Question

What general conclusions can you draw about the company’s use of cash for operating, investing and financing activities? Do you not any red flags or concerns?

Answer 1

We know that FCF (free cash flow) = net cash from operating activities – capital spending.

	2017	2016	2015
Net cash provided by operating activities	9,994.00	10,673.00	10,864.00
less: Capital spending	2,969.00	3,040.00	2,758.00
FCF	7,025.00	7,633.00	8,106.00
Year on year change (in %)	-              7.97	-              5.84

Thus free cash flow for PepsiCo. is declining every year. In 2016 it declined by 5.84% and in 2017 the decline got steeper and stood at 7.97%. This is a cause of concern for the company.

Another red flag that can be seen is that capital spending declined in 2017. The amount of capital spending was 3,040 in 2016 and this declined to 2,969 in 2017. This translates to a decline of around 2.34% and indicates a bad business environment for PepsiCo. This also indicates a weakening of the fundamental business prospects for the company.

Lastly we can see that payments of short term borrowings (more than three months) for the year 2017 are more than the proceeds from short term borrowings (more than three months). This can created a gap as far as short term liquidity of the company is concerned.