Ussama

EXECUTIVE SUMMARY
The primary purpose of this report is to identify and analyze the two dominant
companies in the soft drink industry and determine the strongest performer as an
investment opportunity. Coca-Cola and PepsiCo have been competing in the soft
drink sector for over a century and both companies enjoy a high degree of brand
consciousness globally. Coca-Cola has, until recently, outpaced its number two rival
considerably, both in the .!. and overseas. " will compare the two companies using
the following criteria# $a% comparative statistics $b% key ratios, and $c% the weighted
average cost of capital $&'CC%.
(or the purpose of my report, all relevant financial data on both Coca-Cola and
PepsiCo was derived from the reliable )ahoo (inance and *orningstar website and
the accompanying +,-k reports. Coca-Cola-s revenues have been generally outpaced
by PepsiCo-s revenues with notable e.ception in /,,, when both companies
approached parity in terms of revenue. The (inancial Times reveals that Coca-Cola
has made minimal gains which may be attributed to the slow growth in the soft drink
sector. Coca-Cola-s income is derived from 0,1 of its soft drink products, while
PepsiCo-s soft drinks are responsible for only /,1 of its income. Clearly, PepsiCo-s
wide range of snack products serves to cushion the company from changing consumer
preferences. This is illustrated by the e.plosive growth of the bottled water sector-a
lucrative sector for both companies $i.e., Coca-Cola-s 2asani and PepsiCo-s
'3ua(ina%. Consumers are 3uickly drawing a connection between high-fructose corn
syrup beverages $e.g., most soft drinks% and obesity and are gradually shying away
from them.
The combined market share of PepsiCo-s soft drink brands increased to 45.+1 in early
/,,6, outpacing Coca-Cola for the first time since Pepsi entered Thailand 6/ years
ago. Thailand is one of a handful of world markets where Pepsi is ahead of Coke in
cola sales alone $Thai Press 7eports, /,,8%. 7ecently, PepsiCo announced its plans to
boost its presence in the Turkish market, with the goal of overtaking Coca-Cola. "n
order to achieve this goal, the company will invest 9:, to 94, million a year to
strengthen its presence. PepsiCo has the largest market share in the *iddle ;astern
region, but faces strong competition in Turkey from Coca-Cola and lker, producer
of Cola Turka.
+
INTRODUCTION
The (*C< sector
represents consumer goods re3uired for daily or fre3uent use. The main segments of
this sector are personal care $oral care, hair care, soaps, cosmetics, toiletries%,
household care $fabric wash and household cleaners%, branded and packaged food,
beverages $health beverages, soft drinks, staples, cereals, dairy products, chocolates,
bakery products% and tobacco.
The "ndian (*C< sector is an important contributor to the country-s <2P. "t is the
fourth largest sector in the economy and is responsible for 61 of the total factory
employment in "ndia. The industry also creates employment for : m people in
downstream activities, much of which is disbursed in small towns and rural "ndia.
This industry has witnessed strong growth in the past decade. This has been due to
liberalization, urbanization, increase in the disposable incomes and altered lifestyle.
(urthermore, the boom has also been fuelled by the reduction in e.cise duties, de-
reservation from the small-scale sector and the concerted efforts of personal care
companies to attract the burgeoning affluent segment in the middle-class through
product and packaging innovations.
nlike the perception that the (*C< sector is a producer of lu.ury items targeted at
the elite, in reality, the sector meets the every day needs of the masses. The lower-
middle income group accounts for over =,1 of the sector-s sales. 7ural markets
account for 6=1 of the total domestic (*C< demand.
*any of the global (*C< majors have been present in the country for many decades.
>ut in the last ten years, many of the smaller rung "ndian (*C< companies have
gained in scale. 's a result, the unorganized and regional players have witnessed
erosion in market share.
