Report on Financial Statement Analysis
COURSE: FIN440
SECTION: 10
SUBMITTED TO: Mohammad Sarwar Rekabder (MRE)
SUBMITTED BY:
MOSTAFA IFTIKHAR TANVIR
MD SHAHARIAR HOSSAIN SHANTO
MIR SANJIDUL ISLAM
TASHNIA RAHMAN IFTI
EFTA MEHJABIN RIA
1912931630
2013632030
2011080630
2012545030
2014216630
DATE OF SUBMISSION: January 3, 2023
COMPANY NAME:
Letter of Transmittal
January 3, 2023
Mohammad Sarwar Rekabder (MRE)
Senior Lecturer,
Department of accounting and finance
North South University
Subject: Submission of the financial report on PepsiCo and Coca-Cola.
Dear Sir,
We are glad to inform you that our group project on the financial report on PepsiCo and Coca-Cola has
been completed successfully. It has been a real pleasure for us to present this report to you. Using both
primary and secondary sources, we have gathered vital information for preparations. While assembling this
review, we gained some useful knowledge about the primary thoughts of the financial position of the
company. It was a troublesome encounter for us to assemble a planned report in light of our work and the
examination that consolidated academic and practical information. Using your suggestions and advice, we
made every effort to make this report as informative as possible. We would like to express our sincere
gratitude to you for giving us the opportunity to finish this report.
We made an effort to complete this task with as much accuracy and significance as we could.
Sincerely yours,
Mostafa Iftikhar Tanvir
MD Shahariar Hossain Shanto
Mir Sanjidul Islam
Tasnia Rahman Ifti
Efta Mehjabin Riya
Acknowledgement
Firstly, we would like to express our gratitude to Almighty Allah, for the blessings He has bestowed on
us throughout our work and enabled us to successfully complete my Report on the financial report on
PepsiCo and Coca-Cola. We also would like to express our sincere gratitude to everyone who allowed us
to finish this report. We are especially indebted to our lecturer, Mohammad Sarwar Rekabder sir, who
assisted us in coordinating our project, particularly in writing this report, by providing us with valuable
suggestions, guidance, and encouragement.
Last but not least, we would like to express our gratitude to everyone who contributed to the success of
this project in some way, shape, or form.
Sincerely,
Mostafa Iftikhar Tanvir
MD Shahariar Hossain Shanto
Mir Sanjidul Islam
Tasnia Rahman Ifti
Efta Mehjabin Riya
CONTRIBUTION TABLE:
MOSTAFA IFTIKHAR TANVIR 1912931630
18 MAJOR RATIOS
MD SHAHARIAR HOSSAIN SHANTO VALUATION
2013632030
MIR SANJIDUL ISLAM 2011080630
CAPITAL STUCTURE
TASHNIA RAHMAN IFTI 2012545030
DIVIDEND POLICY
EFTA MEHJABIN RIA 2014216630
DIVIDEND POLICY
Contents
Introduction ................................................................................................................................................... 1
RatioAnalysis ................................................................................................................................................ 1
Company valuation of Coca-Cola Vs. PepsiCo .......................................................................................... 23
Capital structure .......................................................................................................................................... 25
Capital structure of PepsiCo ....................................................................................................................... 25
Dividend policy of Coca-Cola .................................................................................................................... 28
Dissecting the Coca-Cola's Dividend.......................................................................................................... 28
Payout ratios................................................................................................................................................ 28
Dividend Volatility ..................................................................................................................................... 29
Dividend Growth Potential ......................................................................................................................... 30
INTRODUCTION
Coca-Cola, also known as Coke, is a carbonated soft drink manufactured by the Coca-Cola Company. In
the latter part of the 19th century, John Stith Pemberton made it in Atlanta, Georgia, with the intention of
patenting it as a medicine. At first, it was marketed as a drink for temperance. Pepsi, on the other hand, is
a carbonated soft drink manufactured by PepsiCo. In 1893, Caleb Bradham created and released Brad's
Drink for the first time. It was renamed Pepsi-Cola in 1898, and the name was changed to Pepsi in 1961.
RATIO ANALYSIS
LIQUIDITY RATIOS
Liquidity ratios are used to assess a company's capacity to meet its financial obligations and its degree of
financial security. These ratios measure the number of current assets available to cover upcoming debt
payments, providing an indication of whether a company has the necessary resources to meet its liabilities.
➢ CURRENT RATIO:
The Current Ratio is a measure of a company's liquidity that is calculated by dividing its current assets by
its current liabilities. It shows investors and analysts the company's ability to fulfill its short-term
obligations and demonstrates the solvency of its overall financial statements. It is also an indication of how
efficiently the company is utilizing its assets to cover its debts and other payables.
Current ratio = Current assets /Current liabilities
Company name
2019
2020
2021
PepsiCo
0.86
0.98
0.83
Coca-Cola
0.76
1.32
1.13
1|Page
1.4
1.32
1.13
1.2
1
0.98
0.86
0.83
0.76
0.8
0.6
0.4
0.2
0
2019
2020
PepsiCo
2021
Coca-Cola
Interpretation:
Current Ratio 0.86 implies that to pay each $1 of current liability PepsiCo has $.86 of current assets. Current
Ratio 0.76 implies that to pay each $1 of current liability Coca-Cola has $.76 of current assets.
In PepsiCo, we can see that the current ratios are so fluctuating. Over the 3 consecutive years, from 2019
to 2021 the company has maintained current ratios below 1; which is considered, as the company is in an
average position; where in the year 2020 it went up to 0.98 which is the highest but in the year 2021, it went
down to 0.83 which is the lowest and it portrays that the company is a little bit fall behind from its previous
year’s position.
