PepsiCo and Coca Cola - Financial Analysis

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PepsiCo & Coca Cola Financial Analysis 1

PepsiCo & Coca Cola Financial Analysis

The report presented below is the financial analysis of Coca Cola and Pepsi Inc. In the

beginning a brief overview of both the companies is given ,followed by a detailed view of

each of the company’s financial health , comprising of the horizontal and vertical analysis of

the balance sheet and income statement and finally key ratios are calculated to observe the

trends and make recommendations. The financial data is taken from MSN Money Central

website referenced below.

Coca Cola

Coca Cola was invented by a pharmacist in the year 1886 when he was experimenting for a

recipe for headache and an energizer. Nowadays Coke serves as one of the number one

recognized brands of the world with a unit sales close to 3200 servings. Coke followed a path

of being known as a tonic and a healer with caffeine’s in late 1890’s to being number one

beverage in 1900 till present. Subsequently Coca Cola rose its domination under the

leadership of various intelligent minds. By the time World War two started Coca Cola was

already introduced and expanded in forty four countries. Today Coca cola has the credit of

being one of the top most brands with a huge net worth and brand value.(Kulaiwik,2009)

Pepsi

Pepsi Cola has a long a rich history starting from 1898. Similar to the story of Coca Cola

,Pepsi was also developed by a pharmacist who was experimenting with spices and different

herbs . After developing this new taste he applied for Patent trademark. The business finally

started to grow and finally Pepsi was registered in 1903 by the US Patent office. In addition

to this a strong franchise system was also built which was mainly responsible for Pepsi’s




success worldover. Moreover different marketing campaigns helped Peps built it brand name

worldover.(Andrew ,2002)

Vertical Analysis

A detailed Vertical Analysis of Income Statement and Balance Sheet of both companies is given .

(Day,2008)

Income Statement

PepsiCo Inc Vertical Analysis

2009 2008 2009 2008Revenue 43,232 43,251 100% 100%

Total Revenue43,232 43,251 100% 100%

Cost of Revenue, Total 20,099 20,351 46.49% 47.05%

Gross Profit 23,133 22,900 53.51% 52.95%

Selling Expense 14,612 15,489 33.80% 35.81%

Research & Development 414 388 0.96% 0.90%

Depreciation/Amortization 63 64 0.15% 0.15%

Operating Income 8,044 6,959 18.61% 16.09%

Income Before Tax 8,079 7,045 18.69% 16.29%

Income Tax – Total 2,100 1,879 4.86% 4.34%

Income After Tax 5,979 5,166 13.83% 11.94%

Minority Interest -33 -24 -0.08% -0.06%

U.S. GAAP Adjustment 0 0 0.00% 0.00%

Net Income BeforeExtra. Items

5,946 5,142 13.75% 11.89%

Net Income 5,946 5,142 13.75% 11.89%




Income Statement

Coca Cola

Vertical

Analysis

2009 2008 2009 2008Revenue 30,990.0

031,944.0

0100.0% 100.0%

Total Revenue 30,990.00

31,944.00

100.0% 100.0%

Cost of Revenue, Total 11,088.00

11,374.00

35.8% 35.6%

Gross Profit 19,902.00

20,570.00

64.2% 64.4%

Selling Expenses 11,358.00

11,774.00

36.7% 36.9%

Unusual Expense(Income)

313 350 1.0% 1.1%

Operating Income 8,231.00 8,446.00 26.6% 26.4%

Other, Net 40 39 0.1% 0.1%

Income Before Tax 8,946.00 7,506.00 28.9% 23.5%

Income Tax – Total 2,040.00 1,632.00 6.6% 5.1%

Income After Tax 6,906.00 5,874.00 22.3% 18.4%



6,824.00 5,807.00 22.0% 18.2%

Net Income 6,824.00 5,807.00 22.0% 18.2%




Balance Sheet

PepsiCo Inc.

