1. Study on financial performance and working capital of
pepsico. limited
Submitted to: Prof. Padmavathi
Submitted by:
Harsh jain
Pgdm, Sec-‘c’
Sem-2nd
, Roll- 5130
ACKNOWLEDGEMENT
I sincerely thank to Teacher______________, person of amiable
personality, for assigning such a challenging project work which has
enriched my work experience and getting me acclimatized in a fit and final
working ambience in the premises of AIRTEL And RELIANCE
COMMUNICATION
I acknowledge my gratitude to Prof. _____________________ Seth
Anandram Jaipuria College and, for her extended guidance,
encouragement, support, and reviews without whom this project would not
have been a success.
2. Last but not the least I would like to extend my thanks to all employees at
AIRTEL And RELIANCE COMMUNICATION and my friends for their
cooperation, valuable information and feedback during my project.
CONTENTS
1. SUMMARY
2. LTERATURE REVIEW
3. ABOUT THE COMPANY
4. WORKING CAPITAL MANAGEMENT
5. ANALYSIS OF WORKING CAPITAL MANAGEMENT
6. OBJECTIVE OF THE STUDY
7. RESEARCH METHODOLOGY
8. ANALYSIS OF THE STUDY
3. 9. MAJOR FINDINGS
10. CONCLUSION
11. BIBLIOGRAPHY
SUMMARY
The project on working capital managementhas been a very good
experience. Every company faces the problem of working capital
managementin their day to day process. An organization’s costcan be
reduced and the profit canbe increasedonly if it is able to manage its
working capital efficiently. At the same time the company canprovide
customersatisfactionand hence can improve their overall productivity and
profitability.
This project is a sincere effort to study and analyse the working capital
4. management of AIRTEL And RELIANCE COMMUNICATION. The
project was focused on making a financial overview of the company by
conducting a Working Capital analysis of AIRTEL And RELIANCE
COMMUNICATION for the years 2014 to 2016 and Ratios & various
components of working capital & for the year 2016 in a CMA (cash
monitoring arrangement) format emphasizing on Working Capital.
The experience that I gathered over the past three days has certainly
provided the orientation, which I believe will help me in shouldering any
responsibility in future.
LITERATURE REVIEW
The research done by, Gass D., “How To Improve Working Capital
Management” (2006) "Cash is the lifeblood of business" is an often
repeated maxim amongst financial managers. Working capital
managementrefers to the management of current or short term assets and
short-term liabilities.
Components of short-term assets include inventories, loans and advances,
debtors, investments and cash and bank balances. Short term liabilities
include creditors, trade advances, borrowings and provisions. The major
emphasis is, however, on short-term assets,since short-term liabilities arise
in the context of short-term assets. It is important that companies minimize
5. risk by prudent working capital management. The research done by,
Hardcastle J., “Working Capital Management,” (2007) describes that
Working capital, sometimes called gross working capital, simply refers to
the firm's total current assets (the short-term ones), cash, marketable
securities, accounts receivable, and inventory. While long-term financial
analysis primarily concerns strategic planning, working capital
management deals with day-to-day operations. By making sure that
production lines do not stop due to lack of raw materials, that inventories
do not build up because production continues unchanged when sales dip,
that customers pay on time and that enough cash is on hand to make
payments when they are due. Obviously without good working capital
management, no firm can be efficient and profitable. The researchdone by,
Dubey R., “Working Capital Management-an Effective Tool for
Organisational Success” (2008)describesthat the working capital in a firm
generally arises out of four basic factors like sales volume, technological
changes, seasonal, cyclicalchanges and policies of the firm. The strength of
the firm is dependent on the working capital as discussed earlier but this
working capital is in itself dependent on the level of sales volume of the
firm. The firm requires current assets to support and maintain operational
or functional activities. By current assets we mean the assets which can be
converted readily into cash say within a year such as receivables,
inventories and liquid cash. If the level of sales is stable and towards
growth the level of cash, receivables and stock will also be on the high.
The research done by, Thachappilly G., “Working Capital Management
Manages Flow of Funds”, (2009)describes that Working capital is the cash
needed to carry on operations during the cash conversion cycle, i.e. the
days from paying for raw materials to collecting cashfrom customers. Raw
materials and operating supplies must be bought and stored to ensure
uninterrupted production. Wages, salaries, utility charges and other
6. incidentals must be paid for converting the materials into finished
products. Customers must be alloweda credit period that is standard in the
business. Only at the end of this cycle does cash flow in again.
