Refer to Exhibit 2, which contains the PepsiCo Inc. listing from Mergent’s Handbook of Dividend Achievers. Assume that an investor has asked you to assess PepsiCo’s recent history and prospects. Write a memorandum to the investor that addresses the following points:
1. PepsiCo’s earnings history. What has been the general relationship between PepsiCo’s return on assets and its return on equity over the last seven years? What does this tell you about the way the company is financed? What figures back up your conclusion?
2. The trend of PepsiCo’s stock price and price/earnings (P/E) ratio for the seven years shown.
3. PepsiCo’s prospects, including developments likely to affect the company’s future.
Interpreting Financial Reports Trend Analysis