Attend
Feature Story of PepsiCo.
Financial Reporting:
A Matter of Trust
In recent years the financial press has been full of articles about financial scandals and accounting misdeeds.
It started with Enron, but then spread to Xerox, Qwest, Global Crossing, and WorldCom, among others. Many of the articles expressed concern that as an increasing number of misdeeds came to public attention, a mistrust of financial reporting in general was developing. These articles made clear just how important accounting and financial reporting are to the U.S. and world financial markets and to society as a whole. Without financial reports, managers would not be able to evaluate how well their company is doing or to make decisions about the best way to make their company grow in the future. Without financial reports, investors and lenders could not make informed decisions about how to allocate their funds. There is no doubt that a sound, well functioning economy depends on accurate and dependable financial reporting— accounting matters!
In order to make financial decisions as either an investor or a manager, you need to know how to read financial reports. In this book you will learn about financial reporting and some basic tools used to evaluate financial reports. In the first chapter we introduce you to the real financial statements of a company whose products most of you probably are familiar with—PepsiCo, Inc. We have chosen the financial statements of PepsiCo because they are a good example from the real world. Appendix A contains the statements in their entirety, and a copy of the PepsiCo, Inc., 2006 Annual Report accompanies this text. PepsiCo manufactures Pepsi Cola, the number two soft drink beverage in the world. PepsiCo also manufactures the number one bottled water (Aquafina), the number one sports drink (Gatorade), the number one ready to drink tea (Lipton), and the number one ready to drink coffee (Frappuccino). In addition, PepsiCo is the largest manufacturer of snack foods in the world. Its Frito Lay chips dominate the U.S. market with 59% of all snack chip sales and the world market with over 32%. In all, PepsiCo ranks among the world’s largest packaged goods and beverage companies, with over $25 billion in sales, $23 billion in assets, and 140,000 employees. PepsiCo is not only large; it is also quite profitable, ranking twenty eighth among all U.S. companies, with $3.3 billion in net income.
Refer above to the Feature Story about PepsiCo, and answer the following questions.
1. If you were interested in investing in PepsiCo, what would the balance sheet and income statement tell you?
2. Would you request audited financial statements? Explain.
3. Will the financial statements show the market value of the company? Explain.