A Project Report On A comparative Financial Analysis of Soft Drink Industry

Under Partial fulfillment for the award of the Degree MBA (Master of Business Administration) JRN Rajasthan Vidyapeeth University, Udaipur
Under the guidance of-

submitted byRavi Sharma

Mrs Poonam Swami (Sr. Lecture in Finance Deptt)

Poddar International College, Jaipur

BATCH: 2009-2011

Acknowledgment

Sr. 1 2 3 4 5 6 7 8 9 10 11 12

Topic Executive summary Industry profile Company profile of pepsi Company profile of cocacola Balancesheet analysis Cashflow analysis Income statement analysis Weighted average cost of capital Ratio analysis Conclusion Annexure Bibliography

Page 1 3 8 21 26 32 45 48 50 61 62 70

INDEX

EXECUTIVE SUMMARY

INTRODUCTION

Type Founded Headquarters Key people Industry Products: Pepsi

Public (NYSE: PEP) 1965 New York, USA Indra Nooyi, Food and beverage

Chairwoman, President & CEO

Tropicana Products Gatorade Lay's Doritos Frappuccino (for Starbucks) Mountain Dew Operating income $6.44 billion USD (2006) Net income profit margin Employees GROUP OF COMPANIES Frito-Lay North America PepsiCo Beverages North America, $5.64 billion USD (2006) 16.06% 153,000(2005)

 PepsiCo International Quaker Foods North America

Mission

The main objective of the company is to provide best quality products to its consumer. Another objective is to provide

healthy rewards to its investor, good reward to its employee and other investor and partners who financially help the company

Vision
The vision of the company is to improve in all aspects in which they operate. By improving in social and economical environment, they want to make tomorrow better than today.

A Brief Pepsi History

In 1893, Caleb Bradham,a young pharmacist from New Bern, North Carolina, begins experimenting with many different soft drink concoctions. Like many pharmacists at the turn of the century he had a soda fountain in his drugstore, where he served his customers refreshing drinks, that he created himself. His most popular beverage was something he called "Brad's drink" made of carbonated water, sugar, vanilla, rare oils, pepsin and cola nuts.

One of Caleb's formulations, known as "Brad's drink", created in the summer of 1893, was later renamed Pepsi Cola after the pepsin and cola nuts used in the recipe. In 1898, Caleb Bradham wisely bought the trade name "Pep Cola" for $100 from a competitor from Newark, New Jersey that had gone broke. The new name was trademarked on June 16th, 1903. Bradham's neighbor, an artist designed the first Pepsi logo and ninety-seven shares of stock for Bradham's new company were issued. 1898 - One of Caleb's formulations, known as "Brad's Drink," a combination of carbonated water, sugar, vanilla, rare oils and cola nuts, is renamed "Pepsi-Cola" on August 28, 1898. Pepsi-Cola receives its first logo. 1905 - Pepsi-Cola's first bottling franchises are established in Charlotte and Durham, North Carolina. Pepsi receives its new logo, its first change since 1898. 1906 - Pepsi gets another logo change, the third in eight years. The modified script logo is created with the slogan, "The Original Pure Food Drink." 1908 - Pepsi-Cola becomes one of the first companies to modernize delivery from horse drawn carts to motor vehicles. Two hundred fifty bottlers in 24 states are under contract to make and sell PepsiCola. 1910 - The first Pepsi-Cola bottlers' convention is held in New Bern, North Carolina.

1920 - Pepsi theme line speaks to the consumer with "Drink Pepsi-Cola, it will satisfy you." 1928 - After five continuous losing years, Megargel reorganizes his company as the National Pepsi-Cola Company, becoming the fourth parent company to own the Pepsi trademark. 1934 - A landmark year for Pepsi-Cola. The drink is a hit and to attract even more sales, the company begins selling its 12-ounce drink for five cents (the same cost as six ounces of competitive colas). The 12-ounce bottle debuts in Baltimore, where it is an instant success. The cost savings proves irresistible to Depression-worn Americans and sales skyrocket nationally. Caleb Bradham, the founder of Pepsi-Cola and "Brad's Drink," dies at 66 (May 27th, 1867-February 19th, 1934). 1935 - Guth moves the entire Pepsi-Cola operation to Long Island City, New York, and sets up national territorial boundaries for the Pepsi bottler franchise system. 1936 - Pepsi grants 94 new U.S. franchises and year-end profits reach $2,100,000. In 1940, the Pepsi Cola company made history when the first advertising jingle was broadcast nationally on the radio. The jingle was "Nickel Nickel" an advertisement for Pepsi Cola that referred to the price of Pepsi and the quantity for that price "Nickel Nickel" became a hit record and was recorded into fifty-five languages. 1941 - The New York Stock Exchange trades Pepsi's stock for the first time. In support of the war effort, Pepsi's bottle crown colors change to red, white, and blue.

