Mondelez International The bold is the ratio required in the homework assignment. All numbers from the SEC 10 k forms unless otherwise cited. Links in each ratio is the link to the calculator used. Current Ratio 2016 - .59:1 / 2017 - .48:1 https://www.bankrate.com/calculators/business/current-ratio.aspx Need: current assets & current liabilities Mondelez current assets: 2016-8480 2017-7520 Mondelez current liabilities: 2016-14417 2017-15793 Inventory Turnover 2016 – 6.09 / 2017 – 5.95 Need: cost of goods sold, beginning inventory, ending inventory No inventory for formula list so looked it up: End of 2016 was 6.09 End of 2017 was 5.95 https://csimarket.com/stocks/singleEfficiencyit.php?code=MDLZ&hist=2 Debt Ratio 2016 - .5903 / 2017 - .5850 http://financeformulas.net/Debt-Ratio.html#calcHeader Need: total liabilities & total assets Mondelez total liabilities: 2016-36323 2017-36918 Mondelez total assets: 2016-61538 2017-63109 Time Interest Earned 2016 – 2.823 / 2017 – 7.889 https://www.miniwebtool.com/times-interest-earned-ratio-calculator/ Need: EBIT (earnings before interest and taxes) & total interest Mondelez EBIT: 2016-1454 2017-3124 Mondelez total interest: 2016-515 2017-396 Gross Profit Margin 2016 – 1.45:1 / 2017 – 1.24:1 https://www.bankrate.com/calculators/business/gross-ratio.aspx Need: sales & cost of goods sold Mondelez net sales: 2016-10923 2017-12781 Mondelez cost of goods – couldn’t find this wording, per the below link, cost of sales is the same thing. https://www.investopedia.com/ask/answers/112614/whats-difference-between-cost-goods-sold-cogsand-cost-sales.asp 2016-15795 2017-15831 Equity Multiplier 2016 – 2.441 / 2017 – 2.410 http://financeformulas.net/Equity_Multiplier.html#calcHeader Need: total assets & stockholder’s equity Mondelez total assets: 2016-61538 2017-63109 Mondelez stockholder’s : 2016-25215 2017-26191 Return on Assets 2016 - .014 or 1.4% / 2017 - .025 or 2.5% http://financeformulas.net/Return_on_Assets.html#calcHeader Need: net income & avg total assets Mondelez net income: 2016-839 2017-1604 Mondelez total assets: 2016-61538 2017-63109 Net Profit Margin 2016 – 7.68% / 2017 – 12.55% http://financeformulas.net/Net_Profit_Margin.html#calcHeader Need: net income & sales/revenue Mondelez net income: 2016-839 2017-1604 Mondelez net sales: 2016-10923 2017-12781 Return on Equity (Use three ratio DuPont method) 2016 – 3.33% / 2017 – 6.12% https://www.calkoo.com/en/roe-calculator Need: net income, net sales, total assets, total equity Mondelez net income: 2016-839 2017-1604 Mondelez net sales: 2016-10923 2017-12781 Mondelez total assets: 2016-61538 2017-63109 Mondelez stockholder’s : 2016-25215 2017-26191 1 Financial Ratio Analysis Pepsi Kim Marie Brad Simon 07/30/2018 FINANCIAL RATIOS 2 FINANCIAL RATIOS Financial ratios analysis provides an overview of the company’s strengths and weaknesses to guide investors, shareholders, lenders and the management to make decisions leading to profits and survival (Zhong, 2011). The analysis of PepsiCo financial ratios is based the SEC 10-k submitted the annual report. The values have been compared between 2016 and 2017 to identify the key areas that need attention and assess the company performance in the industry. THE CURRENT RATIO This refers to the analysis of the company’s current assets and current liabilities to determine the ability of the company to pay short-term liabilities and operate. Current ratio is the measure of short-term liquidity of the company because short-term liabilities and short-term assets can be converted to cash within 1 year of trading and thus this can be very useful to lenders and creditors. 