/
History of FMCG in India
"n "ndia, companies like "TC, ?@@, Colgate, Cadbury and Aestle have been a
dominant force in the (*C< sector well supported by relatively less competition and
high entry barriers $import duty was high%. These companies were, therefore, able to
charge a premium for their products. "n this conte.t, the margins were also on the
higher side. &ith the gradual opening up of the economy over the last decade, (*C<
companies have been forced to fight for a market share. "n the process, margins have
been compromised, more so in the last si. years $(*C< sector witnessed decline in
demand.
Current Senario
The growth potential for (*C< companies looks promising over the long-
term horizon, as the per-capita consumption of almost all products in the country is
amongst the lowest in the world. 's per the Consumer !urvey by B!'-Technopak, of
the total consumption e.penditure, almost 4,1 and 01 was accounted by groceries
and personal care products respectively. 7apid urbanization, increased literacy and
rising per capita income are the key growth drivers for the sector. 'round 461 of the
population in "ndia is below /, years of age and the proportion of the young
population is e.pected to increase in the ne.t five years. 'spiration levels in this age
group have been fuelled by greater media e.posure, unleashing a latent demand with
more money and a new mindset. "n this backdrop, industry estimates suggest that the
industry could triple in value by /,+6 $by some estimates, the industry could double
in size by /,+,%.
"n our view, testing times for the (*C< sector are over and driving rural penetration
will be the key going forward. 2ue to infrastructure constraints $this influences the
cost-effectiveness of the supply chain%, companies were unable to grow faster.
'lthough companies like ?@@ and "TC have dedicated initiatives targeted at the rural
market, these are still at a relatively nascent stage.

:
The bottlenecks of the conventional distribution system are likely to be removed once
organized retailing gains in scale. Currently, organized retailing accounts for just :1
of total retail sales and is likely to touch +,1 over the ne.t :-6 years. "n our view,
organized retailing results in discounted prices, forced-buying by offering many
choices and also opens up new avenues for growth for the (*C< sector. <iven the
aggressive e.pansion plans of players like Pantaloon, Trent, !hopperCs !top and
!hoprite, we are confident that the (*C< sector has a bright future.
!ud"et Measures to #ro$ote FMCG Setor
D /1 education cess corporation ta., e.cise duties and custom duties
D Concessional rate of 61 custom duty on tea and coffee plantation machinery
!ud"et I$%at
The education cess will add marginally to the ta. burden of all (*C< companies
The dividend distribution ta. on debt funds is likely to adversely effect the other
income components of companies like >ritannia, Aestle and ?@@ The measure to
abolish e.cise duty on dairy machinery is a positive for companies like Aestle
Concessional rate for tea and coffee plantation machinery is a positive for Tata Tea,
?@@, Tata Coffee and other such companies 2uty reduction in food grade he.ane will
have a marginally positive impact on companies like *arico and ?@@ 'rea specific
e.cise e.emptions for Aorth ;ast, EFB, ?imachal Pradesh will continue to encourage
(*C< companies to relocate to these areas.
"ndia offers a large and growing market of + billion people of which :,, million are
middle class consumers. "ndia offers a vibrant market of youth and vigor with 641 of
population below the age of /6 years. These young people work harder, earn more,
spend more and demand more from the market, making "ndia a dynamic and
aspirational society. 2omestic demand is e.pected to double over the ten-year period
from +555 to /,,0. The number of households with Ghigh incomeG is e.pected to
increase by =,1 in the ne.t four years to 44 million households.

"ndia is rated as the fifth most attractive emerging retail market. "t has been
ranked second in a <lobal 7etail 2evelopment "nde. of :, developing countries
drawn up by ' T Bearney. '.T. Bearney has estimated "ndia-s total retail market at
9/,/.= billion, is e.pected to grow at a compounded :,r6 per cent over the ne.t five
4
years. The share of modern retail is likely to grow from its current / per cent to +6-/,
percent over the ne.t decade, analysts feel.
The "ndian (*C< sector is the fourth largest sector in the economy with a
total market size in e.cess of !9 +:.+ billion. The (*C< market is set to treble !9
::.4 billion in /,+6. Penetration level as well as per capita consumption in most
product categories like jams, toothpaste, skin care, hair wash etc in "ndia is low
indicating the untapped market potential. >urgeoning "ndian population, particularly
the middle class and the rural segments, presents an opportunity to makers of branded
products to convert consumers to branded products.