1942 - One on many company sponsored efforts to allow soldiers to communicate with friends or family. This record was made in New York City but often booths would be set up with mobile recording equipment that was bought to where the soldiers were. Shell material on solid core. 78 rpm. 1943 - Pepsi's theme line becomes "Bigger Drink, Better Taste." 1948 - Corporate headquarters moves from Long Island City, New York, to midtown Manhattan. 1950 - Alfred N. Steele becomes President and CEO of Pepsi-Cola. Mr. Steele's wife, Hollywood movie star Joan Crawford, is instrumental in promoting the company's product line. Pepsi receives its new logo, which incorporates the "bottle cap" look. The new logo is the fifth in Pepsi history. 1953 - "The Light Refreshment" campaign capitalizes on a change in the product's formula that reduces caloric content. 1955 - Herbert Barnet is named President of Pepsi-Cola. 1959 - Pepsi debuts at the Moscow Fair. Soviet Premier Khrushchev and U.S. Vice President Nixon share a Pepsi. 1960 - Young adults become the target consumers and Pepsi's advertising keeps pace with "Now it's Pepsi, for those who think young." 1962 - Pepsi receives its new logo, the sixth in Pepsi history. The 'serrated' bottle cap logo debuts, accompanying the brand's groundbreaking "Pepsi Generation" ad campaign.

1963 - After climbing the Pepsi ladder from fountain syrup salesman, Donald M. Kendall is named CEO of Pepsi-Cola Company. Pepsi-Cola continues to lead the soft drink industry in packaging innovations, when the 12-ounce bottle gives way to the 16-ounce size. Twelve-ounce Pepsi cans are first introduced to the military to transport soft drinks all over the world. 1964 - Diet Pepsi, introduced as America's first national diet soft drink. Pepsi-Cola acquires Mountain Dew from the Tip Corporation. 1965 - Expansion outside the soft drink industry begins. Frito-Lay of Dallas, Texas, and Pepsi-Cola merge, forming PepsiCo, Inc. Military 12-ounce cans are such a success that full-scale commercial distribution begins. Mountain Dew launches its first campaign, "Yahoo Mountain Dew...It'll tickle your innards." 1970 - Pepsi leads the way into metrics by introducing the industry's first two-liter bottles. Pepsi is also the first company to respond to consumer preference with lightweight, recyclable, plastic bottles. Vic Bonomo is named President of Pepsi-Cola. The Pepsi World Headquarters moves from Manhattan to Purchase, NY. 1974 - First Pepsi plant opens in the U.S.S.R. Television ads introduce the new theme line, "Hello, Sunshine, Hello Mountain Dew." 1976 - Pepsi becomes the single largest soft drink brand sold in American supermarkets. The campaign is "Have a Pepsi Day!" and a classic commercial, "Puppies," becomes one

of America's best-loved ads. As people get back to basics, Pepsi is there as one of the simple things in life. 1977 - At 37, marketing genius John Sculley is named President of Pepsi-Cola. 1978 - The company experiments with new flavors. Twelve-pack cans are introduced. 1980 - Pepsi becomes number one in sales in the take home market. 1981 - PepsiCo and China reach agreement to manufacture soft drinks, with production beginning next year. 1982 - Pepsi Free, a caffeine-free cola, is introduced nationwide. Pepsi Challenge activity has penetrated 75% of the U.S. market. 1984 - Pepsi advertising takes a dramatic turn as Pepsi becomes "the choice of a New Generation." Lemon Lime Slice, the first major soft drink with real fruit juice, is introduced, creating a new soft drink category, "juice added." In subsequent line of extensions, Mandarin Orange Slice goes on to become the number one orange soft drink in the U.S. Diet Pepsi is reformulated with NutraSweet (aspertame) brand sweetener. 1985 - After responding to years of decline, Coke loses to Pepsi in preference tests by reformulating. However, the new formula is met with widespread consumer rejection, forcing there-introduction of the original formulation as "Coca-Cola Classic." The cola war takes "one giant sip for mankind," when a Pepsi "space can" is successfully tested aboard the space shuttle. By the end of 1985, the New Generation campaign earns more than 58 major advertising and film-related awards. Pepsi's campaign featuring Lional Richie is the most remembered in the country, according to consumer preference polls.. 1987 - Pepsi-Cola President Roger Enrico is named President/CEO of PepsiCo Worldwide Beverages. Pepsi-Cola World Headquarters moves from Purchase to Somers, New York.

After a 27 year absence, Pepsi returns to Broadway with the lighting of a spectacular new neon sign in Times Square. 1988 - Craig Weatherup is appointed President/CEO of Pepsi-Cola Company. 1989 - Pepsi lunges into the next decade by declaring Pepsi lovers "A Generation Ahead." Chris Sinclair is named President of Pepsi-Cola International. Pepsi-Cola introduces an exciting new flavor, Wild Cherry Pepsi. 1990 - American Music Award and Grammy winner rap artist Young MC writes and performs songs exclusively for national radio ads for Pepsi. Ray Charles joins the Pepsi family by endorsing Diet Pepsi. The slogan is "You Got The Right One Baby." 1991 - Craig E. Weatherup is named CEO of Pepsi-Cola North America, as Canada becomes part of the company's North American operations. Pepsi introduces the first beverage bottles containing recycled polyethylene terephthalate (or PET) into the marketplace. The development marks the first time recycled plastic is used in direct contact with food in packaging. 1992--Pepsi-Cola launches the "Gotta Have It" theme which supplants the longstanding "Choice of a New Generation." 1993 - Brand Pepsi introduces its slogan, "Be Young. Have Fun. Drink Pepsi." Pepsi-Cola profits surpass $1 billion. Pepsi introduces an innovative 24-can multipack that satisfies growing consumer demand for convenient large-size soft drink packaging. "The Cube" is easier to carry than the traditional 24-pack and it fits in the refrigerator. 1994 - New advertising introducing Diet Pepsi's freshness dating initiative features Pepsi CEO Craig Weatherup explaining the relationship between freshness and superior taste to consumers. Pepsi Foods International and Pepsi-Cola International merge, creating the PepsiCo Foods and Beverages Company.

