Globalizing The Cost Of Capital And Capital Budgeting At Aes Case Study Solution

Case Study Solution And Analysis

Home >> Harvard >> Globalizing The Cost Of Capital And Capital Budgeting At Aes >>

Globalizing The Cost Of Capital And Capital Budgeting At Aes Case Study Solution

Business is presently one of the most significant food chains worldwide. It was established by Henri Globalizing The Cost Of Capital And Capital Budgeting At Aes in 1866, a German Pharmacist who first released "FarineLactee"; a mix of flour and milk to feed babies and reduce death rate.
Business is now a transnational company. Unlike other multinational business, it has senior executives from various nations and attempts to make decisions considering the entire world. Globalizing The Cost Of Capital And Capital Budgeting At Aes currently has more than 500 factories worldwide and a network spread across 86 nations.


The function of Globalizing The Cost Of Capital And Capital Budgeting At Aes Corporation is to boost the quality of life of people by playing its part and providing healthy food. It wishes to help the world in shaping a healthy and much better future for it. It likewise wishes to motivate people to live a healthy life. While ensuring that the company is being successful in the long run, that's how it plays its part for a much better and healthy future


Globalizing The Cost Of Capital And Capital Budgeting At Aes's vision is to supply its clients with food that is healthy, high in quality and safe to consume. Business imagines to develop a well-trained labor force which would help the business to grow


Globalizing The Cost Of Capital And Capital Budgeting At Aes's mission is that as presently, it is the leading business in the food market, it thinks in 'Excellent Food, Excellent Life". Its objective is to provide its consumers with a variety of options that are healthy and best in taste also. It is focused on supplying the best food to its clients throughout the day and night.


Globalizing The Cost Of Capital And Capital Budgeting At Aes has a large variety of products that it provides to its customers. In 2011, Business was noted as the most gainful organization.

Goals and Objectives

• Remembering the vision and mission of the corporation, the business has put down its objectives and objectives. These objectives and objectives are noted below.
• One goal of the company is to reach no land fill status. (Business, aboutus, 2017).
• Another objective of Globalizing The Cost Of Capital And Capital Budgeting At Aes is to waste minimum food during production. Most often, the food produced is lost even before it reaches the customers.
• Another thing that Business is dealing with is to improve its product packaging in such a method that it would help it to lower the above-mentioned problems and would likewise guarantee the delivery of high quality of its items to its clients.
• Meet global standards of the environment.
• Develop a relationship based upon trust with its consumers, organisation partners, staff members, and federal government.

Critical Issues

Just Recently, Business Company is focusing more towards the strategy of NHW and investing more of its earnings on the R&D technology. The country is investing more on acquisitions and mergers to support its NHW method. Nevertheless, the target of the company is not attained as the sales were anticipated to grow higher at the rate of 10% per year and the operating margins to increase by 20%, given up Exhibition H. There is a need to focus more on the sales then the innovation technology. Otherwise, it might lead to the decreased income rate. (Henderson, 2012).

Situational Analysis.

Analysis of Current Strategy, Vision and Goals

The present Business technique is based on the idea of Nutritious, Health and Wellness (NHW). This method handles the idea to bringing change in the client preferences about food and making the food things much healthier concerning about the health issues.
The vision of this strategy is based upon the key method i.e. 60/40+ which simply suggests that the items will have a rating of 60% on the basis of taste and 40% is based upon its nutritional worth. The items will be produced with extra dietary worth in contrast to all other items in market acquiring it a plus on its dietary material.
This technique was adopted to bring more delicious plus nutritious foods and drinks in market than ever. In competition with other companies, with an intent of keeping its trust over clients as Business Business has actually gotten more relied on by clients.

Quantitative Analysis.

R&D Costs as a portion of sales are declining with increasing real amount of costs shows that the sales are increasing at a greater rate than its R&D costs, and enable the business to more invest in R&D.
Net Earnings Margin is increasing while R&D as a percentage of sales is decreasing. This sign also reveals a green light to the R&D spending, mergers and acquisitions.
Debt ratio of the company is increasing due to its costs on mergers, acquisitions and R&D advancement rather than payment of debts. This increasing debt ratio posture a threat of default of Business to its financiers and could lead a decreasing share prices. In terms of increasing financial obligation ratio, the company should not spend much on R&D and should pay its current financial obligations to decrease the risk for investors.
The increasing threat of investors with increasing financial obligation ratio and declining share costs can be observed by big decline of EPS of Globalizing The Cost Of Capital And Capital Budgeting At Aes stocks.
The sales development of company is likewise low as compare to its mergers and acquisitions due to slow understanding structure of customers. This sluggish growth likewise hinder business to further spend on its mergers and acquisitions.( Business, Business Financial Reports, 2006-2010).
Keep in mind: All the above analysis is done on the basis of estimations and Graphs given in the Exhibits D and E.

