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In this section, the financial analysis of Cracker Jack has been conducted over the period 1993 – 1996 so that its attractiveness for takeover by Frito-Lay can be analyzed. Ratio analysis is one of the most important tools for financial analysis and a summary of the key ratios of the company has been given in Appendix 1.
The first set of ratios are the profitability ratios. Since the balance sheet figures for the year 1996 only have been given, the trend in return on equity and assets could not be determined. It can be seen that the gross margin of the business has remained positive over the entire period, even though it has been fluctuating. This can be explained by change in marketing strategies of the company such as introduction of different sizes, due to which the cost of goods increased. Also, inflation and rising input costs would adversely affect the gross margins. The direct product contribution has remained negative throughout 1994 – 1996 and it had improved in 1996 slightly. This can be explained by the increase in advertisement expenses for new size promotion...