The current ratio for Coca-Cola is more than 1 for the years 2020 and 2021, which is good and satisfactory
as the company is in a position of meeting its short-term obligations. In 2020, 1.32 was the highest, and
0.76 in 2019 which is the lowest.
Activity Ratios
Activity ratios measure the speed with which various accounts are converted into sales or cash-inflows or
outflows. In a sense, the activity ratio measure how efficiently a firm operates along a variety of dimensions
such as inventory management, disbursement, and collection. A number of ratios are available for
measuring the activity of the most important current accounts, which include inventory, accounts
receivable, and accounts payable. The efficiency with which total assets are used can also be assessed.
2|Page
➢ QUICK RATIO:
The Quick Ratio is a measure of a company's liquidity, calculated by subtracting inventory from its current
assets and then dividing the resulting figure by its current liabilities. The lower the difference between the
current and quick ratios, the better it is for the organization. This ratio takes into consideration only those
items that can be quickly converted into cash, thus excluding ending inventory, which is the least liquid
asset.
Quick ratio: (Current asset - Inventory)/Current liability
Company name
2019
2020
2021
PepsiCo
0.70
0.81
0.66
Coca-Cola
0.63
1.09
0.96
1.2
1.09
0.96
1
0.81
0.8
0.7
0.66
0.63
0.6
0.4
0.2
0
2019
2020
PepsiCo
2021
Coca-Cola
Interpretation:
Quick Ratio 0.70 implies that to pay each $1 of current liability PepsiCo has $0.70 of current assets
excluding inventory.
3|Page
Quick Ratio 0.63 implies that to pay each $1 of current liability Coca-Cola has $0.63 of current assets
excluding inventory.
The ratio of PepsiCo from 2019 to 2021 isn’t considered to be a satisfactory quick ratio; where 0.81 is the
highest in 2020, but to be in a satisfactory position the company’s ratio should be 1 or above. And, the fall
in ratios to 0.66 in the current year 2021 is the lowest which displays that PepsiCo may not be able to fully
pay off its current liabilities in the short-term excluding inventory.
The ratio of Coca-Cola from 2020 and 2021 is considered to be a more satisfactory quick ratio than PepsiCo;
where 1.09 is the highest in 2020; as it indicates that the company is fully equipped with enough assets to
be liquidated to pay off its current liabilities. But, the fall in ratios to 0.96 in 2021 and 0.63 is the lowest in
2019, displaying that Coca-Cola may not be able to fully pay off its current liabilities in the short term.
➢ Inventory turnover:
Inventory turnover is a ratio that measures the number of times a company's inventory is sold and replaced
over a period of time. It is used to measure how efficiently a company is managing its inventory. A higher
inventory turnover ratio generally means that the company is efficiently managing its inventory and selling
its products in a timely manner.
Inventory turnover= cost of goods sold / inventory
Company name
2019
2020
2021
PepsiCo
9.03
7.62
8.53
Coca-Cola
4.33
4.11
4.50
10
9.03
8.53
9
7.62
8
7
6
5
4.33
4.5
4.11
4
3
2
1
0
2019
2020
PepsiCo
4|Page
Coca-Cola
2021
Interpretation:
Inventory turnover 9.03 means PepsiCo sold and restocked 9.03 times its inventory during 2019. Inventory
turnover 4.33 means Coca-Cola sold and restocked 4.33 times its inventory during 2019.
Here, PepsiCo is in a comparatively good position than Coca-Cola. The ratio conveys that PepsiCo can sell
and restoke its inventory two times faster than Coca-Cola. But it doesn’t mean that Coca-Cola’s inventory
turnover is not in a good position.
➢ Average age of inventory
The inventory ratio formula is used to measure the amount of inventory a company holds relative to its
sales. It is calculated by dividing the average inventory value by the average cost of goods sold (COGS)
over a given period of time. This ratio indicates the average number of months that a company will have
inventory in stock before it needs to be replenished. It is a useful metric for assessing the liquidity of a
company's inventory and can be used to compare the performance of different companies in the same
industry.
Average age of inventory = 365 / inventory turnover
Company name
2019
2020
2021
PepsiCo
40.43
47.89
42.80
Coca-Cola
84.37
88.74
81.14
100
88.74
84.37
90
81.14
80
70
60
50
47.89
42.8
40.43
40
30
20
10
0
2019
2020
PepsiCo
5|Page
Coca-Cola
2021
Interpretation:
Average age of inventory 40.43 days means on an average PepsiCo needs 40 days to sell out its inventory
and restock during 2019.
Average age of inventory 84.37 days means on an average Coca-Cola needs 84 days to sell out its inventory
and restock during 2019.
We can see that in 2019 and 2020 both of the companies faced an upward trend in the days’ sales in
inventory which is not a healthy sign for the companies. Hence, they are piling up their assets more than in
the previous year. However, in the year 2021, both companies managed to reduce their sale days in
inventory, which is a good sign for the companies. If we compare the two companies, PepsiCo is in a better
position than Coca-Cola as PepsiCo has always faced a lower number of days.
➢ Receivable turnover
The receivables turnover ratio is a financial metric used to measure the average rate at which a company is
collecting its accounts receivable on credit sales during a given period of time. This metric is calculated by
dividing the total net credit sales of a company by the average accounts receivable balance during the same
period. A higher receivables turnover ratio indicates that the company is more efficient at collecting its
receivables and is able to generate more sales from its existing credit customers.
Receivable turnover = sales/account receivables
Company name
2019
2020
2021
PepsiCo
10.42
10.21
11.08
Coca-Cola
9.38
10.50
11.01
11.5
11.08
11.01
11
10.5
10.5
10.42
10.21
10
9.38
9.5
9
8.5
2019
2020
PepsiCo
6|Page
Coca-Cola
2021
Interpretation:
Receivable turnover of 10.42 implies that on average PepsiCo has collected cash from its credit customer
and converted it into sales for 10.42 times during 2019.
