The global expansion of the company has exposes itself to many different risk as well as

threats which have to be mitigated along with achieving the internal expansion within
department which is taking place. From a financial perspective alone, the company as
concerns around high levels of debt as well as high levels of emerging market exposure
which is being identified in the global operations. At the same time, internally the marketing
department and other departments are making expansive pushes, for new product launches,
which then requires the CFO to pay special attention to providing resources for these
expansion efforts (Departmental Objectives Table).

There are other objectives which have to be fulfilled as well. For example, the goal is to
create shareholder value by 10% in 2025 while at the same time increase the global
production network by 20% in 2021 (Departmental Objectives Table). There is also
initiatives around investing more than $ 100 million so that 12.5 million women around the
world are able to prepare themselves for workforce readiness (Departmental Objectives
Table). Making sure that these objectives are funded by the finance department is of primary
concern requiring the finance department to pay particular attention towards some of these
initiatives.

The first duty of the CFO is to make sure that the company is not threatened through over
borrowing (Problems Summary Table). The current levels of liability for the company are
extremely high, which then necessitates the need to watch out for the capital structure
[ CITATION Gau17 \l 17417 ]. The capital structure is important because it determines
profitability and sustainability of the business and if the capital structure is heavily leaning
towards debt instruments, then the finance department might need to issue equity to balance it
out. It might also need other avenues of financing in case it is not able to get the money from
the equity markets without adding significant amounts of liability.

Making sure that there is a cohesive policy in place in dealing with any downgrades during
business operations is extremely important from a credit perspective [ CITATION Pep18 \l 17417
]. The type of credit and loan facilities which the company can get are dependent on how
external stakeholders such as credit agencies view the viability of the company and its
business. It is expected that there will be a negative outlook given the competitive
environment which the company is facing. As such, a financial policy around making sure
that there are no downgrades globally is necessary to reduce the risk of operations as well.
This however requires that the company look at how it’s getting its finances, and what sort of
risk is present in this difference of city areas [ CITATION Riv13 \l 17417 ]. Once the risk has
been mapped out, the company can then look at matching that with the appropriate funding
mechanism to reduce the risk of credit impact on the operations of the company. This should
also optimise the monthly payments as well which is a further positive impact in helping the
company build resilience in a competitive environment.

Additionally, the company and its exposure in emerging markets is also something which is
being looked at significantly (Departmental Objectives Table). The emerging markets bring
with that the biggest risk of exchange rate risks. Exchange rate risks are an extremely
important in present risk which has been identified by the management again and again. They
referred to the risk, which is associated with transactions conducted internationally, as Pepsi
as a business has to make these international transactions to fund various processes around
the world. The risk refers to the fluctuations in the foreign currency exchange which takes
place which then throws of many of the calculations which are made. For example, the
company has to take assumptions when it comes to modelling cost for the next few years, and
that requires assumptions around how foreign exchange rates would materialise [ CITATION
Lug18 \l 17417 ]. If there is any adverse movement it can cause a tremendous financial impact
on the company. Currently, the company uses certain mechanisms to control exchange rate
risk. However the recommendation is that more stringent mechanisms are used such as only
allowing transactions and the local currency and only sending money internationally when
required. At the same time, the company can look at restricting most of its transactions to one
currency which would further reduce the foreign exchange risk which the company is facing.
By dealing in multiple currencies, the company that has to average out this risk which makes
it much more difficult to manage exchange rate risk as well.

As can be seen, the goal of the financial policy is to make the company more resilient and
stronger. It is important to create value from optimising the financial processes in place and
also mitigating risk where applicable. Many of the risks which the finance department is
facing are larger than its own function however the goal is to incorporate that impact on its
function and reduce the risk as best as possible. At the same time there is no guarantee that
any of these measures would be able to effectively reduce the risk of the company operating
in a competitive environment [ CITATION Lin184 \l 17417 ].

References
Gautam, A., 2017. Challenges in BPO in India. [Online]
Available at: http://management.nrjp.co.in/index.php/jafmt/article/view/1
[Accessed 25 10 2020].
Lind, M. & Barner, K., 2018. Seizing the Opportunity. [Online]
Available at: https://link.springer.com/chapter/10.1007/978-3-319-66370-8_17
[Accessed 25 10 2020].
Lugasi, M. M. & Kariuki, P., 2018. DETERMINANTS OF COMPETITIVE ADVANTAGE
AMONG MANUFACTURING PHARMACEUTICAL FIRMS IN KENYA. Strategic Journal of
Business & Change Management, , 5(4), p. .
Pepsi, 2018. Annual report, Atlanta: Pepsi.
Rivenburgh, D., 2013. The New Corporate Facts of Life : Rethink Your Business and Transform
Today's Challenges into Tomorrow's Profits. [Online]
Available at: http://scholartext.com/book/88815483
[Accessed 25 10 2020].
Steinhoff, J. C. & Price, L. A., 2011. From Back Room to Board Room: Federal CFO Role in
Managing the Cost of Government: The Landmark CFO Act of 1990 Chartered a Course for Leaders
to Create High-Performing, Financial Management Practices Challenges Lie Ahead as the CFO Act
Comes of Age and Moves to the Next Stage of Maturity. [Online]
Available at: https://questia.com/library/journal/1g1-272257252/from-back-room-to-board-room-
federal-cfo-role-in
[Accessed 25 10 2020].

