Kellogg Companyis 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 1807 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 6749 6689

Treasury stock, at cost 2999 3470

Number of shares outstanding (in millions) 363 358

Instructions

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

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

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