Receivable turnover of 9.38 implies that on average Coca Cola has collected cash from its credit customer
and converted it into sales 9.38 times during 2019.
Here both companies maintain a quite close timing of collecting cash from the credit customers and
converted into cash. PepsiCo’s turnover ratio little bit fluctuated but Coca-Cola’s ratio is upstream.
➢ Average collection period
The average collection period ratio is a measure of how quickly a company is able to collect payments from
its customers. It is calculated by dividing the number of days in a period (usually a year) by the total
accounts receivable for that period, then multiplying it by the average accounts receivable balance for that
period. A lower average collection period ratio indicates a company is able to collect payments faster, while
a higher ratio indicates slower collection times.
Average collection period = 365 / receivable turnover
Company name
2019
2020
2021
PepsiCo
35.04
35.75
32.94
Coca-Cola
38.89
34.76
33.16
7|Page
40
38.89
39
38
37
36
35.75
35.04
34.74
35
34
33.16
32.94
33
32
31
30
29
2019
2020
PepsiCo
2021
Coca-Cola
Interpretation:
PepsiCo collects the average account receivable after 35 days during 2019.
Coca-Cola collects the average account receivable after 39 days during 2019.
In terms of the average collection period, both companies perform quite similarly, in 2019 Coca-Cola’s
collection was bit high but in the following years they were able to match the industrial average and both
companies are very much close to the industry average which is good thing. It means both companies
display their management and performance in collecting their debts smoothly.
➢ Payable turnover
The payable turnover ratio is a measure of a company's ability to manage its accounts payable. It is
calculated by dividing the total amount of the company's accounts payable by the average amount of its
accounts payable during a certain period. The higher the ratio, the more efficient the company is in
managing its payables. A low ratio indicates that the company is taking longer to pay its suppliers, which
could lead to difficulty in obtaining credit and a negative impact on the company's cash flow.
Payable turnover = purchases/account payables
Company name
2019
2020
2021
PepsiCo
3.76
3.59
3.77
Coca-Cola
3.84
3.82
3.34
8|Page
3.9
3.8
3.84
3.82
3.77
3.76
3.7
3.59
3.6
3.5
3.4
3.34
3.3
3.2
3.1
3
2019
2020
PepsiCo
2021
Coca-Cola
Interpretation:
Payable turnover 3.76 indicates that PepsiCo pays 3.76 times to its creditors over an accounting period so
a higher payable turnover ratio is more favorable.
Payable turnover 3.84 indicates that Coca-Cola pays 3.84 times to its creditors over an accounting period
so a higher payable turnover ratio is more favorable.
Both the companies’ payable turnover ratios fluctuated in the 3 consecutive years. But overall, each
company has a good condition in accounts payable turnover from 2019 to 2021.
➢ Average payment period
The payment period ratio is a measure of a company's ability to pay its bills on time. This ratio is useful for
analyzing a company's liquidity and its ability to generate enough cash to pay its creditors. It is also an
important indicator of the company's overall financial health. A higher payment period ratio indicates that
the company is taking longer to pay its bills, which could be a sign of financial distress.
Average payment period= 365 / payable turnover
Company name
2019
2020
2021
PepsiCo
97.06
101.62
96.81
9|Page
Coca-Cola
94.98
95.56
109.38
115
109.38
110
105
101.62
100
97.06
95.56
94.98
96.81
95
90
85
2019
2020
PepsiCo
2021
Coca-Cola
Interpretation:
Average payment period is 97.06 days means on an average PepsiCo needs 98 days to pay off it’s account
payables during 2019.
Average payment period is 94.98 days means on an average Coca-Cola needs 95 days to Pay off its account
payables during 2019.
The average payment period of both companies is more than 90 days in all 3 years, which is good for the
company. It shows that management is efficiently managing its creditors by asking for late payment
permission. It benefits the liquidity of the company as the money can be used for other purposes, due to
slow cash outflow. Not only that it also indicates that the companies are not pay-off their account payables
before collecting cash from their credit customers.
➢ Total assets turnover
The asset turnover ratio is a financial measurement used to assess a company's efficiency in using its assets
to generate revenue. It is calculated by dividing a company's total sales by its total assets. The ratio measures
how efficiently a company's assets are being used to generate sales. A higher asset turnover ratio means
that a company is generating more sales from its assets, indicating that it is managing its assets more
efficiently and is more profitable. A lower asset turnover ratio can indicate that a company is not using its
assets efficiently, which could lead to lower profits.
Total assets turnover = sales / total assets
10 | P a g e
Company name
2019
2020
2021
PepsiCo
0.86
0.76
0.86
Coca-Cola
0.43
0.38
0.41
1
0.9
0.86
0.86
0.76
0.8
0.7
0.6
0.5
0.43
0.41
0.38
0.4
0.3
0.2
0.1
0
2019
2020
PepsiCo
2021
Coca-Cola
Interpretation:
Total asset turnover ratio of 0.86 indicates that PepsiCo had generated 0.86 times revenue from each dollar
of the total asset during 2019.
Total asset turnover ratio of 0.43 implies that Coca-Cola had generated 0.43 times revenue from each dollar
of the total asset during 2019.
The total asset turnover ratio of PepsiCo has been the same in 2019 and 2021. In 2020, it decreased to 0.76
which is the lowest. On the other side, the total asset turnover ratio of Coca-Cola decreased from 0.43 to
0.38 from 2019 to 2020. In 2021, it increased to 0.41.
