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 PepsiCos annual reports, visit: http://www.pepsico.com/PEP_Investors/AnnualReports/04/index.cfm For more information about PepsiCos 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 companys 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 Polands 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 PepsiCos efforts to introduce energy balanced lesson plans in schools nationwide.
Resources: http://phx.corporate-ir.net/phoenix.zhtml?c=78265&p=irolnewsArticle&ID=799589&highlight http://phx.corporate-ir.net/phoenix.zhtml?c=78265&p=irolnewsArticle&ID=822210&highlight

Part C. Income Statement

Format: Single-step format 2003 14,592,000 9,810,000 3,568,000 2004 15,855,000 10,596,000 4,212,000

*All data are dollar amounts

Gross Profit Income from Operations Net Income

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 + Stockholders 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 companys 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


1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18.

Notes to the Financial Statements:

Summary of significant accounting policies Unusual items affecting comparability of income from continuing operations Impairment of long-lived assets Discontinued operations Income per share Inventories Property, plant & equipment Intangible assets Accounts payable and other current liabilities Long-term debt Financial instruments Income taxes Employee stock options Post-retirement benefits other than pensions Pension plans Contingencies Business segments (industry segments and geographic areas) Selected quarterly financial data

Part E. Financial Analysis Liquidity Ratios

Working Capital (in millions)
Current Ratio Receivable turnover Average days sales uncollected Inventory turnover 2003 515 1.08 10.06 36.28 8.98 2004 1887 1.28 10.04 36.25 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
Profit Margin 13%

2004
14%

Asset Turnover
Return on Assets Return on Equity

1.10
14% 33%

1.09
15% 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 companys debt to equity is over 1.0 for both years, meaning that more than half of the companys 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 2003= 1.4 2004= 1.4

Dividend yield:

PepsiCos dividend yield of 1.4% is below the snack company average of 2%.