WORKING CAPITAL MANAGEMENT

PROJECT REPORT

Submitted in partial fulfilment of the requirement for the award of Two year full time, Masters in Business Administration.

By

Sudhir Kumar

DEPARTMENT OF MANAGEMENT

LOVELY PROFESSIONAL UNIVERSITY

PHAGWARA

(2008-2010)

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Acknowledgement

Whatever we do and whatever we achieve during the course of our limited life

is just not done only by our own efforts, but by efforts contributed by other

people associated with us indirectly or directly. I thank all those people who

contributed to this from the very beginning till its successful end.

I sincerely thank Mr. Ashutosh Aggarwal (Account Executive, PepsiCo,

Phillaur), 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 PEPSICO.

I acknowledge my gratitude to Ms. Harjeet Kaur (Lovely Professional

University), for her extended guidance, encouragement, support and reviews

without whom this project would not have been a success.

Last but not the least I would like to extend my thanks to all the employees at

PEPSICO (Aradhna Drinks & Beverages Pvt. Ltd) and my friends for their

cooperation, valuable information and feedback during my project.

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TABLE OF CONTENTS

1. EXECUTIVE SUMMARY 5-6

2. LITERATURE REVIEW 7-12

3. ABOUT THE COMPANY 13-29

a. Company profile 14

b. Mission & Vision 18

c. Company Leadership 19

d. Company Brands 20

e. Milestones 24

f. Company Profile in India 26

4. WORKING CAPITAL MANAGEMENT 30-37

a. Introduction 31

b. Working Capital Analysis 33

c. Nature & importance of working capital 33

d. The importance of Good Working Capital 34

e. Working Capital Cycle 36

5. ANALYSIS OF WORKING CAPITAL MANAGE 38-43

6. MENT

a. Schedule of changes In working Capital Management 38

b. Percentage change in working capital 40

c. Assessment of working Capital Management 42

7. OBJECTIVE OF THE STUDY 44

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8. RESEACH METHODOLOGY 45-46

9. ANALYSIS OF THE STUDY 47-65

a. Analysis of various components 48-56

b. Inventory 48

c. Sundry Debtors 50

d. Cash & Bank Balance 52

e. Current Liability 54

f. Provision Analysis 56

10.WORKING CAPITAL RATIO 57-65

a. Receivable Ratio 58

b. Payable Ratio 59

c. Inventory Ratio 61

d. Current Ratio 62

e. Quick Ratio 64

f. Working capital Ratio 64

11.PROFIT & LOSS ACCOUNT 66

12.INCOME STATEMENT ANALYSIS 67

13.MAJOR FINDINGS 69

14.CONCLUSION 70

15.RECOMMENDATION 73

16.BIBLIOGRAPHY & REFRENCES 76

17.ANNEXTURE 78

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Executive Summary

The project on Working Capital Management has been a very good experience.

Every manufacturing company faces the problem of Working Capital

Management in their day to day processes. An organization’s cost can be

reduced and the profit can be increased only if it is able to manage its Working

Capital efficiently. At the same time the company can provide customer

satisfaction and hence can improve their overall productivity and profitability.

This project is a sincere effort to study and analyze the Working Capital

Management of PEPSICO Bottling group. The project was focused on making a

financial overview of the company by conducting a Working Capital analysis of

PEPSICO Bottling group for the years 2006 to 2008 and Ratios & various

components of working capital & for the year 2008 in a cma(cash monitoring

arrangement) format emphasizing on Working Capital.

The internship is a bridge between the institute and the organization. This

made me to be involved in a project that helped me to employ my theoretical

knowledge about the myriad and fascinating facets of finance. And in the

process I could contribute substantially to the organization’s growth.

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The experience that I gathered over the past

two months has certainly provided the orientation, which I believe will help me

in shouldering any responsibility in future.

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The research done by Pass C.L., Pike R.H., “An overview of working capital management

and corporate financing”,(1984) describes that over the past 40 years major theoretical

developments have occurred in the areas of longer-term investment and financial decision

making. Many of these new concepts and the related techniques are now being employed

successfully in industrial practice. By contrast, far less attention has been paid to the area of

short-term finance, in particular that of working capital management. Such neglect might be

acceptable were working capital considerations of relatively little importance to the firm, but

effective working capital management has a crucial role to play in enhancing the profitability

and growth of the firm. Indeed, experience shows that inadequate planning and control of

working capital is one of the more common causes of business failure.

The research done by Herrfeldt B., “How to Understand Working Capital Management”

describes that“Cash is king”--so say the money managers who share the responsibility of

running this country's businesses. And with banks demanding more from their prospective

borrowers, greater emphasis has been placed on those accountable for so-called working

capital management. Working capital management refers to the management of current or

short-term assets and short-term liabilities. In essence, the purpose of that function is to make

certain that the company has enough assets to operate its business. Here are things you should

know about working capital management.

The research done by, Samiloglu F. and Demirgunes K., “The Effect of Working Capital

Management on Firm Profitability: Evidence from Turkey” (2008) describes that the effect of

working capital management on firm profitability. In accordance with this aim, to consider

statistically significant relationships between firm profitability and the components of cash

conversion cycle at length, a sample consisting of Istanbul Stock Exchange (ISE) listed

manufacturing firms for the period of 1998-2007 has been analysed under a multiple

regression model. Empirical findings of the study show that accounts receivables period,

inventory period and leverage affect firm profitability negatively; while growth (in sales)

affects firm profitability positively.

