CHAPTER I

INTODUCTION

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CHAPTER II

INTERNAL ASSESMENT

2.1 Financial Ratio of Hershey’s Food Corporation

2.2 Organizational Chart of Hershey’s Food Corporation

2.3 Market Positioning of Hershey’s Food Corporation

2.4 Marketing Strategy of Hershey’s Food Corporation

2.5 Map Locating of Hershey’s Food Corporation

2.6 Web-site and E-commerce of Hershey’s Food Corporation

2.7 Value of the Firm Analysis of Hershey’s Food Corporation

2.8 Strenght and Weaknesses of Hershey’s Food Corporation

2.9 IFE of Hershey’s Food Corporation

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CHAPTER III

EXTERNAL ASSESMENT

3.1 Major Competitors of Hershey’s Food Corporation

3.2 Competitive Profile Matrix of Hershey’s Food Corporation

3.3 Key Industry Trends and Key External Trends of Hershey’s Food

Corporation

3.4 Opportunities and Threats of Hershey’s Food Corporation

3.5 EFE of Hershey’s Food Corporation

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CHAPTER IV

STRATEGY FORMULATION

4.1 SWOT Matrix of Hershey’s Food Corporation

4.2 SPACE Matrix of Hershey’s Food Corporation

4.3 BCG Matrix of Hershey’s Food Corporation

4.4 IE Matrix of Hershey’s Food Corporation

4.5 Grand Strategy Matrix of Hershey’s Food Corporation

4.6 QSPM of Hershey’s Food Corporation

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CHAPTER V

STRATEGY IMPLEMENTATION

5.1 EPS/EBIT Analysis of Hershey’s Food Corporation

-Earnings Before Interest & Tax - EBIT

An indicator of a company's profitability, calculated as revenue minus expenses,

excluding tax and interest. EBIT is also referred to as "operating earnings", "operating

profit" and "operating income", as you can re-arrange the formula to be calculated as

follows:

EBIT =  Revenue - Operating  Expenses

Also known as Profit Before Interest & Taxes (PBIT), and equals Net Income with

interest and taxes added back to it.

In other words, EBIT is all profits before taking into account interest payments and

income taxes. An important factor contributing to the widespread use of EBIT is the

way in which it nulls the effects of the different capital structures and tax rates used

by different companies. By excluding both taxes and interest expenses, the figure

hones in on the company's ability to profit and thus makes for easier cross-company

comparisons. 

EBIT was the precursor to the EBITDA calculation, which takes the process further

by removing two non-cash items from the equation (depreciation and amortization).

-Earnings Per Share - EPS

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The portion of a company's profit allocated to each outstanding share of common

stock. Earnings per share serves as an indicator of a company's profitability.

Calculated as:

When calculating, it is more accurate to use a weighted average number of shares

outstanding over the reporting term, because the number of shares outstanding can

change over time. However, data sources sometimes simplify the calculation by using

the number of shares outstanding at the end of the period.

Diluted EPS expands on basic EPS by including the shares of convertibles or warrants

outstanding in the outstanding shares number

- Hershey’s Food Corporation

Hershey’s Food Corporation needs to raise $1million to finance implementation of a

market development strategy. The company’s common stock currently sells for $50

per share and 100,000 shares are outstanding. The prime interest rate is 10 percent

and the company’s tax rate is 50 percent. The company’s earning before interest and

taxes next year are expected to be $2 million if a recression occurs, $4million if the

economy stays as is, and $8 million if the economy significantly improves.

EPS/EBIT analysis can be used to determine if all stock, all debt or some

combination of stock and debt is the best capital financing alternative.

