SCHOOL OF ECONOMICS AND MANAGEMENT

CORPORATE FINANCE:

PEPSICO Corporation ratio analysis

Name: Nguemhe Ngouem Jacques Ludovic Chinese name: Student number: 220123833 Country: Cameroon

PEPSICO

Balance Sheet
View: Annual Data | Quarterly Data

Period Ending
Assets Current Assets Cash And Cash Equivalents Short Term Investments Net Receivables Inventory Other Current Assets Total Current Assets Long Term Investments Property Plant and Equipment Goodwill Intangible Assets Accumulated Amortization

Dec 30, 2011

Dec 24, 2010 Dec 25, 2009

4,067,000 358,000 6,912,000 3,827,000 2,277,000 17,441,000 1,477,000 19,698,000 16,800,000 16,445,000 -

5,943,000 426,000 6,323,000 3,372,000 1,505,000 17,569,000 1,368,000 19,058,000 14,661,000 13,808,000 -

3,943,000 192,000 4,624,000 2,618,000 1,194,000 12,571,000 4,484,000 12,671,000 6,534,000 2,623,000 -

Other Assets Deferred Long Term Asset Charges Total Assets

1,021,000 72,882,000

1,689,000 68,153,000

965,000 39,848,000

Liabilities Current Liabilities Accounts Payable Short/Current Long Term Debt Other Current Liabilities Total Current Liabilities Long Term Debt Other Liabilities Deferred Long Term Liability Charges Minority Interest Negative Goodwill Total Liabilities Stockholders' Equity Misc Stocks Options Warrants Redeemable Preferred Stock Preferred Stock Common Stock Retained Earnings Treasury Stock Capital Surplus Other Stockholder (116,000) 31,000 40,316,000 (17,875,000) 4,461,000 (6,229,000) (109,000) 31,000 37,090,000 (16,745,000) 4,527,000 (3,630,000) (104,000) 30,000 33,805,000 (13,383,000) 250,000 (3,794,000) 11,949,000 10,994,000 8,292,000

6,205,000

4,898,000

464,000

18,154,000 20,568,000 8,266,000 4,995,000 311,000 52,294,000

15,892,000 19,999,000 6,729,000 4,057,000 312,000 46,989,000

8,756,000 7,400,000 5,591,000 659,000 638,000 23,044,000

Equity Total Stockholder Equity Net Tangible Assets Currency in USD. 20,704,000 (12,541,000) 21,273,000 (7,196,000) 16,908,000 7,751,000

Income Statement
View: Annual Data | Quarterly Data

Period Ending
Total Revenue Cost of Revenue Gross Profit Operating Expenses Research Development Selling General and Administrative Non Recurring Others Total Operating Expenses Operating Income or Loss Income from Continuing Operations Total Other Income/Expenses Net Earnings Before Interest And Taxes Interest Expense Income Before Tax Income Tax Expense

Dec 30, 2011 66,504,000 31,593,000 34,911,000 25,145,000 133,000 9,633,000

Dec 24, 2010 57,838,000 26,575,000 31,263,000 22,814,000 117,000 8,332,000

Dec 25, 2009 43,232,000 20,099,000 23,133,000 15,026,000 63,000 8,044,000

57,000 9,690,000 856,000 8,834,000 2,372,000

68,000 9,135,000 903,000 8,232,000 1,894,000

67,000 8,476,000 397,000 8,079,000 2,100,000

Minority Interest Net Income From Continuing Ops Non-recurring Events Discontinued Operations Extraordinary Items Effect Of Accounting Changes Other Items Net Income Preferred Stock And Other Adjustments Net Income Applicable To Common Shares Currency in USD.

(19,000) 6,443,000

(18,000) 7,055,000

(33,000) 6,311,000

6,443,000 6,443,000

6,320,000 6,320,000

5,946,000 5,946,000

Ludovic Ngouem Financial Statement Analysis

PEPSICO Corporation
2011-2010

Liquidity Ratios:

Current Ratio:

Current ratio = Current assets/Current liabilities In 2011 = 17441000/18154000 = 0.96 In 2010 = 17569000/15892000 = 1.10 The current ratio is a reflection of financial strength. It is the number of times a companys current assets exceed its current liabilities, which is an indication of the solvency of the business. A common rule of thumb is that a good current ratio is 2 to 1. Of course, the adequacy of a current ratio will depend on the nature of the business and the character of the current assets and current liabilities. This tells the owners of the the Roots Up Companys current liabilities are covered by current assets 0.96 times. The current ratio answers the question, Does the business have enough current assets to meet the payment schedule of current liabilities with a margin of safety?

