Pepsico Case Study Essay
Pepsico Case Study
1. I felt that Nooyi’s Letter to Shareholders was fairly effective. She starts by mentioning that “the greatest challenge in business today is to renew a successful company through positioning for long-term growth and profitability but also performing in the current marketplace.” Her opening statement accurately reflects her emphasis in the letter. She goes on to make several statements that are important for investors to hear about making investments for future growth. She highlights Pepsi’s ongoing global growth initiatives (innovating globally by delighting locally) and also discusses Pepsi’s healthier offerings, both of which I feel are appealing concepts for shareholders in today’s market. She also makes some important statements about ongoing efficiency and leveraging the brand. Her letter does a good job of answering potential questions that the stockholders may have on thePepsico Case Study current status of the company as well as future plans. While her focuses are effective, I felt that some additional detail about growth within their “healthy” segment could’ve helped her argument as well as continued discussion on Pepsi’s ethics. Overall, her letter is a great pitch for prospective investors domestically and abroad.
2. Management’s Discussion and Analysis seemed to paint a more pessimistic view of the future of PepsiCo than Nooyi’s letter. They bring up several factors in order to prepare shareholders for potentially rough times. Part of these factors includes mention of a California proposition, which would force warning labels on unhealthy food. Potential layoffs and a possible knock to Pepsi’s credit rating are also discussed. Furthermore, management recognizes that they are operating in a highly competitive market. Some of Pepsi’s core, high margin products are losing market share to Coke products. Ongoing success is dependent on effective promotion and marketing and Coke has been a leader in this area. Pepsi management recognizes the need to innovate to remain competitive and proper positioning is key. It could prove to be an issue if they don’t properly anticipate shifts in demand. There are also concerns about potential climate changes, and other regulatory measures. These things could severely impact production and demand for certain segments of Pepsi’s products.
4. Market to Book Ratio compares the market value of the firm’s investments to their cost. Current Ratio is current assets divided by current liabilities and gives a measure of short-term liquidity. Debt to Equity Ratio is a measure of a company’s financial leverage calculated by dividing its total liabilities by stockholders equity. Total Asset Turnover is sales divided by total assets and assists with an understanding of dollars generated relative to dollars in assets. Times Interest Earned Ratio measures how well a company has its interest obligations covered and is calculated by dividing EBIT by Interest. Profit Margin is calculated by dividing net income by sales. ROA is a measure of profit per dollar of assets and ROE is a measure of how stockholders fared during the year. Finally, EPS gives us market price per share of stock by dividing net income by shares outstanding.
5. Over the past three years, revenues and expenses have increased. Net profits have also increased. Debt to Equity has increased over the last few years. Profit margins have decreased and focus has shifted to less profitable products. ROA has been decreasing as well. Daily sales in inventory are decreasing. Intangible assets, including goodwill, have greatly increased. Also, Return on Capital Investment has decreased.
7.Operating Activities: 1) Other net decreased by $688. 2) Accounts Receivable is increasing. Financing Activities: 1) Acquisition of non-controlling interests 2) Cash Dividends 3) Repurchase of dividends 4) Long term debt is down from 2010-2011. Investing Activities: 1)Acqusition of WBD 2) Change in Gross Fixed Assets (decreasing debt in 2011)
8.In her Letter to Shareholders, Chairman Nooyi made a good case for increasing shareholder value in the short and long runs. She’ll need to encourage management to continue to innovate and achieve high sales in the current market while at the same time focusing on future investment and continued global expansion and presence. Transparency with investors is important for building trust and confidence. Marketing and promotion will be another key element to PepsiCo’s continued growth among the high level of competition already existing in their many segments. Reduction of accounts
receivable can lead to better bottom line results, efficiency, and reduction of long-term debt through the repayment of principle. PepsiCo should also continue to expand its “healthy” product line such as sports drinks, whole grain healthy snacks, etc. to take advantage of market trends.