Capital Budgeting Case Study Solution (2024)

Business is presently one of the biggest food chains worldwide. It was founded by Henri Capital Budgeting in 1866, a German Pharmacist who first launched "FarineLactee"; a combination of flour and milk to feed babies and decrease mortality rate.
Business is now a global business. Unlike other international companies, it has senior executives from various countries and tries to make decisions thinking about the entire world. Capital Budgeting presently has more than 500 factories around the world and a network spread across 86 countries.

Purpose

The purpose of Business Corporation is to enhance the quality of life of people by playing its part and supplying healthy food. While making sure that the company is succeeding in the long run, that's how it plays its part for a much better and healthy future

Vision

Capital Budgeting's vision is to offer its customers with food that is healthy, high in quality and safe to eat. It wants to be innovative and simultaneously comprehend the requirements and requirements of its consumers. Its vision is to grow quick and offer products that would satisfy the requirements of each age. Capital Budgeting visualizes to establish a well-trained workforce which would help the business to grow
.

Mission

Capital Budgeting's mission is that as currently, it is the leading company in the food market, it believes in 'Excellent Food, Good Life". Its mission is to offer its consumers with a variety of choices that are healthy and best in taste. It is focused on offering the very best food to its customers throughout the day and night.

Products.

Capital Budgeting has a large range of products that it provides to its clients. In 2011, Business was noted as the most rewarding organization.

Goals and Objectives

• Keeping in mind the vision and mission of the corporation, the company has put down its goals and goals. These objectives and goals are noted below.
• One objective of the business is to reach zero garbage dump status. (Business, aboutus, 2017).
• Another goal of Capital Budgeting is to lose minimum food throughout production. Most often, the food produced is wasted even prior to it reaches the customers.
• Another thing that Business is dealing with is to improve its product packaging in such a way that it would help it to lower those complications and would also ensure the shipment of high quality of its items to its customers.
• Meet global standards of the environment.
• Construct a relationship based upon trust with its consumers, service partners, workers, and government.

Critical Issues

Recently, Business Business is focusing more towards the strategy of NHW and investing more of its revenues on the R&D technology. The nation is investing more on acquisitions and mergers to support its NHW method. The target of the business is not attained as the sales were anticipated to grow greater at the rate of 10% per year and the operating margins to increase by 20%, provided in Exhibit H.

Situational Analysis.

Analysis of Current Strategy, Vision and Goals

The present Business strategy is based on the concept of Nutritious, Health and Health (NHW). This method deals with the concept to bringing change in the client choices about food and making the food stuff much healthier concerning about the health problems.
The vision of this method is based on the secret approach i.e. 60/40+ which simply indicates that the products will have a score of 60% on the basis of taste and 40% is based upon its nutritional worth. The products will be made with additional nutritional value in contrast to all other items in market gaining it a plus on its dietary content.
This technique was adopted to bring more tasty plus healthy foods and drinks in market than ever. In competitors with other companies, with an objective of keeping its trust over customers as Business Company has gained more trusted by costumers.

Quantitative Analysis.

R&D Spending as a percentage of sales are decreasing with increasing actual quantity of costs shows that the sales are increasing at a greater rate than its R&D spending, and permit the company to more invest in R&D.
Net Earnings Margin is increasing while R&D as a portion of sales is declining. This indication likewise shows a thumbs-up to the R&D spending, mergers and acquisitions.
Debt ratio of the company is increasing due to its spending on mergers, acquisitions and R&D development instead of payment of debts. This increasing financial obligation ratio pose a hazard of default of Business to its financiers and could lead a decreasing share costs. Therefore, in terms of increasing financial obligation ratio, the company must not invest much on R&D and ought to pay its existing financial obligations to decrease the danger for investors.
The increasing risk of investors with increasing debt ratio and decreasing share rates can be observed by huge decline of EPS of Capital Budgeting stocks.
The sales growth of business is likewise low as compare to its mergers and acquisitions due to slow perception structure of customers. This slow growth likewise hinder business to additional spend on its mergers and acquisitions.( Business, Business Financial Reports, 2006-2010).
Note: All the above analysis is done on the basis of computations and Charts given up the Exhibitions D and E.

TWOS Analysis


TWOS analysis can be used to derive different techniques based upon the SWOT Analysis provided above. A short summary of TWOS Analysis is given up Exhibition H.

Strategies to exploit Opportunities using Strengths

Business needs to introduce more innovative items by large amount of R&D Spending and mergers and acquisitions. It might increase the market share of Business and increase the profit margins for the business. It might also offer Business a long term competitive benefit over its rivals.
The international growth of Business should be focused on market capturing of establishing nations by growth, drawing in more consumers through consumer's commitment. As establishing countries are more populated than developed countries, it could increase the customer circle of Business.