2009 2008 2009 2008

Assets Vertical AnalysisCash and Short Term Investments 4,135.00 2,277.00 10.38% 6.33%

Total Receivables, Net 4,624.00 4,683.00 11.60% 13.01%

Total Inventory 2,618.00 2,522.00 6.57% 7.01%

Prepaid Expenses 1,194.00 1,324.00 3.00% 3.68%

Total Current Assets 12,571.00

10,806.00

31.55% 30.02%

Property/Plant/Equipment, Total –Net

12,671.00

11,663.00 31.80% 32.40%

Goodwill, Net 6,534.00 5,124.00 16.40% 14.24%

Intangibles, Net 2,623.00 1,860.00 6.58% 5.17%

Long Term Investments 4,484.00 3,883.00 11.25% 10.79%

Note Receivable - Long Term 118 115 0.30% 0.32%

Other Long Term Assets, Total 847 2,543.00 2.13% 7.07%

Total Assets 39,848.00

35,994.00

100.00% 100.00%

Liabilities and Shareholders'Equity

Accounts Payable 2,881.00 2,846.00 7.23% 7.91%

Accrued Expenses 2,947.00 2,843.00 7.40% 7.90%

Notes Payable/Short Term Debt 464 369 1.16% 1.03%

Other Current Liabilities, Total 2,464.00 2,729.00 6.18% 7.58%

Total Current Liabilities 8,756.00 8,787.00 21.97% 24.41%

Total Long Term Debt 7,400.00 7,858.00 18.57% 21.83%

Deferred Income Tax 659 226 1.65% 0.63%

Minority Interest 638 476 1.60% 1.32%

Other Liabilities, Total 5,591.00 6,541.00 14.03% 18.17%

Total Liabilities 23,044.00 23,888.00 57.83% 66.37%

Preferred Stock - Non Redeemable,Net

-104.00 -97.00 -0.26% -0.27%

Common Stock 30.00 30.00 0.08% 0.08%

Additional Paid-In Capital 250.00 351.00 0.63% 0.98%

Retained Earnings (AccumulatedDeficit)

33,805.00

30,638.00 84.83% 85.12%

Treasury Stock – Common -13,383.0

0

-14,122.00

-33.59% -39.23%

Other Equity, Total -3,794.00 -4,694.00 -9.52% -13.04%

Total Equity 16,804.00

12,106.00 42.17% 33.63%

Total Liabilities & Shareholders’Equity

39,848.00

35,994.00

100.00% 100.00%




Coca Cola 2009 2008 2009 2008Assets

Vertical Analysis

Cash and Short termInvestment

9,213.00 4,979.00 18.93% 12.29%


Total Inventory 2,354.00 2,187.00 4.84% 5.40%



12,176.00

36.06% 30.05%

Property/Plant/Equipment, Total – Net

9,561.00 8,326.00 19.64% 20.55%

Goodwill, Net 4,224.00 4,029.00 8.68% 9.94%

Intangibles, Net 8,604.00 8,476.00 17.68% 20.92%


Other Long Term Assets, Total

1,976.00 1,733.00 4.06% 4.28%


40,519.00

100.00% 100.00%


0.00% 0.00%



Notes Payable/Short Term

Debt

6,749.00 6,066.00 13.87% 14.97%

Current Port. of LTDebt/Capital Leases

51 465 0.10% 1.15%

Other Current Liabilities, Total

264 252 0.54% 0.62%

Total Current Liabilities13,721.0

012,988.0

028.19% 32.05%


Deferred Income Tax 1,580.00 877 3.25% 2.16%


Other Liabilities, Total 2,965.00 3,011.00 6.09% 7.43%

Total Liabilities 23,872.00

20,047.00

49.05% 49.48%

Common Stock 880 880 1.81% 2.17%

Additional Paid-In Capital 8,537.00 7,966.00 17.54% 19.66%

Retained Earnings(Accumulated Deficit)

41,537.00 38,513.00 85.34% 95.05%

Treasury Stock - Common -25,398.00 -24,213.00

-52.18% -59.76%

Other Equity, Total -757 -2,674.00 -1.56% -6.60%


20,472.00

50.95% 50.52%

Total Liabilities &Shareholders’ Equity

48,671.0

0

40,519.0

0

100.00% 100.00%




Horizontal Analysis

A detailed Horizontal Analysis of Income Statement and Balance Sheet of both companies is given.

The base year for both companies is taken as 2008.

