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Financial Analysis of PepsiCo’s Financial Statements

PepsiCo is one of the publicly traded companies that operate in the beverage and food industry. Based on the financial statements in the appendix section of this paper, there is much that can be said on the company’s financial position and performance for the last three years ranging from 2011 to 2013. The income statement of the company indicates that the revenue levels remain flat despite the growth in net income from $ 6.2 billion to $ 6.7 billion. There was a reduction in the level of sales which was mainly attributed to the decline in the cost of goods sold. Based on the balance sheet, it is evident that operating profits can sufficiently service the company’s debt despite the reduction in the value of the current liquid assets (Businessweek, 2014).

At the end of 2013, the value of the company’s total assets was $ 77, 478, 000 million. This represented an increase in the value of the total assets in the last two years (Businessweek, 2014). An increase in value of total assets indicates that the company is effectively managing its expenditure and can sufficiently fund its operations. The figure also shows that the company’s book value has increased.

The total assets at the end of the previous reporting period were $ 74, 638,000. The value was lower than the one recorded in 2013. Nonetheless, the organization had recorded lower values in the other previous years. For instance, in 2010 the value of the total assets was $ 68, 153,000, while that of 2011 was $ 72, 882, 000. These trends indicate possible expansion, effective control of expenditure, and increased capital base.

At the end of most recent trading period, which was 2013, the value of cash and cash equivalents was $ 22, 203, 000 million (PepsiCo, 2013). This included elements such as accounts receivable, inventory, deferred taxes, and other current assets. The components constitute the list of items that can be easily converted into cash to meet the urgent financial needs of the business.

The amount of accounts receivable at the end of 2013 was $ 4, 874,000 million. This value was relatively higher than those of the previous years (Businessweek, 2014). While an increase in the level of accounts payable is mainly associated with increasing debt, it is a good indicator of the increasing level of operations. Nonetheless, the company should take into account effective cost management strategies to counter the increasing debt.

The amount of the accounts payable at the end of 2012 was $ 4, 451,000 million. This value was relatively lower compared to that of 2013. It implies that in 2013 the company had less debt, but the volume of operations was low. It is also indicates that the higher the value of the accounts payable, the higher cash inflow and the number of operations.

The net revenue for the last three periods is derived from the total revenues divided by three.

The revenue in 2013 was 66, 415,000

Revenue in 2012 was 65,592,000

Revenue in 2011 was 66,504,000

Total Revenue for the three years was $ 198, 511, 000 million

Net Revenue for the three years was 198, 511,000/3 = $ 66, 170, 000 million. Despite the fact that the organization recorded the above net revenue, 2012 was the best year for the company because it recorded the highest revenue than the other two years.

The change in the company net income between 2013 and 2012 can be calculated by finding the different the two values. In 2013, the company’s net income was $ 6, 740, 000. In 2012, the company recorded a net income of $ 6, 171,000. The difference between the values is 6, 740, 000 – 6, 171,000 = $ 569,000. An increase in the net income as indicated by the amount reveals that PepsiCo is a highly efficient company that can generate income to pay for its debts and expenses.

The value of the total current assets at the end of 2013 was $ 22, 203, 000 million. The figure was relatively higher than those of previous years. An increase in the value of the current assets means that the liquidity of the company has increased (PepsiCo, 2013).

At the end of the previous period in 2012, the value of the company’s current assets was $ 18, 720,000. The amount of the total current assets in 2012 was lower than that of 2013, but higher than 2011. It is evident that the company’s current assets have increased for the three years.

The information from above analysis is very important for the shareholders, employees, and potential investors of the organization. For instance, the increase in the value of the net income assures the employees that the organization is financially healthy and can easily manage to pay their wages. The increase in the level of cash and cash equivalents also confirms to the employees that the company is in a better position to meet all the expenditures (PepsiCo, 2013). The increasing value of the current accounts indicates to the shareholders and the potential investors that PepsiCo is experiencing a continuous growth.

Investors will be very optimistic to purchase the company’s shares because of the increase in the value of the net income and the total current assets. With such a positive trend, the investors will be confidence that the business will enable them recover more dividends from their investments. The company’s financial position will attract more investors, hence increasing its capital base. Even though the increase in the value of the accounts payable indicate that the organization experiences increased level of operation, the situation may trigger anxiety among debt sensitive-investors. They may be worried about the company’s debt management approaches. It is crucial that the organization implements effective debt management strategies (PepsiCo, 2013).

References

Businessweek. (2014). Pepsico Incorporation. BloombergBusinessweek. Retrieved from <http://investing.businessweek.com/research/stocks/financials/financials.asp?ticker=PEP >

PepsiCo. (2011). The power of PepsiCo: 2011 annual report. Retrieved from <http://www.pepsico.com/annual11/downloads/PEP_AR11_2011_Annual_Report.pdf>

PepsiCo. (2013). PepsiCo 2013 annual report. Retrieved from <http://www.pepsico.com/Assets/Download/PEP_Annual_Report_2013.pdf>

Appendix

PespiCo’s Balance Sheet

PepsiCo’s Income Statement

Annual