Essay on Growth Strategy: Conagra Brands' Acquisition of Cranswick Plc's Subsidiary

Introduction

They say that the expansion of a business is not by a mere chance but the result of working together. Cranswick plc food-producing and supplying company needs expansion. A decision considered by the board of directors. The management team opts to adopt a growth strategy by either getting an existing company into theirs or by making more investments. The board of directors decides to sell one of its subsidiaries to Conagra Brands Inc. later in September 2020. This article contains a report to the senior management team addressing the evaluation of financial performance, the investment appraisal, and the elements needed for the expansion of the company.

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Evaluating financial performance

Financial performance is measuring how good an organization can use assets from its primary form of business and result in revenue. , the ratios of the following elements are explained below.

Profitability

The profitability ratios determine how much profit a company is earning, according to the invested capital. For the company, the long term debts are not that much and cannot better ROCE ratios. It cannot affect the company's performance reduced. The growth profit margin ratio shows the percentage of profits before giving the go-ahead to the non- direct cost. The Cranswick Company has almost equal gross profit margin as the cost of assets, which increases the same with the sales revenue.

name company industry p/E ratio 27.05 29.14 price to free cash flow 1.34 78.08 price to cash flow 1.35 78.38

Efficiency

Efficiency ratio measures an organization's ability to make use of its assets to bring forth income. Examples of efficiency rations include account receivable turn over, sales to networking stock turnover ratio accounts receivable turnover, and fixed assets turnover. In Cranswick plc, the inventory is put on a lower level and is essential for less than a month.

stock turnover 1.78 1.29 net income 9.08k 5.89k revenue 213.87k 103.50k inventory turnover 17.77 16.09 receivable turnover 8.3 9.78

Liquidity

These ratios used to determine if a debtor can pay off current debts without raising external capital. In this article, current rates explained in the Cranswick Company. The current ratio is often seen in the format of x: y. it measures the feasibility of meeting former liabilities using former assets. The current rate in the company is between 1:5:1 and 1:3:1. This ratio looks reasonable since the company can pay off its debts without wasting more assets and with o long or short term investment.

Financial gearing

The company's stability and willingness to take risks is the most vital point to look at while looking at the financial position. Cranswick Company is a low gearing company since it has a good friendship with debtors as well as banks. The ratio dropped from 15% in 2015 to 10 in 2020.

Investments

The organization has acquired a 50% share of the white rose farms, buckle family pig farming. The organization has also received packing ton pork limited as well as katsouris brothers limited. Cranswick plc has got lots of investors hence leading to higher profits.

Investment appraisal

Cranswick Company wants to take a risk by investing in Alpha plc, which would be of benefit to the company's market capitalization of the market. To be sure of the alpha plc's profit capability, Cranswick decides to use the assets beta from other companies that have invested in alpha plc.

Abbot plc, which is an all-equity company, has an equity beta of 1.05. 35 % 0f the company's current value is related to higher risk projects, which carry a beta of 1.26. It is not worth taking a risk on the company since investors assume that the high-risk projects result in higher profits. There is a less percentage of stock at a higher risk. The volatility of the 35% value to the market is 1.26.

Cecilia plc has two divisions of operations. A and B., its equity beta is 1.20. It shows that the funds of the company are more volatile than the market. The divisions in operation B are riskier than those at A at 40%. The value at a higher risk should be greater than that at a lower risk. Cranswick should not take a chance on this company since there are no awaited high profits.

Investing in the Ecolab group is yes for Cranswick. It is because 55% of its current value is related to higher risk projects. The returns are estimated to be high. The equity beta is at 1.16, indicating that the funs in this company are more volatile than the market.

Foreign currency risk management

Selling one of its subsidiaries to Conagra brands has been an agreement made by the board of directors. It should get done in September 2020. The forward market hedge involves using foreign exchange forwards. It is affected by interest rates in two nations whose currencies are required, and the exchange rate is between two countries

The money market hedging technique used to lock in the value of a foreign currency transaction in an organization's home currency. It helps the home company reduce the currency risk when involved in a business with an international company. The money market hedging company should be recommended for Cranswick Company since it will help in reducing risks in the company derived from doing business with a foreign company.

Conclusion

Cranswick plc needs expansion, and doing that, the board of directors has decided to sell one of its subsidiaries to Conagra brands. The hedging techniques, in this case, money market hedging technique, are as well used in the Cranswick Company. The expansion of a business is said to be a wise move.

References

Boyer, B., Lim, R., and Lyons, B., 2017. Estimating the cost of equity in emerging markets: A case study. American Journal of Management, 17(2). Retrieved from https://articlegateway.com/index.php/AJM/article/view/1758

Tauser, J., and Cajka, R., 2016. Hedging techniques in commodity risk management. Agricultural Economics, 60(4), pp.174-182. Retrieved from https://www.agriculturejournals.cz/publicFiles/120_2013-AGRICECON.pdf

Tian, G., 2018. Evaluating the Financial Performance of Selected Company. Retrieved from http://dspace5.vsb.cz/bitstream/handle/10084/127820/TIA0008_EKF_B6202_6202R010_2018.pdf?sequen.