ACC 290 Week 4 Learning Team Assignment Financial Reporting Problem, Part 1
ACC 290 Week 4 Learning Team Assignment Financial Reporting Problem, Part 1
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Running head: FINANCIAL REPORTING PROBLEM, PART I 1 Financial Reporting Problem, Part I ACC/290 University of Phoenix FINANCIAL REPORTING PROBLEM, PART I 2 Financial Reporting Problem, Part I The company’s annual report is important because it gives the shareholders a clear picture and understanding about how the company is doing financially. The annual reports provide thorough information on very significant section of the accounts, such as the balance sheet, the income statement, and the cash flow statement. The information presented in the annual report would also be essential to potential investor, employee, and any other people that may have interest in financial aspect of the business. The company’s total assets at the end of 2009 were $39,848,000 (PepsiCo, n.d.). However, in 2010 its most recent annual report shows an increase to the previous annual reporting period of $28,305,000 that brings PepsiCo’s total assets to $68,153,000 (PepsiCo, n.d.). This information is important because it demonstrate what the company owns. It gives an understanding of the financial condition of the company, whether or not there have been improvement from the previous years. The current assets are the first thing on the balance sheet under the asset column. A company lists all of the possessions that it may convert into cash in a short period, that normally takes place with a year or less. Because these assets can easily turn into cash the company refers to them as “liquid” assets. Cash and cash equivalents are the most liquid assets found within the asset portion of a company’s balance sheet. PepsiCo’s cash and cash equivalents for the year end December 25, 2010 are $17,569,000 whereas; in 2009 the company had $12,571,000 in cash and cash equivalents (PepsiCo, n.d.). PepsiCo had a $4,998,000 increase in cash and cash equivalents. This includes shortterm investments, accounts and notes receivable, inventories and prepaid expenses, and other current assets. This represents the company’s liquidity. The FINANCIAL REPORTING PROBLEM, PART I 3 more cash and shortterm investments on hand, the lower a firm’s risk of failure because management can use the money to carry through tough periods. Accounts payable is the money in which a company owes vendors for products and services purchased on credit. In reviewing the most recent financial statement for PepsiCo the have a total amount of $10,923,000 owed to vendors (Yahoo Finance, 2011). This is one of the largest current liabilities because of the fact the companies are constantly ordering new products or paying vendors for services or merchandise. As shown on PepsiCo’s balance sheet, the company recorded $8,292,000 in their accounts payable for their previous annual reporting period, 2009 (Yahoo Finance, 2011). This says that PepsiCo purchased $8,292,000 in supplies, products, and services on credit. They were liable to pay this amount to their vendors and suppliers at the time they were due. Net revenues are proceeds from a sale of an asset, minus the commissions, taxes, and other expenses related to the sale. For example, a case a Pepsi was sold in a store. The net revenue made from that sale, what money is left after the expenses, commissions, and taxes are paid. Another example of net revenue would be the profit made from the sale of a truck, land, or building that PepsiCo owned. PepsiCo reported $31,263,000 in net revenues for 2010 (Yahoo Finance, 2011). This is an increase of $8,130,000 from the reported net revenues of $23,133,000 in 2009. In 2008 however, PepsiCo reported $22,900,000 in net revenues (Yahoo Finance, 2011). This is an increase of $233,000 between 2008 and 2009. As shown, there was a bigger increase in net revenues between 2009 and 2010. Net income is one of the most important indicators of a business’ financial health. The net income is generally the amount remaining after the expenses have been met or deducted. FINANCIAL REPORTING PROBLEM, PART I 4 They usually call this information the bottom line because it is found on the last line of the income statement. As of December 25, 2010, PepsiCo’s total net income was $6,320,000, which gives the company a net increase of $374,000 compared to December 26, 2009 when the net income was $5,946,000 (Yahoo Finance, 2011). The purpose of net income is to compare other figures in financial ratios to provide further information about the company’s overall health. For example, analysts can divide the net income by total sales to determine the company’s rate of return on sales. They give an indication of the amount of profit the company can earn for every dollar of sales. PepsiCo reported their total current assets at the end of their most recent annual reporting period, 2010, at $17,569,000 (Yahoo Finance, 2011). This figure includes their current assets such as cash and cash equivalents, shortterm investments, net receivables, and inventory. Cash includes currency on hand as well as deposits in their financial institution. Cash equivalents are investments with maturities of three months or less. The intention of the company is to sell