General Mills Inc. Understanding Financial Statements

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Introduction

The case study General Mills Inc. - Understanding Financial Statements focuses on the most basic idea of finance analysis. This case is a brief look into the language that is used in the finance world and a start to interaction with auditors. In this case, KPMG LLP, the public accounting firm that was auditing their statements, had sent two opinion letters. The first letter was ensuring that both parties were aware that General Mills had internal control over financial reporting. The second opinion letter stated that to auditor’s knowledge, General Mills had correctly reported its financial statements. The statements given in this case study are known as the four general financial statements. Displayed in the case are the Consolidated Statements of Earnings from years 2004 to 2006, the Consolidated Balance sheet from 2004 to 2006, the Consolidated Statement of shareholders’ equity from 2004 to 2006, and the Consolidated Statement of Cash Flows from 2004 to 2006. These general pieces of finance material provide enough information to analyze General Mills over the past two years. Thanks to the financial statements provided, we had the ability to compare the company’s performance in 2005 and 2006, and to see whether the company was still in good standing or not. The following is a basic analysis and interpretation of General Mills financial statements.

Concepts

a. General Mills is a food company. Its main activities consist on producing and selling ready-to-eat food, as well as doing retail business. These activities take place in the U.S., Canada, Europe, Latin America and the Asia/Pacific region.

b. Consolidated balance sheet, consolidated income statement, consolidated shareholders’ equity, and consolidated cash flow statement are the financial statements that are addressed to external audiences. General Mills submit consolidated financial statements because the accounts represent the company and its subsidiaries.

c. The SEC requires that the financial statements for external reporting purposes be prepared quarterly. These quarterly reports are called 10Q reports. Then, SEC requires that these financial statements be done annually. These annual reports are called 10K reports.

d. Financial statements are usually prepared by accounting staff; however, the CEO and CFO are the responsible for the accuracy of these statements. Generally, internal and external audiences are interested in the information presented in financial statements. On the one hand, the internal audiences are managers, owners and employees. First, in order to make decisions, managers and owners review the financial reports. Second, financial reports provide a clear view of the financial position and market value of the organization. Third, employees may use financial reports to insure their jobs positions within the company and negotiate possible salary hike and promotion. On the other hand, there are many external agents who are interested in the financial reports. First, investors use financial statements to evaluate the general performance and financial strength of the company. This evaluation helps make rational investment decisions. Second, financial institutions like banks and other lending institutions use the reports to assess the weight of debts and decide how risky the company is. Third, partners of the company consider the financial situation of the company in order to revise the contracts and partnership terms. Forth, suppliers are also interested in the financial performance of the company because

that helps them decide whether to extend their credit or not. Fifth, government is in concern with the financial reports of this company, because these reports are the only means of verifying if the tax paid is accurate and adequate.

e. General Mills external auditor is KPMG LLP, an independent registered public accounting firm that issued the two “opinion” letters that General Mills’ Board of...
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