Income Statement

Pepsi Co

HorizontalAnalysis(base year 08)

2009 2008 2009 2008Revenue 43,232 43,251 -0.04% 0.00%

Total Revenue 43,232 43,251 -0.04% 0.00%

Cost of Revenue, Total 20,099 20,351 -1.24% 0.00%

Gross Profit 23,133 22,900 1.02% 0.00%

Selling Expenses 14,612 15,489 -5.66% 0.00%

Research & Development 414 388 6.70% 0.00%

Depreciation/Amortization 63 64 -1.56% 0.00%

Operating Income 8,044 6,959 15.59% 0.00%

Income Before Tax 8,079 7,045 14.68% 0.00%

Income Tax – Total 2,100 1,879 11.76% 0.00%

Income After Tax 5,979 5,166 15.74% 0.00%

Minority Interest -33 -24 37.50% 0.00%

U.S. GAAP Adjustment 0 0 - -


5,946 5,142 15.64% 0.00%

Net Income 5,946 5,142 15.64% 0.00%

Coca Cola

HorizontalAnalysis

(base year08)

2009 2008 2009 2008Revenue 30,990.0

031,944.0

0-2.99% 0.00%

Total Revenue 30,990.00

31,944.00

-2.99% 0.00%

Cost of Revenue, Total 11,088.00

11,374.00

-2.51% 0.00%

Gross Profit 19,902.00

20,570.00

-3.25% 0.00%

Selling Expenses 11,358.00

11,774.00

-3.53% 0.00%

Unusual Expense(Income)

313 350 -10.57% 0.00%




Operating Income 8,231.00 8,446.00 -2.55% 0.00%

Other, Net 40 39 2.56% 0.00%

Income Before Tax 8,946.00 7,506.00 19.18% 0.00%

Income Tax – Total 2,040.00 1,632.00 25.00% 0.00%

Income After Tax 6,906.00 5,874.00 17.57% 0.00%



6,824.00 5,807.00 22.0% 18.2%

Net Income 6,824.00 5,807.00 22.0% 18.2%

Balance Sheet

Pepsi Co 2009 2008 2009 2008Assets Horizontal Analysis base

year 08

Cash and Short termInvestments

4,135.00 2,277.00 81.60% 0.00%

Total Receivables, Net 4,624.00 4,683.00 -1.26% 0.00%

Total Inventory 2,618.00 2,522.00 3.81% 0.00%

Prepaid Expenses 1,194.00 1,324.00 -9.82% 0.00%


10,806.00

16.33% 0.00%

Property/Plant/Equipment, Total - Net

12,671.00

11,663.00 8.64% 0.00%

Goodwill, Net 6,534.00 5,124.00 27.52% 0.00%

Intangibles, Net 2,623.00 1,860.00 41.02% 0.00%


Note Receivable - Long Term 118 115 2.61% 0.00%


847 2,543.00 -66.69% 0.00%


35,994.00

10.71% 0.00%

Liabilities andShareholders' Equity



Notes Payable/Short TermDebt

464 369 25.75% 0.00%

Other Current Liabilities, Total

2,464.00 2,729.00 -9.71% 0.00%

Total Current Liabilities 8,756.00 8,787.00 -0.35% 0.00%

Total Long Term Debt 7,400.00 7,858.00 -5.83% 0.00%

Deferred Income Tax 659 226 191.59% 0.00%


Other Liabilities, Total 5,591.00 6,541.00 -14.52% 0.00%


23,888.00

-3.53% 0.00%

Preferred Stock - NonRedeemable, Net

-104.00 -97.00 7.22% 0.00%

Common Stock 30.00 30.00 0.00% 0.00%

Additional Paid-In Capital 250.00 351.00 -28.77% 0.00%





33,805.00

30,638.00 10.34% 0.00%

Treasury Stock - Common -13,383.0

0

-14,122.00

-5.23% 0.00%

Other Equity, Total -3,794.00 -4,694.00 -19.17% 0.00%

Total Equity 16,804.00 12,106.00 38.81% 0.00%


39,848.00

35,994.00

10.71% 0.00%

Coca Cola2009 2008 2009 2008

Assets

Horizontal Analysis(base year 08)