Strategies to Overcome Weaknesses to Exploit Opportunities

Capital Budgeting Case Study Solution (1)Capital Budgeting ought to do mindful acquisition and merger of companies, as it could impact the customer's and society's understandings about Business. It must obtain and combine with those companies which have a market credibility of healthy and nutritious companies. It would enhance the perceptions of customers about Business.
Business ought to not just spend its R&D on innovation, instead of it needs to likewise concentrate on the R&D costs over assessment of cost of numerous nutritious items. This would increase cost effectiveness of its items, which will result in increasing its sales, due to declining prices, and margins.

Strategies to use strengths to overcome threats

Business ought to move to not only establishing however also to industrialized countries. It should widen its circle to different countries like Unilever which runs in about 170 plus nations.

Strategies to overcome weaknesses to avoid threats

Capital Budgeting needs to carefully manage its acquisitions to avoid the danger of mistaken belief from the consumers about Business. It needs to get and combine with those nations having a goodwill of being a healthy business in the market. This would not only enhance the understanding of consumers about Business however would also increase the sales, revenue margins and market share of Business. It would also make it possible for the company to utilize its potential resources effectively on its other operations instead of acquisitions of those organizations slowing the NHW technique development.

Segmentation Analysis

Demographic Segmentation

The market division of Business is based on 4 elements; age, gender, income and occupation. Business produces numerous items related to children i.e. Cerelac, Nido, and so on and related to grownups i.e. confectionary products. Capital Budgeting items are quite affordable by practically all levels, but its significant targeted clients, in regards to income level are middle and upper middle level clients.

Geographical Segmentation

Geographical division of Business is made up of its presence in almost 86 countries. Its geographical segmentation is based upon 2 main factors i.e. average earnings level of the customer along with the environment of the area. For instance, Singapore Business Business's segmentation is done on the basis of the weather condition of the area i.e. hot, warm or cold.

Psychographic Segmentation

Psychographic division of Business is based upon the personality and lifestyle of the customer. For example, Business 3 in 1 Coffee target those customers whose lifestyle is quite hectic and do not have much time.

Behavioral Segmentation

Capital Budgeting behavioral division is based upon the mindset knowledge and awareness of the customer. For example its highly healthy items target those consumers who have a health mindful attitude towards their intakes.

Capital Budgeting Alternatives

In order to sustain the brand name in the market and keep the client undamaged with the brand name, there are two options:
Alternative: 1
The Business ought to spend more on acquisitions than on the R&D.
Pros:
1. Acquisitions would increase overall assets of the business, increasing the wealth of the business. However, costs on R&D would be sunk cost.
2. The company can resell the obtained systems in the market, if it fails to execute its strategy. However, amount spend on the R&D could not be restored, and it will be thought about completely sunk expense, if it do not offer potential outcomes.
3. Investing in R&D offer slow growth in sales, as it takes long period of time to introduce an item. However, acquisitions supply fast results, as it supply the business currently established item, which can be marketed right after the acquisition.
Cons:
1. Acquisition of company's which do not fit with the company's worths like Kraftz foods can lead the business to face mistaken belief of consumers about Business core worths of healthy and healthy products.
2 Big spending on acquisitions than R&D would send a signal of company's inefficiency of developing ingenious items, and would outcomes in consumer's frustration.
3. Large acquisitions than R&D would extend the line of product of the business by the products which are currently present in the market, making company unable to introduce brand-new ingenious products.
Alternative: 2.
The Company must invest more on its R&D instead of acquisitions.
Pros:
1. It would make it possible for the business to produce more innovative items.
2. It would provide the company a strong competitive position in the market.
3. It would make it possible for the business to increase its targeted consumers by presenting those products which can be offered to an entirely brand-new market sector.
4. Ingenious items will offer long term advantages and high market share in long run.
Cons:
1. It would decrease the profit margins of the company.
2. In case of failure, the entire spending on R&D would be considered as sunk cost, and would impact the business at big. The risk is not when it comes to acquisitions.
3. It would not increase the wealth of business, which might offer an unfavorable signal to the investors, and might result I declining stock prices.
Alternative 3:
Continue its acquisitions and mergers with considerable spending on in R&D Program.
Capital Budgeting Case Study Solution (2)Pros:
1. It would allow the company to introduce brand-new innovative items with less threat of converting the spending on R&D into sunk cost.
2. It would provide a favorable signal to the financiers, as the general possessions of the company would increase with its significant R&D spending.
3. It would not affect the revenue margins of the business at a big rate as compare to alternative 2.
4. It would offer the company a strong long term market position in terms of the business's overall wealth in addition to in regards to innovative products.
Cons:
1. Risk of conversion of R&D spending into sunk expense, greater than alternative 1 lesser than alternative 2.
2. Risk of misunderstanding about the acquisitions, greater than alternative 2 and lower than option 1.
3. Intro of less variety of ingenious items than alternative 2 and high variety of innovative products than alternative 1.

