Expert answer:Financial Statement Analysis Assignment
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Accounting 212
Financial Statement Analysis Assignment
Use MS Word (double spacing) & Excel for all Answers
Part I – General Information Contents
How to Read Annual Reports:
http://www.ibm.com/investor/help/reports/index.html?tab=tab_BB
Read the information provided above and answer the following questions:
1. What are the optional and required (by SEC, Securities & Exchange Committee)
elements required in an annual report?
2. Describe the contents of the Management Discussion and Auditor’s Report.
Download PepsiCo 2016 Annual Report from Sakai and answer following questions:
A. Management’s Discussion and Analysis (MD&A)
Identify two primary drivers/issues that explain current and future results of
operations discussed in the MD&A. For example, the gross profit percentage increased
because of improved buyer/supplier relationship resulting in greater overall operating
performance.
B. Independent Auditor’s Report
a. Who was the company’s auditor and where is it located?
b. What is responsibility of the auditor?
c. Who is responsible for the preparation of and information within the company’s
financial statement?
d. The audit was conducted in accordance with what?
e. What was the opinion of the auditor?
Part II – Financial Data
** Use Excel or Table function in MS Word to create a table for every data that you used
in your analyses and the page number where they can be located. For example:
Data
Net Revenue
Accounts
Receivable
Page Number
63
98
You may use Table function in Word or Excel for data analysis.
C. Trend Analysis:
a. Make a 3-year trend analysis, using 2014 as the base year, of [1] net sales and [2]
net income.
b. Comment on the significance of the trend analysis results.
Due on November 30, 2017
D. Ratios Analysis (Include Formulas):
a. Compute for 2016 and 2016 the [1] profit margin, [2] asset turnover, [3] return on
assets, and [4] return on common stockholders’ equity. Comment on PepsiCo’s
profitability.
b. Compute for 2016 and 2015 the [1] debt to total assets and [2] times interests
earned ratio. How would you evaluate PepsiCo’s long-term solvency?
E. Other Resources:
a. Use the internet to search for THREE other resources that may assist you in
analyzing PepsiCo’s financial statements.
Submit a hard copy (printout) of the homepage (1st page only), including its URL
(only the homepage). State the reasons that they were selected.
b. For each of the sources, state how you would use the information obtained to
analyze the PepsiCo’s financial statements.
c. State whether the additional information confirms or contradicts your previous
assessments.
F. Based on the information collected and analyses, state your reasons why a potential
should / should not invest in PepsiCo. Be specific.
Due on November 30, 2017
Illustration by: Craig & Karl, designers of one of the first bottle labels for LIFEWTR,
PepsiCo’s new premium water brand. See Page 9.
2016 PepsiCo Annual Report | 02
Delivering Performance with Purpose
Our 2016 results demonstrate our
continued ability to generate attractive
shareholder returns while creating value
for all of our stakeholders.
3.7%
organic revenue growth1
cost savings since 2011
associated with environmental
sustainability initiatives
9%
$600M
core constant
currency EPS growth1
~25%
net revenue from
Everyday Nutrition2 products
>$7B
cash returned to shareholders through
dividends and share repurchases
annual savings enabled by
our productivity agenda
>$1B
1. Reported net revenue declined 0.4%, primarily due to foreign currency translation. Reported EPS increased 19%.
Organic, core and constant currency results, free cash flow excluding certain items, as well as ROIC and core net ROIC,
are non-GAAP financial measures. Please refer to “Reconciliation of GAAP and Non-GAAP Information” beginning on
page 146 of this Annual Report for definitions and more information about these results, including a reconciliation to the
most directly comparable financial measure in accordance with GAAP.
2. PepsiCo products with nutrients like grains, fruits and vegetables, or protein, plus those that are naturally nutritious
like water and unsweetened tea.
2016 PepsiCo Annual Report | 03
Dear Fellow
Shareholders,
Table of Contents
03 Letter to Shareholders
12 Financial Highlights
13 PepsiCo Board of Directors
14 PepsiCo Leadership
15 PepsiCo Form 10-K
146 Reconciliation of GAAP
and Non-GAAP Information
147 Forward-Looking Statements
148 Common Stock and
Shareholder Information
149 Corporate Information
Indra K. Nooyi
PepsiCo Chairman of the Board of Directors
and Chief Executive Officer
I’m so pleased to report that 2016 marked another
exceptional year for PepsiCo. Across the company,
we delivered top-tier financial performance, the
kind of performance that’s commensurate with
the confidence you’ve placed in us to steward this
iconic corporation.
