CHAPTER 01

INTRODUCTION
 INTRODUCTION OF FINANCE

Introduction of Finance:

Finance is one of the major elements which activities the overall growth of the

economy, Finance is regard as the lifeblood of a business enterprise This is because in the

modem money-oriented economy finance is one the basic foundations of all kinds of

economic activities. It is the master key which provides the access to all the sources for

being employed in manufacturing and merchandising activities. It has rightly been said

that business needs money to take more money. How ever it is also prove that so money

will get more money. Only when it is properly managed.

Hence efficient management of every business enterprises is closely linked with

efficient management of finance.

Meaning of Finance:

Finance is the main business activity, which are concerned with the acquisition

and conservation of capital funds in meeting financial needs and overall objectives of a

business enterprise.

Financial system calls for the effective performance of financial institution,

financial Instruments and financial market.

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Financial Management:

The Management makes use of various financial techniques device etc. for

administrating the financial assets of the firm the most effective way. Financial

management therefore means the entire games of management efforts divided to the

management of finance, with its sources and services of the enterprise.

Definition of Financial Management:

According and to Joseph Massie.

“Financial management is the operation acting of a business that is responsible for

obtaining and effectively utilizing the necessary for efficient operation”.

According to Weston and Brigham.

“Financial management is an area of financial decision making Harmonizing

individual Motives and Enterprise Goals”.

Objectives of Financial management.

The objectives of financial management are

• Primary objectives.

• Secondary objectives.

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• Primary objectives they are:

a) Maintenance of liquid assets:

They are two types of assets,

• Current assets or liquid assets:

There are those assets which are convertible into cash immediately

without any loss of time and money.

• Fixed assets:

There are those assets which cannot be converted into cash immediately.

b) Profit maximization:

Financial management concerned with efficient use of improved sources, mainly

capital funds, profit maximization should serve as a basic criterion for decision arrived by

the financial managers of privately owned and controlled firms and profit maximum is

the firm because of the following reasons.

• It is reflects on the earning per share.

• Maximum of earning per share over not includes risk of streams of alternative

earning.

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c) Wealth Maximization:

The goal of financial management may be such that then should be beneficial to

owners, management, Employees and customers, their goals achieved only by

maximizing the value of the firm.

 In other words it is increase in the market value of shares of a company.

 Wealth Maximization is a clear term the present values of cash flows are taken

into consideration.

 Wealth Maximization is reducing the risk.

 Increased profit.

• Secondary objectives are:

a) Ensuring a fair return to shareholders

b) Building up reserves to growth and expansion. Ensuring maximum

operational efficiency by the efficient and effective utilization of finance.

c) Ensuring financial discipline in the organization.

d) To maintain liquidity to meet debt obligation.

e) To ensure wealth Maximization.

f) To archive profit maximization.

g) It should give way for maintaining balanced assets structure.

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Scope of Financial Management.

The Primary objective of finance manager is to arrange sufficient finance in order

to meet the short term and long term needs. The funds are procured at minimum costs. So

that the profitability of business is maximized.

The finance manager should basically concentrate on the following areas.

1) Financial estimation:

As stated earlier the prime task of a finance executive is to estimate the short term

and long term financial requirement of the business.

2) Planning of the capital structure:

The process of planning of the capital structure includes selection of right

proportion of securities for raising funds. The process involves deciding about the

quantum of fonder and also the type of securities to raise the funds. The organization

should choose long term debts for financing fixed assets and overdrafts and cash credits

should be selected for financing working capital requirements.

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3) Selecting right source of funds:

In market finance is available in different forms like shares, debentures, financial

institution, commercial banks, public deposits etc.

4) Investment of funds:

After the mobilization of funds. It is the responsibility of the finance manager to

allocate or invest the funds towards capital expenditure and revenue expenditure before

making a final decision the profitability of each project has to be evaluated by the finance

manager. The proposal is selected based on the fair returns it promises.

5) Analyzing the financial performance:

After the investment of funds in different investment proposals, the performance

of each proposal has to be measured in other words. The profit generating capacity of

each proposal has to be analyzed.

Financial statements:

Financial statements as used corporate business houses. It refers to a set of report

and schedules, which accountant prepares at end of a period of time for a business

enterprise. The financial statements are the means with the help of which the accounting

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system performs its main function of providing summarized information. About the

financial affairs of the business. These statements comprise balance sheet or position

statement and profit and loss account or income statement of course to give a full view of

the financial affairs of an undertaking. In addition to the above, the business may also

prepare a statement of retained earnings and a statement its financial changes in financial

position. In India every company has to present its financial statement in the form and

contents as prescribed section 211 of the company’s act 1956.

Objectives of Financial statements:

Financial statements are necessary for shareholders and potential shareholders in

addition to management and creditors.

Financial statements they are following two groups. Direct interest in the

financial statement of companies, suppliers and potential suppliers of the funds i e

shareholders, debenture holder’s etc. employees, customers, suppliers of goods and

services and credit, tax authorities etc.

In other group are indirect interest in the financial statements, financial analysis

and advisors, stock exchangers, academician’s lawyers, regularity authorities, trade

associations and Labor unions.

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 The accounting principles board of America mentions the objectives of financial

statements as follows

1. To provide reliable information about the net resources (resources less

obligations) of an enterprise that results from its activities.

2. To provide other needed information about changes in economic resources or

obligations.

3. To provide reliable information about economic resources and obligation of a

business enterprise.

4. To disclose, to the extent possible, other information related to the financial

statement that is relevant to the needed of the users of these statements.

Types of financial statements:

1. Balance sheet or Position statement:

Balance sheet is a statement showing the nature and amount of company’s assets

on one side and other side liabilities and capitals.

In other words the balance sheet shows the financial position of the company at

the end of a given period usually at the end of one year period.

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2. Profit and loss account or Income statement:

Earning profit is the principal objective of all business enterprise and profit and

loss account or income statement is the document which indicates the extent of success

achieved by a business.

Profit and loss account is prepared for a particular period, which is mentioned

along with the title of this statement which includes the name of the business firm also.

3. Statement of retained earnings:

This statement is also knows as profit loss appropriation account and is generally

a part of the profit and loss account. This statement shows how the profit of the business

for the accounting period have been utilized or appropriated towards reserves and

dividend and how much of the same is carried forward to the next period the term

retained earning our losses and dividends. The balance show by profit and loss account is

to transfer to the balance sheet through this statement offer making necessary

appropriations.

4. Statement of changes in financial position:

This statement also known as fund flow statement which summarizes the changes

in working capital between two balance sheet dates, by showing the various sources and

applications of funds.

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Importance of financial statements:

The most important objectives of financial statements is to present information for

the use of different categories of persons as mentioned below.

1. The management:

Financial statements by helping the management to be acquainted with the causes

of the business results enable them to formulate appropriate policies and courses of action

for the future. Not only such financial statement which are generally made public but

unpublished subsidiary accounts and statements also play on important role in policy

making and planning such subsidiary records provide more detailed frank and revealing

information than the financial statement a comparative analysis of the financial aments

should enable management to see the trends in the progress and position of the enterprise

and make suitable modification in policies to avert unfavorable situation.

2. The public:

Business is a social entity, various group of the society though not directory

connected with business, are interested in the progress, position and prospects of a

business enterprise. These groups are financial analysis, lawyers, trade association, labor

unions, financial press, students and teachers etc. It is through the published financial

statements that these people can analyze, judge and comment upon the business

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enterprise. It should be noted that these financial statements are available to the public in

case of joint stock companies.

3. The shareholders and lenders:

The financial statements serve as a useful guide for the shareholders and probable

shareholders, the suppliers and the lenders and probable lenders of a company. For this

purpose it is necessary that the financial statement should contain accurate, complete and

systematic facts and figures. So that these people can get full and accurate ideas

regarding the present position and future of the company.

4. The labor and trade union:

In India workers are entitled to bonus under the payment of bonus act, depending

upon the size of the profit as disclosed by audited, profit and loss account. Thus the profit

and loss account becomes greatly important to the workers.

5. The country and economy:

Economic progress of country is to a great extent associated with the rise and

growth of joint stock companies.