1995 - In a new campaign, the company declares "Nothing else is a Pepsi" and takes top honors in the year's national advertising championship. 1996 - In February of this year, Pepsi makes history once again, by launching one of the most ambitious entertainment sites on the World Wide Web. Pepsi World eventually surpasses all expectations, and becomes one of the most landed, and copied, sites in this new media, firmly establishing Pepsi's presence on the Internet. 1997 - In the early part of the year, Pepsi pushes into a new era with the unveiling of the GeneratioNext campaign. GeneratioNext is about everything that is young and fresh; a celebration of the creative spirit. It is about the kind of attitude that challenges the norm with new ideas, at every step of the way. PepsiCo. announces that, effective October 6th, it will spin off its restaurant division to form Tricon Global Restaurants, Inc. Including Pizza Hut, Taco Bell, & KFC, it will be the largest restaurant company in the world in units and second-largest in sales. 1998 - Pepsi celebrates its 100th anniversary. PepsiCo. Chairman and CEO Roger A. Enrico donates his salary to provide scholarships for children of PepsiCo employees. Pepsi introduces PepsiOne - the first one calorie drink without that diet taste! 2000 - Although Pepsi is a great place to work, Steven Truitt (aka 'struitt') takes his skills and hard work elsewhere (for more money of course!), therefore putting an end to his Pepsi page! For more information about Pepsi, choose a search engine and search for 'Pepsi' or visit www.pepsi.com or www.pepsico.com. 2005 - Pepsi invited to introduce new brand cola

PEPSICO IN INDIA
PepsiCo gained entry to India in 1988 by creating a joint venture with the Punjab government-owned Punjab Agro Industrial Corporation (PAIC) and Voltas India Limited. This joint venture marketed and sold Lehar Pepsi until 1991, when the use of foreign brands was allowed; PepsiCo bought out its partners and ended the joint venture in 1994. Others claim that firstly Pepsi was banned from import in India, in 1970, for having refused to release the list of its ingredients and in 1993, the ban was lifted, with Pepsi arriving on the market shortly afterwards. These controversies are a reminder of "India's sometimes acrimonious relationship with huge multinational companies." Indeed, some argue that PepsiCo and The Coca-Cola Company have "been major targets in part because they are well-known foreign companies that draw plenty of attention." In 2003, the Centre for Science and Environment (CSE), a non-governmental organization in New Delhi, said aerated waters produced by soft drinks manufacturers in India, including multinational giants PepsiCo and The Coca-Cola Company, contained toxins, including lindane, DDT, malathion and chlorpyrifos pesticides that can contribute to cancer, a breakdown of the immune system and cause birth defects. Tested products included Coke, Pepsi, 7 Up, Mirinda, Fanta, Thums Up, Limca, and Sprite. CSE found that the Indian-produced Pepsi's soft drink products had 36 times the level of pesticide residues permitted under European Union regulations; Coca Cola's 30 times. CSE said it had tested the same products in the US and found no such residues. However, this was the European standard for water, not for other drinks. No law bans the presence of pesticides in drinks in India. The Coca-Cola Company and PepsiCo angrily denied allegations that their products manufactured in India contained toxin levels far above the norms permitted in the developed world. But an Indian parliamentary committee, in 2004, backed up CSE's findings and a government-appointed committee, is now trying to develop the world's first pesticides standards for soft drinks. Coke and PepsiCo opposed the move, arguing that lab tests aren't reliable enough to detect minute traces of pesticides in complex drinks. On December 7, 2004, India's Supreme Court ruled that both PepsiCo and competitor.

