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Your parents are considering investing in PepsiCo common stock. They ask you, as an accounting expert, to make an analysis of the company for them. The financial statements of PepsiCo can be found at the company's website, www.pepsico.com. Note that all dollar amounts are in millions.

Refer to PepsiCo's financial statements, and answer the following questions. (Follow the approach in the chapter for rounding numbers.)

(a) Make a 5-year trend analysis, using 2001 as the base year, of (1) net sales and (2) net income. Comment on the significance of the trend results.

(b) Compute for 2005 and 2004 the (1) profit margin, (2) asset turnover, (3) return on assets, and (4) return on common stockholders' equity. How would you evaluate PepsiCo's profitability? Total assets at December 27, 2003, were $25,327, and total stockholders' equity at December 27, 2003, was $11,896.

(c) Compute for 2005 and 2004 the (1) debt to total assets and (2) times interest earned ratio. How would you evaluate PepsiCo's long-term solvency?

(d) What information outside the annual report may also be useful to your parents in making a decision about PepsiCo, Inc.?

Solution Summary

The solution presents the financial analysis for PepsiCo for year 2005 and 2004