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 Economic growth of the country. The divergence between ownership and

management of such companies has provided on opportunity for unscrupulous and

fraudulent person to cheat and deplaned the public, such unscrupulous acts affect the

industry and people in the region in which the company, operates to a significant extent

such fraudulent actives impair the confidence of the general public in joint stock

companies as forerunner of economic progress. The solution lies in raising the level of

business and financial morality of the promoters and managements and in importing

knowledge about financial statement to the public so that they can examine and assess the

real worth of company and avoid being cheated by unscrupulous person. They can judge

whether the regulations are being followed in word and sprit and also whether the

regulations are producing the desired effect or not by evaluating the financial statements

submitted by the companies.

Limitation of financial statement:

Financial statement are the result of the accounting process, which begins, with

recording of transaction accounting process involves recording, classifying and

summering business transactions. Financial statements are the result of third process vise

summering. The financial statements are based on certain accounting concepts and

convention which can not be said to be fool proof.

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The following are the limitations of the financial statements.

1. Financial statements though expressed in exact monetary firms are not absolutely

final and accurate. As the balance sheet is prepared and the basis of a going

concern asset valuation represent neither the realizable value nor replacement

costs. Further they depend on the judgment of the management in respect of

various accounting policies.

2. It is not always possible to discover false figures in financial statements

unscrupulous managements generally resort to window dressing in the preparation

of such statement.

3. Financial statement is prepared primarily for shareholders. Other interested parties

have to generally make adjustment before they use them profitably.

4. Financial statements are essentially intern report and therefore cannot be final

because the final gain or loss can be computed only at the termination of the

business.

5. Financial statements take into consideration only the financial factors. They fail to

during out the significations non-financial factor. This may have considerate

bearing on the operating result and financial conditions an enterprise. For

example: public image of the enterprise. The caliber of its management.

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 WORKING CAPITAL

Capital required for a business can be classified under two main categories via,

1) Fixed Capital

2) Working Capital

Every business needs funds for two purposes for its establishment and to carry out

its day- to-day operations. Long terms funds are required to create production facilities

through purchase of fixed assets such as p&m, land, building, furniture, etc. Investments

in these assets represent that part of firm’s capital which is blocked on permanent or fixed

basis and is called fixed capital. Funds are also needed for short-term purposes for the

purchase of raw material, payment of wages and other day – to- day expenses etc.

These funds are known as working capital. In simple words, working capital

refers to that part of the firm’s capital which is required for financing short- term or

current assets such as cash, marketable securities, debtors & inventories. Funds, thus,

invested in current assts keep revolving fast and are being constantly converted in to cash

and this cash flows out again in exchange for other current assets. Hence, it is also known

as revolving or circulating capital or short term capital.

CONCEPT OF WORKING CAPITAL

There are two concepts of working capital:

1. Gross working capital

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2. Net working capital

The gross working capital is the capital invested in the total current assets of the

enterprises current assets are those

Assets which can convert in to cash within a short period normally one accounting

year.

CONSTITUENTS OF CURRENT ASSETS

1) Cash in hand and cash at bank

2) Bills receivables

3) Sundry debtors

4) Short term loans and advances.

5) Inventories of stock as:

a. Raw material

b. Work in process

c. Stores and spares

d. Finished goods

6. Temporary investment of surplus funds.

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 7. Prepaid expenses

8. Accrued incomes.

9. Marketable securities.

In a narrow sense, the term working capital refers to the net working. Net working

capital is the excess of current assets over current liability, or, say:

NET WORKING CAPITAL = CURRENT ASSETS – CURRENT LIABILITIES.

Net working capital can be positive or negative. When the current assets exceeds the

current liabilities are more than the current assets. Current liabilities are those

liabilities, which are intended to be paid in the ordinary course of business within a

short period of normally one accounting year out of the current assts or the income

business.

CONSTITUENTS OF CURRENT LIABILITIES

1. Accrued or outstanding expenses.

2. Short term loans, advances and deposits.

3. Dividends payable.

4. Bank overdraft.

5. Provision for taxation , if it does not amt. to app. Of profit.

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 6. Bills payable.

7. Sundry creditors.

The gross working capital concept is financial or going concern concept whereas net

working capital is an accounting concept of working capital. Both the concepts have their

own merits.

The gross concept is sometimes preferred to the concept of working capital for the

following reasons:

1. It enables the enterprise to provide correct amount of working capital at correct

time.

2. Every management is more interested in total current assets with which it has to

operate then the source from where it is made available.

3. It take into consideration of the fact every increase in the funds of the enterprise

would increase its working capital.

4. This concept is also useful in determining the rate of return on investments in

working capital. The net working capital concept, however, is also important for

following reasons:

· It is qualitative concept, which indicates the firm’s ability to meet to its

operating expenses and short-term liabilities.

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 · IT indicates the margin of protection available to the short term

creditors.

· It is an indicator of the financial soundness of enterprises.

· It suggests the need of financing a part of working capital requirement

out of the permanent sources of funds.

CLASSIFICATION OF WORKING CAPITAL

Working capital may be classified in to ways:

• On the basis of concept.

• On the basis of time.

o On the basis of concept working capital can be classified as gross working

capital and net working capital.

o On the basis of time, working capital may be classified as:

• Permanent or fixed working capital.

• Temporary or variable working capital

PERMANENT OR FIXED WORKING CAPITAL

Permanent or fixed working capital is minimum amount which is required to ensure

effective utilization of fixed facilities and for maintaining the circulation of current

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assets. Every firm has to maintain a minimum level of raw material, work- in-process,

finished goods and cash balance. This minimum level of current assts is called permanent

or fixed working capital as this part of working is permanently blocked in current assets.

As the business grow the requirements of working capital also increases due to increase

in current assets.

TEMPORARY OR VARIABLE WORKING CAPITAL

Temporary or variable working capital is the amount of working capital which is required

to meet the seasonal demands and some special exigencies. Variable working capital can

further be classified as seasonal working capital and special working capital. The capital

required to meet the seasonal need of the enterprise is called seasonal working capital.

Special working capital is that part of working capital which is required to meet special

exigencies such as launching of extensive marketing for conducting research, etc.

Temporary working capital differs from permanent working capital in the sense that is

required for short periods and cannot be permanently employed gainfully in the business.

IMPORTANCE OR ADVANTAGE OF ADEQUATE WORKING CAPITAL

 SOLVENCY OF THE BUSINESS: Adequate working capital helps in

maintaining the solvency of the business by providing uninterrupted of

production.

 Goodwill: Sufficient amount of working capital enables a firm to make

prompt payments and makes and maintain the goodwill.

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 Easy loans: Adequate working capital leads to high solvency and credit

standing can arrange loans from banks and other on easy and favorable terms.

 Cash Discounts: Adequate working capital also enables a concern to avail

cash discounts on the purchases and hence reduces cost.

 Regular Supply of Raw Material: Sufficient working capital ensures regular

supply of raw material and continuous production.

 Regular Payment Of Salaries, Wages And Other Day TO Day

Commitments: It leads to the satisfaction of the employees and raises the

morale of its employees, increases their efficiency, reduces wastage and costs

and enhances production and profits.

 Exploitation Of Favorable Market Conditions: If a firm is having adequate

working capital then it can exploit the favorable market conditions such as

purchasing its requirements in bulk when the prices are lower and holdings its

inventories for higher prices.

 Ability To Face Crises: A concern can face the situation during the

depression.

 Quick And Regular Return On Investments: Sufficient working capital

enables a concern to pay quick and regular of dividends to its investors and

gains confidence of the investors and can raise more funds in future.

 High Morale: Adequate working capital brings an environment of

securities, confidence, high morale which results in overall efficiency in a

business.

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EXCESS OR INADEQUATE WORKING CAPITAL

Every business concern should have adequate amount of working capital to run its

business operations. It should have neither redundant or excess working capital nor

inadequate nor shortages of working capital. Both excess as well as short working

capital positions are bad for any business. However, it is the inadequate working

capital which is more dangerous from the point of view of the firm.

DISADVANTAGES OF REDUNDANT OR EXCESSIVE WORKING

CAPITAL

1. Excessive working capital means ideal funds which earn no profit for the

firm and business cannot earn the required rate of return on its investments.

2. Redundant working capital leads to unnecessary purchasing and

accumulation of inventories.

3. Excessive working capital implies excessive debtors and defective credit

policy which causes higher incidence of bad debts.

4. It may reduce the overall efficiency of the business.

5. If a firm is having excessive working capital then the relations with banks

and other financial institution may not be maintained.

6. Due to lower rate of return n investments, the values of shares may also fall.

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 7. The redundant working capital gives rise to speculative transactions.