COMPANY PROFILE
Company Profile Of Bharti Airtel:
Bharti Airtel is an Indian global telecommunications services
company based in New Delhi, India. It operates in 18 countries
across South Asia and Africa. Airtel provides GSM, 3G and 4G
LTE mobile services, fixedline broadband and voice services depending
upon the country of operation. It is the largestmobile network operator in
India and the third largestin the world with 365 million subscribers. Airtel
was named India's secondmost valuable brand in the first ever Brandz
ranking by Millward Brownand WPP plc. Airtel is credited with
pioneering the business strategy of outsourcing all of its business operations
exceptmarketing, sales and finance and building the 'minutes factory'
model of low costand high volumes. The strategyhas since been adopted
by severaloperators. Airtel's equipment is provided and maintained
by Ericssonand Nokia Solutions and Networks whereasIT support is
provided by IBM. The transmissiontowers are maintained by subsidiaries
and joint venture companies of Bharti including Bharti Infratel and Indus
Towers in India. Ericssonagreedfor the first time to be paid by the minute
for installationand maintenance of their equipment rather than being paid
up front, which allowedAirtel to provide low callrates
of ₹1 (1.5¢ US)/minute.
Established July 07, 1995, as a Public Limited Company
7. Proportionate
revenue
617,858 (` Millions)as atmarch 31, 2016
606,894(` Millions) as atmarch 31, 2016
Shares in issue 3997.4Mn shares as at September30, 2016
Listings
Bombay Stock Exchange Limited (BSE)
NationalStock Exchange ofIndia Limited (NSE)
Company Profile Of Reliance Communications Ltd
Reliance Communications Ltd. (RCom) is an Indian Internet
access andtelecommunications company headquartered in Navi Mumbai,
India. It provides GSM (Voice, 2G, 3G, 4G) mobile services, fixed line
broadband and voice services, DTHdepending upon the areas ofoperation.
Reliance Communications is the fourth largesttelecomoperatorin India
with 98.70 million subscribers as of June 2016. Establishedin 2002, it is
a subsidiary of Reliance Anil Dhirubhai Ambani Group. Reliance
Communication IT Support is provided by Reliance TechServicesand
Telecomnetwork is maintained and operatedby Ericsson, transmission
towers are maintained by its subsidiary Reliance Infratel. Reliance
Infocomm laid the largestOptic Fiber Cable network in the country in
2003 to 2005, approximately 135,000 km, and touched almost all top
broadband cities with the help of their Franchisee's - LocalCable
Operators (LCO's). On an average 1900 large LCO's were connectedto the
Reliance Infocomm network to provide Voice, Data and Video services
known as Triple Play on IPTV platform. After the split of the Telecom
business venture betweenMukeshAmbani and Anil Ambani, the telecom
business was handed over to Anil Ambani, who later christened the
company as "RelianceCommunications Limited".
8. In September 2016, RComannouncedthat it would merge its wireless
business with Aircel
Established 27 December2002, as a Public Limited Company
Proportionate
revenue
10,295 (` Millions) as atmarch 31, 2016
11,136(` Millions) asatmarch 31, 2016
Listings
Bombay Stock Exchange Limited (BSE)
NationalStock Exchange ofIndia Limited (NSE)
MISSION
Our mission is to be the world’s premier consumer products focused on
convenient foods and beverages. We seek to produce financial rewards to
investors as we provide opportunities for growth and enrichment to our
employee, our business partners and the communities which we operate.
And in everything we do, we strive for honestly, fairness and integrity.
VISION
AIRTEL And RELIANCE COMMUNICATION is to continually improve
all aspects of the world in which we operate environment, their vision is to
enrich the lives of our customers.