The Coca-Cola Company must label all cans and bottles of the respective soft drinks with a consumer warning after tests showed unacceptable levels of residual pesticides.[citation needed] Both companies continue to maintain that their products meet all international safety standards without yet implementing the Supreme Court ruling.[citation needed] As of 2005, The Coca-Cola Company and PepsiCo together hold 95% market share of soft-drink sales in India. PepsiCo has also been alleged[attribution needed] to practice "water piracy" due to its role in exploitation of ground water resources resulting in scarcity of drinking water for the natives of Puthussery panchayat in the Palakkad district in Kerala, India. Local residents have been pressuring the government to close down the PepsiCo unit in the village. In 2006, the CSE again found that soda drinks, including both Pepsi and Coca-Cola, had high levels of pesticides in their drinks. Both PepsiCo and The Coca-Cola Company maintain that their drinks are safe for consumption and have published newspaper advertisements that say pesticide levels in their products are less than those in other foods such as tea, fruit and dairy products. In the Indian state of Kerala, sale and production of Pepsi-Cola, along with other soft drinks, has been banned. Five other Indian states have announced partial bans on the drinks in schools, colleges and hospitals. 3.1 Highlights of PepsiCo in India: World leader - Convenient Foods and Beverages Revenues of more than $35 billion More than 1,68,000 employees Available in nearly 200 countries and territories Groups 37 bottling plants in India 16 are company owned and 21 are franchisee owned

Tropicana was acquired in 1998 and PepsiCo merged with The Quaker Oats Company in 2001

Generates direct employment for more than 4000 people in India and indirect employment for 60,000 people

Set up 8 greenfield sites in backward regions of different states. PepsiCo intends to expand its operations and is planning an investment of approximately US$ 150 million in the next two-three years.

Annual exports from India are worth over U.S$60 million PepsiCo Founded in 1965 through the merger of Pepsi-Cola and Frito-Lay PepsiCo entered India in 1989

PERIOD ENDING Assets

pepsi

31-Dec-06

31-Dec-07

31-Dec-08

31-Dec-09

31-Dec-10

31-Dec-11

31-Dec-12

31-Dec-13

CURRENT ASSETS Cash and cash equivalents Short term investments Net receivables Inventory other current assets TOTAL CURRENT ASSETS long term investments Property plants and equipments Goodwill Intangible assets Accumulated amortization other assets TOTAL ASSETS Liabilities CURRENT LIABILITIES accounts payable short/long term debt other current liabilities TOTAL CURRENT LIABILITES Long term debt other liabilities deffered long term liabilities minority interest Negative goodwill TOTAL LIABILITIES SHARE HOLDER'S EQUITY prefered stocks common stocks retain earnings treasury stocks capital surplus other stock holder equity TOTAL STOCKHOLDER EQUITY NET TANGIBLE ASSETS 0 3000 2,708,000 -2017000 1751000 (3,61,000) 0 3000 31,24,000 -2269000 1805000 -48,000 0 3000 31,30,000 -2703000 1851000 (9,38,000) 0 3,000 2,708,000 -2,329,667 1,802,333 -48,000 0 3,000 2,708,000 -2,433,889 1,819,444 -48,000 0 3,000 2,708,000 -2,488,852 1,824,259 -48,000 3,000 2,708,000 (2,417,469) 1,815,346 (48,000) 0 3,000 2,708,000 -2,446,737 1,819,683 -48,000 1,375,000 374,000 302,000 2,051,000 4,754,000 1,205,000 1,293,000 540,000 0 7,792,000 1,968,000 247,000 0 2,215,000 4,770,000 1,186,000 1,356,000 973,000 0 8,285,000 1,675,000 1,408,000 0 3,083,000 4,784,000 1,658,000 9,66,000 1,148,000 0 7,590,000 1,672,667 676,333 100,667 2,449,667 4,769,333 1,349,667 1,324,500 887,000 0 8,330,500 1,771,889 777,111 33,556 2,582,556 4,774,444 1,397,889 1,340,250 1,002,667 0 3,740,806 1,706,519 953,815 44,741 2,705,074 4,775,926 1,468,519 1,332,375 1,012,556 0 8,589,375 6,886,894 1,717,025 802,420 59,654 2,579,099 4,773,235 1,405,358 1,332,375 967,407 1,731,811 844,449 45,984 2,622,243 4,774,535 1,423,922 1,335,000 994,210 0 6,405,691 1,332,000 533,000 255000 2,749,000 3,785,000 1,490,000 3,768,000 0 135,000 11,927,00 0 629,00 0 1,520,000 577000 342000 3,086,000 4,080,000 1,533,000 4,181,000 0 235,000 13,115,000 155,000 12,982,000 647,000 1,371,000 528000 276000 3,141,000 619000 3,882,000 1,434,000 3,751,000 1,407,667 546,000 291,000 2,992,000 619,000 3,915,667 1,485,667 3,900,000 0 175,000 13,087,333 1,432,889 550,333 303,000 3,073,000 619,000 3,959,222 1,484,222 3,944,000 0 188,333 13,267,77 8 1,403,852 541,444 290,000 3,068,667 619,000 3,918,963 1,467,963 3,865,000 0 172,778 13,112,37 0 178,704 13,155,827 1,414,802 545,926 294,667 3,044,556 619,000 3,931,284 1,479,284 3,903,000 1,417,181 545,901 295,889 3,062,074 619,000 3,936,490 1,477,156 3,904,000 0 179,938 13,178,658 966,000 747,333 786,778 833,370 789,160 803,103

2,084,000 -3174000

26,15,000 -3099000

13,43,000 -3842000

2,084,000 -3,371,667

2,084,000 -3,437,556

2,084,000 -3,550,407

2,084,000 (3,453,210)