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The research done by, Appuhami, Ranjith B A, “The Impact of Firms' Capital Expenditure on

Working Capital Management: An Empirical Study across Industries in Thailand” ,

International Management Review,(2008), The purpose of this research is to investigate the

impact of firms' capital expenditure on their working capital management. The author used

the data colleted from listed companies in the Thailand Stock Exchange. The study used

Shulman and Cox's (1985) Net Liquidity Balance and Working Capital Requirement as a

proxy for working capital measurement and developed multiple regression models. The

empirical research found that firms' capital expenditure has a significant impact on working

capital management. The study also found that the firms' operating cash flow, which was

recognized as a control variable, has a significant relationship with 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.

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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

cash from customers. Raw materials and operating supplies must be bought and stored to

ensure uninterrupted production. Wages, salaries, utility charges and other incidentals must

be paid for converting the materials into finished products. Customers must be allowed a

credit period that is standard in the business. Only at the end of this cycle does cash flow in

again.

The research done by, Beneda, Nancy; Zhang, Yilei, “Working Capital Management, Growth

and Performance of New Public Companies”, Credit & Financial Management Review,

(2008) examining impact of working capital management on the operating performance and

growth of new public companies. The study also sheds light on the relationship of working

capital with debt level, firm risk, and industry. Using a sample of initial public offerings

(IPO's), the study finds a significant positive association between higher levels of accounts

receivable and operating performance. The study further finds that maintaining control (i.e.

lower amounts) over levels of cash and securities, inventory, fixed assets, and accounts.

The research done by, Dubey R., “Working Capital Management-an Effective Tool for

Organisational Success” (2008) describes that The working capital in a firm generally arises

out of four basic factors like sales volume,technological changes,seasonal , cyclical changes

and policies of the firm.The strenghth of the firm is dependent on the working capital as

discussed earlier but this working capital is inteslf 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.

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The research done by, McClure B., “Working Capital Works” describes that Cash is the

lifeline of a company. If this lifeline deteriorates, so does the company's ability to fund

operations, reinvest and meet capital requirements and payments. Understanding a company's

cash flow health is essential to making investment decisions. A good way to judge a

company's cash flow prospects is to look at its working capital management (WCM). Cash is

king, especially at a time when fund raising is harder than ever. Letting it slip away is an

oversight that investors should not forgive. Analyzing a company's working capital can

provide excellent insight into how well a company handles its cash, and whether it is likely to

have any on hand to fund growth and contribute to shareholder value.

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 management refers 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 risk by prudent working capital management.

The research done by, Maynard E. Rafuse, “ Working capital management: an urgent need to

refocus” Management Decision, (1996) Argues that attempts to improve working capital by

delaying payment to creditors is counter-productive to individuals and to the economy as a

whole. Claims that altering debtor and creditor levels for individual tiers within a value

system will rarely produce any net benefit.Proposes that stock reduction generates system-

wide financial improvements and other important benefits.Urges those organizations seeking

concentrated working capital reduction strategies to focus on stock management strategies

based on “lean supply-chain” techniques.

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The research done by, Thomas M. Krueger, “An Analysis of Working Capital Management

Results Across Industries” American Journal of Business, (2005) found distinct levels of

WCM measures for different industries, which tend to be stable over time. Many factors help

to explain this discovery. The improving economy during the period of the study may have

resulted in improved turnover in some industries, while slowing turnover may have been a

signal of troubles ahead. Our results should be interpreted cautiously. Our study takes places

over a short time frame during a generally improving market. In addition, the survey suffers

from survivorship bias – only the top firms within each industry are ranked each year and the

composition of those firms within the industry can change annually.

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PepsiCo is a world leader in convenient foods and beverages, with 2008 revenues of more

than $ 13796 Million and 168,000 employees.

The company consists of Frito-Lay North America, PepsiCo Beverages North America,

PepsiCo International and Quaker Foods North America. PepsiCo brands are available in

nearly 200 countries and territories and generate sales at the retail level of about $92 billion.

Some of PepsiCo's brand names are more than 100-years-old, but the corporation is relatively

young. PepsiCo was founded in 1965 through the merger of Pepsi-Cola and Frito-Lay.

Tropicana was acquired in 1998 and PepsiCo merged with the Quaker Oats Company,

including Gatorade, in 2001.

PEPSI is a soft drink produced and manufactured by PepsiCo. It is sold in many places such

as retail stores, restaurants, schools, cinemas and from vending machines. The drink was first

made in the 1890s by pharmacist Caleb Bradham in New Bern, North Carolina. The brand

was trademarked on June 16, 1903. There have been many Pepsi variants produced over the

years since 1898.

In October 2008, Pepsi announced that it would be redesigning its logo and re-branding many

of its products by early 2009. In 2009, Pepsi, Diet Pepsi and Pepsi Max began using all

lower-case fonts for name brands, and Diet Pepsi Max was re-branded as Pepsi Max. The

brand's blue and red globe trademark became a series of "smiles," with the central white band

arcing at different angles depending on the product. As of July 2009, the 2003 Pepsi logo is

still the current logo for Pepsi Wild Cherry and Pepsi ONE. Countries such as Australia and

India continue to use the old design on all packaging. Diet Pepsi Wild Cherry, Pepsi

throwback, Diet Pepsi Lime, and Diet Pepsi Vanilla received the redesign.

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ORIGIN

It was first introduced in North Carolina in 1898 by Caleb Bradham, who made it at his

pharmacy which sold the drink. Known back then as "Brad's Drink", it was later named Pepsi

Cola possibly due the digestive enzyme pepsin and kola nuts used in the recipe. Bradham

sought to create a fountain drink that was delicious and would aid in digestion and boost

energy.

