Running head: PepsiCo.

Ethics & Compliance

PepsiCo. Ethics and Compliance Paper Learning Team A Daniel Curry, Billy Elliot, Eric Loden, Barbara Loucks, Josif Martin and Christina Obanion FIN/370 June 6, 2011 Rob Shah

PepsiCo. Ethics & Compliance Ethics and Compliance (Introduction) Role of Ethics and Compliance (Josif) In this study Team A will be determining the role that ethics and compliance plays in Pepsi-Colas (PepsiCo) financial environment. By analyzing this information obtained through researching Pepsi-Colas annual report we are able to understand the process that is used when filing the companys regulations to the Securities Exchange Commission (SEC). Pepsi-Cola makes the 10-k report available to its shareholders so that they will be able to see and evaluate the financial performance over the last two years. These reports show the organizations current financial status through its current debts and returns on equity it holds while also showing the trends between these ratios give an explanation of the financial wealth of Pepsi-Cola.

Through company governances as an organization Pepsi-Cola believes and operates with strict standards in operating the organization and holding it accountable in effort to deliver growth while building a strong company financially for its shareholders. The companys approach to superior financial performance is owed to addressing three issues, human, environment, and talent sustainability (Pepsi-Co, 2008). The challenges that Pepsi faces if approached correctly will allow the company to achieve both business and financial success while leaving a positive imprint on society. The Audit Department for Pepsi-Cola maintains the financial statements and presents them to the Board of Directors. There are also internal controls that help to govern the production of the financial reports. The expertise of the department and its members give insight for the compliance regulations for the companys financial reporting, the disclosure process and requirements, and internally controlled systems. The tasks of this department are vital in maintaining effective communication with the Board of Directors because of involvement of

PepsiCo. Ethics & Compliance auditors and their agendas. Subsequently, the audit department reports issues that concern internal quality control issues that are at times investigated by government or professional authorities.

Ensuring Ethical Behavior (Barb) At PepsiCo. they believe that Good for all is good for business.(PepsiCo., 2010) Performance with purpose means delivering sustainable growth by investing in a healthier future for people and our planet.(PepsiCo., 2010) PepsiCo. is working to reduce their carbon footprint and are also giving back to the communities which they operate in by working with local farmers and providing jobs to local people. The procedures that PepsiCo. has invested in to ensure a healthier environment are reducing water usage, increasing recycling levels, and reducing packaging weights to reduce their carbon foot print. The procedures that they use to ensure that their employees performance levels are up to par is to make training and development a priority. PepsiCo. also provides their employees with options to stay healthy because they believe that giving their employees options as such will expand their performance levels. PepsiCo makes many options available to their consumers. PepsiCo. has three main product portfolios available to their consumers. The first portfolio is the Fun-For-You portfolio which includes their fried chips and full calorie beverages. The second portfolio is their Better-For-You portfolio which includes baked chips and diet beverages. The third portfolio is their Good-ForYou portfolio which includes whole grains such as their Quaker Oatmeal, Izze, Gatorade, Tropicana Juice, Nut Harvest and Naked Juice. By offering a variety of products they are able to capture a more diverse group of consumers. By working to reduce their carbon footprint and

PepsiCo. Ethics & Compliance

providing a variety of health conscious options PepsiCo. plans on expanding their portfolio to triple what it offers now with more healthy options by 2020. Complying with SEC regulations (Eric) The overall goal of the SEC is to ensure that investors have enough information to determine if and when to invest in a company. Rather than to just trust a company and what it says it earns or is worth, the SEC regulates the flow of information and makes companies run in compliance with the law. As seen in the past, this is a necessity to have in any free market where independent investors are given the opportunity to invest their own money into a company. Part of the SECs regulations states that proper paperwork must be done by companies to keep potential investors up to date with the companys latest financial information. As long as the company is publicly owned (that is, that it is traded on the stock market and owned in stock form by multiple investors who may buy or sell their shares), they must follow the SEC regulations. To keep with these regulations, Pepsi-co is almost constantly submitting new documentation that becomes available to the public. One of the biggest red flags that is seen on the stock market is insider trading. Insider trading is when an investor is given special information that it not given to the public investor. This allows the insider to make a move with their stocks just before the stock plummets. The SEC and their collection of documents and data pertaining to any sort of spending and investing by companies helps to ensure that this does not happen. Pepsi-Cola Financial Performance Year 2008 and 2009 (Daniel) In terms of the current ratio for year 2008 and 2009, Pepsi Cola has an average of $1.34 in current assets for every $1.00 in current liabilities: Year 2008 current assets Year 2008 current liabilities $10,806M

