Cadbury to Be Swallowed Whole Essay

1229 Words Oct 7th, 2012 5 Pages
Cadbury To Be Swallowed Whole?

1. Emerging market is a financial market of a developing country, usually a small market with a short operating history. Monopoly power is the power of a monopoly firm where they are able to control or set a price in its market.

2. Kraft’s marketing strategy will benefit significantly from buying Cadbury in two different ways. Firstly, when we look at the brand portfolio of Kraft, which is the world’s second biggest food company. It is clear that there are plenty of old-timer cash cows, such as cheese, Nabisco and Suchard, but there are only very few rising stars. According to the Boston Matrix, cash cow means a product with a high share of a slow growth market, which can generate a stable
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Therefore, it seems like Kraft couldn’t afford to generate £4.1 billion.

4. Gearing ratio

Long-term loans / capital employed * 100%

Gearing ratio of 2008,

18200 / 18200+14800-800 * 100% = 56.8%

Gearing ratio after taking on a long-term loan for £4.1 billion

18200+4100 / 32200+4100 *100% =61.4%

The gearing ratio focuses on the long-term financial stability of an organization, it measures long term loans as a proportion of a firm’s capital employed and shows how risky an investment a company is. If the ratio is above 50% it is said that the business is highly geared, and the higher the gearing ratio the higher the risk is. By looking at Kraft’s gearing ratio, we can see a pretty high gear ratio of 56.8%, which is considered as highly geared. If they really take on a long-term loan for £4.1 billion, the gear ratio would even get worse, it would go up to 61.4%, which is even higher geared and more risky. It seems like Kraft would definitely become overstretched. Because the gearing ratio shows that its business is very risky and every £1 they invested in the business, 55p is from long-term loan.

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