PepsiCo’s Financial Review and R&D Review Term Paper

Financial analysis

PepsiCo had the mission of increasing the value for investments done by the shareholders. To achieve the mission they reduced the costs and increased the sales as well as controlled the investment resources.

Through the analysis, the company was able to increase the value of the investments through the increased sales in the market, investment of resources that was done wisely and successful management of costs (Helfert, 1996). They therefore need to increase the quality and value of the products by producing safe products to the human health as well as environmental friendly.

Objectives

PepsiCo’s objective is to increase the value of the shares invested by the stakeholders as well improving the quality of the products supplied in the market. They intend to achieve the objective through the integration of finance, operational and investment activities.

They also want to expand the global market to increase the sales and by doing so they have directed their energies in businesses where they expect growth. Their plan for growth therefore has been linked to the issue of exploiting the opportunities and managing the risks associated with the business in the market (Annual Review, 2007).

The company intends to support life of the society through the arrangements of supporting social agencies as well as coordinating projects and programs that support life in the community. The range of support varies from supporting the employees with voluntary activities, offering local program sponsorships as well as contributing to programs that support the nation. By doing all these, the company will have achieved the objective of improving the quality of life in the community (PepsiCo sustainability report, 2007).

Strategies

Revenue, earnings, cash flow and margins

To maintain and expand in the global market the company has moved to the production of alternative drinks with low fat content like dips as a technique of minding the health of consumers as well as attracting more customers to enhance growth.

The strategy of bottling increased the income revenue in the year 2010 to $735 million though it later decreased 2011. The net income increased.by 2% in 2011 as compared to 2010 and the net income per share increased by 3% (Annual Review, 2007).

In the cash flow statement of PepsiCo, the analysis shows that the net cash provided by operating activities increased from $6,796 million in 2009 to $8,448 million in 2010 and later to $8,944 million in 2011.

The operating capital realized was $264M in 2009, $763M in 2010 and $844M in 2011 while the net cash used for investing activities was $2,401 in 2009, which increased to $7,668M in 2010 and later decreased to $5,618M in 2011(PepsiCo sustainability report, 2007).

Between the years 2009 to 2011, PepsiCo had an increased annual earnings growth that is from $5,979 million in 2009 to $6,338 million in 2010 and later to $6,462 million in 2011 and this shows an average of 8% growth annually for 2009 as compared to the previous years and 12% increase between 2020 and 2011. For the years 2010 and 2011, the earning per share increased to 12%, which leads to an increased purchase of shares hence its expansion (PepsiCo sustainability report, 2007).

PepsiCo has maintained a 14% net profit margin for the years 2009-2011 though this is lower as compared to its competitor Coca Cola. In terms of dividends, the company has maintained a steady increase for the past several years with a current yield of over 2.8% (PepsiCo vision and strategy, 2007).

In the analysis of the assets of the company realized an increase in the cash and cash equivalents between the years 2009 $3.9 billion and $5.9billion in 2010 but it decreased in 2011 to $4.06billion. Short term investments increased form $192 million in 2009 to 426 million 2010 but later decreased in 2011 to $358 million.

The accounts and notes receivable, net was $4.6 billion in 2009, $6.9 billion in 2010 and 6.9billion in 2011 and the total assets realized in 2009 was $39.8 billion, $68.1 billion in 2010 and $72.8 billion in 2011 (PepsiCo sustainability report, 2007).

The company experienced the repurchasing of shares by the shareholders and this has facilitated its growth as well as expansion. The company had therefore a repurchase in the years 2010 to 2011, which was equal to a net of $15 billion. PepsiCo’s balance sheet indicates a great growth for company in terms of its assets as well as its total liabilities, which has been increasing steadily between the years 2009 to 2011(Annual Review, 2007).

The company has tried to improve sales through the strategy of exclusiveness with restaurants as a way acquiring an advantage in the channel distribution. The company therefore purchased Taco Bell to create a channel of increasing sales in restaurants. Funds obtained from schools where they have established chains of supply are used to purchase textbooks (PepsiCo sustainability report, 2007).

Policies

The company’s policy is that they have corporate programs to train the employees on management issues and other relevant training for them to deliver services of high quality. In the delivery of services, PepsiCo ensures that the cultures of different nations are catered for as well as treating the customers equally and with respect.

The privacy of the customers is maintained for them to gain confidence especially those who visit the website. Another policy in PepsiCo that has helped it grow is the act of diligently employing qualified staff to work in the company (PepsiCo sustainability report, 2007).

The top management of the company tries to ensure that PepsiCo is in a position to deliver in every quarter of the year. As much as there are challenges in achieving this, the management has engaged in exploring the worldwide market as well as penetrating into the new markets in countries like Russia and India for them to increase sales and realize growth in the market (Annual Review, 2007).

Research and development

The research and development department in PepsiCo carries out various types of researches and development activities to give new insights of what is expected of the company in the market. The activities revolve around the production of new products, improvement of production processes, expanding the products as well as improving the quality of the products in the market and improving the way of serving the clients (PepsiCo vision and strategy, 2007).

Through the research, the company had the objectives of reducing the fat contents in the products they produced, decrease the content of sodium in the products, elimination of sugary soft drinks sold to primary and secondary students and the increased production of health foods by use of healthy ingredients. These changes will therefore enable PepsiCo meet the changing patterns of the consumer demands (Annual Review, 2007).

The use of computerized processes in the manufacturing of products has contributed greatly to the quality bottling of the beverages as well as facilitating an easy and quick way of packing. For a company to win an advantage in the competitive market it should ensure that the mode of distributing the services as well as products to the intended customers is efficient and reliable.

PepsiCo has therefore an invented technology, which helps the company to control inventory and keep in touch with distributing agents for easy communication. The technology helps in carrying out the logistics of the company since the company is able to monitor and know the sales made in various regions, which helps to put more efforts in order to expand the market (PepsiCo sustainability report, 2007).

In the manufacturing of soft drinks, the technology that is involved is readily available and therefore many companies develop interest of engaging in the business. For the company to enter into the market, it should engage in advertisement to inform the public about its products and the necessary details to attract their attention. The company has a challenge in distributing the products especially to the new markets like in China where the means of transport is not good (PepsiCo vision and strategy, 2007).

Due to the changes in the consumer demands competitors take advantage to market their products. The market growth of soft drinks is expected to rise at a slow rate in the four consecutive years. Through the analysis, the company has experienced growth for the three years that is 2009 to 2011 and still the company hopes for a great growth in the coming years. This is because as much as Coca Cola has taken roots in the market the greater opportunity for growth is in the other non-Coca Cola segments (Annual Review, 2007).

Out of all the strategies that PepsiCo intends to follow in realizing the vision, the management settles on the idea of diversification in the production and continuous growth of the company as a way of strengthening their presence in the market. PepsiCo should therefore focus on the issue of diversifying the selection of their beverages as a way of outdoing Cola Company in the market (PepsiCo sustainability report, 2007).

References

Annual Review. (2007). Annual review 2007 for Pepsi company. AngelFire. Web.

Helfert, E. (1996). Techniques of financial analysis: A practical guide to measuring business performance. California: McGraw-Hill.

PepsiCo sustainability report. (2007). PepsiCo sustainability report 2007. Web.

PepsiCo vision and strategy. (2007). PepsiCo inc. 2007: Pepsi incorporated. Web.

PepsiCo’s Financial Review and R&D Review

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