Home > Cash Flows Statement, Corporate Finance, Financial Accounting, Financial Statement Analysis, Investment Analysis & Portfolio Management > Preparation of Cash Flow statement of PEPSICO using Indirect Method example 2

Preparation of Cash Flow statement of PEPSICO using Indirect Method example 2

Note: In this second example of cash flow preparation, I am using the actual data of PEPSICO.

How to prepare cash flow from the start, you can check my post previous https://mohsinpage.wordpress.com/2010/11/15/preparation-of-cash-flows-statement-using-direct-method-example-1/. In my previous post used additional information extracted from the analyses of two year balance sheet. In this tutorial I will analyze whole two year balance sheet and will extract additional information in the categories of Operating activities, Investing activities and Financing Activities.

Analyze the Balance Sheet and income statement:

Below is the balance sheet of PEPSICO of 2000 and 2001 and income statement .of 2001

CONSOLIDATED BALANCE SHEET FOR PEPSICO,INC., AS OF DEC 31

Millions of dollars

2001

2000

Assets
Current Assets
Cash and equivalent 1649 1505
Receivable 2142 2129
Inventories 1310 1192
Other Current Assets 752 791
Total Current Assets 5853 5617
Fixed Assets
Property, Plant and Equipment 12866 11466
Less: Accumulated Depreciation 5990 4908
Net Fixed Assets 6876 6558
Net Intangible Assets 4841 4714
Other Assets 4125 3868
Total Assets 21695 20757
Liabilities and Shareholders Equity
Current Liabilities
Debt Due for repayment 354 202
Accounts Payable 1238 1212
Other Current Liabilities 3406 3381
Total Current Liabilities 4998 4795
Long term debt 2651 3009
Other long term liabilities 5398 5349
Total Liabilities 13047 13153
Shareholders Equity
Common Stock and other paid-in capital 35 667
Retained earnings 8605 6937
Total Shareholders equity 21695 20757
Total Liability and Shareholders Equity 21695 20757

CONSOLIDATED STATEMENTS OF INCOME FOR PEPSICO,INC., 2001

Millions of dollars

Net Sales 26935
Cost of goods sold 10754
Selling, general & administration expenses 10526
Other expense 392
Depreciation 1082
Earning before interests and income tax 4181
Net interest expense 152
Taxable income 4029
Taxes 1367
Net income 2662
Allocation of net income
Dividends 994
Addition to retained earnings 1668

Additional Information from balance sheet and income statement:

1. Cash and equivalent (for 2001)= 1649

Cash and equivalent (for 2000)=1505

Net cash difference (2001-2000) = 144 (Result from cash flow statement should be 144)

2. Net Income from Income Statement=2662

Note Cash flow will categorize in three portions operational activities, investing activities, balancing activities.

Additional Information for Operating Activities:

1. Non Cash item => Difference of Accumulated Depreciation= 1082 will be add back in net income.

2. Accounts receivable difference increase by 13 will be deduct from net income.

3. Inventories difference increase by 118 will be deduct from net income.

4. Accounts payable difference increase by 26 will be add in net income.

5. Other Current Assets difference decreases by 39 will be add in net income.

6. Other Current liabilities differences increases by 25 will be add in net income.

Cash flow from operating activities
Net income 2662
Non Cash Item
Depreciation 1082
Changes in Working Capital
Decrease in account receivable -13
Decrease in inventories -118
Increase in account payable 26
Decreases in other current assets 39
Decrease in other current liabilities 25
Net result by changes in working capital -41
Net Cash flow from Operating Activities 3703

Additional Information for Investing Activities:

1. Fixed Assets difference increase by 1400 will be treated as cash out flow.

2. In Intangible Assets difference increases by 127 will be treated as cash out flow.

3. Other Assets difference increases by 257 will be treated as cash out flow.

Cash flow from investing activities
Invest in fixed assets -1400
Invest in In tangible assets -127
Invest in other assets -257
Net Cash flow from Investing Activities -1784

Additional Information for Financing Activities:

1. Net Interest expense (short term debt) paid by 152.

2. Long term dept difference decrease by 358 treated as cash out flow

3. Other long term dept difference increase by 49 treated as adjustment of cash outflow as positive 49.

4. Dividends paid in income statement by 994.

5. Common stock difference increases by 624 as cash outflow.

Cash flow from Financing Activities
Net Interest Paid 152
Addition in long term dept -358
Decrease in other long term depth 49
Dividend paid -995
Common stocks (repurchases) -624
Net Cash flow from Financing Activities 1775

Cash Flow Statement of PEPSICO for year ended dec 31,2001:

So far we have calculated the net cash from from Operating activities, Investing activities and Financing activities. Now the net cash from these activities as below;

Cash flow from operating activities
Net income 2662
Non Cash Item
Depreciation 1082
Changes in Working Capital
Decrease in account receivable -13
Decrease in inventories -118
Increase in account payable 26
Decreases in other current assets 39
Decrease in other current liabilities 25
Net result by changes in working capital -41
Net Cash flow from Operating Activities 3703
Cash flow from investing activities
Invest in fixed assets -1400
Invest in In tangible assets -127
Invest in other assets -257
Net Cash flow from Investing Activities -1784
Cash flow from Financing Activities
Net Interest Paid 152
Addition in long term dept -358
Decrease in other long term depth 49
Dividend paid -995
Common stocks (repurchases) -624
Net Cash flow from Financing Activities -1775
Net cash flow -144
  1. July 6, 2011 at 3:16 am

    Hello Moshin,
    Is it possible to show how this can be done using openerp? Regards.

  2. Abdul Qadus Hamdard
    June 2, 2012 at 12:58 pm

    Great Job, but Please Provide some further Information…

  3. charles
    June 27, 2012 at 4:24 am

    I want to know the preparation of cashflow statement because it confuses me

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