1. 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 companys 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 caffeines in late 1890s 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 Pepsis

2. PepsiCo & Coca Cola Financial Analysis 2 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 2008 Revenue 43,232 43,251 100% 100% Total Revenue 43,232 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 Before Extra. Items 5,946 5,142 13.75% 11.89% Net Income 5,946 5,142 13.75% 11.89% 3. PepsiCo & Coca Cola Financial Analysis 3 Income Statement Coca Cola Vertical Analysis 2009 2008 2009 2008 Revenue 30,990.00 31,944.00 100.0% 100.0% Total Revenue 30,990.0 0 31,944.0 0 100.0% 100.0% Cost of Revenue, Total 11,088.00 11,374.00 35.8% 35.6% Gross Profit 19,902.0 0 20,570.0 0 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% Minority Interest -82 -67 -0.3% -0.2% Net Income Before Extra. Items 6,824.00 5,807.00 22.0% 18.2% Net Income 6,824.00 5,807.00 22.0% 18.2% 4. PepsiCo & Coca Cola Financial Analysis 4 Balance Sheet PepsiCo Inc. 2009 2008 2009 2008 Assets Vertical Analysis Cash 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 12,571.0 0 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 39,848.0 0 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 23,044.0 0 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 (Accumulated Deficit) 33,805.00 30,638.00 84.83% 85.12% Treasury Stock Common -13,383.00 -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 39,848.0 0 35,994.00 100.00% 100.00% 5. PepsiCo & Coca Cola Financial Analysis 5 Coca Cola 2009 2008 2009 2008 Assets Vertical Analysis Cash and Short term Investment 9,213.00 4,979.00 18.93% 12.29% Total Receivables, Net 3,758.00 3,090.00 7.72% 7.63% Total Inventory 2,354.00 2,187.00 4.84% 5.40% Prepaid Expenses 2,226.00 1,920.00 4.57% 4.74% Total Current Assets 17,551.00 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% Long Term Investments 6,755.00 5,779.00 13.88% 14.26% Other Long Term Assets, Total 1,976.00 1,733.00 4.06% 4.28% Total Assets 48,671.00 40,519.00 100.00% 100.00% Liabilities and Shareholders' Equity 0.00% 0.00% Accounts Payable 1,410.00 1,370.00 2.90% 3.38% Accrued Expenses 5,247.00 4,835.00 10.78% 11.93% Notes Payable/Short Term Debt 6,749.00 6,066.00 13.87% 14.97% Current Port. of LT Debt/Capital Leases 51 465 0.10% 1.15% Other Current Liabilities, Total 264 252 0.54% 0.62% Total Current Liabilities 13,721.00 12,988.00 28.19% 32.05% Total Long Term Debt 5,059.00 2,781.00 10.39% 6.86% Deferred Income Tax 1,580.00 877 3.25% 2.16% Minority Interest 547 390 1.12% 0.96% 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% 6. PepsiCo & Coca Cola Financial Analysis 6 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% Total Equity 24,799.00 20,472.00 50.95% 50.52% Total Liabilities & Shareholders Equity 48,671.00 40,519.00 100.00% 100.00% 7. PepsiCo & Coca Cola Financial Analysis 7 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 Horizontal Analysis (base year 08) 2009 2008 2009 2008 Revenue 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 - - Net Income Before Extra. Items 5,946 5,142 15.64% 0.00% Net Income 5,946 5,142 15.64% 0.00% Coca Cola Horizontal Analysis (base year 08) 2009 2008 2009 2008 Revenue 30,990.00 31,944.00 -2.99% 0.00% Total Revenue 30,990.0 0 31,944.0 0 -2.99% 0.00% Cost of Revenue, Total 11,088.00 11,374.00 -2.51% 0.00% Gross Profit 19,902.0 0 20,570.0 0 -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% 8. PepsiCo & Coca Cola Financial Analysis 8 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% Minority Interest -82 -67 -0.3% -0.2% Net Income Before Extra. Items 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 2008 Assets Horizontal Analysis base year 08 Cash and Short term Investments 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% Total Current Assets 12,571.0 0 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% Long Term Investments 4,484.00 3,883.00 15.48% 0.00% Note