DISADVANTAGES OF INADEQUATE WORKING CAPITAL

Every business needs some amounts of working capital. The need for working capital

arises due to the time gap between production and realization of cash from sales. There is

an operating cycle involved in sales and realization of cash. There are time gaps in

purchase of raw material and production; production and sales; and realization of cash.

Thus working capital is needed for the following purposes:

· For the purpose of raw material, components and spares.

· To pay wages and salaries

· To incur day-to-day expenses and overload costs such as office expenses.

· To meet the selling costs as packing, advertising, etc.

· To provide credit facilities to the customer.

· To maintain the inventories of the raw material, work-in-progress, stores and

spares and finished stock.

For studying the need of working capital in a business, one has to study the business

under varying circumstances such as a new concern requires a lot of funds to meet its

initial requirements such as promotion and formation etc. These expenses are called

preliminary expenses and are capitalized. The amount needed for working capital

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depends upon the size of the company and ambitions of its promoters. Greater the size of

the business unit, generally larger will be the requirements of the working capital.

The requirement of the working capital goes on increasing with the growth and expensing

of the business till it gains maturity. At maturity the amount of working capital required

is called normal working capital.

There are others factors also influence the need of working capital in a business.

FACTORS DETERMINING THE WORKING CAPITAL REQUIREMENTS

1. NATURE OF BUSINESS: The requirements of working is very limited in public

utility undertakings such as electricity, water supply and railways because they

offer cash sale only and supply services not products, and no funds are tied up in

inventories and receivables. On the other hand the trading and financial firms

requires less investment in fixed assets but have to invest large amt. of working

capital along with fixed investments.

2. SIZE OF THE BUSINESS: Greater the size of the business, greater is the

requirement of working capital.

3. PRODUCTION POLICY: If the policy is to keep production steady by

accumulating inventories it will require higher working capital.

4. LENTH OF PRDUCTION CYCLE: The longer the manufacturing time the raw

material and other supplies have to be carried for a longer in the process with

progressive increment of labor and service costs before the final product is

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 obtained. So working capital is directly proportional to the length of the

manufacturing process.

5. SEASONALS VARIATIONS: Generally, during the busy season, a firm requires

larger working capital than in slack season.

6. WORKING CAPITAL CYCLE: The speed with which the working cycle

completes one cycle determines the requirements of working capital. Longer the

cycle larger is the requirement of working capital.

7. RATE OF STOCK TURNOVER: There is an inverse co-relationship between the

question of working capital and the velocity or speed with which the sales are

affected. A firm having a high rate of stock turnover wuill needs lower amt. of

working capital as compared to a firm having a low rate of turnover.

8. CREDIT POLICY: A concern that purchases its requirements on credit and sales

its product / services on cash requires lesser amt. of working capital and vice-versa.

9. BUSINESS CYCLE: In period of boom, when the business is prosperous, there is

need for larger amt. of working capital due to rise in sales, rise in prices, optimistic

expansion of business, etc. On the contrary in time of depression, the business

contracts, sales decline, difficulties are faced in collection from debtor and the firm

may have a large amt. of working capital.

10. RATE OF GROWTH OF BUSINESS: In faster growing concern, we shall require

large amount of working capital.

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11. EARNING CAPACITY AND DIVIDEND POLICY: Some firms have more

earning capacity than other due to quality of their products, monopoly conditions,

etc. Such firms may generate cash profits from operations and contribute to their

working capital. The dividend policy also affects the requirement of working

capital. A firm maintaining a steady high rate of cash dividend irrespective of its

profits needs working capital than the firm that retains larger part of its profits and

does not pay so high rate of cash dividend.

12. PRICE LEVEL CHANGES: Changes in the price level also affect the working

capital requirements. Generally rise in prices leads to increase in working capital.

Others FACTORS: These are:

 Operating efficiency.

 Management ability.

 Irregularities of supply.

 Import policy.

 Asset structure.

 Importance of labor.

 Banking facilities, etc.

MANAGEMENT OF WORKING CAPITAL

Management of working capital is concerned with the problem that arises in attempting

to manage the current assets, current liabilities. The basic goal of working capital

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management is to manage the current assets and current liabilities of a firm in such a way

that a satisfactory level of working capital is maintained, i.e. it is neither adequate nor

excessive as both the situations are bad for any firm. There should be no shortage of

funds and also no working capital should be ideal. WORKING CAPITAL

MANAGEMENT POLICES of a firm has a great on its probability, liquidity and

structural health of the organization. So working capital management is three dimensional

in nature as

1. It concerned with the formulation of policies with regard to profitability,

liquidity and risk.

2. It is concerned with the decision about the composition and level of current

assets.

3. It is concerned with the decision about the composition and level of current

liabilities.

WORKING CAPITAL ANALYSIS

As we know working capital is the life blood and the centre of a business.

Adequate amount of working capital is very much essential for the smooth running of the

business. And the most important part is the efficient management of working capital in

right time. The liquidity position of the firm is totally effected by the management of

working capital. So, a study of changes in the uses and sources of working capital is

necessary to evaluate the efficiency with which the working capital is employed in a

business. This involves the need of working capital analysis.

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The analysis of working capital can be conducted through a number of devices, such as:

1. Ratio analysis.

2. Fund flow analysis.

3. Budgeting.

1. RATIO ANALYSIS

A ratio is a simple arithmetical expression one number to another. The technique

of ratio analysis can be employed for measuring short-term liquidity or working

capital position of a firm. Some of the following ratios can be calculated for these

purposes:

1. Current ratio.

2. Quick ratio

3. Absolute liquid ratio

4. Inventory turnover.

5. Receivables turnover.

6. Working capital turnover ratio etc,.

2. FUND FLOW ANALYSIS

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Fund flow analysis is a technical device designated to the study the source from

which additional funds were derived and the use to which these sources were put.

The fund flow analysis consists of:

a. Preparing schedule of changes of working capital

b. Statement of sources and application of funds.

It is an effective management tool to study the changes in financial position

(working capital) business enterprise between beginning and ending of the

financial dates.

3. WORKING CAPITAL BUDGET

A budget is a financial and / or quantitative expression of business plans and

polices to be pursued in the future period time. Working capital budget as a part

of the total budge ting process of a business is prepared estimating future long

term and short term working capital needs and sources to finance them, and then

comparing the budgeted figures with actual performance for calculating the

variances, if any, so that corrective actions may be taken in future. He objective

working capital budget is to ensure availability of funds as and needed, and to

ensure effective utilization of these resources. The successful implementation of

working capital budget involves the preparing of separate budget for each element

of working capital, such as, cash, inventories and receivables etc.

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 CHAPTER 02

RESEARCH DESIGN

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 RESEARCH DESIGN

Title of the project:

“A Study on Working capital management of PepsiCo”

Statement of problem:

The statement of the problem under study is an evaluative study on

“Working capital management of PepsiCo”. The topic is being explained in

the light of different tools of financial management, namely ratio analysis.

Finance is being important parameter of every business concern to determine the

growth, profitability and liquidity position of the company this topic has been

chosen.

Objectives of the study:

 To analysis and interpret the financial statements of PepsiCo .

 To know about the financial and liquidity position of the PepsiCo.

 To know about the accounting polices and accomplishment to

accounting standards of the PepsiCo.

 To analyze the efficiency with the financial resources of the

PepsiCo have been utilized.

 To study the validity of tools of financial statements analysis in

real life situation.

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  To know about the efficiency of working capital management of

the PepsiCo.

 To analyze the profit margin of the PepsiCo.

 To study the different ratio of the PepsiCo.

Scope of the study:

The study covers all the aspects affecting finance of the whole company.

This study is concerned with the analysis and interpretation of financial

statements that can be made using various techniques of analysis each having

their own merits and demerits.

The information regarding the profit earned by the company in different

years. It does not with any marketing activity of the company.

Review of literature

The literature recording origin of the organization.

• Literature available in books

• Literature available is reports

• Company’s past records & journals.

Hypothesis

 Analyzing the financial and liquidity position of company

 Analyzing the annual report of the company

 Promoting company towards its position to improve

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 Developing the financial status of company.

Optional definition of concepts

According to Joseph and Massie “financial management is the

operational activity of a business that is responsible for obtaining and effectively

utilizing the funds necessary for efficient operation”

According to Prather and wert “Business finance deals primarily with

raising administering and disbursing funds by privately owned business units

operating in non-financial fields of industry”

According to Weston and Brigham “ Financial management is an area of

financial decision making, harmonizing individual motives and enterprise goals”

According to Archer and Ambrosio “ Financial management is the

application of the planning and control functions to the finance function.”

