Financial Statement Analysis

Kellogg Company is the world's leading producer of ready-to-eat cereal products. In recent years, the company has taken numerous steps aimed at improving its profitability and earnings per share. Presented below are some basic facts for Kellogg.

(in millions)	Current Year	Prior Year
Net sales	$14,792	$14,580
Net income	1,807	632
Total assets	15,474	15,153
Total liabilities	11,867	12,302
Common stock, $0.25 par value	105	105
Capital in excess of par value	626	678
Retained earnings	6,749	6,689
Treasury stock, at cost	2,999	3,470
Number of shares outstanding (in millions)	363	358

Instructions

1. What are some of the reasons that management purchases its own stock?

2. Explain how earnings per share might be affected by treasury stock transactions.

3. Calculate the debt to assets ratio for the current year and the prior year, and discuss the implications of the change.