Strategic Initiative Paper

Strategic Initiative Paper

Founded in 1902, PepsiCo Incorporated is the world's second largest beverage and food business. PepsiCo employs approximately 280,000 people worldwide and in 2010 ranked among the 100 most ethical companies (Institute for Global Ethics, 2010). One reason for PepsiCo's global success is their compliance to strong ethical standards and industry guidelines. The SEC (Security and Exchange Commission) has established guidelines for publicly traded companies, giving investors and creditors access to information needed to evaluate investment risk or extend credit.

Our learning-team analysis examines data from PepsiCo's 2008 and 2009 annual reports and SEC filings to assess the role of ethics and compliance in PepsiCo's financial environment. The analysis will describe PepsiCo's procedures for ensuring ethical behavior and identify the processes used to comply with SEC regulations. Finally, the analysis will evaluate Pepsi-Co's financial performance using ratios and trends, and examine what the analysis reveals about PepsiCo's financial health.

Pepsi cola is the front-runner in an extremely successful customer goods industry, such as beverages and snacks. These types of goods are lucrative and provide positive cash flow. To sustain their success, Pepsi cola anticipates decreasing the budget cost of bottling and distribution. The company plans are to acquire several bottling plants in the vicinity of the consumer market to reduce the distributing and manufacturing cost. Similarly by employing the SAP ERP software, Pepsi cola anticipates the manufacturing and distribution procedures can be standardized.

The inventory management system better perform surveillance of the raw material inventory and improve accuracy of stock levels of goods allowing them to meet the need of

the market. By implementing this strategy, the cost of manufacturing and distribution will be

reduced and Pepsi cola will improve the profitability in the short and long-term beverage market. One initiative Pepsi cola identified in their annual report where to implement growth in the future. The United States and other developed countries are not expanding fast enough to accomplish their projected financial performance. Competition appears to be the major factor alongside health awareness and demanding economic circumstances. Because of these financial burdens Pepsi cola must take exploits to make certain the beverage business ensures financial growth.

The initiative strategies is based on induction of new products centered on nutritional products such as Quakers, Tropicana, and Gatorade in the global market for health and wellness in consumer packaged goods (The Power of PepsiCo Annual Report 2011). By expanding the beverages business in global market, Pepsi will be able to increase its sales and thereby making more profits. Introducing new goods in global market requires advertising, research, and partnership in the local market. Pepsi Cola anticipates some financial cost in the start but expect to recoup the cost over the long term.

PepsiCo is a Fortune 500 corporation with billions of dollars in assets and liabilities. The corporate officers of PepsiCo must navigate the business both domestically and internationally. Charged with the responsibility of managing the finances of this mega-corporation, company leaders must follow ethical practices and remain in compliance with financial accounting and reporting standards to continue honorable business practices that do not compromise the integrity of organizational operations or reputation.

Financial ratios demonstrate the financial stability of a company. A review of PepsiCo's performance from 2008 and 2009 will use the ratios outlined by Keown, Martin, Petty, and Scott (2005) and the annual reports filed with the Securities and Exchange Commission (SEC). The current ratio measures a company's liquidity through comparing liquid assets, also called current assets, to the company's liquid debt, also called current liabilities. The current ratio demonstrates the short-term debt-paying ability of a company (Weygandt, 2008). The current assets and current liabilities are on the balance sheet. In review of PepsiCo, the company confirms an improvement from 1.23% in 2008 to 1.44% in 2009. To calculate this ratio, divide current assets of 12,571 million, by the current liabilities of 8,756 for 2009, and for 2008, divide the current assets of 10,806 million, by the current liabilities of 8,787 million.

The debt ratio measures how much debt the company uses to finance its assets. The ratio divides the total debt by the total assets. PepsiCo improved its debt ratio from 0.65 in 2008 down to 0.56 in 2009. The 2009 ratio of 0.56 was determined by dividing the total debt of 22,406 million by the total assets of 39,848 and the 2008 ratio was determined by dividing the total debt of 23,414 million by the total assets of 35,994 million.

The return on common equity ratio is determined by dividing the net income by the common equity. The purpose of analyzing the return on equity is to measure the company's earning capabilities and the stockholder returns. The DuPont analysis is a common method for measuring the return on equity. PepsiCo had a small decrease in the common equity ratio between 2008 and 2009. The net income in 2008 of 5,166 million divided by the common equity of 12,203 million provides a ratio of 0.42. The ratio in 2009 decreased to 0.35 with the net income of 5,946 million divided by the common equity of 16,908 million.

The days receivable ratio is determined by dividing the receivables turnover ratio by the number of days in the year. The receivables turnover ratio is determined by dividing the credit sales by the accounts receivable. The purpose of measuring the days receivable and the receivable turnover is to demonstrate how quickly the company collects its credits. PepsiCo had a receivable turnover of 9.11 at the end of 2008, which increased to 9.37 at the end of 2009 (ycharts, n.d.).

With the introduction of new products, there is usually a high risk associated with the initiative and financial effects. For PepsiCo, this is no different. Introduction of new products come with several other requirements. When a new product line is set to be put into production, one main thing PepsiCo must ensure is will the product be accepted or not in a certain area. Not all regions of