In 1903, Bradham moved the bottling of Pepsi-Cola from his drugstore into a rented

warehouse. That year, Bradham sold 7,968 gallons of syrup. The next year, Pepsi was sold in

six-ounce bottles, and sales increased to 19,848 gallons. In 1926, Pepsi received its first logo

redesign since the original design of 1905. In 1929, the logo was changed again. In 1929,

automobile race pioneer Barney Oldfield endorsed Pepsi-Cola in newspaper ads as "A bully

drink...refreshing, invigorating, a fine bracer before a race.

In 1931, the Pepsi-Cola Company went bankrupt during the Great Depression- in large part

due to financial losses incurred by speculating on wildly fluctuating sugar prices as a result of

World War I. Assets were sold and Roy C. Megargel bought the Pepsi trademark. Eight years

later, the company went bankrupt again. Pepsi's assets were then purchased by Charles Guth,

the President of Loft Inc. Loft was a candy manufacturer with retail stores that contained

soda fountains. He sought to replace Coca-Cola at his stores' fountains after Coke refused to

give him a discount on syrup. Guth then had Loft's chemists reformulate the Pepsi-Cola syrup

formula.

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Rise

During the Great Depression, Pepsi gained popularity following the introduction in 1936 of a

12-ounce bottle. Initially priced at 10 cents, sales were slow, but when the price was slashed

to five cents, sales increased substantially. With a radio advertising campaign featuring the

jingle "Pepsi-Cola hits the spot / Twelve full ounces, that's a lot / Twice as much for a nickel,

too / Pepsi-Cola is the drink for you," arranged in such a way that the jingle never ends. Pepsi

encouraged price-watching consumers to switch, obliquely referring to the Coca-Cola

standard of six ounces per bottle for the price of five cents (a nickel), instead of the 12 ounces

Pepsi sold at the same price. Coming at a time of economic crisis, the campaign succeeded in

boosting Pepsi's status. In 1936 500,000,000 bottles of Pepsi were consumed. From 1936 to

1938, Pepsi-Cola's profits doubled.

Pepsi's success under Guth came while the Loft Candy business was faltering. Since he had

initially used Loft's finances and facilities to establish the new Pepsi success, the near-

bankrupt Loft Company sued Guth for possession of the Pepsi-Cola company. A long legal

battle, Guth v. Loft, then ensued, with the case reaching the Delaware Supreme Court and

ultimately ending in a loss for Guth.

History

Headquartered in Purchase, New York, with Research and Development Headquarters in

Valhalla, The Pepsi Cola Company began in 1898 by a Pharmacist and Industrialist Caleb

Bradham, but it only became known as PepsiCo when it merged with Frito Lay in 1965.

Until 1997, it also owned KFC, Pizza Hut, and Taco Bell, but these fast-food restaurants

were spun off into Tricon Global Restaurants, now Yum! Brands, Inc. PepsiCo purchased

Tropicana in 1998, and Quaker Oats in 2001. In December 2005, PepsiCo surpassed Coca-

Cola Company in market value for the first time in 112 years since both companies began to

compete.

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COMPANY PROFILE

PepsiCo, Incorporated

Type Public (NYSE: PEP)

Founded 1965

Headquarters Purchase, New York, USA

Key people Indra Nooyi, Chairman, President & CEO

Industry Food and beverage

Products PepsiTropicana ProductsGatoradeLay'sDoritosFrappuccino (for Starbucks)Mountain Dew

Revenue $13796 Million USD (2008)

Operating income $1149 Million USD (2008)

Net income $162 Million USD (2008)

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MISSION & VISION

At PepsiCo, we believe being a responsible corporate citizen is not only the right thing to do,

but the right thing to do for our business.

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

“PepsiCo responsibility is to continually improve all aspects of the world in which we

operate environment, social, economic – creating a better tomorrow than today”.

Our vision is put in to action through programs and a focus on environmental stewardship,

activities to benefit society, and a commitment to build shareholder value by making PepsiCo

a truly sustainable company.

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COMPANY LEADERSHIP

We are a company full of strong, talented individuals starting at the top of our organization.

Get to know the inspiring people helping lead PepsiCo on its 'Performance with Purpose'

journey.

"Together we are all building on the platform of human, environmental and talent

sustainability while continuing to deliver great results."

INDRA K. NOOYi

Chairman and CEO

Indra K. NooyiChairman and CEO

Massimo F. d'AmoreCEO PepsiCo Americas Beverages

John C. ComptonCEO PepsiCo Americas Foods

Michael D. WhiteCEO PepsiCo Intl. & Vice Chairman, PepsiCo

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PepsiCo owns five different billion-dollar brands. These are Pepsi, Tropicana, Frito-Lay, Quaker, and Gatorade.

The company owns many other brands as well.

UPepsi, includingU

Pepsi-Cola , Caffeine-Free Pepsi, Diet Pepsi/Pepsi Light, Caffeine-Free Diet Pepsi,

Caffeine-Free Pepsi Light, Wild Cherry Pepsi, Pepsi Lime, Pepsi Max, Pepsi Twist

and Pepsi ONE.