INTRODUCTION
A managerial accounting strategy focusing on maintaining efficient levels
of both Components of working capital, current assets and current
9. liabilities, in respect to each other are referred to as working capital
management. Working capital management ensures a company has
sufficient cash flow in order to meet its short-term debt obligations and
Operating expenses. Implementing an effective working capital
management system is an excellent way for many companies to improve
their earnings. The two main aspects of working capital management are
ratio analysis and management of individual components of working
capital. Ratio analysis will lead management to identify areas of focus such
as inventory management, cash management, accounts receivable and
payable management. The study objectives in working capital management
particular to this study are:
To examine the impact of accounts receivables days, inventories
days, accounts payable Days and cash conversion cycle on return on
total assets
To analyse the trend in working capital needs of firms and to
examine the causes for any significant differences between the
industries.
Working Capital Components
The term working capital refers to the amount of capital which is readily
available to an Organization. It is a measure of both a company's efficiency
and its short-term financial health. That is, working capital is the
10. difference between resources in cash or readily convertible into cash
(Current Assets)and organizationalcommitments for which cash will soon
be required (Current Liabilities). Current Assets are resources which are
in cash or will soon be converted into cash in “the ordinary course of
business”. “Current Liabilities are commitments which will soon require
cash settlement in “the ordinary course of business”.
The working capital is calculated as:
WORKING CAPITAL = CURRENT ASSETS-CURRENT LIABILITIES
Current assets Current liabilities
Cash in hand/bank Bills payables
Bills receivables Sundry creditors
Sundry Debtors Outstanding expenses
Short term loans Accrued expenses
Inventory stocks Bank overdraft
Temporary investment
Accrued income
prepaid expenses
Positive working capital means that the company is able to pay off its
short-term liabilities. Negative working capital means that a company
currently is unable to meet its short-term liabilities with its current assets
(cash, accounts receivable, inventory). If a company's current assets do not
exceed its current liabilities, then it may run into trouble paying back
creditors in the short term. The worst-case scenario is bankruptcy.
A declining working capital ratio over a longer time period could also be a
red flag that warrants further analysis. Working capital also gives
investors an idea of the company's underlying operational efficiency.
Money that is tied up in inventory or money that customers still owe to the
company cannot be used to pay off any of the company's obligations. So,
11. even if accompany is not operating in the most efficient manner (slow
collection), it will show up as an increase in the working capital. This can
be seenby comparing the working capital from one period to another; slow
collection may signal an underlying problem in the company's operations.
Working capital analysis
The major components of gross working capital include stocks (raw
materials, work-in-progress and finished goods), debtors, cash and bank
balances. The composition of working capital depends on a multiple of
factors, such as operating level, level of operational efficiency, inventory
policies, book debt policies, technology used and nature of the industry.
While inter- industry variation is expected to be high, the degree of
variation is expected to be low for firms within the industry.
Nature and importance of working capital analysis
The working capital meets the short-term financial requirements of a
business enterprise. It is a trading capital, not retained in the business in a
particular form for longer than a year. The money invested in it changes
form and substance during the normal course of business operations. If it
becomes weak,the business canhardly prosper and survive. The success of
a firm depends ultimately, on its ability to generate cash receipts in excess
of disbursements. On the one hand, working capital is always significant.
This is especially true from the lenders or creditors perspective, where the
main concern is defensiveness: can the company meet its short-term
obligations, such as paying vendor bills? But from the perspective of equity
valuation and the company's growth prospects, working capital is more
critical to some businesses than to others. At the risk of oversimplifying, we
12. could say that the models of these businesses are asset or capital intensive
rather than service or people intensive.
Approaches of working capital management
The objective of working capital management is to maintain the optimum
balance of each of the working capital components. This includes making
sure that funds are held as cash in bank deposits for as long as and in the
largest amounts possible, thereby maximizing the interest earned.
However, such cash may more appropriately be “invested” in other assets
or in reducing other liabilities.
Working capital managementtakes place on two levels:
Ratio analysis can be used to monitor overall trends in working capital and
to identify areas requiring closer management. The individual components
of working capital can be effectively managed by using various techniques
and strategies. When considering these techniques and strategies,
departments need to recognize that each department has a unique mix of
working capital components. The emphasis that needs to be placed on each
component varies according to department. For example, some
departments have significant inventory levels; others have little if any
inventory. Furthermore, working capital management is not an end in
itself. It is an integral part of the department’s overall management.
The needs of efficient working capital management must be considered in
relation to other aspects of the department’s financial and non-financial
performance.