The graph shows that PepsiCo has consistently outperformed Coca-Cola in terms of the total asset turnover
ratio over the past three years, indicating that PepsiCo is more successful in utilizing its assets to generate
sales. This suggests that PepsiCo is more efficient in managing its resources and producing a higher quality
product with fewer resources than Coca-Cola.
Debt ratios
The debt position of a firm indicates the amount of other people’s money being used to generate profits. In
general, the financial analyst is most concerned with long-term debts this commits the firm to a stream of
11 | P a g e
contractual payments over the long run. The more debt a firm has, the greater its risks of being unable to
meet its contractual debt payments.
➢ Debt ratio
Debt ratio is a financial ratio that measures the extent of a company’s leverage. It is calculated by dividing
the total debt of a company by its total assets. This ratio measures the percentage of a company’s assets that
are financed by debt. A high debt ratio indicates that the company has a high degree of leverage and may
be at increased risk of bankruptcy if its income decreases. A low debt ratio indicates that the company has
a low degree of leverage and may be able to better weather economic downturns.
Debt ratio = total liabilities / total assets
Company name
2019
2020
2021
PepsiCo
81
85
83
Coca-Cola
75.5
75.6
73.6
86
85
83
84
82
81
80
78
75.6
75.5
76
73.6
74
72
70
68
66
2019
2020
PepsiCo
2021
Coca-Cola
Interpretation:
Debt ratio of 0.81 in 2019 indicates that PepsiCo has $.81 debt for $1 of assets.
Debt ratio of 75.5 in 2019 indicates that Coca-Cola has $.75 debt for $1 of assets.
12 | P a g e
PepsiCo's debt ratio has increased from 81% in 2019 to 85% in 2020, showing that the company has become
increasingly reliant on loans to finance its assets, making it riskier and more indebted. This has led to an
increase in interest payments and a decline in profits. In comparison, Coca-Cola's debt ratio has remained
relatively stable, decreasing to 73.6% in 2021. This suggests that Coca-Cola is in a more favorable position
than PepsiCo.
➢ Time interest earned ratio
The time interest earned ratio is a measure of a company's ability to satisfy its short-term obligations from
its current income. It is calculated by dividing a company's earnings before interest and taxes (EBIT) by its
total interest expenses for the same period. The higher the ratio, the better the company's ability to cover its
interest expenses with its current income. It can also be used to compare the level of financial risk between
different companies.
Time interest earned ratio= EBIT / interest expense
Company name
2019
2020
2021
PepsiCo
9.20
9.04
6.27
Coca-Cola
12.40
7.78
8.78
14
12.4
12
10
9.2
9.04
8.78
7.78
8
6.27
6
4
2
0
2019
PepsiCo
2020
Coca-Cola
2021
Interpretation:
If PepsiCo and Coca-Cola keep operating the same way, PepsiCo will be able to cover its interest expense
with its EBIT of 6.27 times, while Coca-Cola could cover its interest expense with its EBIT of 8.78 times.
The time interest earned ratio of above 1, is better for both companies. And both companies have more than
5 times the ability to pay off interests with their EBIT. But the downstream trend indicates that the
companies are slowly losing their ability. However, as compared to PepsiCo, Coca-Cola is better off in this
position.
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PROFITABILITY RATIOS
Profitability ratios measure a company's ability to generate income relative to its revenue, operating costs,
balance sheet assets, and shareholders' equity. These ratios are used to measure the relative success of a
company in terms of its ability to generate profits. Some of the most commonly used profitability ratios
include return on assets (ROA), return on equity (ROE), gross margin ratio, operating margin ratio, and net
profit margin.
➢ Gross profit Margin
The gross profit margin ratio is a financial metric used to measure a company's profitability and financial
health. It measures the percentage of each dollar of revenue that a company keeps after subtracting the costs
of goods sold (COGS). It is calculated by dividing gross profit (the difference between revenue and COGS)
by total revenue. The higher the gross profit margin ratio, the more profitable a company is, as it is able to
keep more of its revenue after accounting for costs.
Gross profit margin= gross profit/sales
Company name
2019
2020
2021
PepsiCo
55.13%
54.82%
53.35%
Coca-Cola
60.77%
59.31%
60.27%
62
60.77
60.27
59.31
60
58
56
55.13
54.82
53.35
54
52
50
48
2019
2020
PepsiCo
2021
Coca-Cola
Interpretation:
From $100 sales PepsiCo generate a gross profit of $55.13 in 2019, $54.82 in 2020, and $53.35 in 2021.
Here, the company faces a downstream trend which indicates the gross profit in sales decreasing.
14 | P a g e
On the other hand, from $100 sales Coca-Cola generate a gross profit of $60.77 in 2019, $59.31 in 202and
0, and $60.27 in 2021. So as compared to PepsiCo, Coca-Cola is better off. Overall, both companies should
reduce the cost of goods sold to improve their gross profit.
➢ Operating profit margin
The operating profit margin ratio is a financial measure that shows the amount of operating profit a company
can generate from its total sales. It is expressed as a percentage and is calculated by dividing a company's
operating profit by its total revenue. This ratio is used to measure the overall financial health of a company
and to compare its profitability to that of similar businesses. It is also used to assess a company's ability to
generate profits from its operations.
Operating profit margin = EBIT / Sales
Company name
2019
2020
2021
PepsiCo
15.56%
14.49%
14.70%
Coca-Cola
31.48%
33.88%
36.27%
40
36.27
33.88
35
31.48
30
25
20
15.56
14.7
14.49
15
10
5
0
2019
PepsiCo
15 | P a g e
2020
Coca-Cola
2021
Interpretation:
From $100 sales PepsiCo generate an operating profit of $15.56 in 2019, $14.49 in 2020, and $14.70 in
2021. Here, the company faces a downstream trend which indicates the operating profit in sales decreases
their operating efficiency declines over the period.