Other U.S. carbonated soft drinks including Frawg, Mountain Dew, Mug Root Beer,

Sierra Mist and Tropicana Twister Soda

7 Up (international distribution)

Other U.S. beverages including Aquafina (Flavour Splash, Alive, and Twist/Burst),

Dole, Gatorade, Mountain Dew AMP, Propel Fitness Water, SoBe, Quaker Milk Chillers,

Ben & Jerry's MilkShakes, and Tropicana

UBeverages marketed outside the U.S U.: Alvalle, Concordia, Copella, Evervess,

Fiesta, Frui'Vita, Fruko, Kas, Loóza, Manzanita Sol, Mirinda, Paso de los Toros, Radical

Fruit, San Carlos, Shani, Teem, Triple Kola, and Yedigun

U.S Frito-Lay brands : Baken-ets, Barcel, Bocabits, Cheese Tris, Cheetos,

Chester's, Chizitos, Churrumais, Cracker Jack, Crujitos, Doritos, Fandangos, Fritos,

Funyuns, Gamesa, Go Snacks, James' Grandma's Cookies, Hamka's, Lay's, Miss Vickie's,

Munchies, Munchos, Nik Naks, Oberto Meat Snacks, Quavers, Rold Gold, Ruffles,

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Rustler's Meat Sticks, Sabritas, Sabritones, Santitas, Smartfood, The Smith's Snackfood

Company, Sonric's, Stacy's Pita Chips, Sun Chips, Tor-tees, Tostitos, Walkers, and

Wotsits

U.S Quaker Oats brands : Aunt Jemima, Cap'n Crunch, Coqueiro, Crisp'ums,

Cruesli, FrescAvena, King Vitaman, Life, Oatso Simple,Quake, Quisp, Rice-A-Roni, and

Spudz

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2008 Milestones

PepsiCo Foundation announces two major new grants to WaterPartners and Safe

Water Network programs to provide access to safe water and sanitation in developing

countries

PepsiCo Again Named to the Dow Jones Sustainability Index

PepsiCo Agrees to Buy Bulgaria's Leading Nuts and Seeds Company

PepsiCo Announces Initiatives With the Earth Institute and H2O Africa to Drive

Sustainable Water Practices

Forbes Names PepsiCo Among Its Best Big Companies

PepsiCo India Commissions First Remote Wind Turbine to Generate Renewable,

Clean Energy

CRO Names PepsiCo to Top 25 100 Best Corporate Citizens 2008

PepsiCo to Buy Russian Juice Leader, Lebedyansky

Employees Lead Effort to Make Chicago Plaza First LEED-Certified PepsiCo

Headquarters

Gatorade Launches Gatorade Tiger with Comprehensive Integrated Marketing

Campaign

PepsiCo Honored with 2008 Energy Star Partner of the Year Award

UK Vitamin Water Brand- V Water Acquired by PepsiCo

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Quaker Plant in Cedar Rapids Closes and Reopens Facility Due to Flooding to Protect

Employees

PepsiCo Foodservice and Naked Juice Expand Starbucks Presence

Gatorade Sports Science Institute Gathers World's Leading Researchers on Protein

Nutrition

PepsiCo International's China Foods Wins "China's Top Leaders 2008" Award

Wall Street Journal Article Recognizes PepsiCo for Leadership in Employment of

People with Different Abilities

PepsiCo and Frito-Lay Join SmartWay in Commitment to Reduce Greenhouse Gas

Emissions

PepsiCo Beats Coke in Race to Launch New Natural Sweetener (Stevia)

PepsiCo France Recognized as "Great Place To Work" by Institute Survey

PepsiCo Commits to Reducing Acryalmide Levels in Potato Chip Products and

Restructured Potato Snacks in California

Subway Names PepsiCo "Vendor of the Year" for Sustainability Leadership

Tazo Tea Joins Pepsi Lipton Partnership

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PEPSICO IN INDIA

PepsiCo entered India in 1988 and has grown to become one of the country’s leading food

and beverage companies. One of the largest multinational investors in the country, PepsiCo

has established a business which aims to serve the long term dynamic needs of India.

PepsiCo India and its partners have invested more than U.S.$1 billion since the company was

established in the country. PepsiCo provides direct and indirect employment to 150,000

people including suppliers and distributors.

PepsiCo nourishes consumers with a range of products from treats to healthy eats, that deliver

joy as well as nutrition and always, good taste. PepsiCo India’s expansive portfolio includes

iconic refreshment beverages Pepsi, 7 UP, Mirinda and Mountain Dew, in addition to low

calorie options such as Diet Pepsi, hydrating and nutritional beverages such as Aquafina

drinking water, isotonic sports drinks - Gatorade, Tropicana100% fruit juices, and juice based

drinks – Tropicana Nectars, Tropicana Twister and Slice. Local brands – Lehar Evervess

Soda, Dukes Lemonade and Mangola add to the diverse range of brands.

PepsiCo’s foods company, Frito-Lay, is the leader in the branded salty snack market and all

Frito Lay products are free of trans-fat and MSG. It manufactures Lay’s Potato Chips;

Cheetos extruded snacks, Uncle Chips and traditional snacks under the Kurkure and Lehar

brands. The company’s high fibre breakfast cereal, Quaker Oats, and low fat and roasted

snack options enhance the healthful choices available to consumers. Frito Lay’s core

products, Lay’s, Kurkure, Uncle Chips and Cheetos are cooked in Rice Bran Oil to

significantly reduce saturated fats and all of its products contain voluntary nutritional

labelling on their packets.

The group has built an expansive beverage and foods business. To support its operations,

PepsiCo has 43 bottling plants in India, of which 15 are company owned and 28 are

franchisee owned. In addition to this, PepsiCo’s Frito Lay foods division has 3 state-of-the-

art plants. PepsiCo’s business is based on its sustainability vision of making tomorrow better

than today. PepsiCo’s commitment to living by this vision every day is visible in its

contribution to the country, consumers and farmers.

