Here's How Kraft Makes Money

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Legendary fund manager Peter Lynch once said that you shouldn't invest in any idea you couldn't illustrate with a crayon.

Though I'm not much for crayons, I do love the pithiness of that line. We regularly preach the same idea at the Fool: Don't buy what you don't understand. And if you can't simply sketch out a company's business model -- how it actually makes money -- then maybe you shouldn't be investing in it.

I don't know about you, but when I think of Kraft (NYS: KFT) , I think of those single-serving slices of American cheese. But there's more to Kraft than those delightful little yellow slabs tucked away behind last night's lasagna. Today I'd like to share a very simple visual of how Kraft Foods makes its cheddar. (Note: I'm focusing on operating income here, not earnings.)

anImage

Source: Kraft 2010 10-K.

Of course, in the future this will look very different -- these numbers are pulled from the 2010 10-K, and Kraft has announced plans to divide its business into two companies. So this is simply a point-in-time look.

Think I missed something in this illustration? General thoughts on this exercise? Let me know in the comments section below. And if you haven't already, be sure to follow our Kraft news and commentary using the Fool's free My Watchlist tool.

At the time this article was published Dari FitzGerald doesn't own shares of Kraft. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insightsmakes us better investors. The Motley Fool has a disclosure policy.

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