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Business Ethics Business ethics is a topic that is often on the forefront of media and journalism reports in the United States of America today. To someone that doesn’t have a background in business, or a general understanding of the business world, these reports can be cumbersome and hard to follow. One must first understand what business ethics actually are. Dictionary. com defines business ethics as the study and examination of moral and social responsibility in relation to business practices and decision-making in business (dictionary. com).
Once one understands the meaning of business ethics, they often wonder what major companies do to stay ahead of the curve, and excel in the area of business ethics. Sadly, it seems as if the general media is only interested in companies with poor business ethics and practices. Media outfits are able to sell more papers, and gain more viewers, and honest companies such as PepsiCo never get the positive publicity that they deserve. Ethics and compliance are present in PepsiCo’s day to day operations. PepsiCo also has procedures in place to ensure ethical behavior for both their employees, and the company as a whole.
Next, one must take a look at processes within the organization PepsiCo employs to comply with SEC regulations. Finally, the financial statements of PepsiCo will be analyzed with the intent of looking into the trend for different ratios and what it tells investors, and the public alike about the organization’s financial health. In a world that is filled with unethical companies that are lying to their investors, employees, and the public, it is encouraging to still have companies like PepsiCo that are both ethical and compliant.
PepsiCo goes to great lengths to attain economic success while still complying to the unwritten laws of business ethics. PepsiCo does this based on three main elements of influence: environmental, talent, and human sustainability. PepsiCo offers consumers a wide array of products from health conscious foods, to comfort foods, to athletic drinks. PepsiCo’s financial stability is greatly influenced by the decision to offer so many products. By doing so, PepsiCo gets to appeal to a variety of consumers, as opposed to just one type.
When PepsiCo speaks of environmental sustainability, they are talking about their efforts to “go green” or lessen their environmental footprint. PepsiCo is planning on taking the necessary steps toward reducing their electrical consumption by 20% and reducing fuel consumption by 25% by the year 2015. In 2007, PepsiCo saved nearly five billion liters of water, and nearly five-hundred million kilowatt hours of energy worldwide in 2007 when compared to their use in years past (PepsiCo, 2009). PepsiCo is looking out for the best interests of the environment, an ethical and admirable decision made by the company.
PepsiCo is also an equal opportunity employer and they are often praised for the diverse workforce that they develop. When PepsiCo speaks of talent, they are talking about their diverse workforce. PepsiCo also believes in equality, they show this by offering employment to individuals without worrying about gender, race, ethnicity, or sexual orientation. PepsiCo was named one of Business Ethics Magazine’s “100 best corporate citizens”. PepsiCo shows loyalty to their employees by trying to promote from within. They also participate in various surveys to prevent any issues, and to address any problem areas.
The current CEO of PepsiCo is a woman by the name of Indra Nooyi; since she took over in 2006 she has promoted workplace diversity. PepsiCo’s workplace policies are available in thirty different languages to accommodate many ethnic groups. PepsiCo also does their best to try to spend as much as they could with minority owned businesses, while still looking out for the company’s best interests. (PepsiCo, 2009). PepsiCo is extremely ethical and compliant when looking at their hiring practices. Human sustainability at PepsiCo is their vow to offer more healthy choices for consumers.
PepsiCo is dedicated to their consumers, and is focused on creating and innovating new products that will offer less sugar and staying away from “empty calories”. PepsiCo has been partnering with the World Health Organization to find new ways to improve the diets of consumers while promoting physical activities. When looking at PepsiCo’s promotion of human sustainability, it is evident that PepsiCo values their consumers, which is valued and ethical. PepsiCo much like any other well respected company, complies with the regulations that are determined by the SEC (Securities and Exchange Commission).
PepsiCo demonstrates their SEC compliance through their hiring of an independent registered public accounting firm. PepsiCo utilizes the well-known and respected accounting firm Klynveld Peat Marwick Goerdeler which is more commonly referred to as KPMG. KPMG is one of the largest professional services firms in the world and one of the Big Four auditors. The Big Four auditors are KPMG along with PricewaterhouseCoopers, Deloitte, and finally Ernst and Young. KPMG’s global headquarters are located in the Netherlands .