According to H.G. Gathman and H.E. Dougall “ Business Finance can

be broadly defined as the activity concerned with planning, raising, controlling

and administering of funds and in the business”

The term financial Analysis refers to “The process of determining

financial strengths and weaknesses of the firm by establishing strategic

relationship between the items of the balance sheet, P&L Account and other

operative data.

Methodology:

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 The type of research selected for this purpose is “Historical research”.

The main source of data for this study is the past records prepare by the

PepsiCo. The main objective is to find out past performance of the PepsiCo and

to identify the ways in which the performance especially the financial

performance of PepsiCo.

TOOLS FOR DATA COLLECTION:

 Secondary data

Methods of collecting secondary data:

 Company manuals and Text Books

 Company profile

 Annual reports

Plan of Analysis:

This study is concerned to Working capital management of PepsiCo .

Analysis of data is done through the use of some accounting techniques based

on the past five year’s balance sheet and income statement of PepsiCo .

Balance sheet, P&L account, Ratio’s, Tables and Graphs are used to

analysis module in this study.

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REFERENCE PERIOD:

The reference period of this study was 30 days i.e., 1month.

Limitations:

Through the study displays all most all relevant data, it suffers

from some inherent limitations, they are follows:

♦ The study no doubt with relation to objective, but it does not

give complete and total accuracy of findings.

♦ The study was done only for the past four years only.

♦ It is only the study of interim reports.

♦ Discussion about the project could be conducted only with a

few officials due to time constraints face by them.

♦ Constraints of time due to busy schedule of organizational

personnel.

♦ Time allotted by the company for the study was very short

with in which collection of all the information was not possible.

♦ It is based on monetary information only.

35
 CHAPTER 03

COMPANY PROFILE

36
 COMPANY PROFILE

Pepsi Company is a large conglomerate with interests in manufacturing, marketing

and selling a wide variety of carbonated and non-carbonated beverages, as well as salty,

sweet and grain-based snacks, and other foods.

PepsiCo is a world leader in convenient snacks, foods and beverages, with revenues

of more than $39 billion and over 185,000 employees.

PepsiCo International (PI)

PI includes all PepsiCo businesses in the United Kingdom, Europe, Asia, Middle East

and Africa.

Stock Market

PepsiCo (symbol: PEP) shares are traded principally on the New York Stock Exchange

in the United States. The company is also listed on the Chicago and Swiss stock

exchanges. PepsiCo has consistently paid cash dividends since the corporation was

founded.

Corporate Citizenship

37
At PepsiCo, we believe that as a corporate citizen, we have a responsibility to contribute

to the quality of life in our communities. This philosophy is expressed in our

sustainability vision which states: “PepsiCo’s responsibility is to continually improve all

aspects of the world in which we operate – environment, social, economic -- creating a

better tomorrow than today.”

Our vision is put into action through programs and a focus on environmental

stewardship, activities to benefit society, and a commitment to build shareholder value by

making PepsiCo a truly sustainable company.

PepsiCo Headquarters

PepsiCo World Headquarters is located in Purchase, New York, approximately 45

minutes from New York City. The seven-building headquarters complex was designed by

Edward Durrell Stone, one of America's foremost architects. The building occupies 10

acres of a 144- acre complex that includes the Donald M. Kendall Sculpture Gardens, a

world- acclaimed sculpture collection in a garden setting.

Company leadership

We are a company full of strong, talented individuals starting at the top of our

organization. Get to know the inspiring people helping lead PepsiCo on its 'Performance

with Purpose' journey.

38
"Together we are all building on the platform of human, environmental and talent

sustainability while continuing to deliver great results."

PepsiCo History

PepsiCo, Inc. is founded by Donald M. Kendall, President and Chief Executive

Officer of Pepsi-Cola and Herman W. Lay, Chairman and Chief Executive Officer of

Frito-Lay, through the merger of the two companies. Pepsi-Cola was created in the late

1890s by Caleb Bradham, a New Bern, N.C. pharmacist. Frito-Lay, Inc. was formed by

the 1961 merger of the Frito Company, founded by Elmer Doolin in 1932, and the H. W.

Lay Company, founded by Herman W.Lay, also in 1932. Herman Lay is chairman of the

Board of Directors of the new company; Donald M. Kendall is president and chief

executive officer. The new company reports sales of $510 million and has 19,000

employees. PepsiCo brands are available in nearly 200 countries and generate sales at the

retail level of more than $98 billion. Some of PepsiCo's brand names are more than 100-

years-old, but the corporation is relatively young. PepsiCo was founded in 1965 through

the merger of Pepsi-Cola and Frito-Lay. Tropicana was acquired in 1998 and PepsiCo

merged with The Quaker Oats Company, including Gatorade, in 2001.

Headquartered in Purchase, New York, with Research and Development Headquarters in

Valhalla, NY, The Pepsi Cola Company began in 1898, but it only became known as

PepsiCo when it merged with Frito Lay in 1965. Until 1997, it also owned KFC, Pizza

39
Hut, and Taco Bell, but these fast-food restaurants were spun off into Tricon Global

Restaurants, now Yum! Brands, Inc. PepsiCo purchased Tropicana in 1998 and Quaker

Oats in 2001.PepsiCo’s mission is “To be the world's premier consumer Products

Company focused on convenient foods and beverages. We seek to produce healthy

financial rewards to investors as We provide opportunities for growth and enrichment to

our employees, our business partners and the communities in which we operate. And in

everything we do, we strive for honesty, fairness and integrity”.

The company consists of

PepsiCo International (PI)

PI includes all PepsiCo businesses in the United Kingdom, Europe, Asia, Middle East

and Africa.

PepsiCo Americas Foods (PAF)

40
PAF includes Frito-Lay North America, Quaker Foods North America and all Latin

America food and snack businesses, including Sabritas and Gamesa businesses in

Mexico.

Frito-Lay

In February 1965, the Board of Directors for Frito-lay, Inc. and Pepsi- Cola announced a

plan for the merger of the two companies. On June 8, 1965, the merger of Frito-Lay and

Pepsi-Cola Company was approved by shareholders of both companies, and a new

company called PepsiCo,

Inc. was formed. At the time of the merger, Frito-Lay owned 46 manufacturing plants

nationwide, had more than 150 distribution centers across the United States, and was

listed on the New York Stock Exchange.

Quaker Foods North America

The Quaker Oats Company was formed in 1901 when several American pioneers in oat

milling came together to incorporate. In Ravenna, Ohio, Henry D. Seymour and William

Heston had established the Quaker Mill Company and registered the now famous

trademark. PepsiCo merged with The Quaker Oats Company in 2001. Its products still

have the eminence of wholesome, good-for-you food, as envisioned by the company over

a century ago.

PepsiCo Americas Beverages (PAB)

41
PAB includes PepsiCo Beverages North America and all Latin American beverage

businesses.

Vision of PepsiCo

PepsiCo Mission

"To be the world's premier consumer Products Company focused on convenience foods

and beverages. We seek to produce healthy financial rewards to investors as we provide

opportunities for growth and enrichment to our employees, our business partners and the

communities in which we operate. And in everything we do, we strive for honesty,

fairness and integrity."

PepsiCo in India

42
 PepsiCo is a world leader in convenience foods and beverages, with 2007

revenues of more than $39 billion and more than 185,000 employees across the world. Its

world renowned brands are available in nearly 200 countries and territories. PepsiCo

gained entry to India in 1989 by creating a joint venture with the Punjab government-

owned Punjab Agro Industrial Corporation (PAIC) and Voltas India Limited.

This joint venture marketed and sold Lehar Pepsi until 1991, when the use of foreign

brands was allowed; PepsiCo bought out its partners and ended the joint venture in 1994.

Firstly Pepsi was banned from import in India, in 1970, for having refused to release the

list of its ingredients and in 1993, the ban was lifted, with Pepsi arriving on the market

shortly afterwards.

PepsiCo has grown to become the country’s largest selling food and beverage

companies. One of the largest multinational investors in the country, PepsiCo has

stablished a business which aims to serve the long term dynamic needs of consumers in

India. PepsiCo India and its partners have invested more than U.S. $700 million since the

company was established in the country in 1989. In India, PepsiCo provides direct

employment to 4,000 people and indirect employment to 60,000 people including

suppliers and distributors. The group has built an expansive beverage, snack food and

exports business and to support the operations are the group’s 43 bottling plants in India,

of which 15 are company owned and 28 are franchisee owned.