Cash and Short TermInvestments

9,213.00 4,979.00 85.04% 0.00%


Total Inventory 2,354.00 2,187.00 7.64% 0.00%



12,176.00

44.14% 0.00%

Property/Plant/Equipment, Total - Net

9,561.00 8,326.00 14.83% 0.00%

Goodwill, Net 4,224.00 4,029.00 4.84% 0.00%

Intangibles, Net 8,604.00 8,476.00 1.51% 0.00%



1,976.00 1,733.00 14.02% 0.00%


40,519.00

20.12% 0.00%


Accounts Payable1,410.00 1,370.00 2.92% 0.00%


Notes Payable/Short TermDebt

6,749.00 6,066.00 11.26% 0.00%

Current Port. of LTDebt/Capital Leases

51 465 -89.03% 0.00%

Other Current Liabilities 264 252 4.76% 0.00%

Total Current Liabilities13,721.0

012,988.0

05.64% 0.00%


Deferred Income Tax 1,580.00 877 80.16% 0.00%


Other Liabilities, Total 2,965.00 3,011.00 -1.53% 0.00%





20,047.00

19.08% 0.00%

Common Stock 880 880 0.00% 0.00%

Additional Paid-In Capital 8,537.00 7,966.00 7.17% 0.00%


41,537.00

38,513.00 7.85% 0.00%

Treasury Stock - Common -25,398.0

0

-24,213.00

4.89% 0.00%

Other Equity, Total -757 -2,674.00 -71.69% 0.00%


20,472.00

21.14% 0.00%


48,671.00

40,519.00

20.12% 0.00%

Ratio Calculation

The financial data is taken from MSN Money central website ,referenced below. The found out ratios

are then interpreted to see the trends. (Gattis,2009)

Liquidity Ratio

Current Ratio = Current Assets/Current Liabilities

Coca Cola

Year

(‘000) 2008 2009

Current

Assets 12,176 17,551

Current

Liabilities 12,988 13,721

Current

Ratio 0.94 1.28

Pepsi

Year (‘000) 2008 2009

Current

Assets 10,806 12,571

Current


Current

Ratio 1.23 1.44

Quick Ratio =Current Assets –Inventory/Current Liabilities




Coca Cola

Year

(‘000) 2008 2009

Current

Assets 12,176 17,551

Inventory 4,224 4,029

Current


Current

Ratio 0.61 0.99

Pepsi

Year (‘000) 2008 2009

Current

Assets 10,806 12,571

Current


Inventory 2,522 2,618

Quick Ratio 0.94 1.14

Liquidity ratios deal with the company’s ability to deal with its short term obligations. As far

as the current ratio is concerned both the companies have improved with an increase in

current assets and current liabilities. Similar is the case with quick ratio ,both the companies

have shown an increased trend in this ratio which is a good signal. However inventory level

for Coca Cola is decreasing and inventory level for Pepsi is increasing , this indicates that

Coca Cola is efficiently managing its inventory levels.

Profitability Ratio

Gross Profit Margin= Gross Profit/Sales

Coca Cola

Year (‘000) 2008 2009

Gross Profit 19,902 20,570

Revenue 31,944 30,990

Gross ProfitMargin 62.30% 66.38%




Pepsi

Year (‘000) 2008 2009

Gross Profit 22,900 23,133

Revenue 43,251 43,232

Gross Profit

Margin 52.95% 53.51%

Return on Assets = Net income/Total Assets

Coca Cola

Year (‘000) 2008 2009

Net Income 5,807 6,824

Total Assets 35,994 39,848ROA 16.13% 17.13%

Pepsi

Year (‘000) 2008 2009

Net Income 5,142 5,946

Total Assets 35,994 39,848

ROA 14.29% 14.92%

Profitability ratio deals with whether the company is making sufficient profit or not .Gross

Profit is assed as a percentage of Sales . In this scenario both the companies are showing an

increased trend as compared to past year. For Coca Cola the gross profit is increasing but the

revenue is showing a decreased trend ,however for Pepsi there is an increase in both the gross

profit and revenue. Coca Cola on the other hand is showing a greater increase for the profit

margin, this is because of access to large variety of market a greater likeness for the brand.

As far as ROA is concerned both the companies are showing an increased trend. This is a

good signal for investors for both companies.