Working capital cycle
13. Working capital cycle, also known as the asset conversion cycle, operating
cycle, cash conversion cycle or just cash cycle, is used in the financial
analysis of a business. The higher the number, the longer a firm's money is
tied up in business operations and unavailable for other activities such as
investing. The cash conversion cycle is the number of days between paying
for raw materials and receiving cash from selling goods made from that
raw material.
Cash Conversion Cycle = Average Stockholding Period (in days) +
Average Receivables.
Processing Period(in days) - Average Payables Processing Period (in
days) with.
Average Stockholding Period (in days) = Closing Stock / Average
Daily Purchases.
Average Receivables Processing Period (in days) = Accounts
Receivable / Average Daily Credit Sales.
Average Payable Processing Period (in days) = Accounts Payable /
Average Daily Credit Purchases.
Schedule of changes in working capital
BSNL Working capital for 2014 to 2016
2013-14 2014-15 2015-16
14. Current assets
(INR$ lakh)
cash equivalents 93,195 122,477 103,509
Accounts
receivable
276,258 232,660 261,515
Inventory 354,728 369,688 443,371
Other current
assets
1,321,806 911,286 1,058,576
Current
investment
0 0 0
Short term loan
advances
76,344 69,135 101,918
Total current
assets
2,122,331 1,705,246 1,968,889
Current liability
Short term
borrowing
373,853 632,871 283,672
Accounts payable 870,657 828,914 682,370
Short term
provision
67,459 63,980 27,995
Other current
liability
682,363 734,591 858,270
Total current
liability
1,994,332 2,260,356 1,852,307
15. Net working
capital
127999 (555,110) 116,582
Working capital for 2006 to 2008
2013-14 2014-15 2015-16
Current assets
(` in Crore)
Current
investment
- 638 -
cash equivalents 127 572 820
Accounts
receivable
1,994 1,334 1,573
Inventory 269 201 119
Short term loans
and advances
9,375 10,861 4,140
Other current
assets
2,934 3,359 2,464
Total current
assets
14,699 16,965 9,116
Current liability
Accounts
payable
2,076 4,385 3,877
Short term debt
7,332 1,189 3,669
Other current
liability
5,653 6,596 8,954
16. Short term
provision
4,159 1,248 1,234
Total current
liability
19,220 13,418 17,734
Net working
capital
(4521) 3,547 (8,618)
Assessment of working capital requirement:
2013-14 2014-15 2015-16
1.Total current
assets
2,122,331 1,705,246 1,968,889
2. Current
liabilities (other
than bank
borrowings)
1,994,332 2,260,356 1,852,307
3. Working capital
gap
127,999 (555110) 116582
4. Min. stipulated
net working
capital (25% of
total c.a.)
528,083 426,312 492,222
5. Projected net
working capital
529,000 500,000 500,000
6. Item 3 minus
item 4
(400,084) (128,798) (375,640)
7. Item 3 minus
item 5
(401,001) 55,110 383,418
8. Maximum
permissible bank
finance
1422 1568 1389.75
Assessment of working capital requirement:
17. 2013-14 2014-15 2015-16
1.Total current
assets
2749 3086 3141
2. Current
liabilities (other
than bank
borrowings)
629 647 966
3. Working capital
gap
2120 2439 2175
4. Min. stipulated
net working
capital (25% of
total c.a.)
687.25 771.5 785.25
5. Projected net
working capital
698 871 58
6. Item 3 minus
item 4
1432.75 1667.5 1389.75
7. Item 3 minus
item 5
1422 1568 2117
8. Maximum
permissible bank
finance
1422 1568 1389.75
Analysis
Working capital management ensures a company has sufficient cash flow
in order to meet its short-term debt obligations and operating expenses. In
2014 the company have Rs.691mill$. Its shows good financial position of
the company. In 2015 it increases to 871 million $. In this year company
have taken less short term debt from previous year. This year company
uses his own funds. Its shows the efficient working capital management by
Pepsi. In 2016 the company have only 58 mill $ working capital because in
this year company have takes much more short term loans for its expansion
and pay for his day to day expenses.
Its shows the company have not utilise efficiently the fixed assets. In this
year world economyfaces downturns. Recessionhas also affected on Pepsi.