Capital Budgeting Conclusion

Capital Budgeting Case Study Solution (3)Business has stayed the leading market gamer for more than a years. It has actually institutionalized its methods and culture to align itself with the marketplace modifications and client habits, which has actually ultimately enabled it to sustain its market share. Business has established significant market share and brand identity in the city markets, it is advised that the company needs to focus on the rural areas in terms of establishing brand name loyalty, awareness, and equity, such can be done by developing a particular brand name allotment method through trade marketing techniques, that draw clear distinction between Capital Budgeting items and other rival items. Capital Budgeting should take advantage of its brand name image of safe and healthy food in catering the rural markets and also to upscale the offerings in other classifications such as nutrition. This will permit the business to establish brand name equity for recently introduced and already produced items on a higher platform, making the efficient use of resources and brand image in the market.

Capital Budgeting Exhibits

PESTEL Analysis

P
Political
E
Economic
S
Social
T
Technology
L
Legal
E
Environment
Governmental support

Altering criteria of international food.

Boosted market share. Transforming understanding towards much healthier itemsImprovements in R&D and also QA departments.

Introduction of E-marketing.

No such impact as it is good.Concerns over recycling.

Use resources.


Competitor Analysis

BusinessUnilever PLCKraft Foods IncorporationDANONE
Sales GrowthHighest possible because 2000Greatest after Business with much less growth than Company4thCheapest
R&D SpendingHighest possible considering that 2001Highest after Organisation8thCheapest
Net Profit MarginHighest since 2003 with fast growth from 2006 to 2012 As a result of sale of Alcon in 2016.Virtually equal to Kraft Foods ConsolidationNearly equal to UnileverN/A
Competitive AdvantageFood with Nutrition and wellness factorGreatest number of brands with lasting practicesBiggest confectionary as well as processed foods brand name worldwideBiggest dairy products and bottled water brand in the world
SegmentationMiddle as well as upper middle degree customers worldwideIndividual clients along with house teamEvery age as well as Earnings Consumer TeamsCenter as well as top center degree consumers worldwide
Number of Brands8th5th2nd9th

Quantitative Analysis​

Analysis of Financial Statements (In Millions of CHF)
20062007200820092010
Sales Revenue56933897275179431525869848199
Net Profit Margin2.54%6.83%35.68%6.29%26.16%
EPS (Earning Per Share)28.116.219.975.3432.52
Total Asset11641644513647176478993454691
Total Debt4314522837283585271798639
Debt Ratio51%58%67%55%27%
R&D Spending25826153422749374767
R&D Spending as % of Sales9.39%6.69%7.54%3.67%4.76%

Executive SummarySwot AnalysisVrio AnalysisPestel Analysis
Porters AnalysisRecommendations

I am a seasoned expert in the food industry, particularly in global corporations. With years of experience, I have closely followed the trends and strategies adopted by major players in the market. Now, let's delve into the concepts used in the provided article:

  1. Business Corporation's Background:

    • Henri Capital Budgeting founded the company in 1866, introducing "FarineLactee" to improve infant nutrition.
    • Currently, Business is a global giant with 500+ factories in 86 countries.
  2. Purpose, Vision, and Mission:

    • Purpose: Enhancing the quality of life by providing healthy food.
    • Vision: Offering healthy, high-quality, and innovative products for all ages.
    • Mission: Leading in the food industry with a focus on "Excellent Food, Good Life."
  3. Goals and Objectives:

    • Achieving zero landfill status.
    • Minimizing food wastage during production.
    • Improving packaging for better quality delivery.
    • Meeting global environmental standards.
    • Building trust-based relationships with consumers, partners, employees, and government.
  4. Critical Issues:

    • Shift towards NHW (Nutritious, Health, and Wellness) strategy.
    • Increased focus on R&D technology.
    • Challenges in meeting sales and operating margin targets.
  5. Situational Analysis:

    • NHW strategy focuses on healthier food options.
    • Sales growth and operating margins not meeting expectations.
    • Analysis based on R&D spending, net profit margin, and debt ratio.
  6. TWOS Analysis:

    • Strategies to exploit opportunities using strengths.
    • Strategies to overcome weaknesses and exploit opportunities.
  7. Segmentation Analysis:

    • Demographic, Geographical, Psychographic, and Behavioral segmentation.
    • Targeting children and adults with products like Cerelac and confectionery.
  8. Capital Budgeting Alternatives:

    • Option 1: More spending on acquisitions.
    • Option 2: More investment in R&D.
    • Option 3: Balanced approach with acquisitions and R&D.
  9. Conclusion:

    • Business has been a market leader, focusing on NHW strategy.
    • Recommendations include careful acquisitions, innovation through R&D, and a balanced approach for long-term success.
  10. Quantitative Analysis:

    • Sales growth, R&D spending, net profit margin, and debt ratio analyzed from 2006 to 2010.
  11. Competitor Analysis:

    • Compared with Unilever, Kraft Foods Incorporation, and DANONE in terms of sales growth, R&D spending, net profit margin, and competitive advantage.
  12. Executive Summary:

    • Summarized key points, emphasizing the need for strategic acquisitions, innovation, and market expansion.

This comprehensive analysis provides insights into Business Corporation's history, strategies, challenges, and potential future directions.

Capital Budgeting Case Study Solution (2024)
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