Financial Reporting Problem Part 1
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 December 2013 were $77,478,000 (PepsiCo, n.d.). Although, for the reporting period at the end of December 2012, the total was $74,638,000. This information is important because it demonstrate what the company owns and how the company has grown over the years. It gives an understanding of the financial condition of the company, and how well they are doing, or have not done over the time frame. The current assets are the first thing on the balance. These are listed by the company so they have a tangible list of what it may convert into cash in a short period of time if the situation calls for that. This can usually be done in less than a year. Because these assets can easily be turned to cash by the company, they are referred to as “liquid” assets.
Cash and cash equivalents are the most liquid assets found on the company’s balance sheet. PepsiCo’s cash and cash equivalents for the year end of December 28, 2013 were $9,375,000 and in December 2012 the company had $6,297,000 in cash and cash equivalents (PepsiCo, n.d.). This includes short-term investments, accounts and notes receivable, inventories and prepaid expenses, and other current assets. This represents the company’s liquidity. The more of the above that the company has access to what gives them a high risk of success because management can use the money to carry through tough periods. All accounts payable are the debts owed by the company to various vendors for products and services purchased on credit. Upon review of the current financial statement for PepsiCo they have a total amount of $12,533,000 owed to vendors (Yahoo Finance, 2014). 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 $12,274,000 in their accounts payable for their previous annual reporting period, 2012 (Yahoo Finance, 2014). This says that PepsiCo purchased 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 incomes are proceeds from a sale of an asset, minus the commissions, taxes, and other expenses related to the sale. For example, a case of Pepsi was sold in a store. The net incomes made from that sale, what money is left after the expenses, commissions, and taxes are paid.
Another example of net income would be the profit made from the sale of a truck, land, or building that PepsiCo owned. PepsiCo reported $6,740,000 in net income for 2013 (Yahoo Finance, 2014). This is an increase from the reported net income in 2012. In 2012 PepsiCo reported $6,178,000 in net income (Yahoo Finance, 2014). As shown, there was a bigger increase in net income between 2012 and 2013. Net income is one of the most important signs of a business’ financial stability. The net income is generally the amount remaining after the expenses have been met or deducted. This is known as the bottom line because it is found on the last line of the income statement.
PepsiCo reported their total current assets at the end of their most recent annual reporting period, 2013, at $22,203,000 (Yahoo Finance, 2014). This figure includes their current assets such as cash and cash equivalents, short-term 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. 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 2012, PepsiCo reported $18,720,000 in their total current assets (Yahoo Finance, 2014). It is evident that between the years of 2012 and 2013 their total current assets increased. The annual report contains the information above and is very important to the business, and can be used for many 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.
The finance department can use the information above to make reasonable “decision about debt and equity financing and how to distribute in dividends” (Kimmel, Weygandt, & Kieso, 2011, p. 41). Last, but not least: the human resources department can use the information to see how much cash the company has and its total income in order to figure out how much money is available in order to give incentives, raises, bonuses, benefits, rewards, or other types of gifts etc. to the employees. According to our text, it also states that “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).
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. (2014, April). http://finance.yahoo.com/q/hp?s=PEP+Historical+Prices