Here is a snapshot of what we accomplished over the past year 1:
• As a result of a number of factors — from the strong positions we’ve built in growing
categories, to an expanding portfolio that includes 22 billion-dollar brands, to world-
class go-to-market systems and strong retail and foodservice partnerships — we
grew organic revenue 3.7%, in line with our goal of approximately 4%.
• Our core operating margins increased 80 basis points compared to 2015, enabled by
our topline performance and productivity agenda, which has yielded approximately
$1 billion in annual savings since 2012.
• Even as we’re growing our organic topline and expanding our core operating
margins, we’re also investing in the future of our company, increasing advertising and
marketing as a percent of sales by 145 basis points over the past five years — 40 basis
points over the past year alone. We’ve also increased our investment in research
and development (R&D) by 45% since 2011, spending approximately $3.5 billion
cumulatively on R&D over the past five years.
• Core constant currency earnings per share (EPS) grew 9% versus our initial goal of 6%.
This growth includes the impact of deconsolidating Venezuela in 2015, which caused
an approximately 2.5 percentage point drag on earnings. Excluding the impact of
deconsolidating Venezuela, core constant currency EPS grew 12%.
2016 PepsiCo Annual Report | 04
Transforming our Portfolio
We continue to meet changing taste preferences by offering
new products that appeal to health-conscious consumers and
expanding our Everyday Nutrition business, unlocking new
opportunities for topline growth.
Tropicana Essentials Probiotics
Quaker “Bring Your Best Bowl”
Tropicana Essentials Probiotics, a 100% juice with one billion
live and active cultures per serving, earned an “Innovation
of the Year” award from Beverage Industry magazine. The
brand was the first to bring probiotics to the mainstream
juice consumer.
Quaker set out to find its next oatmeal flavor by inviting
Americans to participate in the first-ever “Bring Your Best Bowl”
contest. Fans across the country helped celebrate the versatility
of oats by submitting unique and creative recipe ideas. Quaker
ran similar programs in China and India.
Sabra Spreads
Simply Snacks from Frito-Lay
Sabra launched Sabra Spreads, a line of wholesome, refrigerated sandwich spreads with 75% less fat than the leading
mayonnaise brand. The launch continued the expansion of the
Sabra brand into new categories, which now include guacamole, salsa and other dips.
Frito-Lay expanded its Simply lineup, offering great-tasting versions of classic snacks that appeal to changing consumer preferences. Simply Organic Tostitos chips are gluten free, non-GMO
verified, made with sea salt, and have no artificial colors, flavors,
or preservatives.
2016 PepsiCo Annual Report | 05
• Our disciplined capital allocation and
prudent working capital management
enabled us to improve core net return
on invested capital 190 basis points
to 21.5% and generate approximately
$7.8 billion in free cash flow, excluding
certain items, which substantially
exceeds our goal of more than
$7 billion.
• And we met our goal of returning
approximately $7 billion in cash to
shareholders through dividends
and share repurchases. In fact, we
increased our annualized dividend per
share for the 45th consecutive year
beginning with our June 2017 payment.
These are impressive accomplishments.
And they build on the progress we’ve
made over the 10 years I’ve had the honor
of serving as Chairman and CEO of this
great company. Looking back on the past
decade, our annualized total shareholder
return has been 8.2%, 130 basis points
ahead of the S&P 500. And our compounded annual dividend growth has
been roughly 10%. In fact, we’ve returned
almost $70 billion to you in the form of
dividends and buybacks.
By nearly any measure, that’s a strong
record of performance, especially during a period of time that witnessed the
2008 financial crisis and a number of
other major challenges. And reflecting
on the strength, the consistency, of that
performance today, I’m reminded of how
we achieved it. Part of the reason was
our momentum when I took the helm. As a
result of able stewardship by generations
of associates — from the c-suite to the
front line — we inherited a solid foundation, along with a proud legacy, that we
could build on.
But from the beginning, it was also
clear that if we wanted to make sure
our future was as bright as our past, we
needed to transform our company in a
number of critical ways.
With changing consumer preferences,
reflecting a growing shift toward a healthier
lifestyle in the U.S. and around the world,
we needed to transform our portfolio with
more nutritious options.