43
In addition to this, PepsiCo’s Frito Lay snack division has 3 state of the art plants.

PepsiCo’s business is based on its sustainability vision of making tomorrow better than

today. Our commitment to living by this vision every day is visible in our contribution to

our country, consumers, farmers and our people.

PepsiCo’s snack food company

PepsiCo’s snack food company, Frito-Lay, is the leader in the branded potato chip

market and was amongst the first companies to eliminate the use of trans fats and MSG in

its products. It manufactures Lay’s Potato Chips; Cheetos extruded snacks, Uncle Chipps

and traditional namkeen snacks under the Kurkure and Lehar brands. The company’s

high fiber breakfast cereal, Quaker Oats, along with Lehar Lites, low fat and roasted

snack options enhance the choices available to the growing health and wellness needs of

our consumers. Frito Lay’s core products, Lay’s, Kurkure, Uncle Chipps and Cheetos are

cooked in Rice Bran Oil to significantly reduce saturated fats and all of its products

contain voluntary nutritional labeling on their packets.

PepsiCo India’s expansive portfolio

Refreshment beverages

Pepsi, 7 UP, Mirinda and Mountain Dew, in addition to low calorie options– Diet

Pepsi and 7Up Light; hydrating and nutritional beverages such as Aquafina drinking

water, isotonic sports drinks - Gatorade, and 100% natural fruit juices and juice based

drinks – Tropicana, Tropicana

44
 Twister and Slice. Our local brands – Lehar Evervess Soda, Dukes Lemonade and

Mangola complete our diverse spectrum of brand

Consumption patterns in India

45
 In Tier 1, 2 and 3 cities in India, 29% of Indian consumers report consuming

carbonated beverages/soft drinks during a fixed time of the day suggesting consumption

has become a routine part of their day, with most consumption taking place during the

'afternoon to evening' time period. Not surprisingly, consumption is highest in Tier I

cities such as Mumbai, Delhi, Kolkata, Chennai, Hyderabad and Bangalore. The level of

consumption is seen to increase with rising household incomes (with the exception of the

highest income level) while decreasing with age.

The Indian soft drinks market is not under any regulation. Prevention of Food

adulteration act 1954 does not include soft drinks. None of the BIS standards that

existed before August 2003 had any guidelines or set criteria for the residue levels

of pesticides in the soft drinks. But different lie agencies have set standards for

the residue levels of pesticides. The European Economic Community (EEC) sets

the maximum admissible concentration of individual pesticides and related

products in drinking water at 0.1 parts per billion to ensure that the toxicity is not

dangerous to human beings. For a few pesticides like aldrin, dieldin and

heptachlor epoxide the admissible limit is even more stringent, i.e., 0.03 parts per

billion.

Prices in India (as on Feb 2010)

46
Until the late 90s drinks were bottled in 250ml reusable glass bottles. It then shifted to

300ml botles priced at 10/-. Then came the can model which with 350ml costing

around 18/- INR. Later mini bottles of 200ml quantity became a huge success

with each bottle costing 6/- which later dropped by a rupee. For family packs

there was the 1.5 lt plastic pet bottle costing about 43/-. Then with competition

from Coca-Cola the pet bottle resized to 2 lt for just 50/-. It was at this time the

smaller pet bottle of 500ml hit the markets tagged with a price of 20/-. Later the

quantity was increased to 600ml (mentioning a 20% extra-free) without any

increase in the price. But, due to inflation, the 600ml pet bottle price has been

revised to 22/- from mid 2009, with the 2lt pet bottle also being increased by 2/-(it

is now 52/-).

PepsiCo Inc, Progress

• Accelerated the growth of our portfolio of healthful products

• PepsiCo named to the Dow Jones Index for the third straight year

• Expanded our portfolio of healthful products through innovation

• Launched the food industry's first Carbon Reduction Label with the Carbon Trust

on Walkers Crisps

• Improved water intensity ratio across all of our operations

• Committed more than $16 million to organizations working to bring safe water to

developing countries

• Incorporated consideration of environmental sustainability issues and

opportunities as part of every capital expenditure evaluation for projects greater

• Signed CEO Water Mandate

47
• Conserved nearly 5 billion liters of water and nearly 500 million kilowatt hours of

energy worldwide in 2007 as compared to 2006

• Set corporation-wide goals to reduce water consumption by 20% per unit of

production by the year 2015

• Authored with industry the "Global Commitment to Action on the Global Strategy

on Diet, Physical Activity and Health", a commitment addressed to the World

Health Organization

• Launched our global sustainable packaging policy

• Improved significantly our water, fuels, and electricity efficiency

• Reduced PET bottles, paperboard, and corrugated materials by more than 20

million pounds

• Introduced our Supplier Code of Conduct

• Joined Supplier Ethical Data Exchange (SedEx)

• Increased spending on women and minority owned businesses

• Translated our Human Rights Workplace Policy into 20 languages

• Instituted global guidelines for beverages limiting advertising and marketing to

children under 12 Incorporated consideration of environmental sustainability

issues and opportunities as part of every capital expenditure evaluation for

projects greater than $5 million

• Saved nearly 1.5 billion gallons of water worldwide in 2007 compared to 2006

• Continued reuse of water from processing, working with local communities to

provide access to clean water, and supporting farmers to deliver "more crop per

drop"

48
• Honored by the U.S. Environmental Protection Agency (EPA) with 2007 and

2008 Energy Star Partner of the Year awards for energy conservation

CHAPTER 04

ANALYSIS

AND

INTERPRETATION

49
Gross Working Capital

It is the capital invested in total current assets. Cash and short-term assets expected to be
converted to cash within a year. Businesses use the calculation of gross working capital
to measure cash flow. Gross working capital does not account for current liabilities, but is
simply the measure of total cash and cash equivalent on hand. Gross working capital
tends not to add much to the business' assets, but helps keep it running on a day-to-day
basis.

Table - 1

Year Current Assets Gross Working

capital
2005 10454 10454

2006 9130 9130

2007 10151 10511

2008 10806 10806

2009 12571 12571

Analysis and Interpretation:

The above table shows that the networking capital in the year 2005 was 10454 and then
in decreased to 9130 in the year 2006, and it increased to 10511 in year 2007 and further
it increased to 10806 in year 2008 finally in the year 2009 it again moved up to 12571.

50
 Graph no: 01

Gross W orking capital

14000
12000
10000
8000
Units
6000 Gross W orking
4000 capital
2000
0
2005 2007 2009
Ye a r

51
Net Working Capital

Cash and short-term assets expected to be converted to cash within a year less short-term

liabilities. Businesses use net working capital to measure cash flow and the ability to

service debts. A positive net working capital indicates that the firm has money in order to

maintain or expand its operations. Net working capital tends not to add much to the

business' assets, but helps keep it running on a day-to-day basis.

Net Working Capital = current assets - current liabilities.

Table No – 02

Year Current Assets Current Liabilities Net Working Capital

2005 10454 9406 1048

2006 9130 6860 2270

2007 10151 7753 2019

2008 10806 8787 2398

2009 12571 8756 3815

52
Analysis and Interpretation:

The above table shows that the networking capital in the year 2005 was 1048 and then in

increases to 2270 in the year 2006, and it slashed down to 2019 in year 2007 and further

it increased to 2398 in year 2008 finally in the year 2009 it again moved up to 3815.

Graph no: 02

53
 Net W orking Capital

4000
3500
3000
2500
Units 2000
Net W orking
1500
Capital
1000
500
0
2005 2006 2007 2008 2009
Ye ar

Current Ratio

Current ratio may be defined as the relationship between current asset and current

liability. A relatively high current ratio is an indication that the firm is liquid and has the

ability to pay its current obligations in tie as and when they become due. The ratio is to

be 2:1 i.e., current asset double the current liabilities.

Current Ratio (CR) = Current Assets

Current Liabilities

54
 Table No – 03

Year Current Assets Current Liabilities Current Ratio

2005 10454 9406 1.11

2006 9130 6860 1.33

2007 10151 7753 1.30

2008 10806 8787 1.22

2009 12571 8756 1.43

Analysis and Interpretation:

The above table shows that the current ratio in the year 2005 was 1.11 and then in

increases to 1.33 in the year 2006, and it slashed down to 1.30 in year 2007 and further it

slashed down to 1.22 in year 2008 finally in the year 2009 it again moved up to 1.43.