2,084,000 -3,480,391

ASSETS: Assets are the most important part of the company it provides resources to the company. Companys position can be predicted by the assets holding capacity. larger the capacity ,stronger the position of the company. Assets includes cash receivables, short term investment, inventory which will come under title of current assets. other assets like goodwill,plant,intangible assets will also included in the non title of fixed assets LIABILITIES: Liabilities are the application of the resource of assets.liabilies is the responsibility of the company. Company has to pay all its liability with in certain time period.liabilites include two parts one is fixed liabilities and other is current liabilities. account payabe,short term debt will come under title of current liabilities. long term debt and other liabilities will come under title of fixed liabilities.

working capital helps the company to maintain the level of cash for the day to day transactions. It helps to cycle of provide adequate cash for the working of firm. Working capital, also known as net working capital or NWC, is a financial metric which represents operating liquidity available to a business. Along with fixed assets such as plant and equipment, working capital is considered a part of operating capital. It is calculated as current assets minus current liabilities. If current assets are less than current liabilities, an entity has a working capital deficiency, also called a working capital deficit. Working Capital = Current Assets Current Liabilities A company can be endowed with assets and profitability but short of liquidity if its assets cannot readily be converted into cash. Positive working capital is required to ensure that a firm is able to continue its operations and that it has sufficient funds to satisfy both maturing short-term debt and upcoming operational expenses. The management of working capital involves managing inventories, accounts receivable and payable and cash.

Working capital 06 07 08 09 10 11 12 Total in/dec

Pepsi 698,000 871,000 58,000 542,333 490,444 363,593 465,457

-

25%in 93%dec 835%in 9.6%dec 26%dec 28%in 753%inc

As from the table pepsi is having total increase increase in the working capital of 753% ..major change in working capital of pepsi came in 2009 which is projected data.working capital in year 2008 is lowest after a year it will increase to 542333from just 58000..

Cash flow analysis

The cash flow statement is partitioned into three segments, namely: cash flow resulting from operating activities, cash flow resulting from investing activities, and cash flow resulting from financing activities. The money coming into the business is called cash inflow, and money going out from the business is called cash outflow.

Cash flow of pepsi

PERIOD ENDING NET INCOME Operating activity,cash flow provided by or Used in PERIOD ENDING pepsi NET INCOME depriciation Adjustments to net income Operating activity,cash flow provided by or Used in changes in accounts receivables changes in liabilities depriciation changes in inventory adjustments to net income TOTAL CASH FLOWreceivables FROM OPERATING ACTIVITES changes in accounts

31-Dec-09 405333 31-Dec06 522000

31-Dec-10 366444

31-Dec- 31-Dec07 08 532000 162000 663667 668556 416333 445444 -63333 -44444 42444 649000 53333 669000 673000 -24333 -13444 329000 404000 516000 1316333 -120000 -110000 1345778 40000 changes in liabilities 86000 194000 -120000 investing activities,cash flows provided by or Used in changes in inventory -57000 -19000 3000 capital expenditure -779667 -797889 TOTAL CASH FLOW FROM OPERATING Investmesnt ACTIVITES 1228000 1437000 1284000 other cash flows from investing activities -344333 -457111 TOTAL CASH FLOWS FROM INVESTING ACTIVITIES -1124000 -1255000 investing activities,cash flows provided by or Used in capital expenditure -725000 -854000 -760000 Financing activities ,cash flows provided by or used in Investmesnt dividend paid -149000 other cash flows from investing activities -6000 -29000-162333.3 -998000 Sale purchase of stock FROM INVESTING -268000 -229000 TOTAL CASH FLOWS ACTIVITIES net borrowings -731000 378000 -883000 469333.3 1758000 other cash flowsfrom financing activities 10667 7889 Financing TOTAL CASH activities FROM ,cash FIANACING flows provided ACTIVITIES by or used in -28333 85889 dividend -109000 -9333 -130000 -12778 -208000 EFFECT paid OF EXCHANGE RATE CHANGES sale purchase of stock -385000 -280000 -139000 net borrowings 104000 -168000 163888.9 1198000 CHANGE IN CASH AND EQUIVALENTS 154666.7 other cash flowsfrom financing activities 19000 14000 -1000 TOTAL CASH FROM FIANACING ACTIVITIES -371000 -564000 850000 EFFECT OF EXCHANGE RATE CHANGES 1000 28000 -57000 CHANGE IN CASH AND EQUIVALENTS 127000 18000 319000

Projected cash flow of pepsi

Projected cash flow of pepsi

Operating activities

Operating activities include the production, sales and delivery of the company's product as well as collecting payment from its customers. This could include purchasing raw materials, building inventory, advertising, and shipping the product. Under IAS 7, operating cash flows include:

Receipts from the sale of goods or services Receipts for the sale of loans, debt or equity instruments in a trading portfolio Interest received on loans Dividends received on equity securities Payments to suppliers for goods and services Payments to employees or on behalf of employees Interest payments (alternatively, this can be reported under financing activities in IAS 7, and US GAAP)

Items which are added back to [or subtracted from, as appropriate the net income figure (which is found on the Income Statement) to arrive at cash flows from operations generally include:

Depreciation (loss of tangible asset value over time) Deferred tax Amortization (loss of intangible asset value over time) Any gains or losses associated with the sale of a non-current asset, because associated cash flows do not belong in the operating section.(unrealized gains/losses are also added back from the income statement)

Dividend stock analysis of pepsi PepsiCo has been consistently increasing its dividends for 36 consecutive years. From the end of 1998 up until December 2009 this dividend growth stock has delivered a 4.70% annual average total return to its shareholders.

source:big charts.com

At the same time company has managed to deliver a 9.90% average annual increase in its EPS since 1999.