On the other hand, from $100 sales Coca-Cola generate a gross profit of $31.48 in 2019, $33.88 in 2020,
and $36.27 in 2021 which is upstream. It indicates that the company’s operating efficiency is growing over
the period. So as compared to PepsiCo, Coca-Cola is better off of generating operating profit from sales.
➢ Net profit margin
Net profit margin ratio is a profitability measure used to evaluate the overall financial health of a company.
It is calculated by dividing net income (after taxes) by total revenue. This ratio shows the percentage of
each dollar of sales that is converted into net income. It is a helpful tool to compare the profitability of a
company to its competitors.
Net profit margin = net profit/sales
Company name
2019
2020
2021
PepsiCo
10.89
10.12
9.59
Coca-Cola
23.94
23.47
25.28
30
25.28
23.94
25
23.47
20
15
10.89
10.12
9.59
10
5
0
2019
2020
PepsiCo
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Coca-Cola
2021
Interpretation:
From $100 sales PepsiCo generate a net profit of $10.89 in 2019, $10.12 in 2020, and $9.59 in 2021. Here,
the company faces a downstream trend which indicates that the company’s operational expenses are getting
higher as a result the net profit is decreasing with each sale.
On the other hand, from $100 sales Coca-Cola generate a net profit of $23.94 in 2019, $23.47 in 2020, and
$25.28 in 2021 which is upstream. It indicates that the company’s operating manager was able to minimize
the operational costs which increase net profit in each sale. So as compared to PepsiCo, Coca-Cola is better
off generating net profit from sales.
➢ EPS
Earnings Per Share (EPS) is a financial ratio calculated by dividing the net income of a company by the
number of its outstanding shares of common stock. It is a measure of profitability that offers investors an
indication of how much money a company is making on a per-share basis. EPS is often used to compare
companies within the same industry, as well as to compare companies of different sizes, as larger companies
may have a higher net income but also more outstanding shares.
EPS = net profit / no. of common stocks outstanding
Company name
2019
2020
2021
PepsiCo
5.26
5.16
5.51
Coca-Cola
2.09
1.80
2.26
17 | P a g e
6
5.51
5.26
5.16
5
4
3
2.26
2.09
1.8
2
1
0
2019
2020
PepsiCo
2021
Coca-Cola
Interpretation:
5.26 EPS means by owning 1 share of PepsiCo can get 5.26 dollars’ profit. 2.09 EPS means by owning 1
share of Coca-Cola can get 2.09 dollars’ profit.
From 2019 to 2020 PepsiCo’s EPS increased. That means they are generating high profits for their
shareholders. On the other hand, from 2019 to 2020 Coca-Cola’s EPS increased and in the next year again
goes up. So as compared to PepsiCo, Coca-Cola is generating less profit for its shareholders but that doesn’t
mean Coca-Cola is not in a good position.
➢ ROA
The return on asset ratio (ROA) is a financial metric used to assess the profitability of a business by
measuring how efficiently the company can convert its assets into profits. It is calculated by dividing net
income (after tax) by total assets. It is expressed as a percentage and is a key indicator of a company's
financial performance. The higher the return on assets, the more efficient the company is in generating
profits from its total assets. It is also used to compare the profitability of different companies.
ROA= net profit / total assets
Company name
2019
2020
2021
PepsiCo
9.31
7.66
8.25
Coca-Cola
10.33
8.87
10.36
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Chart Title
12
10
10.36
10.33
9.31
8.87
7.66
8
8.25
6
4
2
0
2019
2020
PepsiCo
2021
Coca-Cola
Interpretation:
ROA 9.31% means out of $100 of investment in total assets PepsiCo generates $9.31 of net profit during
2019.
ROA 10.33% means out of $100 of investment in total asset Coca-Cola generates $10.33 of net profit.
The highest ROA percentage of PepsiCo was 9.31% in 2019, and the lowest ROA rate was 7.66% in 2020.
The company is doing fairly better this year in generating income from assets.
The highest ROA percentage of Coca-Cola was 10.36% in 2021, and the lowest ROA rate was 8.87% in
2020. The company reached the highest ROA in 2021 than other 2 years which indicates the company is
generating more profit from each dollar assets. As compared to PepsiCo, Coca-Cola’s position is much
strong in terms of generating profit by properly utilizing its assets.
➢ ROE
The return on equity ratio (ROE) is a measure of a company’s profitability that calculates the amount of net
income returned as a percentage of shareholders’ equity. It is calculated by dividing a company’s net income
by its total shareholders’ equity. ROE is an important indicator for investors because it shows how
efficiently a company is utilizing its capital to generate profits. A higher ROE indicates that the company
is better able to use its capital to generate returns. A lower ROE may indicate that the company is not
efficiently utilizing its resources to generate profits.
ROE= net profit / common stocks equity
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Company name
2019
2020
2021
PepsiCo
49.47
52.92
49.48
Coca-Cola
46.99
40.14
42.48
60
50
52.92
49.47
49.48
46.99
42.48
40.14
40
30
20
10
0
2019
2020
PepsiCo
2021
Coca-Cola
Interpretation:
ROE 49.47% indicates that for each $100 of the shareholders' investment in PepsiCo, the company
generated $49.47 in net profit during 2019. Similarly, ROE 46.99% shows that for each $100 of the
shareholders' investment in Coca-Cola, the company generated $46.99 in net profit during 2019.
PepsiCo shows an increasing ROE ratio results with a certain drop in 2021. However, Coca-Cola’s ROE
results demonstrate the exact opposite trend; a drop in efficiency in converting equity capital into income
in 2020, and in 2017 they improve the ROE to 42.48 %. So, in terms of ROE positioning, PepsiCo is better
off than Coca-Cola.