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PepsiCo gained entry to India in 1988 by creating a joint venture with the Punjab

government-owned Punjab Agro Industrial Corporation (PAIC) and Voltas India Limited.

This joint venture marketed and sold Lehar Pepsi until 1991, when the use of foreign brands

was allowed; PepsiCo bought out its partners and ended the joint venture in 1994. Others

claim that firstly Pepsi was banned from import in India, in 1970, for having refused to

release the list of its ingredients and in 1993, the ban was lifted, with Pepsi arriving on the

market shortly afterwards. These controversies are a reminder of "India's sometimes

acrimonious relationship with huge multinational companies." Indeed, some argue that

PepsiCo and The Coca-Cola Company have "been major targets in part because they are

well-known foreign companies that draw plenty of attention."

In 2003, the Centre for Science and Environment (CSE), a non-governmental organization in

New Delhi, said aerated waters produced by soft drinks manufacturers in India, including

multinational giants PepsiCo and The Coca-Cola Company, contained toxins, including

lindane, DDT, malathion and chlorpyrifos — pesticides that can contribute to cancer, a

breakdown of the immune system and cause birth defects. Tested products included Coke,

Pepsi, 7 Up, Mirinda, Fanta, Thums Up, Limca, and Sprite. CSE found that the Indian-

produced Pepsi's soft drink products had 36 times the level of pesticide residues permitted

under European Union regulations; Coca Cola's 30 times. CSE said it had tested the same

products in the US and found no such residues. However, this was the European standard for

water, not for other drinks. No law bans the presence of pesticides in drinks in India.

The Coca-Cola Company and PepsiCo

angrily denied allegations that their products manufactured in India contained toxin levels far

above the norms permitted in the developed world. But an Indian parliamentary committee,

in 2004, backed up CSE's findings and a government-appointed committee, is now trying to

develop the world's first pesticides standards for soft drinks. Coke and PepsiCo opposed the

move, arguing that lab tests aren't reliable enough to detect minute traces of pesticides in

complex drinks. On December 7, 2004, India's Supreme Court ruled that both PepsiCo and

competitor The Coca-Cola Company must label all cans and bottles of the respective soft

drinks with a consumer warning after tests showed unacceptable levels of residual pesticides.

Both companies continue to maintain that their products meet all international safety

standards without yet implementing the Supreme Court ruling. As of 2005, The Coca-Cola

Company and PepsiCo together hold 95% market share of soft-drink sales in India. PepsiCo

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has also been accused by the puthussery panchayat in the Palakkad district in Kerala, India,

of practicing "water piracy" due to its role in exploitation of ground water resources resulting

in scarcity of drinking water for the panchayat's residents, who have been pressuring the

government to close down the PepsiCo unit in the village.

In 2006, the CSE again found that soda drinks, including both Pepsi and Coca-Cola, had high

levels of pesticides in their drinks. Both PepsiCo and The Coca-Cola Company maintain that

their drinks are safe for consumption and have published news paper advertisements that say

pesticide levels in their products are less than those in other foods such as tea, fruit and dairy

products. In the Indian state of Kerala, sale and production of Pepsi-Cola, along with other

soft drinks, was banned by the state government in 2006, but this was reversed by the Kerala

high court merely a month later. Five other Indian states have announced partial bans on the

drinks in schools, colleges and hospitals.

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COMPANY PROFILE IN INDIA

COMPANY NAME: Pepsi Co India Holdings Private Limited

COUNTRY/TERRITORY: India

ADDRESS:

KEY PEOPLE:

3B;DLF Corporate park’s Block; Qutub Enclave; Gurgaon, Haryana, India

Sanjeev Chadha, CEO of PepsiCo India.

PRODUCTS/SERVICES WE OFFER:

Mango, Guava, Papaya, Banana

BUSINESS TYPE: Manufacturer

INDUSTRY FOCUS: Food Processing

GEOGRAPHIC MARKETS: Middle East

NO. OF EMPLOYEES: Above 1000 People

ANNUAL SALES RANGE (USD):

Above US$100 Million

YEAR ESTABLISHED: Gained entry to India in T 1988 T

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INTRODUCTION

A managerial accounting strategy focusing on maintaining efficient levels of both

Components of working capital, current assets and current 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 analyze 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 difference between resources in cash or readily

convertible into cash (Current Assets) and organizational commitments 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”.

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The working capital is calculated as:

WORKING CAPITAL = CURRENT ASSETS-CURRENT LIABILITIES

CURRENT ASSETS CURRENT LIABILITY

Cash in hand/at bank Bills Payable

Bills Receivable Sundry Creditors

Sundry Debtors Outstanding Expenses

Short term Loans Accrued Expenses

Inventory/ Stock Bank overdraft

Temporary Investment

Prepaid Expenses

Accrued Income

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, 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 seen by comparing the working capital from one period to another; slow

collection may signal an underlying problem in the company's operations.

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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

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 can hardly 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

could say that the models of these businesses are asset or capital intensive rather than service

or people intensive.

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The Importance of Good Working Capital Management

Working capital constitutes part of the Crown’s investment in a department. Associated with

this is an opportunity cost to the Crown. (Money invested in one area may “cost”

opportunities for investment in other areas.) If a department is operating with more working

capital than is necessary, this over-investment represents an unnecessary cost to the Crown.