Common Stock Financing Debt Financing Combination Financing

Recession Normal Boom Recession Normal Boom Recession Normal Boom

EBIT $2.0 $4.0 $8.0 $2.0 $4.0 $8.0 $2.0 $4.0 $8.0

Interest 0 0 0 .10 .10 .10 .05 .05 .05

EBT 2.0 4.0 8.0 1.9 3.9 7.9 1.95 3.95 7.95

Taxes 1.0 2.0 4.0 .95 1.95 3.95 .975 .1.975 3.975

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EAT 1.0 2.0 4.0 .95 1.95 3.95 .975 1.975 3.975

#Shares .12 .12 .12 .10 .10 .10 .11 .11 .11

EPS 8.33 16.66 33.33 9.5 19.50 39.50 8.86 17.95 36.14

Table 5.1 EPS/EBIT Analysis for the Hershey Food Corporation (In Millions)

An EPS/EBIT Chart for the Hershey Food Corporation

EPS/EBIT analysis is a valuable tool for making the capital financing decisions

needed to implement strategies, but several considerations should be made whenever

using this technique. First, profit levels may be higher for stock or debt alternatives

when EPS levels are lower. Another consideration when using EPS/EBIT analysis is

flexibility. As an organization’s capital structure chages, so does its flexibility for

considering future capital needs. Using all debt or all stock to raise capital in the

present may impose fixed obligations, restrictive covenants, or other constraints that

could severely reduce a firm’s ability to raise additional capital in the future. Control

is also a concern. When additional stock is issued to finance strategy implementation,

ownership and control of the enterprise are diluted. This can be serious concern in

today’s business environment of hostile takeovers, mergers and acquisitions. Dilution

of ownership can be overriding concern in closely held corporations in which stock

issuances affect the decision-making power of majority stakeholders. When using

EPS.EBIT analysis, timing in relation to movements of stock prices, interest rates and

bond prices becomes important. In times of depressed stock prices, debt may prove

to be the most suitable alternative from both a cost and a demand standpoint.

However, when cost of capital (interest rates) is high, stock issuances become more

attractive.

5.2 Projected Financial Statement Analysis for Hershey’s Food Corporation

Hershey’s projected income statements and balance sheets respectively for 2005, 2006

and 2007 are provided based on the following hypothetical strategies:

1. The company desires to build 20 Hershey stores annually at a cost of $1

million each.

2. The company plans to develop new chocolate products at an annual cost of $

10 million.

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3. The company plans to increase its advertising/promotion expenditures 30

percent over three years, at a cost of $30 million ($10 million per year)

4. The company plans to buy back $100 million of its own stock (called Treasury

stock) annually for the next three years.

5. The company expects revenue to increase 10 percent annually with the above

strategies. Hershey can handle this increase with existing production facilities.

6. Dividend payout will be increased from 57 percent of net income to 60 percent

7. to finance the $380 million total cost for the above strategies, Hershey plans to

use long-term debt for $150 million ($ 50 million per year for three years) and

$230 million by issuing stock ($77 million per year for three years)

Table 5.2 Hershey’s Projected Income Statement (In Thousands)

2007 2006 2005 Author

Comment

Total Revenue $ 7,520,357 6,836,688 6,215,171 up 10%

annualy

Cost of Revenue 4,060,992 3,691,811 3,356,192 remains 54%

Gross Profit 3,459,365 3,144,877 2,858,979 subtraction

Operating

Expenses

Research

Development

10,000 10,000 10,000 total $30M

new

Selling General

and

Administrative

2,491,717 2,256,107 2,051,006 remains 33 %

+ 10% annualy

Non-Recuring

Others

Total Operating

Expenses

Operating

Income or Loss

957,648 878,770 797,973 subtraction

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Income from

Continuing

Operatons

Total Other

Income/Expenses

Net

34,791 34,791 34,791 keep it the

same

Earning Before

Interest and

Taxes

992,349 913,561 832,764 addition

Interest Expense 97,823 91,423 85,442 up 7% ; LTD

up 7%

Interest Before

Tax

894,616 822,138 737,322

Income Tax

Expense

90,829 90,829 90,829 keep it the

same

Minority Interest

Net Income from

Continuing Ops

803,787 731,309 646,493 subtraction

Discontinued

Operations

Extraordinary

Items

Effect or

Accounting

Chages

Other items

Net Income 803,787 731,309 646,493

Preferred Stock

and Other

Adjustments

Net Income

Applicable to

$803,787 731,309 646,493

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Common Shares

Hershey projected financial statements were prepared using the six steps there are:

1. prepare the projected income statement before the balance sheet. Start by

forecasting sales as accurately as possible. Be careful not to blind pus

historical percentages into the future with regard to revenue (sales) increases.