Receivable - Long Term 118 115 2.61% 0.00% Other Long Term Assets, Total 847 2,543.00 -66.69% 0.00% Total Assets 39,848.0 0 35,994.00 10.71% 0.00% Liabilities and Shareholders' Equity Accounts Payable 2,881.00 2,846.00 1.23% 0.00% Accrued Expenses 2,947.00 2,843.00 3.66% 0.00% Notes Payable/Short Term Debt 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% Minority Interest 638 476 34.03% 0.00% Other Liabilities, Total 5,591.00 6,541.00 -14.52% 0.00% 9. PepsiCo & Coca Cola Financial Analysis 9 Total Liabilities 23,044.0 0 23,888.00 -3.53% 0.00% Preferred Stock - Non Redeemable, 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% Retained Earnings (Accumulated Deficit) 33,805.00 30,638.00 10.34% 0.00% Treasury Stock - Common -13,383.00 -14,122.00 -5.23% 0.00% Other Equity, Total -3,794.00 -4,694.00 -19.17% 0.00% Total Equity 16,804.0 0 12,106.00 38.81% 0.00% Total Liabilities & Shareholders Equity 39,848.0 0 35,994.00 10.71% 0.00% Coca Cola 2009 2008 2009 2008 Assets Horizontal Analysis (base year 08) Cash and Short Term Investments 9,213.00 4,979.00 85.04% 0.00% Total Receivables, Net 3,758.00 3,090.00 21.62% 0.00% Total Inventory 2,354.00 2,187.00 7.64% 0.00% Prepaid Expenses 2,226.00 1,920.00 15.94% 0.00% Total Current Assets 17,551.0 0 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% Long Term Investments 6,755.00 5,779.00 16.89% 0.00% Other Long Term Assets, Total 1,976.00 1,733.00 14.02% 0.00% 10. PepsiCo & Coca Cola Financial Analysis 10 Total Assets 48,671.0 0 40,519.00 20.12% 0.00% Liabilities and Shareholders' Equity Accounts Payable 1,410.00 1,370.00 2.92% 0.00% Accrued Expenses 5,247.00 4,835.00 8.52% 0.00% Notes Payable/Short Term Debt 6,749.00 6,066.00 11.26% 0.00% Current Port. of LT Debt/Capital Leases 51 465 -89.03% 0.00% Other Current Liabilities 264 252 4.76% 0.00% Total Current Liabilities 13,721.0 0 12,988.00 5.64% 0.00% Total Long Term Debt 5,059.00 2,781.00 81.91% 0.00% Deferred Income Tax 1,580.00 877 80.16% 0.00% Minority Interest 547 390 40.26% 0.00% Other Liabilities, Total 2,965.00 3,011.00 -1.53% 0.00% Total Liabilities 23,872.0 0 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% Retained Earnings (Accumulated Deficit) 41,537.00 38,513.00 7.85% 0.00% Treasury Stock - Common -25,398.00 -24,213.00 4.89% 0.00% Other Equity, Total -757 -2,674.00 -71.69% 0.00% Total Equity 24,799.0 0 20,472.00 21.14% 0.00% Total Liabilities & Shareholders Equity 48,671.0 0 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 11. PepsiCo & Coca Cola Financial Analysis 11 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 Liabilities 8,787 8,756 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 Liabilities 12,988 13,721 Current Ratio 0.61 0.99 Pepsi Year (000) 2008 2009 Current Assets 10,806 12,571 Current Liabilities 8,787 8,756 Inventory 2,522 2,618 Quick Ratio 0.94 1.14 12. PepsiCo & Coca Cola Financial Analysis 12 Liquidity ratios deal with the companys 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 Profit Margin 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 39,848 ROA 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% 13. PepsiCo & Coca Cola Financial Analysis 13 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. 14. PepsiCo & Coca Cola Financial Analysis 14 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 Total Assets 40,519 48,671 D/A 49.48% 49.05% Pepsi Year (000) 2008 2009 Total Debt 23,888 23,044 Total Assets 35,994 39,848 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 15. PepsiCo & Coca Cola Financial Analysis 15 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 16. PepsiCo & Coca Cola Financial Analysis 16 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 Kulawik, 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, Day, J (2008), Theme: Analyzing Financial Statements, retrieved on 30th November 2010 from 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 MSN Money (2010),Coca Cola Financial Statements, retrieved on 30th November 2010 from