From a department’s point of view, excess working capital means operating inefficiencies. In

addition, unnecessary working capital increases the amount of the capital charges.

The Management of Working Capital

The amounts invested in working capital are often high in proportion to the total assets

employed and so it is vital that these amounts are used in an efficient and effective way. A

firm can be very profitable, but if this is not translated into cash from operations within the

same operating cycle, the firm would need to borrow to support its continued working capital

needs. Thus, the twin objectives of profitability and liquidity must be synchronized and one

should not impinge on the other for long. Investments in current assets are inevitable to

ensure delivery of goods or services to the ultimate customers and a proper management of

same should give the desired impact on either profitability or liquidity. If resources are

blocked at different stages of the supply chain, this will prolong the cash operating cycle.

Although this might increase profitability (due to increase sales), it may also adversely affect

the profitability if the costs tied up in working capital exceed the benefits of holding more

inventory and/or granting more trade credit to customers. Another component of working

capital is accounts payable, but it is different in the sense that it does not consumer sources;

instead it is often used as a short term source of finance. Thus it helps firms to reduce its cash

operating cycle, but it has an implicit cost where discount is offered for early settlement of

invoices.

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Approaches to 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 management takes 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.

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Working Capital Cycle

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.

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A short cash conversion cycle indicates good working capital management. Conversely, a

long cash conversion cycle suggests that capital is tied up while the business waits for

customers to pay. The longer the production process, the more cash the firm must keep tied

up in inventories. Similarly, the longer it takes customers to pay their bills, the higher the

value of accounts receivable.

On the other hand, if a firm can delay paying for its own materials, it may reduce the amount

of cash it needs. In other words, accounts payable reduce net working capital.

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SCHEDULE OF CHANGES IN WORKING CAPITAL

WORKING CAPITAL FOR 2006 TO 2008

2006 2007 2008 ACURRENT ASSET $ MILLION

Cash & Equilvalnts 629 647 966Accounts Receivable 1332 1520 1371Inventory 533 577 528Other current Asset 255 342 276

Total Current asset 2749 3086 3141

B

CURRENT LIABILITY

Accounts Payable 1677 1968 1675Short term debt 374 247 1408Accrued Liability 0 0 0

Total current liability 2051 2215 3083

NET WORKING CAPITAL(A-B) 698 871 58

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CHART ANALYSIS

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PERCENTAGE CHANGE IN CURRENT ASSET & CURRENT LIABILITY FROM 2006 TO 2008

A

2006 2007 2008CURRENT ASSET

Cash & Equilvalants 5.3 4.9 7.4Accounts Receivable 11.2 11.6 10.6Inventory 4.5 4.4 4.1Other current Asset 2.1 2.6 2.1

Total Current asset 23.1 23.5 24.2

BCURRENT LIABILITY

Accounts Receivable 14.1 15 12.9Short term debt 3.1 1.9 10.8

Accrued Liability 0 0 0

Total current liability 17.2 16.9 23.7

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CHART ANALYSIS

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ASSESMENT OF WORKING CAPITAL REQUIREMENT(MAXIMUM PERMISSIBLE BANK FINANCE)

2006 2007 2008

1 Total Current Assets 2749 3086 31412 current Liabilities 629 647 966

(Other than Bank Borrowings)3 working capital gap(1-2) 2120 2439 21754 Min. stipulated Net working 687.25 771.5 785.25

capital( 25% of Total C.A)5 Actual/ projected Net W.C. 698 871 586 item 3 minus item 4 1432.75 1667.5 1389.757 item 3 minus item 5 1422 1568 21178 Max. Permissible Bank Finance 1422 1568 1389.75

(item 6 or 7, Whichever is less)

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ANALYSIS

Working capital management ensures a company has sufficient cash flow in order to meet its

short-term debt obligations and operating expenses. In 2006 the company have Rs.691mill$. Its

shows good financial position of the company. In 2007 it increases to 871 mill $. In this year

company have take less short term debt from previous year. This year company uses his own

funds. Its shows the efficient working capital management by Pepsi. In 2008 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 economy faces downturns. Recession has also affected on Pepsi. This year. For

this company has take $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 mill. Accounts payable it is less from

the previous year. It is good for the company.

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Objective of the study

To observe the systems, process, interactions in the organization.

To study and analyze 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.

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Research Methodology

Research in common parlance refers to search for knowledge

The term research refers to the systematic method consisting of enunciating the problem ,

formulating a hypothesis collecting the data , analyzing 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, News papers 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.

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TOOLS

I’ve used analysis tools that are mention below-

Ratio Analysis Charts & Graphs

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ANALYSIS OF VARIOUS COMPONENTS OF WORKING CAPITAL

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 materials2. Semi finished goods.3. Finished goods.

Position of inventory in PepsiCo

Rs. IN MILL.$

Inventories 2006 2007 2008Raw Material & Supply 175 195 185Finished goods 358 382 343

Total 533 577 528

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CHART ANALYSIS

INTERPRETATION

By analyzing 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.

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SUNDRY DEBTORS ANALYSIS

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 DEBTORS IN PEPSI CO

RS. IN MILL $2006 2007 2008

Debtors Net

Trade accounts receivable 1026 1319 1208Allowances for doubtful accounts 52 54 71Accounts receivable 198 188 154Other receivable 56 67 80

1332 1628 1513

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CHART ANALYSIS

INTERPRETATION

In the table and figure we see that there is rise in the debtors in PepsiCo Limited in the

successive years. A simple logic is that debtors increase only when sales increase and if sales

increases it 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 is increasing with a

great speed the profit also increases. If company decreases the Debtors they can use the

money in many investment plans.

