Case 1,2 - Essay Example

Hence the company has to focus on shortening the stock turnover period. The inventory conversion period can be reduced by improving the demand forecast methods. This will enable more effective timely production of goods, so that the time spent by the stock in the warehouse is reduced. It is also important to improve the efficiency in moving the goods from the warehouses to the retailers. As most of the products of Pepsico are consumable, the time gap between production and reaching the end customer is crucial.

If the time gap is higher than the expiry period of the product, then those items are returned to the company. This will be accounted as a loss for Pepsico. Hence the above steps have to be taken by Pepsico to reduce the inventory conversion or the stock turnover period (Samuels et al, 2000). It has been estimated that almost 50% of the increase in the short term liabilities is due to the increased inventory levels. Hence, it is evident that the additional short term debt to be incurred in the year 2007 does not generate any revenue.

50% of the increase in short term debt amounts to (281,915 – 103,734) / 2, which is $ 89,091 million. This additional investment can be gathered from various sources other than the short term debt. The cheapest source of funds in this case is the cash in hand, as the company has reported net cash in hand as $ 150,000 million. Hence about $ 40,000 million of the requirement can be met with the cash in hand. It is not advisable to move the entire $ 80,000 million, as it will affect the liquidity position of the company.

This will be a short term temporary move, as the cash in hand has been estimated to rise by 20% in 2007. The rest of the required amount, $ 40,000 million can be raised through equity stock (Burk and Wilks, 2007). More stocks can be issued to the shareholders and additional funds can be raised. This will be a long term move and will have a