Perform a Financial Ration Analysis for PepsiCo

2021-03-01 10:04:34
4 pages
952 words
This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

The financial ration analysis of PepsiCo entails four categories of ratios; ratios used to measure profitability, rations for measuring short term liquidity, ratios used to measure long-term solvency and measure used to measure market valuation.

Profitability Measures

2014 2013 2012 2011

Gross margin ratio 53.52% 53% 52% 52%

Profit margin ratio 10.9% 10.9% 9% 10%

Operating margin 14% 15% 14% 14%

Return on assets 8.80 8.86 8.38 9.14

Return on common shareholders equity 31.29 28.99 28.87 30.92

Earnings per share $4.27 $4.32 $3.92 $ 4.03

Short-term liquidity measures

2014 2013 2012 2011

Current ratio 1.14 1.24 1.10 0.96

Quick ratio 0.97 1.05 0.89 0.75

Cash ratio 0.48 0.54 0.39 0.24

Long-term solvency measures

2014 2013 2012 2011

Debt to capital 0.62 0.55 0.56 0.57

Debts to equity 1.66 1.22 1.27 1.30

Interest coverage 10.63 10.76 10.24 11.32

Market valuation measures

2014 2013 2012 2011

Price to earnings ratio 22.86 17.66 18.84 15.45

Question two

Construct an IFE Matrix for PepsiCo

The strengths and weaknesses of the company are represented by the following IFE matrix;

Strength Weight Rating Score

Strong marketing 0.07 3 0.21

Strong brand 0.09 4 0.36

Product availability 0.08 3 0.24

Market share 0.07 3 0.21

Earnings per share 0.02 4 0.08

Revenue and profits 0.08 3 0.24

Competent workforce 0.05 3 0.15

Wide variety of products 0.05 3 0.15

Total 0.51 1.71

Weaknesses Weight Rating Score

Low sales in some products 0.09 2 0.18

Health issues 0.08 1 0.08

High debts 0.07 2 0.14

Negative impact on the image of the brand due to recalling of the product 0.10 1 0.10

High expenses of operating. 0.10 1 0.10

Lack of product focus 0.05 1 0.10

Total 0.49 0.65

Taking the totals of the weight and scores of the strengths and weaknesses we get the following grand totals;

Weight = 0.51 + 0.49 = 1

Score = 1.71 + 0.65 = 2.36

Question three

Develop hypothetical PepsiCo strategies

In order to develop a hypothetical strategy for PepsiCo it is important to look at the Porters five model of the company. Starting with the Porters five model, it focuses of five different forces that affect the successfulness of a companys success; bargaining power of suppliers, threat of substitute, threat of new entrants, bargaining power of buyers and finally rivalry among the existing competitors.

Rivalry from existing competitors is very high. This is due to high diversification from competitors like Coca cola. Luckily enough for PepsiCo, only few companies have control over the market. When it comes to threat of substitution it is high since they are many kinds of energy drinks and sodas in the market. Moreover, due to the fact that PepsiCo also have other products, Coca cola might be the main competitor but they face other competitors in the other products they produce. The threat of new entrants is however low due to the high cost to start a beverage company such as PepsiCo and due to the presence of already established companies that dominate the markets. The buyers have a high bargaining power due the availability of a wide variety of beverages in the market. Most buyers in this market are price sensitive hence the company has to be careful not to charge high prices. Finally, it is observed that the suppliers have a low bargaining power since they are not concentrated and differentiate. Furthermore, no supplier would want to lose an important customer like PepsiCo.

On the basis of the opportunities, PepsiCo can implement the following strategies; increasing marketing and advertising so as to ensure the penetration of new products into the market. Secondly, PepsiCo should promote investments in the company with existing feedback. It should also organize sampling events to capture customers; this will ensure that the company offers better taste and quality to the consumer.

PepsiCo can also implement strategies on the basis of the threats it is facing. First of all it sufficient financial resources can help the company to develop more in both the carbonated and non-carbonated drinks sectors. The company can also reposition its products in a long term position on maturity stage by improving the quality and taste of its products. Developing healthy drinks for the youths can also be a strategy to retain customers. Aggressive strategies should also be considered by the company in order to overwhelm the main competitors.

Question four

Barilla's Actual Strategies

Barilla implemented one of the best strategies that saw the company turn from a huge disaster in terms of brand perception to a huge hit in terms of brand awareness. After Guido Barillas comment on the issue of why they dont feature homosexuals in their commercials; there was a lot of boycotting against Barilla; a lot of the interpretation about his apologies were viewed from a negative perspectives. Most of the competitors even took the opportunity to execute pro-gray campaigns in order to gain shares in the market. The marketing team, however, saw an opportunity to implement the company repositioning with relatively low efforts; a repositioning that was much needed. This was because everyone was still monitoring the companys single move at the time; hence, every move they took might have reached the market almost for free.

The strategy involved three key things. First of all, a Diversity and Inclusion Board made up of all external experts and advocates such as a LGT global leader, David Mixner, and a Paralympic gold medalist, Alex Zanardi. Secondly, a Chief Diversity Officer was appointed. Thirdly, the Corporate Equality Index (CEI) was involved in the monthly monitoring of the LGBT-friendliness of the policies of the company. By the end of one year, the company was rated amongst the best on the Human Rights Campaigns list of employers that are LGBT friendly. Barilla exploited the high media attention and brand attention in order to positively benefit from it.

 

References

2012books.lardbucket.org,. (2015). Ratio Analysis of Financial Information. Retrieved 21 December 2015, from http://2012books.lardbucket.org/books/accounting-for-managers/s17-03-ratio-analysis-of-financial-in.html

David, F. (2003). Strategic management. Upper Saddle River, N.J.: Prentice Hall.

Financials.morningstar.com,. (2015). Growth, Profitability, and Financial Ratios for PepsiCo Inc (PEP) from Morningstar.com. Retrieved 21 December 2015, from http://financials.morningstar.com/ratios/r.html?t=PEP

NASDAQ.com,. (2015). PEP Key Financial Ratios. Retrieved 21 December 2015, from http://www.nasdaq.com/symbol/pep/financials?query=ratios

Stock Analysis on Net,. (2015). PepsiCo Inc. (PEP) | Valuation Ratios. Retrieved 21 December 2015, from https://www.stock-analysis-on.net/NYSE/Company/PepsiCo-Inc/Valuation/Ratios

The Emigrant,. (2015). Barilla Turned Homophobia into an Outstanding Opportunity - The Emigrant. Retrieved 21 December 2015, from http://www.theemigrant.org/2015/01/12/barilla-turned-homophobia-outstanding-opportunity/

 

Have the same topic and dont`t know what to write?
We can write a custom paper on any topic you need.

Request Removal

If you are the original author of this essay and no longer wish to have it published on the SuperbGrade website, please click below to request its removal: