Computing profit margin and asset turnover/ Managerial Economics
Your parents are planning investing in PepsiCo common stock. They ask you, as an accounting expert, to make an analysis of the firm for them. The financial statements of firm can be found at firm’s website. Note that all dollar amounts are in millions.
Instructions
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) Calculate 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) Calculate 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.?