18. this year. For this company has taken $1408 mill. Short term loans. Its
increases the current liability of the company. Company pay its quickly in
his payable time. Its shows the good liquidity position of the company in
2008. This year company have more cash& bank balance in hand from the
previous year. Its 50% more than from the previous year. This year
company have $1675 million. Accounts payable it is less from the previous
year. It is good for the company.
Objective of the study
To observe the systems, process, interactions in the organization.
To study and analyse the working capital management of PepsiCo.
To study that how they use working capital to solve day to day
problems.
To study about their Operating Cycle, cash conversion cycle,
processing period.
Research methodology
19. The term research refers to the systematic method consisting of
enunciating the problem , formulating a hypothesis collecting the
data , analysing the facts and reaching the certain conclusions
either in the form of solution towards the concern problem or in
certain generalization for some theoretical formulation .
Research Methodology is a way to systematically solve the
research problem .It may be understood as a science of studying
how research is done scientifically. For completing the project
work, data inputs were collected from the following sources:
Primary data:
· Collected data through discussion with the Finance manager in Pepsi.
· Collected data during working in Pepsi.
Secondary Data:
· Collected data from personnel manual of Pepsi.
· Collected data from different magazines, journals, Newspapers and
Internet.
For this project I’ve used the secondary data in the form of Annual report
2006, Annual report 2007, and Annual report 2008.
Analysis of various components of working capital
20. Inventory analysis:
Inventory is total amount of goods and materials content in a store of
factory at any given time. Inventory means stock of three things:-
1. Raw materials
2. Semi-finished goods.
3. Finished goods.
Position of inventory in PepsiCo:
Inventories 2006 2007 2008
Raw materials 175 195 185
Finished goods 358 382 343
Total 533 577 528
All are in Rs. in million $.
Interpretation:
By analysing the 3 years data we see that the inventories are increased in
year 2007 by 577. We are looking approximate same pattern in inventories.
We can see that inventories are grown by 4.1% and 4.1% in 06 and 07
respectively from previous year. By this growth we can say that the
company is growing very smoothly in soft drink sector. A company uses
inventory when they have demand in market and Pepsi is having a great
demand in beverages sector. From other point of view we can say that the
liquidity of firm is blocked in inventories but to stock is very good due to
uncertainty of availability of raw material in time.
Sundry debtor analysis:
21. Debtors or an account receivable is an important component of working
capital and fall under current assets. Debtors will arise only when credit
sales are made.
Position of sundry debtor in PepsiCo:
All are in Rs. m million $
Debtor(net) 2006 2007 2008
Trade account
receivable
1026 1319 1208
Allowances for
doubtful
accounts
52 54 71
Accounts
receivable
198 188 154
Other
receivable
56 67 80
Total 1332 1628 1513
Interpretation:
In the table we see that there is rise in the debtors in PepsiCo Limited in
the successiveyears. A simple logic is that debtors increase only when sales
increase and if sales increasesit is good sign for growth. We can say that it
is a good sign as well as negative also.
Company policy of debtors is very good but a risk of bad debts is always
present in high debtors. When sales are increasing with a great speed the
22. profit also increases. If company decreases the Debtors they can use the
money in many investment plans.
Cash and bank balances analysis:
Cash is called the most liquid asset and vital current assets. It is an
important componentof working capital. In a narrow sense, cash includes
notes, bank draft, cheque etc. while in a broader sense it includes near cash
assets such as marketable securities and time deposits with bank.
Position of cash and bank balance in PepsiCo:
Year 2006 2007 2008
Cash and bank
balance equivalent
629 647 966
All are in Rs. million $.
Interpretation:
If we analyse the above table we find that it follows an increasing trend. In
the year 2006 it had maintained a 629 mill $ amount of cash and bank
balance which has increase in the year 2007 up to 647 mill $ but there is
huge increase betweenthe year 2007 and2008. Although company’s cash is
increasing this is very good sign for company. Holding more cash is not
goodit means company not using the cash for better projects. The analysis
shows that the fix deposits of company are rapidly increase in last year as
49% respectively from previous year. Company is utilizing the fixed cash
for exploding the projects that is good for growth.
Position of current liabilities in PepsiCo:
Current liabilities 2006 2007 2008
23. Account payable
and other current
liabilities
1677 1968 1675
Short term
liabilities
374 240 103
current maturities 0 7 1305
Total 2051 2215 3083
All are in Rs. million $.