Source: morning star.com

The ROE has remained largely between 31% and 38%, with the exception of 2004, when it fell to as low as 22%.

Source: morning star.com

Annual dividend payments have increased by an average of 13.50% annually since 1999, which is much higher than the growth in EPS. Analysts are expecting slight increase in EPS for 2009 compared to 2008; given the sluggish state of North American economies. The strong US dollar could potentially hurt sales, as over 44% of PepsiCos revenues are derived internationally. A 13.50 % growth in dividends translates into the dividend payment doubling almost every five years. Since 1978 PepsiCo has actually managed to double its dividend payment every six years on average.

Source: morning star.com

The dividend payout has remained in a range between 31% and 42%. In 2008 the dividend payout ratio has surged to 51%. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings. The slow growth in earnings could put future dividend increases at risk.

Source: morning star.com

PepsiCo is currently attractively valued. The stock trades at a price/earnings multiple of 15, has an adequately covered dividend payout and the current dividend yield at 3.50%,

Income statement of pepsi.

Pepsi net revenue Cogs selling,general exp. amortazation of intangible assets operating profit bottaling equit incomr int.exp int.income PBT Tax net income 2006 43251 20351 15901 64 6935 374 -329 41 7021 1879 5142 2007 39474 18038 14208 58 7170 560 -224 125 7631 1973 5658 2008 35137 15762 12711 162 6502 553 -239 173 6989 1347 5642

Projected income statement for pepsi.

net revenue Cogs selling,general exp. amortazation of intangible assets operating profit

2009 39287 18050 14273 95 6869

2010 37966 17283 13731 105 6847

2011 37463 17032 13572 121 6739

2012 38239 17455 13859 107 6818

2013 37890 17257 13720 111 6802

bottaling equit incomr int.exp int.income PBT Tax net income

496 -264 113 7214 1733 5481

536 -242 137 7278 1684 5594

528 -248 141 7160 1588 5572

520 -252 130 7217 1668 5549

528 -247 136 7218 1647 5571

Ratio analysis
Financial Ratios

Financial ratios are useful indicators of a firm's performance and financial situation. Most ratios can be calculated from information provided by the financial statements. Financial ratios can be used to analyze trends and to compare the firm's financials to those of other firms. In some cases, ratio analysis can predict future bankruptcy. Financial ratios can be classified according to the information they provide. The following types of ratios frequently are used:

Liquidity ratios Asset turnover ratios Financial leverage ratios Profitability ratios Dividend policy ratios

Liquidity Ratios
Liquidity ratios provide information about a firm's ability to meet its short-term financial obligations. They are of particular interest to those extending short-term credit to the firm. Two frequently-used liquidity ratios are the current ratio (or working capital ratio) and the quick ratio. The current ratio is the ratio of current assets to current liabilities:

Current Assets Current Ratio = Current Liabilities

Short-term creditors prefer a high current ratio since it reduces their risk. Shareholders may prefer a lower current ratio so that more of the firm's assets are working to grow the business. Typical values for the current ratio vary by firm and industry. For example, firms in cyclical industries may maintain a higher current ratio in order to remain solvent during downturns. One drawback of the current ratio is that inventory may include many items that are difficult to liquidate quickly and that have uncertain liquidation values. The quick ratio is an alternative measure of liquidity that does not include inventory in the current assets. The quick ratio is defined as follows:

Current Assets - Inventory Quick Ratio = Current Liabilities The current assets used in the quick ratio are cash, accounts receivable, and notes receivable. These assets essentially are current assets less inventory. The quick ratio often is referred to as the acid test. Finally, the cash ratio is the most conservative liquidity ratio. It excludes all current assets except the most liquid: cash and cash equivalents. The cash ratio is defined as follows:

Cash + Marketable Securities Cash Ratio = Current Liabilities The cash ratio is an indication of the firm's ability to pay off its current liabilities if for some reason immediate payment were demanded.

