After the deep analysis of financial statements we come up with the conclusion that PepsiCo, Inc. does not have any significant weaknesses that we came across. The company is constantly growing which is shown on the stock performance and the computed financial ratios. The deterioration in profitability from 14 percent in 2004 to 13% in 2005 resulted from an increase in taxes from 26% in 2004 to 38% in 2005. An increase in taxes was 12%.
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But in 2006 we can see an improvement in profitability, it was 16%. It could be a result of decreasing taxes to 19%. The profitability ratio also resulted from changing in operating expenses as a percentage of sales and in CGS as a percentage of sales. Return on Invested Capital increased by 6%. Return on Equity (ROE) also increased by 6% from year 2004. From the stockholder’s point of view, ROE is an important measure of the income producing ability of a company. The increase in the ratio from 28% to 37% was regarded favourably by stockholders are interested in the ratio of total income to total assets as a measure of management’s efficient use of assets.
Activity ratios of PepsiCo indicate how well a company employs its assets. Ineffective utilization of assets results in the need for more finance, unnecessary interest costs, and a correspondingly lower return on capital employed. Low activity ratios or deterioration in the activity ratios may indicate uncollectible accounts receivables or obsolete inventory or equipment. Activity ratios of PepsiCo: total asset turnover, the average collection period, and the inventory turnover increased during year 2006. The fixed asset turnover ratio, which measures the effectiveness of the company in utilizing its plant and equipment, increased also.
As we can see from the Liquidity ratios, company is in a health liquid position. Pepsi’s Current ratio, that defined as current assets divided by current liabilities, is 1.33, an improvement from the ratio of 1.11 at year-end 2005. The same happens with Quick ratio, defined similar to the current ratio but excludes inventory from the current assets. The quick ratio at year-end 2006 is 1.05, an improvement from the ratio of 0.93 at year-end 2005. These two ratios measure a company’s ability to meet financial obligations as they become current.
Good results Pepsi archived with the Leverage ratio which compares the total debt to total owner’s equity. It increases the riskiness of the business and, if used in excessive amounts, can result in financial embarrassment. So, the lower the ratio the better, meaning the company is able to repay its long term debt from its current operating income. One leverage ratio is the debt ratio. It measures the total funds provided by creditors as a percentage of total assets. In 2005 total liabilities made 55% of total assets, now in 2006 the debt ratio is only 48%. Hence the company is in health Financial Position and good for investing in.
14The price of PepsiCo share went up from $55,05 in 2005 to $61.08 in 2006. 15The price of The Coca-Cola Company share was $42,59 in 2005 and $43,6 in 2006. If we compare the prices and changes in prices of shares of Pepsi with the prices and changes in prices of competitor we see that PepsiCo has much higher prices. It is clear that PepsiCo, Inc. is doing better if they judge such high prices for their stock. PepsiCo’s results of financial ratios with results of competitor, we also see that Pepsi has the leading position. We conclude that the company sure does a good job on financial reporting, and the financial statements are comprehensive and very useful to the shareholders and to the people interested in financial performance of the company including potential investors.