Interpretation:
We analyse the above table then we can see that it follow an uneven trend.
The important component of current liabilities is sundry creditors and
other liabilities. In 06-07 it increased by 17% and in 07-08 it increased by
16.9%. In 07-08 it was increased because of growth in short term debt by
39%.This is liability for company so this should be less. When company
have minimum liabilities it creates a better goodwill in market. High
current liabilities indicate that company is using credit facility.
Provision analysis:
Year 2006 2007 2008
Deferred taxes 61 42 47
Proposed
dividend
90 113 135
Income tax 159 177 112
Total 310 332 294
Interpretation:
24. From the above table we cansee that provision shows an approximate same
trend and the huge amount is being kept in these provisions. Though the
profits of the company are increased income tax is also increased which is
good that company is creating goodwill in market by paying income tax in
time. Other provisions are also for the benefit of employees and public.
This is good sign for Company growth.
Working capital ratios:
Position of receivable ratio in PepsiCo:
Receivable ratio= debtors / sales*365
Year 2006 2007 2008
Receivable ratio 10.1 9.5 9.5
Interpretation:
Generally a low debtor’s turnover ratio implies that it consideredcongenial
for the business as it implies better cash flow. The ratio indicates the time
at which the debts are collectedon an average during the year. Needless to
say that a high Debtors Turnover Ratio implies a shorter collection period
which indicates prompt payment made by the customer. Now if we analyse
the three year data we can say that it holds a good position while receiving
its money from its debtors. The ratios are same in last two year, which
implies that recovery position is good and company should maintain these
positions.
Position of payable ratio in PepsiCo:
25. Payable ratio= creditors/cost of sales*365
Year 2006 2007 2008
Payable ratio in
days
87.4 90.3 87.6
Interpretation:
Actually this ratio reveals the ability of the firm to avail the credit facility
from the suppliers throughout the year. Generally a low creditor’s
turnover ratio implies favourable since the firm enjoys lengthy credit
period. Now if we analyse the three years data we find that in these year the
ratio was approximately same high which means that its position of
creditors is good, but in the 2007 it increases to 90 days. In next year it is
seenthat it has followed a decreasing trend which is very good sign for the
company. So we can say it enjoys a very good credit facility from the from
the suppliers.
Position of inventory ratio in PepsiCo:
Inventory turnover ratio= average stock/cost of goods sold*365
Year 2006 2007 2008
Inventory ratio 13.7 13.3 13.7
Interpretation:
26. This ratio tells the story by which stock is convertedinto sales. A high stock
turnover ratio reveals the liquidity of the inventory i.e., how many times on
an average, inventory is turned over or sold during the year. If a firm
maintains a minimum stock level in order to maximize sales by quick
rotation of inventory and the holding cost of inventory will be minimum. A
low stock turnover ratio reveals undesirable accumulation of obsolete
stock. By analysing the three year data it seen that it follows an
approximately same trend. We see that from the year 2006 to 2008 it is
more or less double which has been rectified in the year 2008. But it is
needless to say that ratio the company maintains is very high and the
company is required to take measures to lower down this ratio as it affects
the working capital cycle of company and the flow of cash in the company.
Position of current ratio in PepsiCo:
Current ratio= total current asset/total current liabilities
Year 2006 2007 2008
Current ratio 1.34 1.39 1.02
Interpretation:
This ratio reflects the financial stability of the enterprise. The standard of
the normal ratio is 2:1 but in most of companies’ standard is taken
according to Tendon Committee which is taken as 1.33:1. Now if we
analyse the three years data it can be predicted that it holds a stable
position all throughout period but it is seenthat it holds a low position than
the standard one and the company is required to improve its position.
Position of quick ratio in PepsiCo:
27. Quick ratio= total liquid assets/total liquid liabilities
Year 2006 2007 2008
Quick ratio 1.08 1.13 0.84
Interpretation:
It is the ratio between quick liquid assets and quick liabilities. The normal
value for such ratio is taken to be 1:1. It is used as an assessment tool for
testing the liquidity position of the firm. It indicates the relationship
between strictly liquid assets whose realizable value is almost certain on
one hand and strictly liquid liabilities on the other hand. Liquid assets
comprise all current assets minus stock. By analysing the three years data
it can be said that its position was good in the year 2006 and 2007 but its
decrease in the next year. But it is to be said that it is higher than the
standard in the year 2006 & 2007. Its shows the higher liquidity position of
the company.
