In Word, prepare a one to two-page double-spaced memo to me from you interpretin
ID: 2754101 • Letter: I
Question
In Word, prepare a one to two-page double-spaced memo to me from you interpreting your findings. Name your word document: Last name [space] First name. You may choose anything you wish to discuss and highlight in your memo based upon your analysis. Remember, do not just regurgitate your calculations. I can read them on your spreadsheets. I am looking for your ability to analyze and interpret financial statements.
Consolidated Statement of Income (USD $) 12 Months Ended In Millions, except Per Share data, unless otherwise specified Dec. 27, 2014 Dec. 28, 2013 Income Statement [Abstract] Net Revenue $66,683 $66,415 Cost of sales 30,884 31,243 Gross Profit 35,799 35,172 Selling, general and administrative expenses 26,126 25,357 Amortization of intangible assets 92 110 Operating Profit 9,581 9,705 Interest expense -909 -911 Interest income and other 85 97 Income before income taxes 8,757 8,891 Provision for income taxes 2,199 2,104 Net Income (Loss), Including Portion Attributable to Noncontrolling Interest 6,558 6,787 Less: Net income attributable to noncontrolling interests 45 47 Net Income Attributable to PepsiCo $6,513 $6,740 Net Income Attributable to PepsiCo per Common Share Basic $4.31 $4.37 Diluted $4.27 $4.32 Weighted-average common shares outstanding Basic 1,509 [1] 1,541 [1] [1] Diluted 1,527 [1] 1,560 [1] [1] Cash dividends declared per common share $2.53 $2.24 [1] Weighted-average common shares outstanding (in millions).Explanation / Answer
When interpreting financial statements it is important to ascertain who are the users of accounts and what information they need:
Other potential users include:
Ratio analysis
Ratios use simple calculations based upon the interactions in sets of data. For example; changes in costs of sale are directly linked to changes in sales activity. Changes in sales activity also have an effect upon wages and salaries, receivables, inventory levels etc. Ratios allow us to see those interactions in a simple, concise format.
Traditionally financial statements analysis focuses on four key areas:
Profitability analysis is aimed at understanding the performance of a business over time with regard to specific performance measurement criteria.
Gross profit margin
On a unit basis the gross profit represents the difference between the unit sales price and the direct cost per unit. The margin works this out on an average basis across all sales for the year.
Gross profit margin is calculated as follows:
Gross profit / sales revenue x 100
Changes in this ratio may be attributable to:
the Gross profit Margin has increase in 2014 to 54%(35,799/66683)*100 from 53% in 2013 , this would mean that the overall revenue of the company has increased, or the cost of sales for the same revenue levels have decreased. In both the cases it is good signs for the company.
However the Net profit margin of the company have reduced from 10.22% in 2013 to 9.83%(6558/66684)*100 , this would mean that the company operating expenses have gone up more than the increase in the revenue levels, this is not a healthy sign for the company.
Return on Capital Employed
ROCE is an important analysis tool as it allows users to assess how much profit the business generates from the capital invested in it. Profit margins of different companies are not necessarily comparable due to different sizes and business structures. You could have one company that makes large profits but based on huge levels of investment. Shareholders may decide they can make similar returns in different companies without such a high initial investment required.
In simple terms ROCE measures how much operating profit is generated for every $1 capital invested in the business. It is calculated as follws:
Profit before interest and tax / capital employed x 100
Capital employed is measured as equity, plus interest-bearing finance, i.e. non-current loans plus share capital and reserves.
From the above table it could be implied that the return on capital employed has increased from 2013 to 2014. which are good indications for the company and its investors.
2014 2013 Long-Term Debt Obligations 23,821 24,333 Other Liabilities, Noncurrent 5,744 4,931 Total Equity 17,548 24,389 Capital employed 47,113 53,653 Net Income (Loss) 6,558 6,787 ADD: Interest 909 911 Taxes 2199 2104 Profir before interest and taxes 9,666 9,802 ROCE 20.52% 18.27%Related Questions
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