Running head: FINANCIAL REPORTING PROBLEM, PART I
Financial Reporting Problem, Part I
ACC/290
University of Phoenix
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FINANCIAL REPORTING PROBLEM, PART I
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Financial Reporting Problem, Part I
The company’s annual report is important because it gives the shareholders a clear
picture and understanding about how the company is doing financially. The annual reports
provide thorough information on very significant section of the accounts, such as the balance
sheet, the income statement, and the cash flow statement. The information presented in the
annual report would also be essential to potential investor, employee, and any other people that
may have interest in financial aspect of the business.
The company’s total assets at the end of 2009 were $39,848,000 (PepsiCo, n.d.).
However, in 2010 its most recent annual report shows an increase to the previous annual
reporting period of $28,305,000 that brings PepsiCo’s total assets to $68,153,000 (PepsiCo, n.d.).
This information is important because it demonstrate what the company owns. It gives an
understanding of the financial condition of the company, whether or not there have been
improvement from the previous years.
The current assets are the first thing on the balance sheet under the asset column. A
company lists all of the possessions that it may convert into cash in a short period, that normally
takes place with a year or less. Because these assets can easily turn into cash the company refers
to them as “liquid” assets. Cash and cash equivalents are the most liquid assets found within the
asset portion of a company’s balance sheet. PepsiCo’s cash and cash equivalents for the year
end December 25, 2010 are $17,569,000 whereas; in 2009 the company had $12,571,000 in cash
and cash equivalents (PepsiCo, n.d.). PepsiCo had a $4,998,000 increase in cash and cash
equivalents. This includes short-term investments, accounts and notes receivable, inventories
and prepaid expenses, and other current assets. This represents the company’s liquidity. The
FINANCIAL REPORTING PROBLEM, PART I
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more cash and short-term investments on hand, the lower a firm’s risk of failure because
management can use the money to carry through tough periods.
Accounts payable is the money in which a company owes vendors for products and
services purchased on credit. In reviewing the most recent financial statement for PepsiCo the
have a total amount of $10,923,000 owed to vendors (Yahoo Finance, 2011). This is one of the
largest current liabilities because of the fact the companies are constantly ordering new products
or paying vendors for services or merchandise.
As shown on PepsiCo’s balance sheet, the company recorded $8,292,000 in their
accounts payable for their previous annual reporting period, 2009 (Yahoo Finance, 2011). This
says that PepsiCo purchased $8,292,000 in supplies, products, and services on credit. They were
liable to pay this amount to their vendors and suppliers at the time they were due.
Net revenues are proceeds from a sale of an asset, minus the commissions, taxes, and
other expenses related to the sale. For example, a case a Pepsi was sold in a store. The net
revenue made from that sale, what money is left after the expenses, commissions, and taxes are
paid. Another example of net revenue would be the profit made from the sale of a truck, land, or
building that PepsiCo owned. PepsiCo reported $31,263,000 in net revenues for 2010 (Yahoo
Finance, 2011). This is an increase of $8,130,000 from the reported net revenues of $23,133,000
in 2009. In 2008 however, PepsiCo reported $22,900,000 in net revenues (Yahoo Finance,
2011). This is an increase of $233,000 between 2008 and 2009. As shown, there was a bigger
increase in net revenues between 2009 and 2010.
Net income is one of the most important indicators of a business’ financial health. The
net income is generally the amount remaining after the expenses have been met or deducted.
They usually call this information the bottom line because it is found on the last line of the
FINANCIAL REPORTING PROBLEM, PART I
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income statement. As of December 25, 2010, PepsiCo’s total net income was $6,320,000, which
gives the company a net increase of $374,000 compared to December 26, 2009 when the net
income was $5,946,000 (Yahoo Finance, 2011). The purpose of net income is to compare other
figures in financial ratios to provide further information about the company’s overall health. For
example, analysts can divide the net income by total sales to determine the company’s rate of
return on sales. They give an indication of the amount of profit the company can earn for every
dollar of sales.
PepsiCo reported their total current assets at the end of their most recent annual reporting
period, 2010, at $17,569,000 (Yahoo Finance, 2011). This figure includes their current assets
such as cash and cash equivalents, short-term investments, net receivables, and inventory. Cash
includes currency on hand as well as deposits in their financial institution. Cash equivalents are
investments with maturities of three months or less. The intention of the company is to sell the
short-term investments in a short time, usually within one year. These include trading securities,
available for sale securities, and held to maturity securities. Net receivables are the amount due
from customers or clients within one year on the balance sheet date. The inventory will include
the raw materials, work in process, and finished goods. They value these at the lower to cost or
market.
In 2009, PepsiCo reported $12,571,000 in their total current assets (Yahoo Finance,
2011). It is evident that between the years of 2009 and 2010 their total current assets increased
$4,998,000.