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CASH AND BANK BALANCE ANALYSIS

Cash is called the most liquid asset and vital current assets. It is an important component of

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 & BANK BALANCE IN PEPSICO

RS.IN MILL. $

2006 2007 2008

CASH in hand& 629 647 966BANKBALANCE & EQUILANTS

CHART ANALYSIS

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INTERPRETATION

If we analyze the above table and chart we find that it follows a 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 between the year 2007 and 2008.

Although company’s cash is increasing this is very good sign for company. Holding more

cash is not good it 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.

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POSITION OF CURRENT LIABILITIES IN PEPSICO

IN MILL. $

CURRENT LIABILITIES

Accounts payable and 1677 1968 1675Other Current Liabilities

Short term liabilities 374 240 103Current Maturities 0 7 1305

Total 2051 2215 3083

CHART ANALYSIS

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INTERPRETATION

we analyze 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.

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PROVISION ANALYSIS

2006 2007 2008

Deferred taxes 61 42 47Proposed Dividend 90 113 135Income tax 159 177 112

310 332 294

CHART ANALYSIS

INTERPRETATION

From the above table we can see 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.

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POSITION OF RECEIVABLE RATIO IN PEPSI CO

DEBTORS

RECEIVABLE RATIO = ___________ * 365

SALES

2006 2007 2008YEARS

RECEIVABLE RATIO 10.1 9.5 9.5

CHART ANALYSIS

INTERPRETATION

Generally a low debtor’s turnover ratio implies that it considered congenial for the business

as it implies better cash flow. The ratio indicates the time at which the debts are collected on

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.

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Now if we analyze 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 PEPSI CO

CREDITORS

PAYABLE RATIO = _______________ *365

COST OF SALES

2006 2007 2008YEARS

PAYABLE RATIO 87.4 90.3 87.6 (IN DAYS)

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CHART ANALYSIS

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 analyze 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 seen that 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.

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POSITION OF INVENTORY RATIO IN PEPSI CO

Average stock

INVENTORY TURNOVER RATIO. = ______________ * 365

Cost of goods sold

2006 2007 2008YEARS

I.T.R. RATIO 13.7 13.3 13.7

CHART ANALYSIS

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INTERPRETATION

This ratio tells the story by which stock is converted into 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 analyzing 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 PEPSI CO

TOTAL CURRENT ASSET

CURRENT RATIO = ________________________

TOTAL CURRENT LIABILITY

YEARS 2006 2007 2008

CURRENT RATIO 1.34 1.39 1.02

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CHART ANALYSIS

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 Tandon Committee which is

taken as 1.33:1.

Now if we analyze the three years data it can be predicted that it holds a stable position all

throughout period but it is seen that it holds a low position than the standard one and the

company is required to improve its position.

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POSITION OF QUICK RATIO IN PEPSI CO

TOTAL LIQUID ASSET

QUICK RATIO = ________________________

TOTAL CURRENT LIABILITY

CHART ANALYSIS

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 analyzing 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.

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YEARS 2006 2007 2008QUICK RATIO 1.08 1.13 0.84

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WORKING CAPITAL TURNOVER RATIO

COST OF SALE

WORKING CAPITAL RATIO = __________________

NET WORKING CAPITAL

YEARS 2006 2007 2008

Working capital ratio 9.88 8.46 130.79

CHART ANALYSIS

INTERPRETATION

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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 analyze 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

in2008 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.

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PROFITABILITY ANALYSIS

Particulars RS.IN MILL. $

2006 2007 2008

Net Sale 12730 13591 13,796

Cost of goods sold 6900 7370 7586Operating Profit before Interest 5830 6221 6210Operating Profit after Interest 5830 1071 649Profit/Loss before Tax 681 709 274Profit/Loss after Tax 522 532 162Dividend Payout/Drawing 0.41 0.53 0.65

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INCOME STATEMENT OF PEPSICO 2004 TO 2008

2004 2005 2006 2007 2008 TTM

Sales 10,906 11,885 12,730 13,591 13,796 13,404Operating Income 976 1,023 1,017 1,071 649 617Income Tax 232 247 159 177 112 -9Net Income 457 466 522 532 162 223

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INTERPRETATION

Analyzing the last five year data we say that 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.

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FINDINGS

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 $1400mill short term loans because of macro

economics downturns in economy.

In 2008 company gives .65$ dividend to his share holder.

This year company have 2% growth in EPS this is very low from the previous

year because company has paid many interest on short term loans.

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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 focused organisation.

The overall performance of PepsiCo is getting on a good track. The total

turnover of the company has registered a growth of 205 Million where as 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 power plants

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.

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They achieved these results by adapting quickly to the economic environment

and by focusing on several business drivers to grow our top line, improve cost and

productivity, and strengthen our people and culture.

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Measures to Improve Working Capital Management at PEPSICO:

The essence of effective working capital management is proper cash flow forecasting.

This should take into account the impact of unforeseen events, market cycles, loss of

a prime customer and actions by competitors. So the effect of unforeseen demands of

working capital should be factored by company. This was one of its reasons for the

variation of its revised working capital projection from the earlier projection.

It pays to have contingency plans to tide over unexpected events. While market-

leaders can manage uncertainty better, even other companies must have risk-

management procedures. These must be based on objective and realistic view of the

role of working capital.

