Question 1

The Friday, February 12 issue of the Star Tribune has this story about Hormel's acquisition of the Planters Peanuts brand: Please see:: HORMEL MAKES A BIG DEAL OVER PEANUTS

Hormel story:

http://e.startribune.com/Olive/ODN/StarTribune/shared/ShowArticle.aspx?doc=MST%2F2021%2F02%2F12&entity=Ar02300&sk=D5EFBA26&mode=text

Hormel annual report:

https://www.sec.gov/cgi-bin/viewer?action=view&cik=48465&accession_number=0000048465-20-000043&xbrl_type=v

You can view and download Hormel's most recent annual report here. For purposes of these questions, let's assume the following about the structure of the deal:

Hormel paid about 1/3 of the $3.35 billion purchase price in cash, 1/3 in short-term debt, and 1/3 in long-term debt;

70% of the assets acquired are non-current, 30% are current assets.

A.Think about how this deal will affect Hormel's financial statements and identify 5 of the ratios we have discussed that you think will be affected.

B.For each of the ratios, indicate whether the ratio will be better (stronger) immediately after completion of the deal, worse (weaker), or whether the effect cannot be determined from the information we have. If the effect cannot be determined, describe what additional information we would need to answer the question.

C.Finally, how will the deal affect the same 5 ratios one year from now?

Question 2

You have calculated Free Cash Flow for your selected corporation for at least one year. Extend your calculation of FCF to at least the last 3 years. If you included all 3 in your original calculations, and I agreed with your calculations, you have what you need.

What do these FCF calculations tell you at this point about the company? You can see whether the number itself is increasing or decreasing, but you can also see how the components that go into the calculations have changed. Did the company keep FCF up by liquidating assets? Is rising NOPAT driving FCF to higher levels? There are many ways for the FCF values you calculated to change. What is driving your company's values?

What questions do your FCF calculations raise about the company? You may be able to address some of your questions as we progress with our analytical tools. For now, identify some elements of the company's performance that will be interesting to explore.