TWOS Analysis

2 analysis can be used to obtain numerous techniques based on the SWOT Analysis given above. A short summary of TWOS Analysis is given up Exhibition H.

Strategies to exploit Opportunities using Strengths

Business should present more ingenious items by big amount of R&D Spending and mergers and acquisitions. It could increase the market share of Business and increase the revenue margins for the company. It might also supply Business a long term competitive benefit over its rivals.
The worldwide expansion of Business ought to be focused on market recording of developing nations by expansion, bring in more clients through consumer's loyalty. As establishing nations are more populated than developed countries, it might increase the client circle of Business.

Strategies to Overcome Weaknesses to Exploit Opportunities

Swot AnalysisGlobalizing The Cost Of Capital And Capital Budgeting At Aes must do cautious acquisition and merger of organizations, as it might impact the consumer's and society's understandings about Business. It ought to get and combine with those business which have a market track record of healthy and nutritious companies. It would enhance the perceptions of consumers about Business.
Business needs to not only invest its R&D on innovation, instead of it should also concentrate on the R&D spending over examination of cost of numerous nutritious items. This would increase expense performance of its products, which will lead to increasing its sales, due to declining costs, and margins.

Strategies to use strengths to overcome threats

Business ought to relocate to not only developing however also to developed countries. It ought to widens its geographical expansion. This large geographical growth towards establishing and developed countries would decrease the risk of possible losses in times of instability in different nations. It needs to expand its circle to various nations like Unilever which runs in about 170 plus nations.

Strategies to overcome weaknesses to avoid threats

Globalizing The Cost Of Capital And Capital Budgeting At Aes should sensibly manage its acquisitions to avoid the danger of misunderstanding from the consumers about Business. It ought to obtain and merge with those countries having a goodwill of being a healthy company in the market. This would not only enhance the understanding of consumers about Business but would also increase the sales, profit margins and market share of Business. It would likewise make it possible for the company to use its prospective resources efficiently on its other operations rather than acquisitions of those organizations slowing the NHW technique growth.

Segmentation Analysis

Demographic Segmentation

The group division of Business is based upon 4 aspects; age, gender, earnings and occupation. Business produces numerous items related to infants i.e. Cerelac, Nido, etc. and related to grownups i.e. confectionary items. Globalizing The Cost Of Capital And Capital Budgeting At Aes items are quite cost effective by practically all levels, but its major targeted consumers, in regards to income level are middle and upper middle level clients.

Geographical Segmentation

Geographical division of Business is made up of its presence in almost 86 countries. Its geographical division is based upon two primary factors i.e. average income level of the customer as well as the climate of the region. Singapore Business Company's segmentation is done on the basis of the weather condition of the area i.e. hot, warm or cold.

Psychographic Segmentation

Psychographic segmentation of Business is based upon the character and life style of the consumer. For example, Business 3 in 1 Coffee target those customers whose life style is rather hectic and don't have much time.

Behavioral Segmentation

Globalizing The Cost Of Capital And Capital Budgeting At Aes behavioral segmentation is based upon the mindset understanding and awareness of the customer. Its highly nutritious products target those customers who have a health mindful attitude towards their usages.