➢ P/E ratio
The price-to-earnings (P/E) ratio is a ratio for valuing a company that measures its current share price
relative to its per-share earnings. It is calculated by taking the current stock price of a company and dividing
it by the company's earnings per share (EPS). The P/E ratio can provide investors with an indication of the
company's profitability and future prospects, as well as an indication of the market's view of the company's
performance.
P/E ratio = market price per share of common stock / EPS
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Company name
2019
2020
2021
PepsiCo
22.22
25.43
23.92
Coca-Cola
26.48
30.37
26.20
35
30.37
30
25
26.48
25.43
26.2
23.92
22.22
20
15
10
5
0
2019
2020
PepsiCo
2021
Coca-Cola
Interpretation:
The market price for PepsiCo is 22.22 times greater than each dollar of earnings per share, while the market
price for Coca-Cola is 26.48 times greater than each dollar of earnings per share.
Both the companies faced a sudden growth in 2020 but in 2021 the growth goes down. compared to
PepsiCo, Coca-Cola faced a sudden big decrease in their price earnings ratio which means the price of the
stock is a bargain in the market.
➢ Market/Book ratio
The book-to-market ratio is a measure of market value of a company relative to its book value. It is
calculated by dividing the market value of the company's equity, which is the market capitalization, by the
company's book value, which is the amount of assets reported on the balance sheet. The higher the bookto-market ratio, the higher the market value relative to the book value. A low book-to-market ratio indicates
that the market values the company's assets higher than the book value. A high book-to-market ratio
indicates that the market values the company's assets lower than the book value. Generally, companies with
high book-to-market ratios are considered to be undervalued, while those with low book-to-market ratios
are considered to be overvalued.
Market/Book ratio =market price per common stock/book value per common stock
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Company name
2019
2020
2021
PepsiCo
10.99
13.46
11.36
Coca-Cola
12.48
12.22
11.13
16
14
12
12.48
13.46
12.22
10.99
11.36
11.13
10
8
6
4
2
0
2019
2020
PepsiCo
2021
Coca-Cola
Interpretation:
The market-to-book ratio of PepsiCo is 10.99, meaning that its market price is on an average 11 times
higher than its book value. Similarly, the market-to-book ratio of Coca Cola is 12.48, indicating that its
market price is 12.48 times more than its book value.
In 2020, PepsiCo’s market-to-book ratio goes up to 13.46% but in 2021 it again goes down to 11.36%.On
the other hand, Coca-Cola’s market-to-book ratio is continuously decreasing which indicates that people
doesn’t want to buy its share with the same price anymore now they want to pay less. This is not good for
a company.
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Company valuation of Coca-Cola Vs. PepsiCo
Companies with strong brand values, like Coca-Cola and PepsiCo, profit from having significant pricing
power in these times of rising inflation.
I'll demonstrate which of the two businesses is now more appealing in terms of risk and profit in this
research.
PepsiCo's P/E Ratio is now 20.3, while Coca-P/E Cola's (FWD) Ratio is 25.35.
Over the past three years, Coca-dividend Cola's growth rate has averaged 3.62%, while PepsiCo's dividend
growth rate has been 7.39% on average.
To evaluate Coca-Cola and PepsiCo, I utilized the DCF Model to calculate their intrinsic worth. The
approach determines a fair value of $222.67 for PepsiCo and $47.91 for Coca-Cola. This translates in a
potential downside of 23% for Coca-Cola and a potential upside of 29.6% for PepsiCo at the present stock
price.
Over the next five years, I project a revenue growth rate and EBIT growth rate for Coca-Cola of 3% and a
revenue growth rate and EBIT growth rate for PepsiCo of 5%. owing to PepsiCo's wider range of products
(through operating not only in the beverage but also in the snack and food businesses), In the coming years,
PepsiCo should have somewhat faster growth than Coca-Cola. The average annual GDP growth rate for the
US is around 3%. As a result, I consider Coca-Cola to have a 3% Perpetual Growth Rate. I anticipate
PepsiCo will be able to expand somewhat above the GDP Growth Rate in the future because to its wide and
diverse product portfolio and strong brand image. As a result, I make PepsiCo's perpetual growth rate an
assumption of 4%.
I utilized the 7.5% and 6.5% current discount rates for Coca-Cola and PepsiCo, respectively. Furthermore,
I use an EV/EBITDA Multiple of 21.5x for Coca-Cola and 17.9x for PepsiCo in my calculations. Both
represent the businesses' most recent twelve-month EV/EBITDA.
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Coca-Cola
PepsiCo
Details
Company Ticker
KO
PEP
Revenue Growth Rate for the next 3 years
3%
5%
EBIT Growth Rate for the next 3 years
3%
5%
Tax Rate
21.2%
20.1%
Discount Rate (WACC)
7.5%
6.5%
Perpetual Growth Rate
3%
4%
EV/EBITDA Multiple
21.5x
17.9x
Current Price/Share
$62.19
$171.88
Shares Outstanding
4,335
1,380
Debt
$42,143
$39,279
Cash
$7,681
$5,405
Capex
$1,368
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Capital structure
The company's capital structure is the collection of securities it issues to investors to raise capital. Firms
typically make use of equity and debt securities. Leverage of the business is determined by the amount of
debt. A capital structure that maximizes the total value of the issued securities should always be utilized by
the business.
In order to evaluate the effects of the various ratios on the company, it is necessary to determine the net
debt ratio, fixed coverage ratio, interest ratio, long term debt ratio, cash flow ratio, and other ratios in order
to determine the firm's capital structure. Comparing and analyzing these ratios with those of other
competitors is beneficial. The company can use ratios to determine their position in relation to things like
revenues, market value, book value, market capitalization, debt value, and so on.