Asset Turnover Ratios

Asset turnover ratios indicate of how efficiently the firm utilizes its assets. They sometimes are referred to as efficiency ratios, asset utilization ratios, or asset management ratios. Two commonly used asset turnover ratios are receivables turnover and inventory turnover. Receivables turnover is an indication of how quickly the firm collects its accounts receivables and is defined as follows:

Annual Credit Sales Receivables Turnover = Accounts Receivable The receivables turnover often is reported in terms of the number of days that credit sales remain in accounts receivable before they are collected. This number is known as the collection period. It is the accounts receivable balance divided by the average daily credit sales, calculated as follows:

Accounts Receivable = Average Collection Period Annual Credit Sales / 365

The collection period also can be written as:

365 Average Collection Period = Receivables Turnover Another major asset turnover ratio is inventory turnover. It is the cost of goods sold in a time period divided by the average inventory level during that period:

Cost of Goods Sold Inventory Turnover = Average Inventory The inventory turnover often is reported as the inventory period, which is the number of days worth of inventory on hand, calculated by dividing the inventory by the average daily cost of goods sold:

Average Inventory Inventory Period = Annual Cost of Goods Sold / 365 The inventory period also can be written as:

365 Inventory Period = Inventory Turnover Other asset turnover ratios include fixed asset turnover and total asset turnover.

Financial Leverage Ratios

Financial leverage ratios provide an indication of the long-term solvency of the firm. Unlike liquidity ratios that are concerned with short-term assets and liabilities, financial leverage ratios measure the extent to which the firm is using long term debt. The debt ratio is defined as total debt divided by total assets:

Total Debt = Debt Ratio Total Assets

The debt-to-equity ratio is total debt divided by total equity: = Debt-to-Equity Ratio Total Debt

Total Equity Debt ratios depend on the classification of long-term leases and on the classification of some items as long-term debt or equity. The times interest earned ratio indicates how well the firm's earnings can cover the interest payments on its debt. This ratio also is known as the interest coverage and is calculated as follows:

EBIT Interest Coverage = Interest Charges where EBIT = Earnings Before Interest and Taxes

Profitability Ratios
Profitability ratios offer several different measures of the success of the firm at generating profits. The gross profit margin is a measure of the gross profit earned on sales. The gross profit margin considers the firm's cost of goods sold, but does not include other costs. It is defined as follows:

Sales - Cost of Goods Sold Gross Profit Margin = Sales Return on assets is a measure of how effectively the firm's assets are being used to generate profits. It is defined as: = Return on Assets Net Income

Total Assets

Return on equity is the bottom line measure for the shareholders, measuring the profits earned for each dollar invested in the firm's stock. Return on equity is defined as follows:

Net Income Return on Equity = Shareholder Equity

Dividend Policy Ratios

Dividend policy ratios provide insight into the dividend policy of the firm and the prospects for future growth. Two commonly used ratios are the dividend yield and payout ratio. The dividend yield is defined as follows:

Dividends Per Share Dividend Yield = Share Price A high dividend yield does not necessarily translate into a high future rate of return. It is important to consider the prospects for continuing and increasing the dividend in the future. The dividend payout ratio is helpful in this regard, and is defined as follows:

Dividends Per Share Payout Ratio = Earnings Per Share

Use and Limitations of Financial Ratios

Attention should be given to the following issues when using financial ratios:

A reference point is needed. To to be meaningful, most ratios must be compared to historical values of the same firm, the firm's forecasts, or ratios of similar firms. Most ratios by themselves are not highly meaningful. They should be viewed as indicators, with several of them combined to paint a picture of the firm's situation. Year-end values may not be representative. Certain account balances that are used to calculate ratios may increase or decrease at the end of the accounting period because of seasonal factors. Such changes may distort the value of the ratio. Average values should be used when they are available.

Ratios are subject to the limitations of accounting methods. Different accounting choices may result in significantly different ratio value

Financial Leverage: Financial leverage is the use of fixed cost funds such as debt or preferred stock to increase the common stockholder's return. Using debt in the firm produces a stream of earnings that has greater volatility (risk) than would occur in the same firm if it had less debt. One major factor is management's willingness to accept financial risk. A second factor is earnings predictability. Two debt ratios that were computed are the debt to total assets ratio, or the "debt ratio," and the equity multiplier. Debt Ratio: The Debt ratio is calculated as the sum of all the liability accounts divided by "total assets." For our four sample firms, the numerator is the sum of everything on the right side of the balance sheet from "current liabilities" through "deferred income taxes. Return on Equity: Many would argue that the most important ratio to calculate for a company is its return on equity (ROE), which is "net income available to common stockholders" divided by "common equity. ROE represents the rate of return the company earned on the book value of its equity investment. The higher the number, the greater the return the company

is earning for its shareholders. For our companies, PepsiCo has the greatest ROE, 39.84 percent, which is an exceptionally high number. Pepsi Return on equity 39.84 PepsiCo has an excellent ROE. It is a result of its high profit margin, effective asset utilization, and use of leverage. PepsiCo probably is pursuing an aggressive debt strategy because of the lower profitability of some of its product lines. Return equity Pepsi 39.64 Price/Earnings Ratio: on Net profit Total margin over 10.6 2 turn Equity muliplier 1.86

The Price/ Earnings Ratio is used to gauge the relative value of a security in the light of current market conditions. It is determined by dividing the price of a share of stock by its earnings per share for a 12-month period. Sometimes the P/E is referred to as the "multiple because it shows how much investors are willing to pay per dollar of earnings. PepsiCo has a high P/E, which means high projected earnings in the future, in comparison to its competitors in the beverage industry. Price/Cash Flow: The Price/ Cash Flow is calculated by dividing the closing price with the cash flow per share from the last 12 months. An alternative to the P/E ratio, this ratio removes depreciation and other non-cash charges from the equation. Another advantage of the Price/Cash Flow ratio is that it makes it easier to analyze various companies across the board. As displayed above, Coca-Cola has the most efficient Price/Cash Flow ratio than PepsiCos 17.28 ratio, which displays that three of the four companies have ample money available to spend on research and development, to expand operations, and to pay dividends to investors.