In conclusion, the annual report information above is very significant to the business, and
may be useful for different reasons. The owners can use the information to decide whether or
not they should continue to operate. The information on the total assets and the amount of the
FINANCIAL REPORTING PROBLEM, PART I
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accounts payable can benefit potential investors because it shows them strong the company is
financially, by stating what the company owns and how much it owes. Therefore, they can
presume the chance of the company existing temporarily. The finance department the
information above to make reasonable “decision about debt and equity financing and how to
distribute in dividends” (Kimmel, Weygandt, & Kieso, 2011, p. 41). On the other hand, the
human resources department can evaluate how much cash the company has and its total revenues
to figure out how much raises to give the employees. In the end “if employees can read and use
financial reports all employees will be better informed about the basis on which they are
evaluated, which will increase employee morale” (Kimmel, Weygandt, & Kieso, 2011, p. 41).
FINANCIAL REPORTING PROBLEM, PART I
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PepsiCo, Inc. (PEP)
Balance Sheet
View: Annual Data | Quarterly Data
Period Ending
All numbers in thousands
Dec 25, 2010
Dec 26, 2009
Dec 27, 2008
5,943,000
3,943,000
2,064,000
426,000
192,000
213,000
Net Receivables
6,323,000
4,624,000
4,683,000
Inventory
3,372,000
2,618,000
2,522,000
Other Current Assets
1,505,000
1,194,000
1,324,000
Total Current Assets
17,569,000
12,571,000
10,806,000
Long Term Investments
1,368,000
4,484,000
3,998,000
Property Plant and Equipment
19,058,000
12,671,000
11,663,000
Goodwill
14,661,000
6,534,000
5,124,000
Intangible Assets
13,808,000
2,623,000
1,860,000
-
-
-
1,689,000
965,000
2,324,000
-
-
219,000
68,153,000
39,848,000
35,994,000
Assets
Current Assets
Cash And Cash Equivalents
Short Term Investments
Accumulated Amortization
Other Assets
Deferred Long Term Asset Charges
Total Assets
Liabilities
Current Liabilities
Accounts Payable
10,994,000
8,292,000
6,494,000
Short/Current Long Term Debt
4,898,000
464,000
369,000
-
-
1,924,000
Total Current Liabilities
15,892,000
8,756,000
8,787,000
Long Term Debt
19,999,000
7,400,000
7,858,000
Other Liabilities
6,729,000
5,591,000
7,017,000
Deferred Long Term Liability Charges
4,057,000
659,000
226,000
312,000
638,000
-
-
-
-
Other Current Liabilities
Minority Interest
Negative Goodwill
FINANCIAL REPORTING PROBLEM, PART I
Total Liabilities
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46,989,000
23,044,000
23,888,000
Stockholders' Equity
Misc Stocks Options Warrants
(109,000)
(104,000)
-
Redeemable Preferred Stock
-
-
Preferred Stock
-
-
-
Common Stock
31,000
30,000
30,000
Retained Earnings
37,090,000
33,805,000
30,638,000
Treasury Stock
(16,745,000)
(13,383,000)
(14,122,000)
Capital Surplus
4,527,000
250,000
351,000
Other Stockholder Equity
(3,630,000)
(3,794,000)
(4,694,000)
Total Stockholder Equity
21,273,000
Net Tangible Assets
Currency in USD (Yahoo
(7,196,000)
(97,000)
16,908,000
12,203,000
7,751,000
5,219,000
Finance, 2011).
PepsiCo, Inc. (PEP)
Income Statement
View: Annual Data | Quarterly Data
All numbers in thousands
Period Ending
Dec 25, 2010
Dec 26, 2009
Dec 27, 2008
Total Revenue
57,838,000
43,232,000
43,251,000
Cost of Revenue
26,575,000
20,099,000
20,351,000
Gross Profit
31,263,000
23,133,000
22,900,000
-
-
-
22,814,000
15,026,000
15,901,000
-
-
-
117,000
63,000
64,000
-
-
-
8,332,000
8,044,000
6,935,000
68,000
67,000
41,000
9,135,000
8,476,000
7,350,000
Operating Expenses
Research Development
Selling General and Administrative
Non Recurring
Others
Total Operating Expenses
Operating Income or Loss
Income from Continuing Operations
Total Other Income/Expenses Net
Earnings Before Interest And Taxes
FINANCIAL REPORTING PROBLEM, PART I
Interest Expense
8
903,000
397,000
329,000
Income Before Tax
8,232,000
8,079,000
7,021,000
Income Tax Expense
1,894,000
2,100,000
1,879,000
Minority Interest
Net Income From Continuing Ops
(18,000)
7,055,000
(33,000)
-
6,311,000
5,142,000
Non-recurring Events
Discontinued Operations
-
-
-
Extraordinary Items
-
-
-
Effect Of Accounting Changes
-
-
-
Other Items
-
-
-
6,320,000
5,946,000
5,142,000
-
-
-
6,320,000
5,946,000
5,142,000
Net Income
Preferred Stock And Other Adjustments
Net Income Applicable To Common Shares
Currency in USD (Yahoo
Finance, 2011).
FINANCIAL REPORTING PROBLEM, PART I
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References
Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2011). Financial accounting: Tools for business
decision making (6th ed.). Hoboken, NJ: John Wiley & Sons.
PepsiCo. (n.d.). Investors. Retrieved from http://www.pepsico.com/Investors/AnnualReports.html
Yahoo Finance. (2011, June). PepsiCo, Inc. (PEP). Retrieved from
http://finance.yahoo.com/q/bs?s=PEP&annual