The normal current ratio is 2:1.. This shows that the company is enjoying credit

worthiness.

Graph no: 03

55
 Current Ratios

1.6
1.4
1.2
1
Units 0.8
0.6 Current Ratios
0.4
0.2
0
2005 2006 2007 2008 2009
Ye a r

QUICK RATIO

Quick Ratio indicates the relationship between quick assets and current liabilities. An

asset is said to be liquid if it can be converted into cash with in a short period of time.

Inventories and prepaid expenses are excluded from the current assets for the list of quick

assets because they cannot be easily transferred in to liquid cash.

Quick Ratio = Liquid Assets

56
 Liquid Liabilities

Liquid Assets = Current Assets - Stock

Table No – 04

Year Liquid Assets Liquid Quick Ratio

Liabilities
2005 10454-1693 9406 0.93

2006 9130-1926 6860 1.05

2007 10151-2290 7753 1.01

2008 10806-2522 8787 0.94

2009 12571-2618 8756 1.13

Analysis and Interpretation:

The above table shows the liquid ratio / quick ratio during the study period 2005-2009 is

more than the normal (i.e.) 1:1 on an average i.e,.1.012 .It was 0.93 in the year 2005 and

in 2006 it was 1.05 and then came down to 1.01 in the year 2007 and further slashed to

0.94 in 2008 finally in the year 2009 it again moved up to 1.13.

Hence the firm is controlling its stock position because there linear relationship between

current ratio and liquid ratio.

Graph no – 04

57
 Quick Ratio

1.2

0.8

Units 0.6
Quick Ratio
0.4

0.2

0
2005 2006 2007 2008 2009
Year

Cash Ratio

Indicates a conservative view of liquidity such as when a company has pledged its

receivables and its inventory, or the analyst suspects severe liquidity problems with

inventory and receivables.

= Cash Equivalents + Marketable Securities

Current Liabilities

Table No – 05

58
 Year Cash + Bank + mkt Current Cash Ratio

securities Liabilities
2005 1716+3166 9406 0.51
2006 1651+1171 6860 0.41

2007 910+1571 7753 0.32

2008 2064+213 8787 0.25

2009 3943+192 8756 0.47

Analysis and Interpretation:

The above table and diagram shows the cash ratio for the study period 2005 to 2009.

There is fluctuation in the cash ratio. It was 0.50 in the year 2005. In 2006 it was 0.41 and

2007 it was 0.32. It was 0.25 in 2008 and 0.47 in 2009.

Graph no: 05

59
 Cash Ratio

0.6

0.5

0.4

Units 0.3
Cash Ratio
0.2

0.1

0
2005 2006 2007 2008 2009
Year

CA / FA Policy

The level of current asset can be measured by current asset to fixed asset. Dividing

current asset by fixed asset gives the current asset- fixed asset ratio. Assuming a constant

level of fixed asset, a higher current asset- fixed asset ratio indicates a conservation

60
current asset policy. Other things remaining constant, a conservation policy implies high

liquidity and lower risk while an aggressive policy indicates higher risk and poor

liquidity.

CA / FA Policy = CA

FA

Table No – 06

Year Current Assets Fixed assets CA / FA Ratio

2005 10454 8681 1.20

2006 9130 9687 0.942

2007 10151 11228 0.904

2008 10806 11663 0.92

2009 12571 12671 0.99

Analysis and Interpretation:

The above table shows the CA / FA Policy of the company during the study period. It

was 1.20 in the 2005 and then it started decreasing for the next three years and from there

it began to increase and ultimately came to 0.99 in the year 2009.

61
 Graph no – 06

CA / F A Ratio

1.2

0.8

U n its0.6
CA / F A R atio
0.4

0.2

0
2005200620072008 2009
Ye a r

Ratio of inventory to current assets

For the calculation of inventory to current assets, divide inventory by the current assets

given on the balance sheet. The percentage of inventory to current assets is known as

Inventory to current assets ratio. It shows the percentage of the current assets tied up in

62
the inventory of the company. Generally, the lower percentage value of this ratio is

considered better for the company.

= Inventory *100

Current assets

Table No – 07

Year Average Inventory Current Assets Ratio of inventory

to current assets
2005 1693 10454 16.19
2006 1926 9130 20.82

2007 2290 10151 23.33

2008 2522 10806 22.55

2009 2618 12571 21.09

Analysis and Interpretation:

The above table shows the Ratio of inventory to current assets during the study period

2005-2009. It was 16.19 in the year 2005 and in 2006 it was increased to 20.82 and then

further increased to 23.33 in the year 2007 and further slashed to 22.55 in 2008 finally in

the year 2009 it again declined to 21.09.

63
 Graph no: 07

Ratio of inventory to c urrent as s ets

25

20

15
Units
10 Ratio of inventory
to c urrent as s ets
5

0
20052006200720082009
Ye a r

Inventory turnover Ratio

This ratio indicates whether investment is inventory is efficiently used or not it explains

whether investment in inventories in with in proper limits or not. It also measures the

effectiveness of the firms’ sales efforts the ratio is calculated as follows.

Inventory turnover Ratio = COGS

Average Inventory

64
Average Inventory = (opening inventory +closing inventory)

Table No – 08

Year COGS Average Stock Turnover

Inventory Ratio
2005 13018 1693 7.68 times
2006 14518 1926 7.5 times

2007 16670 2290 7.2 times

2008 18872 2522 7.4 times

2009 18527 2618 7.0 times

Analysis and Interpretation:

The above table and diagram shows the relation ship between costs of goods sold and

average stock. During the year 2005 it is 7.68 times which shows higher position of cost

of goods sold in 2006 it was 7.5 times and in 2007 it was 7.2 times, and in 2008 it was

7.4 times. And during 2009 it is declined to 7.0 times.

Graph no - 08

65
 Stock Turnover Ratio

7.8

7.6

7.4
Units

Stock Turnover
7.2
Ratio
7

6.8

6.6
2005 2006 2007 2008 2009
Year

Current assets turnover ratio

Current assets turnover ratio is calculate to know the firms efficiency of utilizing
the current assets .current assets includes the assets like inventories, sundry debtors, bills
receivable, cash in hand or bank, marketable securities, prepaid expenses and short term
loans and advances. This ratio includes the efficiency with which current assets turn into

66
sales. A higher ratio implies a more efficient use of funds thus high turnover ratio
indicate to reduced the lock up of funds in current assets. An analysis of this ratio over a
period of time reflects working capital management of a firm.

Current assets TOR= Sales

Current assets

Table - 09

Year Sales Current Assets Current assets TOR

2005 32362 10454 3.09

2006 35137 9130 3.84

2007 39474 10151 3.88

2008 43251 10806 4.00

2009 43232 12571 3.42

Analysis and Interpretation: This ratio includes the efficiency with which current assets

turn into sales. The ratio was 3.09 in 2005, in 2006 it was increased to 3.84, in 2007 it

was increased to 3.88, in 2008 it was increased to 4.00 and in 2009 it decreased to 3.42.

GRAPH – 09

67
 C u rre n t a sse ts T O R

4
3 .5
3
2 .5
R a tio 2
1 .5 C u rre n t a s s e ts TO R

1
0 .5
0
2005 2006 2007 2008 2009
Ye a r

Current Assets to Total Net Assets

This ratio explains the relationship between current assets and total investment in

assets. A business enterprise should use its current assets effectively and economically

because it is out of the management of these assets that profits accrue. A business will

68
end up in losses if there is any lack in managing the assets to the advantage of business.

Investment in fixed assets being inelastic in nature, there is no elbow room to make

amends in this sphere and its impact on profitability remains minimal.

Current Assets to Total Net Assets = Net Assets . .