Capital structure of PepsiCo
The most essential inquiry of corporate money is the means by which a firm ought to raise capital from
financial backers. The kind of security that an organization will offer to investors must be decided. A
company's capital structure is the way it finances its assets through equity, debt, or other securities. The
company's capital structure can be determined using a variety of theories.
Theory of Pecking Order: states that the businesses prefer a particular financing structure; Prior
to utilizing any external financing, the factor with the highest preference uses internal financing, such as
retained earnings. Debt, convertible securities, preferred stock, and common stock are all forms of external
financing. Therefore, the company uses its retained earnings first for operations, investments, or
expansions, and then, if necessary, can turn to external financial resources.
Theory of Trade-Offs: states that the businesses are funded in part by debt and equity. Due to the
tax advantages of debt, this type of financing is preferred. The costs of bankruptcy and non-bankruptcy are
also covered by debt financing. Additionally, the theory asserts that marginal benefits decrease with
decreasing debt, while marginal costs of debts rise with increasing debt.
Agency cost theory:
states that asset substitution, cash flow, and underinvestment are the three
distinct agency costs that are associated with a company's capital structure.
Substitution of Assets: states that the company has more freedom to invest in new projects as the
debt to equity ratio rises, resulting in a decrease in its value and a transfer of wealth from debt holders to
shareholders.
Underinvestment issues happen when obligation seems, by all accounts, to be more dangerous, in this
situation of the firm the profits from the interest in tasks will be coordinated towards the obligation holders
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as opposed to the investors. This might prompt the firm declining to begin any new tasks, and there is a
possibility to expand the organizations esteem.
Flow of Free Cash: states that if the cash is not returned to the investors, the company's free cash
flow will also be a problem. The company's value will be disrupted as a result.
Miller-Modigliani Theory: states that the perfect market and the absence of transaction costs and
taxes are assumed. Additionally, they stated that a company's equity and debts are added together to
determine its value.
Capital structure of Coca-Cola
Capitalization of Equity: The amount of money that would be returned to a company's stockholders
if all of the company's assets were liquidated is referred to as shareholders' equity (or owners' equity for
privately held businesses). The amount of equity invested in a business is calculated by subtracting the
number of treasury shares from the sum of retained earnings and common stock, which represents the
ownership of the company by shareholders.
Coca-Cola's total stockholders' equity is $22.81 billion, as stated in its 10-Q for the third quarter.
This includes $1.76 billion in par-valued common stock, $18.69 billion in capital surplus, and $70.89 billion
in earnings that have been reinvested (retained), less $15.87 billion in accumulated other comprehensive
income and $52.67 billion in treasury stock.
Coca-Cola had 4,325 billion outstanding shares on December 23, 2022, giving it a market capitalization of
approximately $275.5 billion.
Capitalization of Debt: The total amount of capital owed to creditors is determined by debt, the
other component of the capital structure. First, debt is divided into two categories: liabilities that are due in
a year or less and those that mature in more than a year.
According to Coca-Cola's 10-Q from October 2022, the company has $26.44 billion in current liabilities.
These liabilities include $116.10 billion in accounts payable and accrued expenses, $3.39 billion in loans
and notes payable, $729 million in long-term debt with current maturities, and $1.2 billion in accrued
income taxes. Together, long-term debt, deferred income taxes, and other liabilities total $46.69 billion.
The total liabilities of Coca-Cola amount to $68.04 billion.
Leverage: Coca-Cola's ability to pay off its current obligations has actually improved in spite of this
debt. The current ratio of Coca-Cola, which is a comparison of a company's current assets to its current
liabilities, is 1.12, which is typically regarded as typical for the sector. This indicates that Coca-Cola's liquid
assets total $1.12 for each dollar of current debt.
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It has a quick ratio of.97, which measures the ratio of a company's available liquid assets to its current
liabilities.
Another indication of good financial health is the decrease in Coke's debt-to-equity ratio. This leverage
gauge is calculated by dividing the quotient of total liabilities by shareholders' equity. It is used to compare
a company's ownership to the amount owed to creditors. Coca-Cola's debt-to-equity ratio decreased from
2.795 in 2021 to 2.78 in Q3 2022.
Value to the Company: Investment bankers frequently use the metric known as enterprise value
(EV) to determine a company's market value. The EV of a company is determined by adding its market cap
and net debt. A company's net debt is calculated by dividing its total cash and cash equivalents by the sum
of its liabilities and debt. The current EV for Coca-Cola is $333.77 billion.
However, investors should not be alarmed by Coca-Cola's increased EV. When compared to other large
corporations like Amazon.com Inc. (AMZN) and Apple Inc. (AAPL), which have seen their EV sales
skyrocket by as much as 150 percent at times over the past decade, this is a modest increase. Coca-Cola
uses a variety of debt instruments to finance its operations, as shown on its balance sheet. Coca-Cola appears
to be managing its finances effectively, as evidenced by its most recent filings. The Generally Accepted
Accounting Principles of the United States guide Coca-Cola's accounting practices.
Conclusion:
Coca-Cola has been in business for more than a century and has experienced some
economic turmoil. Despite difficult times, the company continues to perform and makes prudent use of its
debt. It also has a substantial amount of cash and equivalents available. Additionally, it has demonstrated
its ability to effectively manage its finances by paying dividends to investors for a number of years.
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Dividend policy of Coca-Cola
Coca-Cola Corporation is getting attention from institutions. In the current environment, it appears that the
category's inflationary resilience and brand strength are proving to be a winning combination.
Revenue: $10.0 billion (up 16% from 3Q 2020)
Gross profit: $2.47 billion (up 42% from 3Q 2020).
