Finance from its origin means ‘Payment of a Debt’. This involves the study of the cash flow system and decision making around investors and companies. Investors (private investors or financial organisations) and companies enter into a mutually beneficial agreement whereby the investor lend money to the companies to support their projects and, after the result, they receive a payment back or benefits called dividends (which involves taxation or retained earnings for reinvesting of founds). Considering the company decisions around raising capital, what projects invest in, the financial performance of the company and paying the investors back is called corporate finance (Adair,2006). As a part of the corporate finance study, this essay is going to be focused in the analysis of the financial performance of the PepsiCo. Inc (Appendix A), based on Debts ratios, their meaning, application, and how they can affect the Economic categorization of the company in front of the Debit Rating Agencies.
Calculate PepsiCo’s net debt ratio, assuming that the present value of operating leases is five times the annual rental expense and that remitting the cash and marketable securities to the United States reduces them by 25% due to taxes and transaction costs.
Investors and financing companies are interested to check how liquid, solvent and valuable a company is before investing their money in it. Before developing and analysing the net debt ratio of PepsiCo, first, I would like to start introducing the Net Working capital in order to know how liquid the company is, in other words, if the company is able to pay its current liabilities with its current cash in hand:
NWC=Current Assest-Current Liabilities
Taking the information from PepsiCo Inc. balance sheet (Appendix A, Exhibit 2):
NWC last Year=5,546-5,230=326 million
NWCOne year ago= 5,072-5270=-198 million
According with the results for the last two years (last year and two years...