Conclusion
Pepsi Co.:

- current ratio is high short-term solvency is favorable - greater volatility in ratios - greatly reduces D/E ratio - increases TIE ratio solvency - shorter days sales of inventory period better inventory management - increases slightly asset turnover - capital intensity increases better capital utilization to realize sales - profit margin increases significantly In conclusion, the ratios of Pepsi Co. significantly improve and lose their worrisome volatility with time. They reach levels as high, if not higher, than those of their main competitor Balancesheet of pepsi co.
Assets Current Assets Cash And Cash Equivalents Short Term Investments Net Receivables Inventory Other Current Assets Total Current Assets Long Term Investments Property Plant and Equipment Goodwill Intangible Assets Accumulated Amortization Other Assets Deferred Long Term Asset Charges Total Assets 966,000 1,371,000 528,000 276,000 3,141,000 619,000 3,882,000 1,434,000 3,751,000 155,000 12,982,000 Liabilities Current Liabilities Accounts Payable Short/Current Long Term Debt 1,675,000 1,408,000 1,968,000 247,000 1,375,000 374,000 647,000 1,520,000 577,000 342,000 3,086,000 4,080,000 1,533,000 4,181,000 235,000 13,115,000 629,000 1,332,000 533,000 255,000 2,749,000 3,785,000 1,490,000 3,768,000 135,000 11,927,000

Other Current Liabilities Total Current Liabilities Long Term Debt Other Liabilities Deferred Long Term Liability Charges Minority Interest Negative Goodwill Total Liabilities

3,083,000 4,784,000 1,658,000 966,000 1,148,000 11,639,000

2,215,000 4,770,000 1,186,000 1,356,000 973,000 10,500,000

302,000 2,051,000 4,754,000 1,205,000 1,293,000 540,000 9,843,000

Cash flow of pepsi.

View: Annual DataQuarterly Data PERIOD ENDING Net Income All numbers in thousands 27-Dec-08 29-Dec-07 162,000 532,000 30-Dec-06 522,000

Operating Activities, Cash Flows Provided By or Used In Depreciation Adjustments To Net Income Changes In Accounts Receivables Changes In Liabilities Changes In Inventories Changes In Other Operating Activities Total Cash Flow From Operating Activities 673,000 516,000 40,000 (120,000) 3,000 10,000 1,284,000 669,000 404,000 (110,000) 194,000 (19,000) (233,000) 1,437,000 649,000 329,000 (120,000) 86,000 (57,000) (181,000) 1,228,000

Investing Activities, Cash Flows Provided By or Used In Capital Expenditures Investments Other Cashflows from Investing Activities Total Cash Flows From Investing Activities (760,000) (998,000) (1,758,000) (854,000) (29,000) (883,000) (725,000) (6,000) (731,000)

Financing Activities, Cash Flows Provided By or Used In Dividends Paid Sale Purchase of Stock Net Borrowings Other Cash Flows from Financing Activities Total Cash Flows From Financing Activities Effect Of Exchange Rate Changes Change In Cash and Cash Equivalents (208,000) (139,000) 1,198,000 (1,000) 850,000 (57,000) $319,000 (130,000) (280,000) (168,000) 14,000 (564,000) 28,000 $18,000 (109,000) (385,000) 104,000 19,000 (371,000) 1,000 $127,000

Incomestatement of pepsi. Pepsi net revenue Cogs selling,general exp. amortazation of intangible assets operating profit Bottaling equit incomr int.exp int.income PBT Tax net income 2006 2007 43251 39474 20351 18038 15901 14208 64 6935 374 -329 41 7021 1879 5142 58 7170 560 -224 125 7631 1973 5658 2008 35137 15762 12711 162 6502 553 -239 173 6989 1347 5642

Equity of pepsi.

Bibliography
PEPSICO WEBSITE,www.pepsico.com WWW.YAHOOFINANCE.COM WWW.MORNINGSTAR.COM Stockholders' Equity Misc Stocks Options Warrants Redeemable Preferred Stock Preferred Stock Common Stock Retained Earnings Treasury Stock Capital Surplus Other Stockholder Equity Total Stockholder Equity Net Tangible Assets 3,000 3,130,000 1,851,000 (938,000) 1,343,000 3,000 3,124,000 1,805,000 (48,000) 2,615,000 3,000 2,708,000 1,751,000 (361,000) 2,084,000

(2,703,000) (2,269,000) (2,017,000)

($3,842,000) ($3,099,000) ($3,174,000)

 WWW.BIGCHARTS.COM PEPSICO INTERNATIONAL INTERNAL REPORT WWW.AUTHORSTREAM.COM