Academic Year 2024 - 25
Introduction to Financial Accounting
ACCT1101MNO
Group Project
Objectives:
1. To analyze and assess the financial performance of two multinational public companies;
2. To research, discuss and evaluate an ethical issue related to financial reporting;
3. To develop teamwork and leadership skills.
Please follow these steps to complete the group project.
Step 1: Obtain annual reports
Obtain annual reports (for the most recent years, from 2021 to 2023) of The Coca-Cola Company (NYSE: KO) and PepsiCo, Inc. (NASDAQ: PEP) from their corporate websites.
Step 2: Complete the project
Each group is required to complete the project by inputting answer to
a) Part I-Requirement (1) via the course Moodle quiz link,
b) Part I-Requirement (2) and Part II on this Word file,
c) Part III via HKU e-Portfolio and attach screen captures (showing member name, posting time, and complete answers) of all members’ answer to the Word file.
Each group has to attempt the quiz ONCE and submit ONE copy of the completed Word file via the course Moodle by 5 pm of 4 Dec 2024 (Wednesday).
There are three parts in the workbook. Please complete all parts (full mark = 100) and type your answers in the workbook.
· Part I: Financial Statement Analysis (75 marks)
Students are required to apply the ‘tools of analysis’ taught in the course, to analyze and assess the financial performance of The Coca-Cola Company and PepsiCo, Inc. Inc. for the years 2021 to 2023.
· Part II: Ethical Issue Analysis (20 marks)
Students will be given a scenario regarding an ethical issue on financial reporting. They are required to analyze the ethical issue and decide on an approach to resolve the issue.
· Part III: Leadership Skill Self-Assessment (5 marks)
Each student is required to answer questions regarding one’s leadership skill based on the article provided.
Important Notes:
· The analyses and discussions should be professionally drafted. Both presentation (e.g. citation, grammar, structure, clarity, etc.) and content will be evaluated to determine the final grade of the group report. All members of the group will be awarded the same grade for Part I and Part II.
· All completed content should be your own work. When any of the arguments, ideas, etc., are taken from someone else’s work, they should be made explicitly clear, by citing the appropriate sources. Plagiarism will lead to strict enforcement of University and Faculty regulations and disciplinary action will be taken. Please check the University Statement on plagiarism on the web: http://www.hku.hk/plagiarism/.
Part I: Financial Statement Analysis [75 marks]
You are required to apply the tools of analysis learnt in the course to analyze and assess the financial performance of The Coca-Cola Company and PepsiCo, Inc. for the years 2021 – 2023.
Requirement (1): Input answers via the course Moodle Quiz Link
Compute and classify the following financial ratios for each company for the fiscal years 2021, 2022, and 2023 based on their respective annual reports. [30 marks; 300 entries on Moodle quiz]
a) Return on assets
b) Debt ratio
c) Net Profit margin
d) Current ratio
e) Quick ratio
f) Gross profit percentage
g) Inventory turnover ratio
h) Average days to sell inventory
i) Receivable turnover ratio
j) Total asset turnover ratio
k) Times interest earned ratio
l) Debt-to-equity ratio
m) Book value per ordinary share
n) Basic earnings per share (EPS)
o) Price-earnings ratio (P/E ratio)
p) Dividend yield ratio
q) Cash flow on total assets
Before you start working on the computations, please read the following instructions carefully.
Instructions
1. Round all answers to two decimal places.
2. Pay attention to the unit of the figures. A figure of 3 may mean 3 million.
3. In case the company restates the financial figures of the previous year, please adopt the restated figures, i.e. figures from the most updated annual report and adopt the restated figures in the computation of the financial ratios.
4. ITEM 6 selected financial data in the financial report are also a good reference for checking Cash dividends.
5. In the course of working out some ratios for The Coca-Cola Company and PepsiCo, Inc., you may come across the term “non-controlling interests”. This is a concept that you will learn in higher level accounting courses. For the purpose of your group project, please do the following:
a. When working out “Return on assets”, “Net profit margin” “Times interest earned ratio” and “Debt-to-equity ratio”, please include the amounts of non-controlling interests in the calculation. In other words, please use ‘Net income’ or ‘Consolidated net income’, the net income prior to the deduction of ‘Net income attributable to non-controlling interests’ in the calculation.
b. When working out “Basic earnings per share” and “Book value per ordinary share”, please exclude the amounts of non-controlling interests in the calculation. In other words, please use ‘Net income attributable to shareowners of the Coca-Cola Company’ or ‘Net income attributable to PepsiCo’.
6. For “accounts receivable”, please use the amount of “Accounts and notes receivable, net” or “Trade accounts receivables, net”. For the “net sales revenue / net credit sales”, please use “Net operating revenues / Net revenues”, like in the receivable turnover ratio.