Current Assets

Table - 10

Year Total Assets Current Assets Current Assets to

Total Net Assets
2005 31727 10454 3.03
2006 29930 9130 3.27

2007 34628 10151 3.41

2008 35995 10806 3.33

2009 39848 12571 3.16

Analysis and Interpretation: This ratio explains the relationship between current assets

and total investment in assets.The ratio was 3.03 in 2005, in 2006 it was increased to

3.27, and in 2007 it was increased to 3.41, in 2008 it was decreased to 3.33 and in 2009

it was further decreased to 3.16

GRAPH – 10

69
 C u r re n t A sse ts to T o ta l N e t A sse ts

3 .5

3 .4

3 .3

3 .2
R a ti o
3 .1 C u rre n t A s s e t s t o T o t a l
N e t A s s e ts
3

2 .9

2 .8
2005 2006 2007 2008 2009
Ye a r

Working Capital

Working capital turnover ratio indicates the velocity of the utilization of net working

capital. This ratio indicates the number of times the working capital is turned over in the

course of a year. It is a good measure over –trading and under-trading

70
Working capital = Net sales

Net working capital

Table No – 11

Year Net sales Net W.C WC

2005 32362 1048 31.07

2006 35137 2270 15.78

2007 39474 2019 16.46

2008 43251 2398 21.42

2009 43232 3815 11.83

Analysis and Interpretation:

The above table and diagram shows the relation ship between net working capital and net

sales. It was 31.07 in the year 2005 and as there was more working capital. The ratio

sloped downwards and reached 11.83 in the year 2009.

Graph no - 11

71
 WC

35
30
25
20
Units
15
WC
10
5
0
2005 2006 2007 2008 2009
Year

Debtors turnover ratio or accounts receivable turnover ratio indicates the velocity of

debt collection of a firm. In simple words it indicates the number of times average

debtors (receivable) are turned over during a year.

Formula

72
 Debtors Turnover Ratio = Net Credit Sales / Average Trade Debtors

or

Debtors Turnover Ratio = Total Sales / Debtors

Table No – 12

Year Net sales Avg Debtors Debtors Turnover

Ratio
2005 32362 3261 9.92
2006 35137 3725 9.34

2007 39474 4389 9.23

2008 43251 4683 8.99

2009 43232 4624 9.34

Analysis and Interpretation:

The above table and diagram shows the debtors ratio for the study period 2005 to 2009.

There is fluctuation in the debtors ratio. It was 9.92 in the year 2005. In 2006 it was 9.34

and 2007 it was 9.23. It was 8.99 in 2008 and 9.34in 2009.

Graph no: 12

73
 Debtors Turnover Ratio

10
9.8
9.6
9.4
Units 9.2
Debtors Turnover
9
Ratio
8.8
8.6
8.4
20052006200720082009
Ye a r

Average Collection Period Ratio:

The Debtors / Receivable Turnover ratio when calculated in terms of days is known as

Average Collection Period or Debtors Collection Period Ratio.

74
The average collection period ratio represents the average number of days for which a

firm has to wait before its debtors are converted into cash.

Formula

=Trade Debtors * No. of Working Days / Net Credit Sales

Or

= No. of Working Days/debtors turnover ratio

Table No – 13

Year No. of Working Debtors Average

Days Turnover Ratio Collection

Period Ratio
2005 360 9.92 36.29
2006 360 9.34 38.54

2007 360 9.23 39.00

2008 360 8.99 40.04

2009 360 9.34 38.54

Analysis and Interpretation:

The above table and diagram shows the Average Collection Period Ratio for the study

period 2005 to 2009. During the year 2005 it is 36.29 days, in 2006 it was 38.54 days and

in 2007 it was 39.00 days, and in 2008 it was 40.04 days. And during 2009 it is declined

to 38.54 days.

75
The company collection period is good as from the normal collection period which is 50

to 60 days.

Graph no: 13

Average Collection Period Ratio

41
40
39
38
Units
37 Average Collection
Period Ratio
36
35
34
2005 2006 2007 2008 2009
Ye a r

Working Capital to Debt Ratio

This ratio is obtained by dividing Working Capital by Debt. Measures the ability of a

company to eliminate its debt using its Working Capital.

76
Working Capital to Debt Ratio = Working Capital

Debt Ratio

Table No – 14

Year Working capital Debt Fund Working Capital to

Debt Ratio
2005 1048 2313 0.453
2006 2270 2550 0.890

2007 2019 4203 0.480

2008 2398 7400 0.324

2009 3815 7858 0.485

Analysis and Interpretation:

The above table and diagram shows the Working Capital to Debt Ratio for the study

period 2005 to 2009. During the year 2005 it is 0.453 in 2006 it was 0.890 and in 2007 it

was 0.480 and in 2008 it was 0.324. And during 2009 it is declined to 0.485.

Graph no: 14

77
 W o rk ing C a p ital to D eb t R a tio

0.9
0.8
0.7
0.6
0.5
U n its
0.4 W o rk in g C a p ita l to
0.3 D e b t R atio
0.2
0.1
0
20 0 5 20 0 6 2 0 07 2 0 08 2 0 0 9
Ye a r

78
 CHAPTER 05

FINDINGS

AND

RECOMMENDATIONS

Findings

The standard ratio of current asset is 2:1, but the company is maintaining more than
standard ratio where the ratio is 4.00 in the year 2002-03 and decreased in subsequent
years.

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The company has good working capital in the for all the years during the study period
i.e., 2005-09 which is good for the growth of the company.

The current asset to net total assets ratio explains the relationship between current assets
and total investment in assets. The ratio is above 3.00 for all the years.

Inventory turnover ratio for all the years is above on an average 7.00 times.

CA / FA Policy of the company during the study period. It was 1.20 in the 2005 and then
it started decreasing for the next three years and from there it began to increase and
ultimately came to 0.99 in the year 2009.

Ratio of inventory to current assets during the study period 2005-2009. It is on an average
20.4 for all five years.

There are fluctuations in the debtors’ ratio. It was 9.92 in the year 2005. In 2006 it was
9.34 and 2007 it was 9.23. It was 8.99 in 2008 and 9.34in 2009.

Suggestion

The company Current Ratio is less than the standard ratio, so the company’s dependence
on long –term source of funds is less.

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The liquidity position of company to satisfactory, this shows under stocking by the
company.

It is better for the company to have adequate working capital to run its business smoothly,
sound financial and statistical technique supported by judgment which should be used to
predict the quantum of working capital needs at different time period.

The surplus cash which organization has in its cash credit account can be invested in very
short-term investment avenues in order to activate the idle resources to reduce the
holding cost of the cash.

The company has to improve debtors by increasing sales volume and reducing debtors.
The collection period of 50 to 60 days is considered to be normal. So the company
collection period is good.

It is better in the interest of overall control of inventory cost that it adopts a more
scientific method that a more subjective benchmark of safety stock levels. Efforts should
be made to reduce the manufacturing cycle through, redesigning the job automation and
professional approach towards designing of productive system.
.

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CHAPTER 06

CONCLUSION

82
 Conclusions

PepsiCo has a sound financial status which it maintains as well. It has a

diversified product portfolio which contributed to its success in key markets. All this is

impossible without maintaining a financial health which is stable. The company has an

average current ratio in the last year of 1.45 which might raise certain apprehensions as

this ratio has been continuously falling and this is only marginally within the limit 2:1.

The quick ratio has declined over the years

Doubt may arise later in the future if the slide is not controlled but if all the current

assets are performing. The firm saves opportunity cost of excess investment in current

assets one of the latest trends in working capital management is zero working capital i.e.,

At all times the current assets shall equal current liabilities. Excess investment is current

assets should be avoided and the firm must meet its current liabilities by matching current

assets.