Be mindful of what the firm did to achieve those past sales increases, which

may not be appropriate for the future unless the firm takes similar or

analogous actions (such as opening a similar number of stores, for example). If

dealing with a manufacturing firm, also be mindful that if the firm is operating

at 100 percent capacity running three eigtht-hour shifts per day, then probably

new manufacturing facilities (land, plant and equipment) will be needed to

increase sales further.

2. use the percentage of sales method to project cost of goods sold (CGS) and the

expense items in the income statement. For example, if CGS is 70 percent of

sales in the prior year, then use that same percentage to calculate CGS in the

future year unless there is a reason to use different percentage. Items such as

interest, dividends and taxes must be treated independently and cannot be

forecasted using the percentage of sales method.

3. calculate the projected net income

4. subtract from the net income any dividends to be paid for that year. This

remaining net income is retained earnings (RE). Bring this retained earning

amount for that year (NI-DIV = RE) over to the balance sheet by adding it to

the prior year’s RE shown on the balance sheet. In other words, every year a

firm adds its RE for that particular year (from the income statement) to its

historical RE total on the balance sheet. Therefore, the RE amount on the

balance sheet is a cumulative number rather that money available for strategy

implementation. Re is the first projected balance sheet item to be entered. Due

to this accounting procedure in developing projected financial statements, the

RE amount on the balance sheet is usually a large number. However, it also

can be low or even negative number if the fimr has been incurring losses. The

only way for RE to decrease from one year to the next on the balance sheet is

if the fiorm incurred an earning loss that year or the firm had positive net

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income for the year but paid out dividends more than the net income. Be

mindful that RE is tha key link between a projected income statement and

balance sheet, so be careful to make this calculation correctly.

5. Project the balance sheet items, beginning with retained earnings and then

forecasting stakeholder’s equity, long term liabilities, current liabilities, total

liabilities, total asssets, fixed assets and current assets (in that order). Use the

cash account as the plug figure , use the cash account to make assets total the

liabilities and net worth. Then make appropriate adjustments. For example if

the cash needed to balance the statements is too small (or too large), make

appropriate changes to borrow more (or less) money than planned. Hershey

use the above seven strategy statements. The cash account is used as the plug

figure and it is too high, so Hershey could reduce this number and

concurrently reduce a liability and equity account the same amount to keep the

statement in balance. Rarely is the cash account perfect on the first pass

through, so adjustments are needed and made. However, these adjustments are

not made on yhe projected statements, so that the seven strategy statement

above can be readily seen on respective rows.

Table 5.3 Hershey’s Projected Balance Sheet (In Thousands)