Quick (Acid-Test) Ratio:

Quick ratio = Current assets Inventory/Current liabilities In 2011 = (17441000-3827000)/18154000 = 0.75 In 2010 =(17569000-3372000)/15892000 =0.89 The quick ratio is also called the acid test ratio. Thats because the quick ratio looks only at a companys most liquid assets and compares them to current liabilities. The quick ratio tests whether a business can meet its obligations even if adverse conditions occur. In general, quick ratios between 0.5 and 1 are considered satisfactory, as long as the collection of receivables is not expected to slow.

Activity Ratios:

Inventory Turnover:

Inventory turnover = Cost of goods sold/Inventory In 2011 In 2010 31593000/3827000= 8.25 26575000/3372000 =7.88

For companies that have a large investment in inventory, it is useful to calculate the Inventory turnover ratio, which is the "cost of goods sold" from the income statement divided by the "inventory" shown on the balance sheet. A low turnover ratio indicates too much investment in inventory. Whereas a high turnover ratio could cause lost sales due to lack of merchandise to meet customer demand. Coca-Cola and Panamerican Beverages have similar inventory turnover numbers, while PepsiCo's is higher. This reflects differences in their distribution methods, with Pepsi's snack foods driving the

ratio higher than for typical merchandisers like Cadbury Schweppes.

Average Collection Period:

Average collection period = Accounts receivable/(Annual sales/365) In 2011 In 2010 6912000/(66504000/365)= 37.93 days 6323000/(57838000/365) =39.9 days

On average, it takes the firm 37.93 days to collect an account receivable. The average collection period is meaningful only in relation to the firms credit terms.

Average Payment Period:

Average payment period = Accounts payable/(Annual purchases/365) In 2011 In 2010 11949000/(.7 x 31593000/365) = 197.21 days 1099400/(.7 x 26575000/365) =215.71

The average payment period is the average amount of time needed to pay accounts payable.

Total Asset Turnover:

Total asset turnover = Sales/Total assets In 2011 In 2010 66504000/72882000= 0.91 57838000/68153000 =0.84

Another indicator of a company's ability to generate profits is the total asset turnover ratio, calculated by dividing "sales" by "total assets. It indicates how effectively the company generates sales from its asset base. The more effective the company is in generating sales revenue, the higher the asset turnover ratio will be.

Cadbury Schweppes and Panamerican Beverages turnover ratios are slightly equal to 0.5, which is typical for average firms with large investments in fixed assets and inventories. However, PepsiCo and Coca-Cola's ratios are twice as large, 0.91 and 0.61 respectively. These are driven primarily by their high inventory turnover, and efficient use of fixed assets. Thus, Panamerican Beverages low NPM is offset to some extent by its ability to generate sales from its asset base (the company is a high volume, low overhead producer).

Debt Ratios:

Debt Ratio:

Debt ratio = Total liabilities/Total assets In 2011 In 2010 52294000/72882000= 0.71 = 71% 46989000/68153000=0.68 = 68%

The Debt ratio is calculated as the sum of all the liability accounts divided by "total assets." As you can see for our firms, their debt ratios vary from coca-colas 43.7 percent, to PepsiCos 71 percent. We can conclude that Pepsi is using more financial leverage in the firm and thus is exposed to more financial risk than Panamerican Beverages or Coca-Cola.