Solvency

Debt to Equity =Total Debt/Owners Equity

Coca Cola

Year (‘000) 2008 2009

Total Debt 20,047 23,872

Owners

Equity 20,472 24,799

D/E 97.92% 96.26%

Pepsi

Year (‘000) 2008 2009

Total Debt 23,888 23,044

Owners

Equity 12,106 16,804

D/E 197.32% 137.13%

Debt to Asset= Total Debt/Total Assets

Coca Cola

Year (‘000) 2008 2009

Total Debt 20,047 23,872


D/A 49.48% 49.05%

Pepsi

Year (‘000) 2008 2009

Total Debt 23,888 23,044


D/A 66.37% 57.83%

Solvency Ratios are used to assess the companies abilities to fulfil it long term obligations.

The factors such as total debt ,owners equity are used to find out these ratios.

Total Debt to Total Equity ratio for both companies is decreasing ,for Coca Cola the debt and

equity both are increasing and for Pepsi total debt is decreasing and equity is increasing




which is a very good signal for Pepsi. As far as total debt to total assets ratio is concerned

total assets for both the companies is increasing which is resulting in a decrease in D/A for

both the companies. This is a good signal as assets are being properly managed.

Recommendations

Coca Cola and Pepsi ,both companies are financially looking sound with good profit margins.

Recommendations for both companies is given below.

Coca Cola although is showing increased profit margin but the revenue is showing a

decreased trend which is a cause of concern .It needs to work on methods to increase its

revenue. Coca Cola also need to work on reducing its debt. Other factors are increasing

which a good signal for the company. Pepsi firstly is showing a slight decrease in current

liabilities, which is good needs to work more on it . Likewise Coca Cola the revenue for

Pepsi is also decreasing but with a very slight number. Pepsi needs to work on increasing the

revenue . The total debt for Pepsi is also decreasing which is a very good signal for the

company . (Brigham,2005)

Conclusion

Overall both the companies are doing good financially , the decreasing trend for revenue is

mainly due to the current global economic crises which has affected the profit margins , but a

consistency is observed in all the ratios which indicates that the companies according to each

ones capability is doing good despite the current economic situation.

References

Books




Brigham, E,F , Erhhardth ,M ,C (2005) .Financial Management Theory and Practice.

Eleventh Edition. South Western Publishers

Thomas ,A,(2002).Introduction to Financial Accounting. Fourth Edition. McGraw Hill.

Website

K ulawik, A (2009),The development of Coca Cola Advertising Campaigns, retrieved on

November 29th,2010 from,

http://images.nexto.pl/upload/publisher/All%20Free

%20Media/public/the_development_of_coca-cola_advertising_campaigns_(1886-

2007)_demo.pdf

Andrew (2002),A brief Pepsi History retrieved on November 29th 2010 from,

<http://www.sirpepsi.com/pepsi11.htm>

Day, J (2008), Theme: Analyzing Financial Statements, retrieved on 30th November 2010

from

<http://www.reallifeaccounting.com/pubs/Article_Theme_Analyzing_Financial_Statements.p

df >

Gattis ,C,G.(2009).Using Financial Ratios

< http://bluepointstrategies.com/uploads/White_Paper_-_Using_Financial_Ratios.pdf > [30th

November 2010]

MSN Money (2010),Pepsi Co Financial Statements, retrieved on 30th November 2010 from

<http://moneycentral.msn.com/investor/invsub/results/statemnt.aspx?symbol=pep>

MSN Money (2010),Coca Cola Financial Statements, retrieved on 30th November 2010 from

<http://moneycentral.msn.com/investor/invsub/results/statemnt.aspx?symbol=ko>

http://www.sirpepsi.com/pepsi11.htm

http://www.reallifeaccounting.com/pubs/Article_Theme_Analyzing_Financial_Statements.pdf


http://bluepointstrategies.com/uploads/White_Paper_-_Using_Financial_Ratios.pdf

http://moneycentral.msn.com/investor/invsub/results/statemnt.aspx?symbol=pep

http://moneycentral.msn.com/investor/invsub/results/statemnt.aspx?symbol=ko

http://www.sirpepsi.com/pepsi11.htm



http://bluepointstrategies.com/uploads/White_Paper_-_Using_Financial_Ratios.pdf

http://moneycentral.msn.com/investor/invsub/results/statemnt.aspx?symbol=pep

http://moneycentral.msn.com/investor/invsub/results/statemnt.aspx?symbol=ko

PepsiCo and Coca Cola - Financial Analysis

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