By employing an outside source, PepsiCo allows the auditing firm KPMG to clearly analyze their numbers, ultimately making independent judgments for the soft drink company. KPMG complies with the laws and guidelines that are set up by the Securities and Exchange Commission through a published report to the SEC that is created quarterly and annually for PepsiCo. The reports that are then created by KPMG offer the Securities and Exchange Commission as well as shareholders, and anyone else interested detailed information on what and where the company is spending money as well as on what and where the company is receiving money.
Near the end of PepsiCo’s annual report, there is a statement that speaks of the honesty and integrity of the report. This statement reads: “Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we conducted and evaluation of the effectiveness of our control over financial reporting based upon the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on that evaluation our management concluded that our internal control over financial reporting is effective as of December 26, 2009 (PepsiCo, 2009). ” Based on that quote, one must believe that PepsiCo is both ethical and compliant with respect to the Securities and Exchange Commission. Despite the worldwide economic turmoil that companies have been forced to deal with, PepsiCo has done their best to rise above the state of the economy, and still post good numbers. PepsiCo’s current ratio for 2008 came out to 1. 23 and the current ratio for 2009 was 1. 35. This means that PepsiCo can pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables) 1. 299 times in 2008 and 1. 435 times in 2009. To properly compute the current ratio for each year an individual would divide the current assets by the current liabilities. The 2008 current ratio for PepsiCo can be calculated by dividing 10,806 by 8,787. This comes out to 1. 23. The 2009 current ratio for Pepsi is calculated the same way dividing 12,571 by 8,756. This equates to 1. 435.
PepsiCo improved their current ratio year over year. A debt ratio is a ratio that indicates what proportion of debt a company has relative to its assets. Thus having a lower percentage would be ideal. PepsiCo’s debt ratio for 2008 was 23%. This can be computed by taking the total debt, which was $ 8,227 and dividing that by the total assets which were $ 35,994. In 2009 the total debt was $7,864 and the total assets were $ 39,848, giving PepsiCo a debt ratio of 19. 7%. Return on equity is known as the amount of net income returned as a percentage of shareholders equity.
It can be calculated as the net income divided by common equity, and a higher percentage is favorable. In 2008 the net income was $ 5,166, which is divided by the common equity $ 12,203, this comes out to 12%. In 2009 the net income was $ 5,979 and the common equity was $ 16,908, meaning that the return on equity was 35%. Again, PepsiCo shows improvement year over year. Finally, comes the days receivable. The days receivable are a measure of the average time a company’s customers take to pay for purchases.
The days receivable are equal to accounts receivable divided by annual sales on credit times 365. In 2008 PepsiCo’s accounts receivable came out to $ 4,683, annual sales on credit were $ 20,351, meaning that the days receivable in 2008 equated to 83. 99, or simply 84 days. In 2009 PepsiCo’s accounts receivable came out to $ 4,624, annual sales on credit were $ 20,099, meaning that the days receivable in 2008 equated to 83. 97 or 84 days as well. Year over year, it seems as if PepsiCo remained constant in the area of days receivable.
In closing, PepsiCo establishes itself on the forefront of ethics and compliance. PepsiCo also has procedures in place to ensure ethical behavior of employees and shareholders. Finally, PepsiCo has processes that they utilize to comply with SEC regulations. PepsiCo seems to have improved financially year over year between 2008 and 2009. In a world that is filled with unethical companies that are lying to their investors, employees, and the public, it is encouraging to still have companies like PepsiCo that are both ethical and compliant.
References Business ethics. (n. d. ). Dictionary. com’s 21st Century Lexicon. Retrieved September 27, 2010, from Dictionary. com website: http://dictionary. reference. com/browse/Business ethics PepsiCo. 2008 Annual Report. Purchase, NY: PepsiCo, 2008. Annual reports. September 27, 2010. http://www. pepsico. com/Investors/Annual-Reports. html PepsiCo. 2009 Annual Report. Purchase, NY: PepsiCo, 2009. Annual reports. September 27, 2010. http://www. pepsico. com/Investors/Annual-Reports