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑠𝑠𝑒𝑡𝑠 Coregent ratio= 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 Current assets ($billions) 2016- 27,057 2017- 30,981 Current liabilities 2016-21,135 2017-20,502 FINANCIAL RATIOS 3 27057 The 2016 current ratio= 21135 CR= 1.28 30981 The 2017 current ratio= 20502 CR= 1.51 The ratio values for 2017 and 2016 are 1.51 and 1.28 respectively. Both values display positive numbers thus the business is viable to pay all short term debts (stability). The current ratio increased by 0.23 in 2017. This resulted from an increase in total current assets and a reduction in total current liabilities. Progressively, the business should focus on increasing the current ratio value in future. Inventory turnover To determine how the business intensively converts its assets to generate sales, its important to calculate and analyze its inventory turnover ratio. Inventory turnover ratio is the ratio of cost of goods sold to the inventory (Leaver, & Williams, 2014). IT= 𝑐𝑜𝑠𝑡 𝑜𝑓 𝑔𝑜𝑜𝑑𝑠 𝑠𝑜𝑙𝑑 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 Cost of goods sold (including D$A) ($million) 2016-28,322 2017-28,771 Inventory FINANCIAL RATIOS 4 2016-2,723 2017-2,947 Inventory turnover 2016= Inventory turnover 2017= 28322 2723 =10.40 28771 2947 = 9.76 From these values, it is transparent that PepsiCo is not running out of stock and hence progressively forgoing sales. However, the higher the inventory ratio, the higher the efficiency PepsiCo is managing its inventories. The turnover rate for 2016 and 2017 is 10.40 and 9.76 respectively. The ratio has reduced by 0.64 which means the business has not managed to stay within its turnover ratio brackets. Therefore, the business should focus on a higher inventory turnover rate. High IT means high sales enough to offset some of the cost of goods sold. DEBT RATIO All debts to all creditors of all maturities are taken into account in the calculation and analysis of the debt ratio. This can also be described as the extent of the company leverage or the proportion of company assets financed using debts (Westerfield, & Jordan, 2016). Debt ratio is the ratio of total debt to total assets. Debt ratio= 𝑡𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠−𝑡𝑜𝑡𝑎𝑙 𝑒𝑞𝑢𝑖𝑡𝑦 𝑡𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠 Total debt ($million) (TA-TE- minimal accumulated interest inclusive) 2016= (76,870- 11,199) = 68,671 2017= (81, 756-10,981) = 70, 775 FINANCIAL RATIOS 5 Total assets 2016=76,870 2017=81, 756 68671 2016 debt ratio= 76870 = 0.89 70775 2017 debt ratio= 81756 = 0.87 The debt ratio is the measure of PepsiCo financial leverage. The higher the ratio the greater the financial risk. For instance, a debt ratio of 1 shows that the company’s debts= assets which is too risky for the business. Thus, debt ratio can also be used to measured risk level. From the analysis above, PepsiCo financial leverage has reduced from 89% in 2016 to 87% in 2017 which means the current portion of the debt is lower the capacity of assets in the business. Therefore, the company should try to maintain a low debt ratio because a high debt probably means crunch circumstances and expensive to borrow finances situations. Low debts ratios take care of volatile cash flows indicating that the business can generate enough cash to pay its debts without borrowing. CONCLUSION Examination of PepsiCo’s financial statements gives a highlight of the company’s strengths and weaknesses in brief hence help stakeholders of the business in decision making. This helps identify trends and the overall state of the company for comparison between different financial periods for forecast plans and endeavors geared towards future profitability. FINANCIAL RATIOS 6 REFERENCES https://www.pepsico.com/docs/album/investor/pepsico-inc-2017-annual-report.pdf https://quotes.wsj.com/PEP/financials/annual/balance-sheet Froud, J., Johal, S., Leaver, A., & Williams, K. (2014). Financialization across the Pacific: Manufacturing cost ratios, supply chains and power. Critical Perspectives on Accounting, 25(1), 46-57. Long-term Debt and Solvency Analysis. (2017). Retrieved from https://www.stock-analysison.net/NASDAQ/Company/Apple-Inc/Ratios/Long-term-Debt-and-Solvency Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2016). Fundamentals of Corporate Finance (11th ed.). New York, NY: McGraw-Hill Education.
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