An Analysis of the Financial Ratios for PepsiCo, Inc.
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Data from Consolidated Statement of Income (page 60), Consolidated Statement of Cash Flows (page 61) and the Consolidated Balance Sheet (page 62) of the 2009 PepsiCo Annual Report and was used to determine that following ratios for both year 2009 and 2008
Please note that the numbers are in millions:
1. Current Ratio
The Current Ratio is obtained by dividing the Current Assets by the Current Liabilities:
Current Ratio = Current Assets ÷ Current Liabilities
2009 - Current Ratio = 12,571 ÷ 22,406 = 0.56
2008 - Current Ratio = 10,806 ÷ 23,412 = 0.46
2. Debt Ratio
The Debt Ratio is obtained by dividing the Total Debt by the Total Assets:
Debt Ratio = Total Debt ÷ Total Assets
2009 - Debt Ratio = 22,406 ÷ 39,848 = 0.56
2008 - Debt Ratio = 23,412 ÷ 35,994 = 0.65
3. Return on Equity
The Return on Equity is calculated by dividing the Net Income by the Common
Equity.
Return on Equity = Net Income ÷ Common Equity
The Common Equity includes common equity including par, paid-in capital and retained earnings
2009 - Return on Equity = 5,979 ÷ 16,908 = 0.35
2008 - Return on Equity = 5,166 ÷ 12,203 =
4. Days Receivable (Average Collection Period)
Average collection period = Accounts Receivable ÷ Daily Credit Sales*
* Daily Credit Sales = Sales Revenue ÷ 365
2009 - Average collection period = 4,624 ÷ (43,232 ÷ 365) = 39 days
2008 - Average collection period = 4,683 ÷ (43,251÷ 365) = 40 days
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Solution Summary
For your review, I have attached a thorough and detailed analysis of PepsiCo's current, debt, return on equity, and days receivable ratios for the years 2008 and 2009. In the attachment, I also discuss the trends for each ratio and what the trend tells you about the organization's financial health.
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For your review, I have attached a formatted MS Word document which discusses the trends indicated by the listed financial ratios, as well as what each ratio can tell you about the financial health of an organization.
I have also listed two online sources, which will prove helpful in gaining a more in-depth understanding of the subject matter.
For your convenience, I have attached a link to two of the best websites that I know which offer help in gaining an understanding of financial ratios and their importance to company officials, bankers, lenders and investors. According to the author of "Ratios and Formulas in Customer Financial Analysis (1999)":
"Financial statement analysis is a judgmental process. One of the primary objectives is identification of major changes in trends, and relationships and the investigation of the reasons underlying those changes. The judgment process can be improved by experience and the use of analytical tools. Probably the most widely used financial analysis technique is ratio analysis, the analysis of relationships between two or more line items on the financial statement. Financial ratios are usually expressed in percentage or times. Generally, financial ratios are calculated for the purpose of evaluating aspects of a company's operations and fall into the following four categories":
- Liquidity ratios measure a firm's ability to meet its current obligations.
- Profitability ratios measure management's ability to control expenses and to earn a return on the resources committed to the business.
- Leverage ratios measure the degree of protection of suppliers of long-term funds and can aid in judging a firm's ability to raise additional debt and its capacity to ...
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