2007 2006 2005 Author Comment

Assets

Current Assets

Cash and Cash

Equivalents

$3,232,406 2,972,664 2,570,635 too high, could reduce

this and pay off some

LTD to keep balance

Short-Term

Investments

Net

Receivables

943,813 760,643 759,033

Inventory 509,969 463,609 421,463 up 10% annualy

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Other Current

Assets

317,624 317,624 317,624 keep it the same

Total Current

Assets

Long-Term

Investments

Property, Plant

and Equipment

596,749 576,749 556,749 Up $20M annually

Goodwill 845,324 845,324 845,324 keep it the same

Intangible

Assets

70,593 70,593 70,593 keep it the same

Accumulated

Amortization

Other Assets 149,912 149,912 149,912 keep it the same

Deferred Long-

Term Assets

Charges

503,168 503,168 503,168 keep it the same

Total Assets 7,169,558 6,660,286 6,194,501

Liabilities

Current

Liabilities

Accounts

Payable

1,518,234 1,518,234 1,518,234 keep it the same

Short/Current

Long-Term

Debt

64,286 64,286 64,286 keep it the same

Other Current

Liabilities

Total Current

Liabilities

1,582,520 1,582,520 1,582,520

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Long-Term

Debt

785,714 735,714 685,714 Up $50M annualy

Other

Liabilities

304,676 304,676 304,676 Keep it the same

Deferred Long-

Term Liability

Charges

Minority

Interest

Negative

Goodwill

Total

Liabilities

2,672,910 2,622,910 2,572,910

Stockholder’s

Equity

Misc. Stocks,

Options,

Warrants

Redeemable

Preferred Stock

Preferred Stock

Common Stock 441,369 441,369 441,369 keep it the same

Retained

Earnings

2,961,092 2,478,820 2,040,035 60% of NI = div

Treasury Stock (1,296,981) (1,196,981) (1,096,981) up $100M annualy

Capital Surplus 2,114,307 2,037,307 1,960,307 up $77M annualy

Other

Stockholder’s

Equity

(276,861) (276,861) (276,861) keep it the same

Total

Stockholder’s

4,496,648 4,037,376 3,621,591 addition

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Equity

Total

Liabilities and

SE

$7,169,558 6,660,286 6,194,501 addition

The results is  it all depends on our sales forecast.  We estimate the future level of

sales and calculate our expected level of EBIT for this sales level.

If the expected level of EBIT is:

less than $6,000, we would tend to use common stock financing.  Our EPS

will be higher than the other two alternatives as long as sales are weak enough

to keep us below the $6,000 EBIT level.  As sales and EBIT fall, the fact that

we don't have to pay a fixed interest or dividend payment is a big advantage

and offers the company a great deal of flexibility.

above $6,000, we would use tend to use debt financing.  The EPS level is

maximized by using debt as long as sales are high enough to keep us above the

$6,000 EBIT level.  As sales increase, the higher financial leverage causes

EPS to rise at a much faster rate than common stock financing would do.

What if the forecasted sales level is equal to (or very close to) the indifference

point of $6,000?  Then you would not make the decision based on the basis of EPS. 

There are a number of qualitative factors that will increase in importance and you

would tend to weigh these factors closely in making the debt vs. equity decision.

We would not consider using preferred stock financing at all unless there is some

compelling reason to do so.  There may be reasons for doing this - to avoid restrictive

debt covenants, to gain greater flexibility, to avoid using up all of your debt capacity

at the present time, etc.  However, from a quantitative standpoint, EPS under debt

financing will always be higher than the preferred stock alternative.

5.3 Projected Financial Ratios of Hershey’s Food Corporation

Below there are Ratio Analysis for Hershey’s Food Corporation :

Liquidity

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2007 2006 2005Current ratio 4,43 7,58 7,18     Acid test ratio 4,16 7,16 6,86     Collection period 1,68 1,50 1,33     Day to sell inventory 5 5,90 5,52

Capital Structure and Solvency

2007 2006 2005 Total debt to equity 14,2 14,52 15,74     Long term debt to equity ) 10,25 11,83 12,36       Times interest earned ) 8,98 5,84 7,52       

Return on Investment

2007 2006 2005Return on assets 15,47% 9,18% 6,40%       Return on common equity 29,36% 16,92% 11,46%

Operating Perfomance

2007 2006 2005Gross profit margin 10,65% 6,67% 5,89%       Operating profit margin 8,76% 4,64% 4,06%       Pretax profit margin 10,01% 5,84% 4,79%       Net profit margin 6,87% 4,12% 2,93%

Asset Utilization

2007 2006 2005Cash turnover 33,01 29,53 34,89       Account receivable turnover 213,67 235,18 270,76       Sales to inventory 85,27 65,41 69,29

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       Working capital turnover 101,28 118,76 126,54       Fixed asset turnover 4,43 5,41 6,09       Total asset turnover 2,23 2,23 2,18

Market Measure

2007 2006 2005Price-to-earning ratio 23,77% 33,86% 44,59%       Earning yield 420,61% 295,36% 224,26%       Dividend yield 10,94% 16,13% 11,34%       Dividend payout rate 2,60% 5,50% 5,10%       Price-to-book 165,5% 165,5% 165,5%

The several ratios to show the benefits of Hershey’s strategic plan is day to sell

inventory, total debt to equity, return on assets, net profit margin, fixed asset turnover,

price-to-book. The reason why we choose that 6 ratios is:

1. Through ratio day to sell inventory, company can see the turnover of them

inventory. So if the turnover is high, the company must change them strategy

to make the company work more efficient and effective.

