Kraft Heinz is not the first company to reveal its losses and disclose that the SEC was looking into its financial reporting, and yet it affects both consumers and investors due to several reasons. First, as has been mentioned in the news, the corporation “blamed this on higher than expected manufacturing and logistics costs” (Wattles, 2019, 0:19). Furthermore, it was stated later that commodity prices are rising. Increased manufacturing and logistics costs lead to rising purchase prices for a consumer. In turn, the stock of the company plunged by 20%, and the dividends were cut by nearly 36% (Wattles, 2019). Thus, as an investor, I will be exposed to lower returns due to either decreasing stock prices or dividend cuts. As for the terms and concepts worthy of mentioning, these include write-down, which implies reducing “the value on the balance sheet,” and external accounting, which means necessary data for third parties (Eavis, 2019, para.6). Such terms allow a deeper understanding of the subject and Heinz case.
Lastly, materiality implies that all factors that have a reasonable chance of influencing investors’ choices must be recorded. A $25 million increase to Heinz’s costs of products is claimed to be immaterial since it was considered that investors would not change their course of actions even if there were an omission of information or misleading statement. In this sense, the increase would not have a significant impact on investors’ actions in the fourth quarter of 2018.
Hence, the case of Kraft Heinz directly impacts consumers and short-term and long-term investors. First, due to the rising prices of logistics and manufacturing, the products of the corporation will be more expensive. As for the investors, short-term investors will be susceptible to lower returns in the case of stock selling, while long-term investors will experience lower returns due to dividend cuts. As for production costs, Kraft Heinz referred to them as immaterial, implying that they would not affect investor decision-making.
Reference
Eavis, P. (2019). Kraft Heinz loses billions as tastes shift and S.E.C. investigates. The New York Times. Web.
Wattles, J. (2019). Kraft Heinz posts huge loss, slashes dividend and reveals SEC investigation. CNN. Web.