A Paper on Pepsico

1870 WordsJan 24, 20088 Pages
PepsiCo is a good investment because it is a well managed company with strong sales in a large market that is both diverse and world wide. PepsiCo continues to innovate and penetrate new markets (for example the flavored water market), and is not losing market share to competitors. PepsiCo is a safe investment because there will always be a demand for Pepsi 's products, even during recessions, and therefore the stock will be resistant to cyclical changes in the market and economy. The dividend does not provide huge amounts of income, but it is a nice cushion. PepsiCo 's income statement shows that 2006 Net Income was significantly higher than both 2004 and 2005 (35% and 38%). One of the key factors that account for this growth is…show more content…
This is important in developing sales in second and third world countries. The Decline in 2006 compared to 2005 is primarily from these increased international sales. The Asset turnover ratio combined with the Operating Margins (trailing twelve month period) of 18.44% indicates that PepsiCo is efficient at generating revenue form its assets. Profitability Ratios The Profit Margin on Sales and Rate of Return on Assets indicate that PepsiCo is a profitable company, and is seeking ways to increase profits. The Pay Out Ratio is smaller for 2006 than 2005 but is not informative taken by itself. Net Income and Cash dividends both increased in 2006 over 2005. Retained earnings increased 18%. The increase in retained earnings came principally from greater net income, not from a decrease in cash dividends, because there was an overall increase of 13% in cash dividends paid in 2006 over 2005. PepsiCo compares favorably with industry averages for the Processed & Packaged Goods Industry. The Earnings/ Share(EPS) and Price to Sales (PSR) are well above average, while Price to Earnings(P/E) and Price/Earnings to Growth(PEG) are near the industry average. The strong profits and high revenues of PepsiCo are reflected in the high EPS and PSR numbers. The higher than average stock price for PepsiCo and large market share lower the P/E and PEG ratio versus the industry average. The competitor analysis indicates that while the Coca-Cola Company is the leader in
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