Chris JohnsonACG2021 Sec.002

Executive SummaryPepsiCo, 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

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.

Price and Volume

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

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.

*All data are dollar amounts 2003 2004

Gross Profit 14,592,000 15,855,000

Income from Operations

9,810,000 10,596,000

Net Income 3,568,000 4,212,000

Part C. Balance Sheet

All three balance sheet accounts increased from 2003 to 2004.

The biggest change is in total assets from 2003 to 2004.

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

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 policies2. Unusual items affecting comparability of income from continuing operations3. Impairment of long-lived assets4. Discontinued operations5. Income per share6. Inventories7. Property, plant & equipment8. Intangible assets9. Accounts payable and other current liabilities10. Long-term debt11. Financial instruments12. Income taxes13. Employee stock options14. Post-retirement benefits other than pensions15. Pension plans16. 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 AnalysisSolvency 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 AnalysisMarket 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%.