Chris Johnson ACG2021 Sec.002 Executive Summary PepsiCo, Inc. is one of the largest and most successful consumer product companies in the world. In the year 2004, PepsiCo generated $78 billion in retail sales and has maintained excellence since the corporation was founded in 1965. For more information about PepsiCo’s annual reports, visit: http://www.pepsico.com/PEP_Investors/AnnualReports/04/index.cfm For more information about PepsiCo’s products, click the icons on the front page. Part A. Introduction Chief Executive Officer: Steve Reinemund Home Office: 700 Anderson Hill Rd. Purchase, NY, 10577 Ending date of last fiscal year: December 25, 2004 Consumer products: this company provides foods and beverages. The principal brands include: Frito-Lay, Pepsi-Cola, Tropicana, Gatorade, and Quaker. Main geographic area of activity: PepsiCo is an international company that provides its products to about 175 countries. Part A. Audit Report Independent Auditor: KPMG LLP All of the financial reports were fair and accurate assessments as to where the company stands financially. Part A. Stock Market Information Price and Volume Recent price of stock: $59.11 52 week trading range: High- $60.34 Low- $51.75 Dividend per share: 1.04 All information above was retrieved on: Feb.28, 2006 In my opinion, investors in this company’s stock should hold. PepsiCo is a valuable stock to have, but the price is too high if you do not already own stock in this company. Part B. Industry Situation and Company Plans PepsiCo is considered a premier consumer products company in a billion dollar industry. In an effort to raise snack sales in Europe, PepsiCo has stated that it will acquire “Star Foods,” which is one of Poland’s leading snack makers. PepsiCo has also made a commitment to provide families with plans to live healthier lives. According to PepsiCo, “the S.M.A.R.T. program, a program designed by PepsiCo, complements PepsiCo’s efforts to introduce energy balanced lesson plans in schools nationwide.” Resources: http://phx.corporate-ir.net/phoenix.zhtml?c=78265&p=irol- newsArticle&ID=799589&highlight http://phx.corporate-ir.net/phoenix.zhtml?c=78265&p=irol- newsArticle&ID=822210&highlight Part C. Income Statement Format: Single-step format *All data are dollar amounts 2003 2004 Gross Profit 14,592,000 15,855,000 Income from 9,810,000 10,596,000 Operations Net Income 3,568,000 4,212,000 I believe that the data from the table above, as it relates to the income statement, reflects a successful year in 2004. This conclusion is due to the increases in all areas. Part C. Balance Sheet Year Liabilities + Stockholder’s Equity = Assets 2003 13,453,000 + 11,896,000 = 25,327,000 2004 14,464,000 + 13,572,000 = 27,987,000 *All data are dollar amounts All three balance sheet accounts increased from 2003 to 2004. The biggest change is in total assets from 2003 to 2004. Part C. Statement of Cash Flows Cash flow from operations was more than net income for the past two years. PepsiCo is growing through investing activities. This company’s primary source of financing is stock sales. Overall, cash has increased over the past two years. Part D. Accounting Policies Significant Accounting Policies: Impairment of investments in unconsolidated affairs. Impairment of disposal of long-lived assets. Impairment of goodwill and indefinite-lived intangible assets. Allowance for franchise and license receivables and contingent liabilities. Self-insured property and casualty losses. Income tax valuation allowances and tax reserves. Part D- Accounting Policies continued on next slide Notes to the Financial Statements: 1. Summary of significant accounting policies 2. Unusual items affecting comparability of income from continuing operations 3. Impairment of long-lived assets 4. Discontinued operations 5. Income per share 6. Inventories 7. Property, plant & equipment 8. Intangible assets 9. Accounts payable and other current liabilities 10. Long-term debt 11. Financial instruments 12. Income taxes 13. Employee stock options 14. Post-retirement benefits other than pensions 15. Pension plans 16. Contingencies 17. Business segments (industry segments and geographic areas) 18. Selected quarterly financial data Part E. Financial Analysis Liquidity Ratios 2003 2004 Working Capital (in millions) 515 1887 Current Ratio 1.08 1.28 Receivable turnover 10.06 10.04 Average days’ sales uncollected 36.28 36.25 Inventory turnover 8.98 9.28 Average days’ inventory on hand 40.64 39.33 Working capital was the only liquidity ratio that showed a significant change from 2003 to 2004. This area more than doubled within the year interval. Part E. Financial Analysis Profitability Ratios 2003 2004 Profit Margin 13% 14% Asset Turnover 1.10 1.09 Return on Assets 14% 15% Return on Equity 33% 34% There were no significant changes in profitability ratios from 2003 to 2004. Part E. Financial Analysis Solvency Ratio Debt to equity: 2003= 1.13 2004= 1.06 Although this company’s debt to equity is over 1.0 for both years, meaning that more than half of the company’s assets are financed by creditors, the number has decreased from 2003 to 2004. Part E. Financial Analysis Market Strength Ratios Price earnings per share: 2003= $2.30 2004= $2.39 Dividend yield: 2003= 1.4 2004= 1.4 PepsiCo’s dividend yield of 1.4% is below the snack company average of 2%.