Addressing the issue of working capital on a corporate-wide basis has certain

advantages. Cash generated at one location can well be utilized at another. For this to

happen, information access, efficient banking channels, good linkages between

production and billing, internal systems to move cash and good treasury practices

should be in place.

An innovative approach, combining operational and financial skills and an all-

encompassing view of the company’s operations will help in identifying and

implementing strategies that generate short-term cash. This can be achieved by having

the right set of executives who are responsible for setting targets and performance

levels. They could be then held accountable for delivering, encouraged to be

enterprising and to act as change agents.

Effective dispute management procedures in relation to customers will go along way

in freeing up cash otherwise locked in due to disputes. It will also improve customer

service and free up time for legitimate activities like sales, order entry and cash

collection. Overall, efficiency will increase due to reduced operating costs.

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Working capital management is an important yardstick to measure a company

operational and financial efficiency. This aspect must form part of the strategic and

operational thinking. Efforts should constantly be made to improve the working

capital position. This will yield greater efficiencies and improve customer

satisfaction.

Inventories should be managed on a line-by-line basis using the 80/20 rule.

Placing the responsibility for collecting the debt upon the centre that made the sale.

i.e., cold rolled, hot rolled, galvanized etc.

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www.pepsico.com

www.yahoofinance.com

http://www.rediff.com/money/2003/aug/21pepsi.htm

http://www.stjohns.edu/media/3/80dc682a41f44209b5da9de5f8ac8bec.pdf

http://quicktake.morningstar.com/stocknet/cashflow10.aspx?Country=USA&Symbol=PBG

http://quicktake.morningstar.com/stocknet/EfficiencyRatios10.aspx?Country=USA&Symbol=PBG

http://www.sirpepsi.com/pepsi11.htm

REFRENCE

Shashi k. Gupta (2008) Financial Management, kalyani Publications

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BALANCE SHEET OF PEPSI CO

PERIOD ENDING 27-Dec-08 29-Dec-07 30-Dec-06

Assets

Current Assets

Cash And Cash Equivalents 2,064,000   910,000   1,651,000  

Short Term Investments 213,000   1,571,000   1,171,000  

Net Receivables 4,683,000   4,389,000   3,725,000  

Inventory 2,522,000   2,290,000   1,926,000  

Other Current Assets 1,324,000   991,000   657,000  

Total Current Assets 10,806,000   10,151,000   9,130,000  

Long Term Investments 3,998,000   4,475,000   3,839,000  

Property Plant and Equipment 11,663,000   11,228,000   9,687,000  

Goodwill 5,124,000   5,169,000   4,594,000  

Intangible Assets 1,860,000   2,044,000   1,849,000  

Accumulated Amortization -   -   -  

Other Assets 2,324,000   1,356,000   599,000  

Deferred Long Term Asset Charges 219,000   205,000   232,000  

Total Assets 35,994,000   34,628,000   29,930,000  

Liabilities

Current Liabilities

Accounts Payable 6,494,000   6,209,000   5,271,000  

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Short/Current Long Term Debt 369,000   -   274,000  

Other Current Liabilities 1,924,000   1,544,000   1,315,000  

Total Current Liabilities 8,787,000   7,753,000   6,860,000  

Long Term Debt 7,858,000   4,203,000   2,550,000  

Other Liabilities 7,017,000   4,792,000   4,624,000  

Deferred Long Term Liability Charges 226,000   646,000   528,000  

Minority Interest -   -   -  

Negative Goodwill -   -   -  

Total Liabilities 23,888,000   17,394,000   14,483,000  

Stockholders' Equity

Misc Stocks Options Warrants -   -   (79,000)

Redeemable Preferred Stock (97,000) -   -  

Preferred Stock -   41,000   -  

Common Stock 30,000   30,000   30,000  

Retained Earnings 30,638,000   28,184,000   24,837,000  

Treasury Stock (14,122,000) (10,519,000) (7,758,000)

Capital Surplus 351,000   450,000   584,000  

Other Stockholder Equity (4,694,000) (952,000) (2,246,000)

Total Stockholder Equity 12,203,000   17,234,000   15,447,000  

Net Tangible Assets $5,219,000   $10,021,000   $9,004,000  

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INCOME STATEMENT OF PEPSI CO

PERIOD ENDING 27-Dec-08 29-Dec-07 30-Dec-06

Total Revenue 13,796,000   13,591,000   12,730,000  

Cost of Revenue 7,586,000   7,370,000   6,810,000  

Gross Profit 6,210,000   6,221,000   5,920,000  

Operating Expenses

Research Development -   -   -  

Selling General and Administrative 5,149,000   5,150,000   4,903,000  

Non Recurring 412,000   -   -  

Others -   -   -  

Total Operating Expenses -   -   -  

Operating Income or Loss 649,000   1,071,000   1,017,000  

Income from Continuing Operations

Total Other Income/Expenses Net (25,000) 6,000   (11,000)

Earnings Before Interest And Taxes 564,000   983,000   947,000  

Interest Expense 290,000   274,000   266,000  

Income Before Tax 274,000   709,000   681,000  

Income Tax Expense 112,000   177,000   159,000  

Minority Interest (60,000) (94,000) (59,000)

Net Income From Continuing Ops 162,000   532,000   522,000  

Non-recurring Events

Discontinued Operations -   -   -  

Extraordinary Items -   -   -  

Effect Of Accounting Changes -   -   -  

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Other Items -   -   -  

Net Income 162,000   532,000   522,000  

Preferred Stock And Other Adjustments -   -   -  

Net Income Applicable To Common Shares $162,000   $532,000   $522,000  

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