the shortterm investments in a short time, usually within one year. These include trading securities, available for sale securities, and held to maturity securities. Net receivables are the amount due from customers or clients within one year on the balance sheet date. The inventory will include the raw materials, work in process, and finished goods. They value these at the lower to cost or market. In 2009, PepsiCo reported $12,571,000 in their total current assets (Yahoo Finance, 2011). It is evident that between the years of 2009 and 2010 their total current assets increased $4,998,000. FINANCIAL REPORTING PROBLEM, PART I 5 In conclusion, the annual report information above is very significant to the business, and may be useful for different reasons. The owners can use the information to decide whether or not they should continue to operate. The information on the total assets and the amount of the accounts payable can benefit potential investors because it shows them strong the company is financially, by stating what the company owns and how much it owes. Therefore, they can presume the chance of the company existing temporarily. The finance department the information above to make reasonable “decision about debt and equity financing and how to distribute in dividends” (Kimmel, Weygandt, & Kieso, 2011, p. 41). On the other hand, the human resources department can evaluate how much cash the company has and its total revenues to figure out how much raises to give the employees. In the end “if employees can read and use financial reports all employees will be better informed about the basis on which they are evaluated, which will increase employee morale” (Kimmel, Weygandt, & Kieso, 2011, p. 41). FINANCIAL REPORTING PROBLEM, PART I 6 PepsiCo, Inc. (PEP) Balance Sheet View: Annual Data | Quarterly Data All numbers in thousands Period Ending Dec 25, 2010 Dec 26, 2009 Dec 27, 2008 Assets Current Assets Cash And Cash Equivalents 5,943,000 3,943,000 2,064,000 Short Term Investments 426,000 192,000 213,000 Net Receivables 6,323,000 4,624,000 4,683,000 Inventory 3,372,000 2,618,000 2,522,000 Other Current Assets 1,505,000 1,194,000 1,324,000 Total Current Assets 17,569,000 12,571,000 10,806,000 Long Term Investments 1,368,000 4,484,000 3,998,000 Property Plant and Equipment 19,058,000 12,671,000 11,663,000 Goodwill 14,661,000 6,534,000 5,124,000 Intangible Assets 13,808,000 2,623,000 1,860,000 Accumulated Amortization Other Assets 1,689,000 965,000 2,324,000 Deferred Long Term Asset Charges 219,000 Total Assets 68,153,000 39,848,000 35,994,000 Liabilities Current Liabilities Accounts Payable 10,994,000 8,292,000 6,494,000 Short/Current Long Term Debt 4,898,000 464,000 369,000 Other Current Liabilities 1,924,000 Total Current Liabilities 15,892,000 8,756,000 8,787,000 Long Term Debt 19,999,000 7,400,000 7,858,000 FINANCIAL REPORTING PROBLEM, PART I 7 Other Liabilities 6,729,000 5,591,000 7,017,000 Deferred Long Term Liability Charges 4,057,000 659,000 226,000 Minority Interest 312,000 638,000 Negative Goodwill Total Liabilities 46,989,000 23,044,000 23,888,000 Stockholders' Equity Misc Stocks Options Warrants (109,000) (104,000) Redeemable Preferred Stock (97,000) Preferred Stock Common Stock 31,000 30,000 30,000 Retained Earnings 37,090,000 33,805,000 30,638,000 Treasury Stock (16,745,000) (13,383,000) (14,122,000) Capital Surplus 4,527,000 250,000 351,000 Other Stockholder Equity (3,630,000) (3,794,000) (4,694,000) Total Stockholder Equity 21,273,000 16,908,000 12,203,000 Net Tangible Assets (7,196,000) 7,751,000 5,219,000 Currency in USD (Yahoo Finance, 2011) . PepsiCo, Inc. (PEP) Income Statement View: Annual Data | Quarterly Data All numbers in thousands Dec 25, 2010 Dec 26, 2009 Dec 27, 2008 Period Ending Total Revenue 57,838,000 43,232,000 43,251,000 Cost of Revenue 26,575,000 20,099,000 20,351,000 Gross Profit 31,263,000 23,133,000 22,900,000 Operating Expenses Research Development Selling General and Administrative 22,814,000 15,026,000 15,901,000 FINANCIAL REPORTING PROBLEM, PART I 8 Non Recurring Others 117,000 63,000 64,000 Total Operating Expenses Operating Income or Loss 8,332,000 8,044,000 6,935,000 Income from Continuing Operations Total Other Income/Expenses Net 68,000 67,000 41,000 Earnings Before Interest And Taxes 9,135,000 8,476,000 7,350,000 Interest Expense 903,000 397,000 329,000 Income Before Tax 8,232,000 8,079,000 7,021,000 Income Tax Expense 1,894,000 2,100,000 1,879,000 Minority Interest (18,000) (33,000) Net Income From Continuing Ops 7,055,000 6,311,000 5,142,000 Nonrecurring Events Discontinued Operations Extraordinary Items Effect Of Accounting Changes Other Items Net Income 6,320,000 5,946,000 5,142,000 Preferred Stock And Other Adjustments Net Income Applicable To Common Shares 6,320,000 5,946,000 5,142,000 Currency in USD (Yahoo Finance, 2011) . FINANCIAL REPORTING PROBLEM, PART I 9 References Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2011). Financial accounting: Tools for business decision making (6th ed.). Hoboken, NJ: John Wiley & Sons. PepsiCo. (n.d.). Investors. Retrieved from http://www.pepsico.com/Investors/Annual Reports.html Yahoo Finance. (2011, June). PepsiCo, Inc. (PEP). Retrieved from http://finance.yahoo.com/q/bs?s=PEP&annual
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