We continued to expand our range of beverages, offering consumers a set of choices that are
on-trend and well-positioned for future growth.
With increasing strains on natural resources, and the increasing importance governments were placing on protecting our planet, we needed to transform our operations to
limit our environmental footprint.
And with Millennials entering the workforce in large numbers, we needed to transform our workplace and our culture to make sure we were meeting the evolving
expectations of a new generation of associates.
The urgency of responding to all these shifts — the necessity of navigating a series
of demographic, environmental and societal trends that were challenging us like never
before — is what gave rise to the approach all of us have come to know as “Performance
with Purpose.” From the start, Performance with Purpose has been more than a slogan,
more than a single program. It has been an overarching vision — a governing philosophy — guiding every aspect of our business.
At heart, it’s about building a healthier future for all our stakeholders. And that starts
with generating healthy financial returns for all of you, my fellow shareholders. But the
truth is, that’s just table stakes. Our challenge is to do more than simply deliver healthy
returns. Our challenge is to deliver them consistently, sustainably, quarter after quarter,
year after year. And the way we’ll continue doing that is by doing the same thing we’ve
been doing over the past ten years. And that means:
• Making healthier foods and beverages for our consumers;
• Generating healthy growth for our retail and foodservice partners;
• Contributing to a healthier planet while boosting our bottom line;
• Creating a healthy workplace and culture for our associates; and
• Promoting healthier communities wherever we operate.
Together, these steps form a virtuous cycle that is powering our ongoing transformation
as a company, enabling us to do well by doing good, positioning us for success not
only over the short run, but also over the long run, and securing our place as one of the
defining corporations of the 21st century.
2016 PepsiCo Annual Report | 06
No.1
Driving Retail Sales
Cutting-edge consumer engagement
programs once again made PepsiCo a
powerful driver of food & beverage retail
sales growth around the world.
Clockwise: We launched a global campaign behind our UEFA Champions League
partnership, involving our iconic brands Pepsi and Lay’s; Gatorade introduced the “Future
of Sports Fuel,” showcasing breakthrough innovation that promises to change the way
athletes hydrate and fuel; Sabra launched its “Unofficial Meal” campaign, inviting consumers
to enjoy wholesome food together; and our PepsiMoji campaign spread across more than
100 markets globally.
3. Source: IRI Total Store Advantage ILD, POS data ending 12/25/16, IRI Consulting analysis.
Contributor to U.S.
Food & Beverage Retail
Sales Growth3
2016 PepsiCo Annual Report | 07
Making healthier foods and beverages for
our consumers
Our portfolio is wonderfully architected, offering
consumers a wide range of options from treats to
healthy eats, from beverages to snacks, from products that are right for the morning to products that
are right throughout the day. But what’s uniform
across our entire portfolio, what all of our products
hold in common, is that they’re all great tasting.
They’re all affordable. And they’re all convenient
and ubiquitously available.
These are — and always have been — the defining attributes of our portfolio. And that will never
change. But as I noted above, we’ve also been
transforming our company to meet the evolving
needs of our consumers around the world, shifting our portfolio toward a wider range of what we
call “Everyday Nutrition” products (i.e., products
with nutrients like grains, fruits and vegetables,
or protein, plus those that are naturally nutritious
like water and unsweetened tea) and “Guilt-Free”
products (i.e., our “Everyday Nutrition” products
plus beverages with 70 calories or less from added
sugar per 12-ounce serving, and snacks with low
levels of sodium and saturated fat).
That’s the transformation we’ve been pursuing. And it has been enabled by a series of critical
investments in R&D that are paving the way for
new flavors and sweeteners, as well as ingredients
and recipes. And we’re also investing in advanced
manufacturing technologies like our proprietary
frying innovation that can reduce the amount of fat
in a potato chip by 20%.
As a result of these and other investments, we’re
making our treats with less added sugar, sodium
and saturated fat, including rolling out new recipes
of Mirinda and 7UP with 30% less sugar in more
than 80 markets.
We’re dialing up our “Guilt-Free” portfolio, from
revamping our lineup of diet drinks with Pepsi Zero
Sugar to building on the success of Baked Lay’s
with a new lineup of baked products.
And we’re expanding our portfolio of “Everyday
Nutrition” products. Over the past year, Naked
Juice, on its way to being our next billion-dollar
brand, introduced Naked Cold Pressed. Tropicana
launched Tropicana Essentials Probiotics, becoming the first brand to bring probiotics to mainstream
juice consumers. And we also launched Quaker
Breakfast Flats, which we plan to roll out in more
than a dozen countries over the next two years.
Simply put, when it comes to transforming
our portfolio, we’re making considerable progress. In 2016, our beloved Pepsi-Cola trademark
We continue to tailor Quaker to local taste preferences and routines around the
world — expanding the brand into new categories and enabling more consumers to add
whole grains to their diet.
accounted for 12% of net revenue while our “Everyday Nutrition” products
accounted for roughly 25% and our “Guilt-Free” products comprised about 45%
of net revenue.
And yet, we also know our journey is far from complete. That’s why last
October, as part of our Performance with Purpose 2025 agenda, we announced
we’re doubling down on increasing people’s access to healthier choices. With
new nutritional goals informed by the latest guidelines from the World Health
Organization and others, we plan to further reduce added sugar, sodium and
saturated fat levels, while growing our “Everyday Nutrition” brands faster than
the balance of our portfolio.
Generating healthy growth for our retail and foodservice partners
As a result of all the steps we’re taking and all the investments we’re making
to position ourselves for success over the long run — from anticipating trends
that are reshaping our industry, to building a strong innovation pipeline, to
transforming our portfolio to meet consumers’ nutritional needs — we’re delivering top-tier growth for our retail partners.
In 2016, PepsiCo was once again the largest driver of growth for our food
and beverage retail partners in the U.S., contributing 18% of total food and
beverage retail sales growth, more than the next 15 largest manufacturers
combined. And we delivered a consistently high level of global performance
in a year marked by various macroeconomic headwinds across a number of
different markets.
We’re also powering our partners in a number of other ways: launching
phenomenal global campaigns like PepsiMoji in more than 100 markets;
helping create magical experiences, like our brand activations in the new
Shanghai Disney Resort; expanding our e-commerce capabilities; and
sponsoring must-see events like the Pepsi Super Bowl 50 Halftime Show, the
third-most-watched broadcast in U.S. television history — a feat surpassed
by the 2017 Halftime Show, sponsored by Pepsi Zero Sugar, the most-watched
musical event of all time across all platforms.
In fact, the strength of our customer relationships in the U.S. was reflected
in Kantar Retail’s 2016 PoweRanking® survey, where our retail partners named
us the number-one, best-in-class manufacturer — the first time we’ve been
awarded that honor. And according to the Advantage Report™, retailers
ranked PepsiCo first overall among fast-moving consumer goods suppliers
in the following countries and categories: Russia (Food and Beverage), the
UK (Food and Beverage), Poland (Food and Beverage), Romania (Food) and
Thailand (Food). Further, PepsiCo was ranked by retailers in the Advantage
2016 PepsiCo Annual Report | 08
Report™ as one of the top three suppliers in five
other countries. That’s an incredible achievement,
and it should make all of us proud.
In short, we’re doing an exceptional job delivering for our retail partners. But we cannot afford to
get complacent. We’re facing a challenging landscape that’s continually being disrupted, as old
players are dislodged and new entrants emerge.
And the only way we’ll continue succeeding is by
forging even stronger relationships, collaborating
even more closely, with our partners — from retail
to foodservice to e-commerce — driving growth in
2017 and beyond.
Contributing to a healthier planet while
boosting our bottom line
Over the past decade, one of the central planks of
Performance with Purpose has been protecting our
planet and conserving natural resources. And we’re
continuing to advance those efforts in a number of
ways — from responsibly managing water use to
shrinking our carbon footprint across our supply
chain to reducing our waste and packaging materials — not only because it’s the right thing to do, but
because it’s the smart thing to do for our business.
When it comes to responsibly managing water
use, we’ve been making meaningful progress. In
India, PepsiCo has developed and deployed a
direct seeding machine for rice farmers, enabling
growers to improve water efficiency by an average of roughly 30%. That accomplishment is part
of a global water stewardship strategy that also
improved water use efficiency by more than 25%
across our production locations around the world
from 2006 to 2015, surpassing our goal of 20% and
saving roughly $80 million over five years.
When it comes to energy efficiency, we’re
reducing our carbon emissions t …
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