Globalizing The Cost Of Capital And Capital Budgeting At Aes Alternatives

In order to sustain the brand in the market and keep the customer undamaged with the brand name, there are two alternatives:
Option: 1
The Business ought to spend more on acquisitions than on the R&D.
1. Acquisitions would increase total properties of the company, increasing the wealth of the business. Costs on R&D would be sunk cost.
2. The company can resell the acquired systems in the market, if it fails to implement its technique. Amount invest on the R&D might not be revived, and it will be thought about totally sunk cost, if it do not provide possible outcomes.
3. Spending on R&D offer slow growth in sales, as it takes long period of time to present a product. Nevertheless, acquisitions offer quick results, as it provide the business already established item, which can be marketed not long after the acquisition.
1. Acquisition of business's which do not fit with the business's worths like Kraftz foods can lead the business to deal with mistaken belief of customers about Business core values of healthy and nutritious products.
2 Big spending on acquisitions than R&D would send out a signal of company's inadequacy of developing innovative items, and would outcomes in consumer's frustration.
3. Large acquisitions than R&D would extend the product line of the business by the items which are currently present in the market, making business unable to introduce brand-new ingenious items.
Alternative: 2.
The Business ought to spend more on its R&D rather than acquisitions.
1. It would make it possible for the company to produce more innovative products.
2. It would provide the company a strong competitive position in the market.
3. It would make it possible for the company to increase its targeted consumers by presenting those items which can be offered to a totally new market segment.
4. Ingenious items will supply long term benefits and high market share in long term.
1. It would reduce the profit margins of the business.
2. In case of failure, the whole spending on R&D would be considered as sunk expense, and would affect the company at large. The risk is not in the case of acquisitions.
3. It would not increase the wealth of business, which could provide a negative signal to the financiers, and might result I declining stock prices.
Alternative 3:
Continue its acquisitions and mergers with substantial costs on in R&D Program.
Vrio AnalysisPros:
1. It would permit the company to present new ingenious products with less danger of transforming the costs on R&D into sunk expense.
2. It would supply a favorable signal to the financiers, as the general possessions of the business would increase with its substantial R&D costs.
3. It would not affect the profit margins of the company at a big rate as compare to alternative 2.
4. It would supply the company a strong long term market position in terms of the company's general wealth in addition to in terms of ingenious products.
1. Risk of conversion of R&D spending into sunk expense, higher than option 1 lower than alternative 2.
2. Threat of mistaken belief about the acquisitions, greater than alternative 2 and lesser than option 1.
3. Intro of less number of innovative products than alternative 2 and high number of ingenious items than alternative 1.

Globalizing The Cost Of Capital And Capital Budgeting At Aes Conclusion

RecommendationsBusiness has actually stayed the leading market gamer for more than a decade. It has actually institutionalised its methods and culture to align itself with the marketplace changes and consumer behavior, which has eventually enabled it to sustain its market share. Business has established significant market share and brand name identity in the urban markets, it is recommended that the business should focus on the rural areas in terms of establishing brand name loyalty, awareness, and equity, such can be done by developing a specific brand name allowance strategy through trade marketing methods, that draw clear distinction in between Globalizing The Cost Of Capital And Capital Budgeting At Aes items and other rival items. Furthermore, Business needs to utilize its brand image of safe and healthy food in catering the rural markets and also to upscale the offerings in other classifications such as nutrition. This will allow the business to establish brand name equity for freshly introduced and already produced items on a higher platform, making the reliable use of resources and brand image in the market.

Globalizing The Cost Of Capital And Capital Budgeting At Aes Exhibits

PESTEL Analysis
Governmental support

Altering requirements of global food.
Enhanced market share. Changing perception towards much healthier items Improvements in R&D and also QA departments.

Introduction of E-marketing.
No such influence as it is beneficial. Problems over recycling.

Use of sources.

Competitor Analysis
Business Unilever PLC Kraft Foods Incorporation DANONE
Sales Growth Highest since 3000 Highest after Company with less development than Service 4th Cheapest
R&D Spending Highest given that 2001 Highest possible after Organisation 8th Cheapest
Net Profit Margin Highest possible because 2008 with rapid development from 2005 to 2011 As a result of sale of Alcon in 2018. Nearly equal to Kraft Foods Incorporation Virtually equal to Unilever N/A
Competitive Advantage Food with Nourishment and also wellness variable Greatest number of brand names with sustainable practices Biggest confectionary and refined foods brand name worldwide Biggest milk items as well as bottled water brand name worldwide
Segmentation Center as well as top middle degree consumers worldwide Individual consumers together with house team Any age and also Income Consumer Teams Middle and also upper center level consumers worldwide
Number of Brands 3rd 2nd 8th 6th

Quantitative Analysis​
Analysis of Financial Statements (In Millions of CHF)
2006 2007 2008 2009 2010
Sales Revenue 98477 112858 776623 967785 241286
Net Profit Margin 5.49% 2.33% 35.82% 8.45% 92.38%
EPS (Earning Per Share) 88.38 3.38 1.85 8.14 17.72
Total Asset 822323 637623 218527 327731 89657
Total Debt 94119 65214 65384 48124 88492
Debt Ratio 37% 15% 41% 26% 92%
R&D Spending 3182 4776 1353 7824 9934
R&D Spending as % of Sales 1.75% 9.17% 6.97% 1.25% 8.98%

Executive Summary Swot Analysis Vrio Analysis Pestel Analysis
Porters Analysis Recommendations