Referring to CFO Figure 1.1, the explanation for each formula were 10 graphs (Figure 1.0-
Figure 1.9) for five ratios analysis to determine how PepsiCo’s financial are going annually.

According to Figure 1.1, PepsiCo using current ratio to measure a firm’s capability
to meet its short term obligations with the current assets, and PepsiCo having difficulty in
meeting the firm’s obligations. In Figure 1.2, PepsiCo has a very high Acid Test Ratio in year
2017, which mean PepsiCo didn’t use their asset or extra profit to grow their organization in
that year.

According to Figure 1.3, it shows depicting the weaker sales and low demand for

PepsiCo products and other product lines, hence the cash flow of the firm is getting slower.

But in Figure 1.4, PepsiCo is using its assets more effectively in recent years and is

successful in generating more sales for the company. This mean total asset turnover and
inventory turnover for 2019 were very less compared to the other three years, but the total

turnover asset of PepsiCo for 2019 was higher than the previous 3 years. And this means the

PepsiCo has less liquidity and efficacy in managing the inventory in recent years. 

According Figure 1.5, PepsiCo successfully maintain their Debt Ratio become stable

in recent year, which is a little improvement for the firm as it is extending the capacity of the

firm’s leverage. To further support this statement, referring to Figure 1.6, PepsiCo is having a

strong financial position as both debt ratio and time interest earned ratio rates are contrary for

the year 2019, hence it has a good amount of assets to set off its debts against liabilities.

Base on Figure 1.7, it was efficient for the firm’s management is at generating income

as well as for the growth from its equity financing during 2016 till 2018. In Figure 1.8,

PepsiCo was profitable as the profit margin was rising by utilizing its assets properly in year

2018 and generating more sales than the previous two years. Referring on Figure 1.9,

PepsiCo was under pricing and unable to make a reasonable profit on the sale in year 2019

and this condition won’t attract more Investors to pay more for PepsiCo.

1.1.2 Share Price Analysis

Refer to Figure 1.1.2, some of the sharp stock price rise between 2017 and 2019 is justified by the

5.7% growth seen in PepsiCo’s revenues, the effect of which was further amplified by a 42% rise in

profitability. Net income margins increased from 7.7% in 2017 to 10.9% in 2019. Margins shot up in

2018 due to tax benefits received, but margin in 2019 was still above the 2017 level due to benefits

from the company’s productivity program. On a per share basis, earnings increased from $3.40 in

2017 to $5.23 in 2019.

1.1.3 Budget Analysis

In PepsiCo’s budget analysis, it clearly shows that the SG&A department has the
highest use of expenses in every year, while Sales and Marketing place at 2nd place,
and R&D used the lowest budget compare with other department. SG&A expense
has been volatile in recent years, with it increasing in 2018. The metric is
expected to remain almost flat in 2019, but could decline in 2020, led by benefits from
the productivity plan, under which PepsiCo will leverage new technology and
business models to further simplify, harmonize, and automate processes, and in
addition optimize its manufacturing and supply chain footprint.

2.0 Problem Identification

According to CEO’s appendix, Appendix 2.1, one of the few problems CFO may be
facing will affect environment and profit.

2.1 High Trade Receivable

Pepsi’s accounts receivable very high as a percent of current and total assets. This condition
may be the result of Pepsi’s less stringent policies for extending credit. Which mean Pepsi
could be more conservative by rating their accounts receivable as possible bad debt, and
Pepsi may have riskier receivables, or Pepsi’s receivables may be older and less likely to be
paid.
2.2 Environmental Concerns
2.2.1 Climate Change
Climate change poses a direct danger to the availability and costs of
agricultural raw materials. PepsiCo relies heavily on raw agricultural
materials for their products. Through increasing temperatures, droughts,
and extreme flooding, studies from the EPA that climate change harm the
quantity, quality and cost of agricultural crops and the global food supply at
large.

2.2.2 Insufficient Fresh Water Supply

Climate change is posing a significant threat to the global supply of fresh

water – a key component of PepsiCo’s supply chain. A report from the
Intergovernmental Panel on Climate Change stated that increasing
temperatures from climate change will lead to intense water scarcities
throughout the world.