2. Through total debt to equity. Debt give a big influence for company so

through this ratio, company can see the turnover debt to equity. The turnover

can give a impact for company especially company’s finance condition.

3. The impact of return on assets is company can see how much money which

can get back from return on assets.

4. Net profit margin can give company result of the net sales. From thi ratio,

company can see the company’s strategy work as expectations or not.

5. A good company must have a high fixed assets turnover in order to that

company can have a good finance’s turnover.

6. Price-to-book is also important thing for company and the company’s strategy.

Price to book can implemented how much the price of book which the price is

influented by many factors especially market’s condition. So company must

keep them price-to-book.

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All ratio can give benefits for Hershey’s strategic plan but the above six ratios is more

important than other ratio because that ratios can directly influence Hershey’s

strategic plan.

CHAPTER VI

STRATEGY EVALUATION

Balance Scorecard of Hershey’s Food Corporation

The balanced scorecard is a strategic planning and management system that is used

extensively in business and industry, government, and nonprofit organizations

worldwide to align business activities to the vision and strategy of the organization,

improve internal and external communications, and monitor organization performance

against strategic goals. It was originated by Drs. Robert Kaplan (Harvard Business

School) and David Norton as a performance measurement framework that added

strategic non-financial performance measures to traditional financial metrics to give

managers and executives a more 'balanced' view of organizational performance. 

While the phrase balanced scorecard was coined in the early 1990s, the roots of the

this type of approach are deep, and include the pioneering work of General Electric on

performance measurement reporting in the 1950’s and the work of French process

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engineers (who created the Tableau de Bord – literally, a "dashboard" of performance

measures) in the early part of the 20th century.

The balanced scorecard has evolved from its early use as a simple performance

measurement framework to a full strategic planning and management system. The

“new” balanced scorecard transforms an organization’s strategic plan from an

attractive but passive document into the "marching orders" for the organization on a

daily basis. It provides a framework that not only provides performance

measurements, but helps planners identify what should be done and measured. It

enables executives to truly execute their strategies.

This new approach to strategic management was first detailed in a series of articles

and books by Drs. Kaplan and Norton. Recognizing some of the weaknesses and

vagueness of previous management approaches, the balanced scorecard approach

provides a clear prescription as to what companies should measure in order to

'balance' the financial perspective. The balanced scorecard is a management system

(not only a measurement system) that enables organizations to clarify their vision and

strategy and translate them into action. It provides feedback around both the internal

business processes and external outcomes in order to continuously improve strategic

performance and results. When fully deployed, the balanced scorecard transforms

strategic planning from an academic exercise into the nerve center of an enterprise.

Kaplan and Norton describe the innovation of the balanced scorecard as follows:

"The balanced scorecard retains traditional financial measures. But financial measures

tell the story of past events, an adequate story for industrial age companies for which

investments in long-term capabilities and customer relationships were not critical for

success. These financial measures are inadequate, however, for guiding and

evaluating the journey that information age companies must make to create future

value through investment in customers, suppliers, employees, processes, technology,

and innovation."

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Adapted from Robert S. Kaplan and David P. Norton, “Using the Balanced Scorecard

as a Strategic Management System,” Harvard Business Review (January-February

1996): 76.