Margin of profit: 25%, an increase from 20% in 3Q 2020.
Revenue growth was the primary factor in the margin improvement. While earnings per share have
increased by 14% on average over the past three years, the company's share price has only increased by 6%
annually, indicating that earnings growth is significantly behind.
In addition, Coca-Cola increased Q3 volume and improved organic revenue ahead of pre-pandemic levels
in 2019. James Quincey, CEO, maintains his optimism regarding long-term growth investments.
The company attracted the attention of Credit Suisse, which selected it as its top new pick following the
positive results. Kaumil Gajrawala, their analyst, praised the achievement of delivering these results in a
challenging logistics setting.
In the meantime, Body Armor, a manufacturer of sports drinks, is up for sale. The company is valued at
US$8 billion after acquiring a 30% stake in 2018 for approximately US$5.6 billion.
The sports drink market dominated by their main rival, Gatorade, would be strengthened by this acquisition.
PowerAde, Body Armor's brand, is a rising competitor in the market that will undoubtedly benefit from this
move.
Dissecting the Coca-Cola's Dividend
A 3.0% yield is not the highest, but investors probably think the long payment history suggests Coca-Cola
has some staying power. When buying stocks for their dividends, you should always run through the checks
below to see if the dividend looks sustainable.
Payout ratios
We must determine whether a company's dividend can be sustained in light of its net profit after taxes. Over
the trailing twelve months, Coca-Cola distributed dividends worth 82% of the company's profits. The
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majority of its earnings are being distributed, limiting the amount that can be reinvested in the company.
This could point to a commitment to paying a dividend or a limited need for additional capital.
Whether the generated free cash flow is sufficient to pay the dividend is another important check. Last year,
Coca-Cola distributed 77% of its cash flow. Although this may be able to last, it doesn't leave much room
for unforeseen events. This range, on the other hand, is most likely the result of the business entering the
buffer zone in order to safeguard the dividend, given that the year 2020 itself was largely unanticipated.
Dividend Volatility
We want to see if the dividends have been consistent in the past and if the company has a track record of
maintaining its dividend before purchasing a stock for its income. We only examine Coca-Cola's dividend
payments over the past ten years for the purpose of this article.
Excellently, the dividend has remained stable for the past ten years. We believe that this could suggest that
the company and its dividends are resilient. The first annual payment over the previous ten years was
US$0.9 in 2011, compared to US$1.7 in 2011. Over the course of that time, this amounts to a compound
annual growth rate (CAGR) of approximately 6.0 percent per year. If the dividend growth rate can be
sustained, companies like these could be valuable in the long run.
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Dividend Growth Potential
Over the past few years, dividend payments have been consistent. However, we should always check to
see if earnings per share (EPS) are growing, as this will help keep the dividend's purchasing power. Over
the past five years, Coca-Cola's earnings per share have increased by 4.1% annually.
Limited earnings growth and a high payout ratio can indicate a company's inability to expand, with some
exceptions. Companies frequently choose to pay a larger dividend when the rate of return on reinvestment
opportunities falls below a certain minimum level. Because of this, many mature businesses frequently
have higher dividend yields.
In conclusion, shareholders ought to constantly ensure that Coca-Cola's dividends are within their means,
that the company's dividend payments are relatively stable, and that the company has reasonable
prospects for expanding both its earnings and its dividend.
Despite the fact that Coca-Cola distributes dividends for more than half of its earnings, the most recent
year was notable for its unusually low annual free cash flow. We appreciate the relatively consistent
dividend payments in spite of the limited growth in earnings.
We do believe Coca-Cola can be a part of a portfolio that is balanced and focused on yield, even though
we are not particularly optimistic about it.
Dividend Policy
PepsiCo's policy is: Concerning PepsiCo, they have chosen ideal and adaptable profit strategy, set up for
north of 40 years at a consistent rate. In terms of the future, Pepsi continues at a steady pace; They have
predicted the future dividends of PepsiCo 2013. PepsiCo is ranked the top leading company among other
companies because it has given dividends on a consistent basis and at an increased rate for over 40 years.
This is due to their increased earnings, new projects, a jubilant of new products within the market, and a
yearly total savings of one billion dollars for the year 2012. Pepsi has paid cash dividends quarterly since
1965. Through dividend purchases in 2012, PepsiCo gave its shareholders more than 6.5 billion dollars.
Pepsi now has the ability to collect funds from their operations and the US debt markets.
PepsiCo, Inc.'s Board of Directors (NASDAQ: PEP) today pronounced a quarterly profit of $1.15 per
portion of PepsiCo normal stock, a 7 percent increment versus the practically identical year-sooner period.
PepsiCo's announcement of raising its annualized dividend from $4.30 to $4.60 per share, beginning with
the June 2022 payment, is in line with today's action. Shareholders who had their shares in hand at the close
of business on September 2, 2022, will receive this dividend on September 30, 2022. Since 1965, PepsiCo
has paid cash dividends every quarter, and in 2022, the company increased its dividends for the 50th year
in a row.
More than one billion people worldwide consume PepsiCo products on a daily basis in more than 200
countries and territories. PepsiCo's portfolio of complementary beverages and convenient foods, which
includes Lay's, Doritos, Cheetos, Gatorade, Pepsi-Cola, Mountain Dew, Quaker, and SodaStream,
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contributed more than $79 billion in net revenue in 2021. PepsiCo offers a wide range of tasty snacks and
beverages, many of which are household names with estimated annual retail sales of more than $1 billion.
Our goal for PepsiCo is to win with PepsiCo Positive (pep+) and become the global leader in beverages
and convenience foods. pep+ is our essential start to finish change that puts supportability and human
resources at the focal point of how we will make worth and development by working inside planetary limits
and moving positive change for planet and individuals.
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