7. For “year-end closing price”, please adopt the price from the last trading day of the corresponding financial year. For example, if the financial year of the entity ends on 31 December 2023 (Sunday), you should take the closing price on 29 December 2023 (the nearest working day). You can search share prices from company official website:
PepsiCo, Inc. - historical price lookup (http://www.pepsico.com/Investors/Stock-Information) &
The Coca-Cola Company – investors – stock info – year end (https://investors.coca-colacompany.com/stock-information/historical-data) and refer to the *Close price.
Do not use *Adjust Close price, as it is adjusted for both dividends and splits.).
8. For ‘Restricted Cash’, please separate from cash and cash equivalents for ratio calculation.
9. Accounting Nomenclature:
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Common stock = Share capital
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Repurchased common stock = Treasury share / stock
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Capital surplus = Capital in excess of par value = Share premium - Ordinary
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Preferred stock = Preference shares
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10. Please adopt the formula from our course Textbook, Libby, because the ratio formula from different sources may be different.
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Debt ratio
= Total Liabilities / Total Assets
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Cash Flows on Total Assets
= Cash Flows from Operating Activities / Average Total Assets
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Book Value per Ordinary Share
= Total Shareholders' Equity / Number of Outstanding Ordinary Shares
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Requirement (2):
Evaluate and compare the financial performance of the two companies, The Coca-Cola Company (“Coca-Cola”) and PepsiCo, Inc.(“PepsiCo”), in terms of their profitability, efficiency, liquidity, solvency, and market prospects. [Content: 40 marks; Grammar and Organization: 5 marks]
The maximum number of words for each category of analyses is 300. Please provide at least two relevant ratios to support each of your analyses.
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Profitability (maximum 300 words, around 100 words for Coca-Cola, 100 words for PepsiCo and 100 words for Comparison)
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Evaluate the profitability of Coca-Cola across time.
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[Please provide at least two relevant ratios to support your analysis here.]
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Evaluate the profitability of PepsiCo across time.
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[Please provide at least two relevant ratios to support your analysis here.]
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Compare the profitability of Coca-Cola against PepsiCo.
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[Please provide at least two relevant ratios to support your analysis here.]
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Word count =
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Liquidity (maximum 300 words)
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Evaluate the liquidity of Coca-Cola across time.
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[Please provide at least two relevant ratios to support your analysis here.]
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Evaluate the liquidity of PepsiCo across time.
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[Please provide at least two relevant ratios to support your analysis here.]
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Compare the liquidity of Coca-Cola against PepsiCo.
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[Please provide at least two relevant ratios to support your analysis here.]
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Word count =
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Efficiency (maximum 300 words)
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Evaluate the efficiency of Coca-Cola across time.
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[Please provide at least two relevant ratios to support your analysis here.]
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Evaluate the efficiency of PepsiCo across time.
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[Please provide at least two relevant ratios to support your analysis here.]
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Compare the efficiency of Coca-Cola against PepsiCo.
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[Please provide at least two relevant ratios to support your analysis here.]
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Word count =
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Solvency (maximum 300 words)
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Evaluate the solvency of Coca-Cola across time.
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[Please provide at least two relevant ratios to support your analysis here.]
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Evaluate the solvency of PepsiCo across time.
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[Please provide at least two relevant ratios to support your analysis here.]
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Compare the solvency of Coca-Cola against PepsiCo.
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[Please provide at least two relevant ratios to support your analysis here.]
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Word count =
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Market Prospects (maximum 300 words)
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Evaluate the market prospects of Coca-Cola across time.
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[Please provide at least two relevant ratios to support your analysis here.]
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Evaluate the market prospects of PepsiCo across time.
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[Please provide at least two relevant ratios to support your analysis here.]
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Compare the market prospects of Coca-Cola against PepsiCo.
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[Please provide at least two relevant ratios to support your analysis here.]
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Word count =
Part II: Ethical Issue Analysis [20 marks]
You are given the following scenario regarding ethical situations and issues.
Read the scenario and follow the instructions provided.
Peter’s New Job
(written by Dr. Olivia Leung & Dr. Winnie Leung)
After obtaining his professional accounting qualification, Peter got married to Jane and moved to a suburb to start a new life. Peter’s dream is to have his own accounting firm. However, due to the economic recession, he decided to take the Accounting Manager position in a local supermarket chain after searching for a job for three months. He wanted to avoid economic risks and save money for his dream. The supermarket chain is owned by the Lee Family. They hired John Chan and Mary Chan – a husband and wife – to be the CEO and CFO of the supermarket chain. John, Mary, and Peter receive annual bonuses based on the financial performance of the supermarket chain, in addition to their basic salary.
