General Mills' financial performance and asset management strategy

Financial Accounting Case Study

Industry Attributes

Despite its large size and established market position, General Mills, like any other company, has to grapple with those factors that, if not properly addressed, could have a negative effect on performance. Market demand is one of those factors. In order to effectively address the issue of demand, the company has to determine and respond to two major demand-related issues. First, there is need to understand the factors influencing demand. These include the prices of products, the availability and prices of substitutes produced by competitors, and government regulation - especially with regard to the promotion of healthy foods. Secondly, there is need to analyze the outlook of this demand in the near future. General Mills offers for sale a wide range of food items such as snacks. The demand of these could fall significantly in future, mainly due to the government's effort to ensure a healthier nation by discouraging the consumption of the same, and promoting foods that are considered healthier. The company could use this kind of knowledge to seek out alternatives such as increasing their production of 'healthy' foods.

General Mills is a major player in the cereal industry, not only in the U.S., but in the world over. It controls a significant share of the market, and is only second to Kellogg in the U.S. (Hoovers, 2013). General Mills also operates in one of the most dynamic industries. Each company in the industry strives to increase its market share. This manly entails introducing new products, or incorporating new and healthier components such as whole grains into existing products, in line with consumer trends (General Mills, 2013). New or improved products are, therefore, a common phenomenon in the cereal-making industry. General Mills, for instance, introduced a range of new items this year, including Yoplait Greek Yoghurt, Medley Crunch cereal, Nature Valley protein bars, to mention but a few (General Mills, 2013).

Stock Price

At the time of writing, General Mills' stock (represented by the ticker GIS) was going for $49.57. It is important to note that, save for the occasional slumps in price, over the last three years, General Mills stock value has been on an upward trend. At the close of the year 2010 (i.e. Dec 31st 2010), General Mills stock was trading at $35.59. For the years 2011 and 2012 respectively, the company closed the year with shares valued at $40.41 and $40.06 respectively (Google Finance, 2013). Hence between 2010 and 2013, General Mills' stock grew by 39.28% while that of the S&P composite index grew by 41.6%. It should be noted that throughout the three-year period, General Mills' trend was largely similar to that of the S&P composite index.

There are many factors that could have lead to the price change witnessed with regard to General Mills' stock. To begin with, it is important to note that between the years 2011 and 2013, the company witnessed a 3% increase in net earnings. Although modest, the increase in net earnings could have marginally stimulated demand, hence the increase in share price. The company's dividends have also been stable over time. Investors keen on predictable dividends could have had some influence on the share value growth.