Your parents are considering investing in PepsiCo, Inc., 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.

(a) Make a three-year trend analysis, using 2004 as the base year, of

(1) Net sales and

(2) Net income.

Comment on the significance of the trend results.

(b) Compute for 2006 and 2005 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 on December 31, 2004, were $27,987,000,000; and total stockholders’ equity on December 31, 2005, was $13,572,000,000.

(c) Compute for 2006 and 2005 the

(1) Debt to total assets ratio 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.?