Perspectives

The balanced scorecard suggests that we view the organization from four

perspectives, and to develop metrics, collect data and analyze it relative to each of

these perspectives:

The Learning and Growth Prespective

This perspective includes employee training and corporate cultural attitudes related to

both individual and corporate self-improvement. In a knowledge-worker organization,

people -- the only repository of knowledge -- are the main resource. In the current

climate of rapid technological change, it is becoming necessary for knowledge

workers to be in a continuous learning mode. Metrics can be put into place to guide

managers in focusing training funds where they can help the most. In any case,

learning and growth constitute the essential foundation for success of any knowledge-

worker organization.

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Kaplan and Norton emphasize that 'learning' is more than 'training'; it also includes

things like mentors and tutors within the organization, as well as that ease of

communication among workers that allows them to readily get help on a problem

when it is needed. It also includes technological tools; what the Baldrige criteria call

"high performance work systems."

The Business Process Perspective

This perspective refers to internal business processes. Metrics based on this

perspective allow the managers to know how well their business is running, and

whether its products and services conform to customer requirements (the mission).

These metrics have to be carefully designed by those who know these processes most

intimately; with our unique missions these are not something that can be developed by

outside consultants.

The Customer Prespective

Recent management philosophy has shown an increasing realization of the importance

of customer focus and customer satisfaction in any business. These are leading

indicators: if customers are not satisfied, they will eventually find other suppliers that

will meet their needs. Poor performance from this perspective is thus a leading

indicator of future decline, even though the current financial picture may look good.

In developing metrics for satisfaction, customers should be analyzed in terms of kinds

of customers and the kinds of processes for which we are providing a product or

service to those customer groups.

The Financial Perspective

Kaplan and Norton do not disregard the traditional need for financial data. Timely and

accurate funding data will always be a priority, and managers will do whatever

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necessary to provide it. In fact, often there is more than enough handling and

processing of financial data. With the implementation of a corporate database, it is

hoped that more of the processing can be centralized and automated. But the point is

that the current emphasis on financials leads to the "unbalanced" situation with regard

to other perspectives.  There is perhaps a need to include additional financial-related

data, such as risk assessment and cost-benefit data, in this category.

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Balance Scorecard of Hershey’s Food Corporation January 2008

Area of Objectives Measure or Target Time

Expectation

Primary Responsibility

Customers

1. Delight the Target

Costumer

-Consumer feedback

-Dealer Profit Growth

-Dealer Survey

Next week -give the best serve (Fast,

Friendly,Clean)

2. Improve Dealer

Profitability

2 months later -give bonus for dealer for example

if dealer can sale the product out of

the expectation so the dealer can get

bonus from company such as free

holiday, etc.

Internal

1. Build the Franchise

- share of target

segment

-dealer quality rating

-inventory levels

-quality index

Next year -do survey, search the location

where the location can give good

impact for company such as the

location very strategies because the

location is near to city.

2. Increase Customer

Profitability

-Understand consumer

segments

-Best-in-class

franchise teams

6 months later -make a new program for customers

-make a interest offer for customer

-give new facility for example

drive-thru

3. Operational

Excellence

-Improve hardware

performance

-Improve inventory

management

-On time

Next month - find a new technology which the

technology can useful for company

for example more efficient and

more effective

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Learning and

Growth

1. Organization

Alignment

-employee survey

-strategic job coverage

ratio

Next week - do a specification such as job

spesification, etc.

2. Core Competencies

and Skills

2 weeks later -do a research, see the work of

emplooyee

3. Access to Strategic

Information

3 weeks later - change the structure organization

so the people can communicate

better than before

Financial

1. Lowest Cost -cash flow

-volume growth rate

-cash expense

Next month - cut other expense which the

expense doesn’t give a biq influence

to company

2. Profitable Growth 3 months later - innovation

- make a new strategy for example

when Christmast, company give

discounts for customers

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CHAPTER VII

CONCLUSION

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RESULT OF STUDY

This study used Hershey Food Corporation as a case to demonstrate how to formulate

global product strategy to penetrate growing international markets

This study can give Hershey Food Corporation a new reference which the reference can

give impact for Hershey Food Corporation

From this study, we as a student can get a new knowledge especially about Strategic

Management

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BIBLIOGRAPHY

www.hersheys.com

www.nestle.in

www.mars.com

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