Times Interest Earned Ratio:

Times interest earned ratio = Earnings before interest and taxes/Interest In 2011 9690000/856000 = 11.32

In 2010

9135000/903000 =10.11

The times interest earned ratio measures the firms ability to make contractual interest payments. The higher its value, the better able the firm is to fulfill its interest obligations. A value of at least 3.0 and preferably closer to 5.0 is often suggested

Fixed-Payment Coverage Ratio:

Fixed-payment coverage ratio = EBIT + Lease payments/Interest + Lease payments + [(Principal payments + Preferred stock dividends) x (1/(1-T)] = 47,634 + 901/901 + [(

Profitability Ratios:

Gross Profit Margin:

Gross profit margin = Sales Cost of goods sold/Sales 66504000315930000/66504000 = 0.52 = 52% The Gross Profit Margin ratio indicates how efficiently a business is using its materials and labor in the production process. In other words, gross margin is equal to gross income divided by net sales, and is expressed as a percentage. Coca- Cola and PepsiCo have the highest gross profit margin values of 60.86 and 52. Both are outperforming the industry, which indicates that the companies can make a reasonable profit on sales, as long as it keeps overhead costs in control. Hence, Cadbury Schweppes and Panamerica Beverages has to be cautious, with very low ratios having less capital left over to spend on other business operations, such as research and development or marketing.

Operating Profit Margin:

Operating profit margin = Operating profits/Sales

In 2011 In 2010

9690000/66504000 = 14.5% 9135/57838000 =14.4%

This ratio measures the percentage of each sales dollar remaining after all costs and expenses other than interest, taxes, and preferred stock dividends are deducted. A high operating profit margin is preferred, and in this case the firm has improved from 14.4% t0 14.5%, thus is better.

Net Profit Margin:

Net profit margin = Earnings available for common stockholders/Sales In 2011 In 2010 6443000/66504000 = 9.6% 7055000/57838000 =10.93%

It measures the percentage of each sales remaining after all costs and expenses including interest, taxes and preferred stock dividends have been deducted. The higher firms net profit margin, the better. In this case we can see that the net profit margin has declined from 10.93% to 9.6% during the period 2010 to 2011, but it is still reasonable.

Earnings per Share (EPS):

EPS = Earnings available for common stockholders/Number of shares of common stock outstanding In 2011 In 2010 6443000/1597000 = 4.03 6320000/1614000 =3.91

Earnings per share is the proportionate amount of a company's profit, or earnings, for each outstanding share of common stock. It is calculated as net income minus dividends divided by average outstanding shares. This is the single most popular variable in dictating a share's price. EPS indicates the profitability of a company. Pepsico has improved to $4.03 in 2011 from $3.91 in 2010. And this value in 2011 is much more greater than coca-cola EPS which is only $1.85

Return on total asset

Return on total assets = Earnings available for common stockholders/ Total assets In 2011 In 2010 6443000/72882000=0.0884=8.84% 6320000/68153000=0.0927=9.27%

It measures the overall effectiveness of management in generating profits with available assets. The higher the firms return on total assets, the better. Thus this value indicates that Pepsico earned 9.27 cents on each dollar of asset investment which is depreciated than the previous year but reasonable.

Return on Common Equity (ROE):

Return on common equity = Earnings available for common stockholders/Common stock equity In 2011
In 2010

= 30.73
= 33.27

ROE represents the rate of return the company earned on the book value of its equity investment. The higher the number, the greater the return the company is earning for its shareholders. For our companies, PepsiCo has the greatest ROE, 30.73 percent, which is an exceptionally high number. Coca-Colas is 27.37 percent, and Cadbury Schweppes is 20.72 percent. All three are relatively high compared with Panamerican Beverages, which is extremely low compared to the industrys.

Market Ratios:

Price/Earnings (P/E) Ratio:

Price/earnings ratio = Market price per share of common stock / Earnings per share In 2011 In 2010 66.57/4.03 = 16.51 65.69/3.91=16.80

It measures the amount that investors are willing to pay for each dollar of a firms earnings. The higher the P/E ratio the greater the investor confidence. So this figure indicates that investors were paying $16.51 for

each $1 of earnings. which means high projected earnings in the future, in comparison to its competitors in the beverage industry.

Market/Book (M/B) Ratio:

Book value per share of common stock = Common stock equity/Number of shares outstanding 20704000/1597000 = 12.98

Market/book ratio = Market price per share of common stock/Book value per share of common stock 66.57/12. = 5.12 The M/B ratio provides an assessment of how investors view the firms performance. Firms expected to earn high returns relative to their risk typically sell at higher M/B multiples.This M/B ratio means that investors are currently paying $5.12 for each $1.00 of book value of Pepsicos stock, very impressive.