Pepsi & Coca Cola Financial Analysis

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 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%

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%
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
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%

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

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 - -
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%

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%
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%
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%
Note Receivable - Long Term 118 115 2.61% 0.00%
Other Long Term Assets, Total 847 2,543.00 -66.69% 0.00%
0
35,994.00 10.71% 0.00%
Liabilities and Shareholders'
Equity
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%
Other Liabilities, Total 5,591.00 6,541.00 -14.52% 0.00%

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 &
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 Inventory 2,354.00 2,187.00 7.64% 0.00%
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%
Other Long Term Assets,
Total
1,976.00 1,733.00 14.02% 0.00%

0
40,519.00 20.12% 0.00%
Liabilities and Shareholders' Equity
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%
Deferred Income Tax 1,580.00 877 80.16% 0.00%
Other Liabilities, Total 2,965.00 3,011.00 -1.53% 0.00%
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 &
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

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 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
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
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,
<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>

Pepsi & Coca Cola Financial Analysis

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Pepsi & Coca Cola Financial Analysis