83
APPENDICES AND ANNEXURE

84
Income Statement of PepsiCo Inc

85
All amounts in millions except per share 12/2009 12/2008 12/2007 12/2006
amounts. (TTM) (TTM) (TTM) (TTM)
43,232.0 43,251.0 39,474.0 35,137.0
Operating Revenue
0 0 0 0
43,232.0 43,251.0 39,474.0 35,137.0
Total Revenue
0 0 0 0
Adjustment to Revenue 0.00 0.00 0.00 0.00
18,527.0 18,872.0 16,670.0 14,518.0
Cost of Sales
0 0 0 0
20,099.0 20,351.0 18,038.0 15,762.0
Cost of Sales with Depreciation
0 0 0 0
24,705.0 24,379.0
Gross Margin 0.00 0.00
0 0
24,705.0 24,379.0 22,804.0 20,619.0
Gross Operating Profit
0 0 0 0
R&D 0.00 0.00 0.00 0.00
15,026.0 15,877.0 14,208.0 12,774.0
SG&A
0 0 0 0
Advertising 0.00 0.00 0.00 0.00
Operating Profit 8,044.00 6,959.00 7,170.00 6,439.00
Operating Profit before Depreciation (EBITDA) 9,679.00 8,502.00 8,596.00 7,845.00
Depreciation 1,635.00 1,543.00 1,426.00 1,406.00
Depreciation Unreconciled 0.00 0.00 0.00 0.00
Amortization 0.00 0.00 0.00 0.00
Amortization of Intangibles 63.00 64.00 58.00 162.00
Operating Income After Depreciation 8,044.00 6,959.00 7,170.00 6,439.00
Interest Income 67.00 41.00 125.00 173.00
Earnings from Equity Interest 365.00 374.00 560.00 616.00
Other Income, Net 0.00 0.00 0.00 0.00
Income Acquired in Process R&D 0.00 0.00 0.00 0.00
Interest Restructuring and M&A 0.00 0.00 0.00 0.00
Other Special Charges 0.00 0.00 0.00 0.00
Total Income Avail for Interest Expense (EBIT) 8,476.00 7,374.00 7,855.00 7,228.00
Interest Expense 397.00 329.00 224.00 239.00
Income Before Tax (EBT) 8,079.00 7,045.00 7,631.00 6,989.00
Income Taxes 2,100.00 1,879.00 1,973.00 1,347.00
Minority Interest 33.00 24.00 0.00 0.00
Preferred Securities of Subsidiary Trust 0.00 0.00 0.00 0.00

Net Income from Continuing Operations 5,946.00 5,142.00 5,658.00 5,642.00

Net Income from Discontinued Ops. 0.00 0.00 0.00 0.00
Net Income from Total Operations 5,946.00 5,142.00 5,658.00 5,642.00

Extraordinary Income/Losses 0.00 0.00 0.00 0.00

Income from Cum. Effect of Acct Chg 0.00 0.00 0.00 0.00

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Balance sheet of PepsiCo Inc

87
All amounts in millions except per share amounts.
12/2009 12/2008 12/2007 12/2006
(TTM) (TTM) (TTM) (TTM)
Assets
Cash and Equivalents 3,943.00 2,064.00 910.00 1,651.00
Restricted Cash 0.00 0.00 0.00 0.00
Marketable Securities 192.00 213.00 1,571.00 1,171.00
Accounts Receivable 4,624.00 4,683.00 4,389.00 3,725.00
Loans Receivable 0.00 0.00 0.00 0.00
Other Receivable 0.00 0.00 0.00 0.00
Receivables 4,624.00 4,683.00 4,389.00 3,725.00
Raw Materials 1,274.00 1,228.00 1,056.00 860.00
Work In Progress 165.00 169.00 157.00 140.00
Purchased Components 0.00 0.00 0.00 0.00
Finished Goods 1,179.00 1,125.00 1,077.00 926.00
Other Inventories 0.00 0.00 0.00 0.00
Inventories -Adj Allowances 0.00 0.00 0.00 0.00
Inventories 2,618.00 2,522.00 2,290.00 1,926.00
Prepaid Expenses 1,194.00 1,324.00 991.00 657.00
Current Deferred Income Taxes 0.00 0.00 0.00 0.00
Other Current Assets 0.00 0.00 0.00 0.00
Total Current Assets 12,571.00 10,806.00 10,151.00 9,130.00
19,058.0
Gross Fixed Assets (Plant, Prop. & Equip.) 24,912.00 22,552.00 21,896.00
0
Accumulated Depreciation & Depletion 12,241.00 10,889.00 10,668.00 9,371.00
Net Fixed Assets 12,671.00 11,663.00 11,228.00 9,687.00
Intangibles 1,782.00 1,128.00 2,044.00 1,849.00
Cost in Excess 6,534.00 5,124.00 5,169.00 4,594.00
Non-Current Deferred Income Taxes 0.00 0.00 0.00 0.00
Other Non-Current Assets 6,290.00 7,273.00 6,036.00 4,670.00
20,800.0
Total Non Current Assets 27,277.00 25,188.00 24,477.00
0

29,930.0
Total Assets 39,848.00 35,994.00 34,628.00
0

Liabilities
Accounts Payable 8,127.00 8,273.00 2,562.00 2,102.00
Notes Payable 0.00 0.00 0.00 0.00
Short Term Debt 464.00 369.00 0.00 274.00
Accrued Expenses 0.00 0.00 0.00 0.00
Accrued Liabilities 0.00 0.00 2,894.00 2,587.00
Deferred Revenues 0.00 0.00 0.00 0.00
Current Deferred Income Taxes 0.00 0.00 0.00 0.00
Other Current Liabilities 165.00 145.00 2,297.00 1,897.00

88
Cash Flow Statements of PepsiCo Inc

89
 12/2009 12/2008 12/2007 12/2006
All amounts in millions except per share amounts.
(TTM) (TTM) (TTM) (TTM)
Operating Activities
Net Income (Loss) 5,979.00 5,166.00 5,658.00 5,642.00
Depreciation 1,635.00 1,543.00 1,426.00 1,406.00
Amortization 0.00 0.00 0.00 0.00
Amortization of Intangibles 0.00 0.00 0.00 0.00
Deferred Income Taxes 284.00 573.00 118.00 -510.00
Operating (Gains) Losses -1,307.00 -142.00 -323.00 134.00
Extraordinary (Gains) Losses 0.00 0.00 0.00 0.00
(Increase) Decrease in Receivables 188.00 -549.00 -405.00 -330.00
(Increase) Decrease in Inventories 17.00 -345.00 -204.00 -186.00
(Increase) Decrease in Prepaid Expenses -127.00 -68.00 -16.00 -37.00
(Increase) Decrease in Other Current Assets 0.00 0.00 0.00 0.00
(Increase) Decrease in Payables -133.00 718.00 500.00 223.00
(Increase) Decrease in Other Curr Liabs. 319.00 -180.00 128.00 -295.00
(Increase) Decrease in Other Working Capital -281.00 -391.00 0.00 0.00
Other Non-Cash Items 222.00 674.00 52.00 37.00
Net Cash from Continuing Operations 6,796.00 6,999.00 6,934.00 6,084.00
Net Cash from Discontinued Operations 0.00 0.00 0.00 0.00

Net Cash from Operating Activities 6,796.00 6,999.00 6,934.00 6,084.00

Investing Activities
Sale of Property, Plant, Equipment 58.00 98.00 47.00 49.00
Sale of Long Term Investments 0.00 358.00 315.00 318.00
Sale of Short Term Investments 71.00 62.00 140.00 2,046.00
Purchase of Property, Plant, Equipment -2,128.00-2,446.00-2,430.00-2,068.00
Acquisitions 15.00 -40.00-1,320.00 -485.00
Purchase of Long Term Investments -500.00-1,925.00 0.00 0.00
Purchase of Short Term Investments -29.00 -156.00 -496.00 -29.00
Other Investing Changes Net 112.00 1,382.00 0.00 -25.00
Cash from Disc. Investing Activities 0.00 0.00 0.00 0.00

Net Cash from Investing Activities -2,401.00-2,667.00-3,744.00 -194.00

Financing Activities
Issuance of Debt 1,057.00 3,719.00 2,251.00 236.00
Issuance of Capital Stock 413.00 620.00 1,108.00 1,194.00
Repayment of Debt -226.00 -649.00-1,057.00-2,683.00
Repurchase of Capital Stock -7.00-4,726.00-4,312.00-3,010.00
Payment of Cash Dividends -2,732.00-2,541.00-2,204.00-1,854.00
Other Financing Charges, Net -1,002.00 552.00 208.00 134.00
Cash from Disc. Financing Activities 0.00 0.00 0.00 0.00

90
Net Cash from Financing Activities -2,497.00-3,025.00-4,006.00-5,983.00

Effect of Exchange Rate Changes -19.00 -153.00 75.00 28.00

Net Change in Cash & Cash Equivalents 1,879.00 1,154.00 -741.00 -65.00

Cash at Beginning of Period 2,064.00 910.00 1,651.00 1,716.00

Cash at End of Period 3,943.00 2,064.00 910.00 1,651.00

91
BIBLIOGRAPHY

92
 BIBLIOGRAPHY

 Annual Reports Of PEPSICO INTERNATIONAL LTD

 General Articles and Magazines of PEPSICO INTERNATIONAL LTD.

 Financial Management.

• Reddy Appanniah,

 Cost & Financial Analysis, Kalyani Publication.

• S.P Jain

• K.L Narang,

Website:

 www.pepsico.com

 www.pepsiindia.com

 www.in.finance.yahoo.com

93