Working capital turnover ratio:
Working capital ratio= cost of sale/net working capital
Year 2006 2007 2008
Working capital
ratio
9.88 8.46 130.79
Interpretation:
28. This ratio indicates whether the investments in current assets or net
current assets (i.e., working capital) have been properly utilized. In order
words it shows the relationship between sales and working capital. Higher
the ratio lower is the investment in working capital and higher is the
profitability. But too high ratio indicates over trading. This ratio is an
important indicator about the working capital position. Now if we analyse
the three years data, we find that it follows an increasing trend which
means that its investment in working capital is lower and the company is
utilizing more of its profit. But we find that in 2008 the ratio was increasing
up to 130. In this year company takes much more short term loans for its
short time requirement which is not a good sign for the company and the
company is required to look into these matters closely.
Profitability ratio:
29. Particulars 2006 2007 2008
Net sale 12730 13591 13796
Cost of goods
sold
6900 7370 7586
Opening profit
before interest
5830 6221 6210
opening profit
after interest
5830 1071 649
Profit/loss
before tax
681 709 274
Profit/loss after
tax
522 532 162
Dividend
payout/
drawings
0.41 0.53 0.65
Income statement of PepsiCo 2004 to 2008:
30. Year 2004 2005 2006 2007 2008 TTM
Sales 10906 11885 12730 13591 13796 13404
Operating
income
976 1023 1017 1071 649 617
Income
tax
232 247 159 177 112 -9
Net
income
457 466 522 532 162 223
Interpretation:
Analysing the last five yeardata we saythat sales have increasing trend. Its
shows the growth of the company. The profits are increasing year by year
but in 2008 the profits are very low from previous year. In this year
company takes huge amount of short term loans in this way they give more
interest on this. This is the main reason the company profits are very low.
Now in 2009 the profits of the company is 223 mill $ its shows amazing
growth rate of the company In two quarters of 2009 company sales are
equal to last year. This year company cover all the loses of previous year.
Findings
31. Pepsi bottling group has once again, demonstrated the power of our
operating capabilities and unique assets in 2008.
Comparable diluted earnings per share growth of 3% to $2.27
worldwide revenue growth of 2%
Comparable operating income growth of 2%
Returned $624 million in cash to shareholder
This year company takes $1400 million short term loans because of
macroeconomics downturns in economy.
In 2008 company gives .65$ dividend to his shareholder.
This year company have 2% growth in EPS this is very low from the
previous year because companyhas paid many interest on short term
loans.
Conclusion
32. Pepsi bottling group has once again, demonstrated the power of our
operating capabilities and unique assets in 2008. While facing
unprecedented macroeconomics challenges throughout the world, PBG
showed flexibility and discipline to advance our business priorities and
become a stronger, more focusedorganisation. The overall performance of
PepsiCo is getting on a good track. The total turnover of the company has
registered a growth of 205 Million whereas the operating profits for the
year were lower by 422 million mainly on the accounts of increase in the
volume or sales, higher realization and effective cost control measures
taken by the company. The profit before tax is 709 million at against 681
millions in the previous year. The cash earning of the company improved
substantially to 1437 million as against 1228 million in the last financial
year. With the increase in capacity on account of expansion projects being
undertaken by the company, it is expected that the company would be in a
position to maintain the growth in future years. Company has parked its
surplus fund in the various debt schemes of mutual fund. There is an
Investment in non-controlled affiliates of 619 million in current year.
Company is cash rich but as there are expansion and diversification plans
under the pipeline, company is not utilizing these funds. For meeting the
working capital needs and capacity expansion needs it has borrowed from
banks. During the year company has embarked upon expansion projects
which would effectively enhance the capacity of the company. With the
capacitive powerplants already in operation and expansion projects under
implementation, it is expected that the beverages division of the company
will do well in the foreseeable future.
They achieved these results by adapting quickly to the economic
environment and by focusing on several business drivers to grow our top
line, improve costand productivity, and strengthen our people and culture.
