Question

On 2/21/2019, Kraft Heinz Co. announced that it wrote down the goodwill value of its Kraft and Oscar Mayer brands by $15.4 billion. Companies record goodwill as an asset on their books when they buy a business for more than the value of its book assets. The buyers must review the fair value of their reporting units each year and, if that figure is less than the amount on the balance sheet, impair the goodwill. Also, the company disclosed that it was under investigation by received a subpoena from the Securities and Exchange Commission regarding its accounting practices of the procurement department, and decided to cut its quarterly dividends to 40 cents per share from 62.5 cents and considered selling off some of its businesses to help pay down debt. Kraft Heinz shares plunged nearly 25 percent the next day after the announcement. According to your research on Kraft Heinz Co, please discuss the following questions: What is Kraft Heinz's financial position? What challenges is the company facing? What are the conditions that contributed to the decline in Kraft Heinz's goodwill? Why is there some concern about the company's internal controls? Do you think the write-down or the disclosure of an investigation by federal securities regulators, or the slashing of its dividend had the most significant impact on Kraft Heinz stock? Explain.

Answer 1

Here are Kraft Heinz's financial position as 0f 2018. It's net income fell from $ 10,941 Million to $ -10192 Million.

TTM = Trailing Twelve Months

Gross margin TTM34.69%

Operating margin TTM-41.43%

Net Profit margin TTM-40.54%

Return on Investment TTM-10.36%

in $ Millions

	Dec 29, 2018	Dec 30, 2017	Dec 31, 2016	Jan 03, 2016
Total Revenue	26268	26076	26487	18338
Gross Profit	9115	9497	10297	5761
Operating Income	-10383	6206	6142	2639
Net Income	-10192	10941	3632	634

Source : Heinz SEC Fillings , income Statement

The challenges that the company faces are as follows

• Regain profitability and become cashflow positive

• Regain investor trust. successfully company with SEC regulations

• Regain consumer trust and improve over all financial performance

Goodwill is essentially the amount of money that investors or shareholders are willing to pay above the intrinsic value of the company. Goodwill is generally valuated based on factors such as Brand Equity. Market Share , Consumer & Investment Sentiment, Consumer Loyalty, etc. The reason or the e conditions that contributed to the decline in Kraft Heinz's goodwill are

• The fact that the SEC was investigating the firm for faulty accounting practices meant that the firm audits and financials may not be completely accurate which is why there were concerns about internal control

• Overall decline in net come to fell from $ 10,941 Million to $ -10192 Million.

• Decline in investor and consumer trust

• Adversly effecting all stakeholders

So yes I do think think the write-down or the disclosure of an investigation by federal securities regulators, or the slashing of its dividend had the most significant impact on Kraft Heinz stock