63,078 We pointed out General Mills seemed to have a growth in long-term liabilities relative to total assets. Does the above help us come to any conclusions? Again, probably not at least not easily so let s try common-size statements.

20 Common-Size Balance Sheets, 2008 General Mills Kellogg Post Kraft Average Assets Cash and Short Term Investments 4% 2% 0% 2% 2% Total Receivables, Net 7% 10% 5% 7% 8% Total Inventory 7% 8% 6% 6% 7% Prepaid Expenses 1% 1% 0% 0% 1% Other Current Assets, Total 0% 1% 0% 3% 1% Total Current Assets 19% 23% 12% 18% 18% Property/Plant/Equipment, Total - Net 16% 27% 17% 16% 19% Goodwill, Net 36% 33% 46% 44% 40% Intangibles, Net 20% 13% 22% 20% 19% Long Term Investments 3% 0% 2% 0% 1% Other Long Term Assets, Total 7% 4% 0% 2% 3% Total Assets 100% 100% 100% 100% 100% Was the movement in accounts receivable and inventory necessarily a problem. The above would indicate that maybe it was a move to the industry norm, rather than a true problem. Maybe we can say that these were too low in the past, or were being kept artificially low. The point that I want to bring out here is not the answer, but the relative ease with which we can work with financial data once it s in a useful form.

21 Liabilities and Shareholders' Equity General Mills Kellogg Post Kraft Average Accounts Payable 5% 10% 3% 5% 6% Accrued Expenses 5% 6% 2% 4% 4% Notes Payable/Short Term Debt 12% 13% 1% 1% 7% Current Port. of LT Debt 2% 0% 0% 1% 1% Other Current Liabilities, Total 1% 4% 2% 5% 3% Total Current Liabilities 26% 32% 7% 18% 21% Total Long Term Debt 23% 37% 31% 29% 30% Deferred Income Tax 8% 3% 11% 6% 7% Minority Interest 1% 0% 0% 0% 0% Other Liabilities, Total 10% 14% 5% 11% 10% Total Liabilities 67% 87% 55% 65% 68% Common Stock 0% 1% 0% 0% 0% Additional Paid-In Capital 6% 4% 36% 37% 21% Retained Earnings 34% 44% 14% 21% 28% Treasury Stock - Common -9% -16% -5% -14% -11% Other Equity, Total 1% -20% 0% -10% -7% Total Equity 33% 13% 45% 35% 32% Liabilities & Shareholders Equity 100% 100% 100% 100% 100% We may have been a little concerned about General Mills increase relative to total assets of its long-term debt. However, now, we see that its level of long-term debt is the lowest in the group at 23%. General Mills seems to be financing its assets much like Kraft with a mid 60% liabilities and mid 30% equity mix. Kellogg is the one that really stands out in terms of the financing mix. It relies much more heavily on debt at 87% than the others.