Your parents are considering investing in PepsiCo, common stock. They ask you, as an accounting expert, to make an analysis of the company for them. Fortunately, excerpts from a current annual report of PepsiCo are presented in Appendix A of this textbook. Note that all dollar amounts are in millions.

Instructions

(Follow the approach in the chapter for rounding numbers.)

(a) Make a 5-year trend analysis, using 2003 as the base year, of

(1) Net sales and

(2) Net income. Comment on the significance of the trend results.

(b) Compute for 2007 and 2006 the

(1) Profit margin,

(2) Asset turnover,

(3) Return on assets, and

(4) Return on common stockholders’ equity. How would you evaluate PepsiCo’s profitability? Total assets at December 31, 2005, were $31,727, and total stockholders’ equity at December 31, 2005, was $14,320.

(c) Compute for 2007 and 2006 the

(1) Debt to total assets and

(2) Times interest earned ratio. How would you evaluate PepsiCo’s long-term solvency?

(d) What information outside the annual report may also be useful to your parents in making a decision about PepsiCo, Inc.?