$8,787M

PepsiCo. Ethics & Compliance Current Ratio expressed as: $10,806M / $8,787M = 1.23 Year 2009 current assets Year 2009 current liabilities Current Ratio expressed as: $12,571M / $8,756M = 1.44 This current ratio shows that Pepsi-Cola has more enough liquid assets relative to its short-term debt obligations, an excellent indicator of the firms ability to meet any outstanding debt obligations. $8,756 $12,571M

For Pepsi-Colas debt ratio, we see that the companys debt as a percentage of total assets averages 61.25%. The debt ratios for year 2008 and 2009 follow: Year 2008 total debt Year 2008 total assets Debt Ratio expressed as: $23,888M / $35,994m= Year 2009 total debt Year 2009 total assets Debt Ratio expressed as: $22,406M / $39,848M = $56.2% 66.3% $22,406M $39,848M $23,888M $35,994M

This higher than average debt ratio may be due to the fact that Pepsi-Cola has more real assets such as land and buildings and are able to finance more of their assets with debt (Keown, Martin, & Petty, 2005, p. 81). Ratio Trends and Financial Health (Christina)

PepsiCo. Ethics & Compliance Current ratios help determine the relative liquidity of a company by comparing cash

and other assets to the amount of debt coming due owned by year end. The Pepsi-Cola company appears to be healthy despite its recent global financial status. Looking at 2008, PepsiCo finished very close to the current ratio of 1, even though PepsiCo rebounded well in 2009. With all the factors of the current ratio examined, PepsiCos ability to pay back short-term debts, using shortterm assets is exceptionally reputable (PepsiCo, 2009). A companys debt ratio, total debt divided by total assets, indicates what portion of debt a company has relative to its assets. This debt ratio measurement gives a view of the risks facing a companys debt load. Pepsi-Colas debt ratio for the fiscal year ending in 2009 was over 56% and a greater value of around 65% (PepsiCo, 2009). A debt ratio of greater than 1 indicates that a company has more debt than assets, a debt ratio of less than 1 indicates that a company has more assets than debt (Investopedia, 2011, p. 2). It appears the 2008 fiscal figures of 65%, indicate PepsiCo financed its assets more by using debt than equity, but rebounded in fiscal year 2009, posting a 56% figure. PepsiCos 2008 figures seem apropos based on the financial quandary the United States economy faced. Team C observed PepsiCos 2008 debt ratio two ways. First, the companys financial health may have been the result of a weakening 2008 economy because of peripheral sources. Second, the company decided despite possessing available assets to pay bills, the choice was made to focus more on equity than debt in 2009 (PepsiCo, 2009). Return on equity (ROE), which is obtained by calculating net income divided by total equity, will illustrate how well a company utilizes assets to generate income. In the fiscal year ending 2009, PepsiCo showed a 34% ROE, and a 40% ROE for fiscal year ending 2008. A larger 2009

PepsiCo. Ethics & Compliance equity base of $16B compared with a $12B equity base for 2008, may have contributed to the ROE disparity (PepsiCo, 2009).

Conclusion References Investopedia (2011) Debt ratio, Retrieved on June 5, 2011, from http://www.investopedia.com/terms/d/debtratio.asp

Keown, A. J., Martin, J. D., Petty, J. W., & Scott, D. F. (2005). Financial management: Principles and applications (10th ed.). Upper Saddle River, NJ: Pearson/Prentice Hall. PepsiCo. 2010 Annual Report. Retrieved from http://www.pepsico.com/Download/PepsiCo_Annual_Report_2010_Full_Annual_Report .pdf PepsiCo (2009) Annual reports, Retrieved on June 5, 2011, from http://www.pepsico.com/Investors/Annual-Reports.html