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

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.

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

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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.
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

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 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 10,000 10,000 10,000 total $30M
Development new
Selling General 2,491,717 2,256,107 2,051,006 remains 33 %
and + 10% annualy
Administrative
Non-Recuring
Others
Total Operating
Expenses
Operating 957,648 878,770 797,973 subtraction
Income or Loss
Income from
Continuing
Operatons
Total Other 34,791 34,791 34,791 keep it the
Income/Expenses same
Net
Earning Before 992,349 913,561 832,764 addition
Interest and
Taxes
Interest Expense 97,823 91,423 85,442 up 7% ; LTD
up 7%
Interest Before 894,616 822,138 737,322
Tax

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Income Tax 90,829 90,829 90,829 keep it the
Expense same
Minority Interest
Net Income from 803,787 731,309 646,493 subtraction
Continuing Ops
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 $803,787 731,309 646,493
Applicable to
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

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 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 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.

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

2007 2006 2005 Author Comment

Assets
Current Assets
Cash and Cash $3,232,406 2,972,664 2,570,635 too high, could reduce
Equivalents this and pay off some
LTD to keep balance
Short-Term
Investments
Net 943,813 760,643 759,033
Receivables
Inventory 509,969 463,609 421,463 up 10% annualy
Other Current 317,624 317,624 317,624 keep it the same
Assets
Total Current
Assets
Long-Term
Investments
Property, Plant 596,749 576,749 556,749 Up $20M annually
and Equipment
Goodwill 845,324 845,324 845,324 keep it the same
Intangible 70,593 70,593 70,593 keep it the same
Assets
Accumulated
Amortization
Other Assets 149,912 149,912 149,912 keep it the same
Deferred Long- 503,168 503,168 503,168 keep it the same
Term Assets
Charges
Total Assets 7,169,558 6,660,286 6,194,501

Liabilities
Current
Liabilities
Accounts 1,518,234 1,518,234 1,518,234 keep it the same
Payable
Short/Current 64,286 64,286 64,286 keep it the same
Long-Term

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Debt
Other Current
Liabilities
Total Current 1,582,520 1,582,520 1,582,520
Liabilities
Long-Term 785,714 735,714 685,714 Up $50M annualy
Debt
Other 304,676 304,676 304,676 Keep it the same
Liabilities
Deferred Long-
Term Liability
Charges
Minority
Interest
Negative
Goodwill
Total 2,672,910 2,622,910 2,572,910
Liabilities

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 2,961,092 2,478,820 2,040,035 60% of NI = div
Earnings
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 (276,861) (276,861) (276,861) keep it the same
Stockholder’s
Equity
Total 4,496,648 4,037,376 3,621,591 addition
Stockholder’s
Equity
Total $7,169,558 6,660,286 6,194,501 addition

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Liabilities and
SE

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

2007 2006 2005

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 Current 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 2005

Return on assets 15,47% 9,18% 6,40%

Return on common equity 29,36% 16,92% 11,46%

Operating Perfomance
2007 2006 2005
Gross 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 2005
Cash 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

Working capital turnover 101,28 118,76 126,54

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 Fixed asset turnover 4,43 5,41 6,09

Total asset turnover 2,23 2,23 2,18

Market Measure
2007 2006 2005
Price-to-earning ratio 23,77% 33,86% 44,59%

295,36
Earning yield 420,61% % 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
engineers (who created the Tableau de Bord – literally, a "dashboard" of performance
measures) in the early part of the 20th century.

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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.

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

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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
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 Primary Responsibility
Expectation
Customers
1. Delight the Target -Consumer feedback Next week -give the best serve (Fast,
Costumer -Dealer Profit Growth Friendly,Clean)
-Dealer Survey
2. Improve Dealer 2 months later -give bonus for dealer for example
Profitability 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 Next year -do survey, search the location
where the location can give good
- share of target impact for company such as the
segment location very strategies because the
-dealer quality rating location is near to city.
2. Increase Customer 6 months later -make a new program for customers
-inventory levels
Profitability -make a interest offer for customer
-quality index
-Understand consumer -give new facility for example
segments drive-thru
-Best-in-class
franchise teams
3. Operational Next month - find a new technology which the
Excellence technology can useful for company
-Improve hardware for example more efficient and
performance more effective
-Improve inventory
management
-On time
Learning and
Growth
1. Organization -employee survey Next week - do a specification such as job
Alignment -strategic job coverage spesification, etc.
2. Core Competencies 2 weeks later -do a research, see the work of

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and Skills ratio emplooyee
3. Access to Strategic 3 weeks later - change the structure organization
Information so the people can communicate
better than before
Financial

1. Lowest Cost -cash flow Next month - cut other expense which the
-volume growth rate expense doesn’t give a biq influence
-cash expense 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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