On Peter’s first day of work, Mary took Peter around in one of the supermarket stores during lunch time. The store was packed with people buying lunch and the lines waiting to pay were all very long. Mary rushed forward to help at a cash register and told the cashiers to quickly take customers’ cash and return the change without entering each sale so as to speed up the process. Mary told them that she would come back to complete the transactions—add up cash and enter sales—after the lunch hour. While Mary was explaining the cashiers what to do, Peter went to the storeroom and found a group of workers labeling boxes of frozen dinners. Peter was surprised to find that the workers were manipulating the expiry date labels of the food products. Peter was confused and talked to one of the workers in private. The worker told him that they were just following John’s orders. Peter tried to report this to the Audit committee under the Board of Directors but found that the head of the Audit committee was John’s nephew.
Two days later, Peter was called in by Mary for an urgent meeting. Mary said, “Peter, we are facing difficulties in securing a bank loan. Our profit margin and current ratio are not favorable in terms of securing a bank loan. We need to increase both, in order to meet the bank’s requirements. I have two plans. We currently assign inventory costs using the weighted average cost, but we can change it to FIFO. I also think that we should reduce the estimated amount of doubtful accounts at year-end. After we make these changes today, we can submit our financial statements to the bank tomorrow and I am sure we can secure the loan with a new set of favorable numbers. Moreover, our bonus at year end will be bigger too. There is no reason for us not to do it.” Peter told Mary that he needed some time to think about it.
Peter went back to his desk contemplating and got a call from John who told him about an insider news, “Next Monday, MediLab, the largest medicine developer at New York Stock Exchange, will announce the launch of a new cancer killer and MediLab’s stock price will certainly go rocket high. I learnt this from my sister, who is the Chief Technology Officer (CTO) at MediLab! I already bought MediLab’s stocks today at a very good price. Hey, I understand that Mary just asked you for a little help and you know I treat you as my brother. I can share the profit from the sales of the MediLab shares with you after the bank loan is secured. It is a win-win situation.” Peter was worried that he may lose his job if he did not comply with John and Mary.
Instruction: Read the following topics and answer the question below.
Part 1, Section 110-115, 120.6
Part 3, Section 210-270
https://www.hkicpa.org.hk/en/Standards-setting/Standards/Members-Handbook-and-Due-Process/HandBook/Volume-I--Professional-Accountants--Ordinance--Bylaws-Professional-Ethics--Conduct/310_COE-Revised2024-Code-of-Ethics-for-Professional-Accountants
Corporate Governance Principles applicable to the board:
https://www.hkicpa.org.hk/-/media/HKICPA-Website/HKICPA/section5_membership/Professional-Representation/corporate-governance/Part-1.pdf?la=en&hash=8C1A8BF5AFA88246917C12C67E0D1F58
Insider dealing:
https://www.hkex.com.hk/Global/Exchange/FAQ/Securities-Market/Trading/Securities-Market-Operations?sc_lang=en
Question [20 marks]:
Identify 5 ethical situations from the above scenario.
For each ethical situation,
(a) Specify who face(s) the ethical situation and briefly describe the ethical situation. [5 marks]
(b) Describe the negative consequences of the potential violation of ethical conducts in the situation described in (a). [5 mark]
(c) Suggest an action to resolve the issue in the ethical situation described in (a). [5 marks]
State your answers in the table below. [Grammar and Organization 5 marks]
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(a)
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(b)
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(c)
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Who face(s) the Ethical Situation?
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Briefly describe the ethical situation.
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Negative consequences of potential violation of ethical conducts.
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Suggested action to resolve the issue in the ethical situation.
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E.g.
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Cashiers
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Following Mary’s order creates an opportunity for Mary to steal cash.
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Create Potential for Fraud;
Loss of Cash
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To enforce segregation of duty: The person responsible for cash collection and deposits should not be responsible for entering sales into the accounting system.
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1
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2
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3
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4
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5
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Part III: Leadership Skill Self-Assessment [5 marks]
This part is NOT a team work.
Each member in the team is required to read the article provided in the following link and answer the questions below individually. Post answers via the course activity link from HKU e-Portfolio and attach the screen capture (showing member name, posting time and the whole e-portfolio’s post) of each member’s answer to this workbook. Submit Part III answers from each member together with Part I-Requirement (2) and Part II.
Article: The top 10 leadership qualities that make good leaders https://blog.taskque.com/characteristics-good-leaders/
Question 1: Provide one real example to demonstrate your leadership qualities in terms of working on this project with your team. Be concise. [word limit: 150 words]
Question 2: What leadership qualities would you like to enhance on and how do you plan to achieve it based on your experience from this project? Be concise. [word limit: 150 words]