"ndia is one of the worldCs largest producers for a number of (*C< products
but its (*C< e.ports are languishing at around 7s +,,,, crore only. There is
significant potential for increasing e.ports but there are certain factors inhibiting this.
!mall-scale sector reservations limit ability to invest in technology and 3uality up
gradation to achieve economies of scale. *oreover, lower volume of higher value
added products reduce scope for e.port to developing countries.
The (*C< sector has traditionally grown at a very fast rate and has generally
out performed the rest of the industry. Hver the last one year, however the rate of
growth has slowed down and the sector has recorded sales growth of just five per cent
in the last four 3uarters.
The outlook in the short term does not appear to be very positive for the
sector. 7ural demand is on the decline and the Centre for *onitoring "ndian ;conomy
$C*";% has already downscaled its projection for agriculture growth in the current
fiscal. Poor monsoon in some states, too, is unlikely to help matters. *oreover, the
general slowdown in the economy is also likely to have an adverse impact on
disposable income and purchasing power as a whole. The growth of imports
constitutes another problem area and while so far imports in this sector have been
confined to the premium segment, (*C< companies estimate they have already
cornered a four to si. per cent market share. The high burden of local ta.es is another
reason attributed for the slowdown in the industry 't the same time, the long term
outlook for revenue growth is positive. <ive the large market and the re3uirement for
continuous repurchase of these products.
6
Type Public $A)!;# P;P%
(ounded +5=6
?ead3uarters Aew )ork, !'
Bey people "ndra Aooyi, Chairwoman,
President F C;H
"ndustry (ood and beverage
Products #
Pepsi
Tropicana Products
<atorade
@ay-s
2oritos
(rappuccino $for !tarbucks%
*ountain 2ew
Hperating income 9=.44 billion !2 $/,,=%
Aet income 96.=4 billion !2 $/,,=%
profit margin +=.,=1
;mployees +6:,,,,$/,,6%
<7HP H( CH*P'A";!
(rito-@ay Aorth 'merica
PepsiCo >everages Aorth 'merica,
PepsiCo "nternational
Iuaker (oods Aorth 'merica
=
Mission
The main objective of the company is to provide best 3uality products to its
consumer. 'nother 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. >y improving in social and economical environment, they want
to make tomorrow better than today.
8
A !rief #e%si History
"n +05:, Caleb >radham,a young pharmacist from Aew >ern,
Aorth Carolina, begins e.perimenting with many different soft
drink concoctions. @ike 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. ?is most
popular beverage was something he called G>rad-s drinkG made of
carbonated water, sugar, vanilla, rare oils, pepsin and cola nuts.
Hne of Caleb-s formulations, known as G>rad-s drinkG, created in the summer of +05:,
was later renamed Pepsi Cola after the pepsin and cola nuts used in the recipe. "n
+050, Caleb >radham wisely bought the trade name GPep ColaG for 9+,, from a
competitor from Aewark, Aew Eersey that had gone broke. The new name was
trademarked on Eune +=th, +5,:. >radham-s neighbor, an artist designed the first
Pepsi logo and ninety-seven shares of stock for
>radham-s new company were issued.
+050 - Hne of Caleb-s formulations, known as G>rad-s
2rink,G a combination of carbonated water, sugar,
vanilla, rare oils and cola nuts, is renamed GPepsi-ColaG
on 'ugust /0, +050. Pepsi-Cola receives its first logo.
+5,6 - Pepsi-Cola-s first bottling franchises are
established in Charlotte and 2urham, Aorth Carolina.
Pepsi receives its new logo, its first change since +050.
+5,= - Pepsi gets another logo change, the third in eight
years. The modified script logo is created with the slogan, GThe Hriginal Pure (ood
2rink.G
0
+5,0 - Pepsi-Cola becomes one of the first companies to modernize
delivery from horse drawn carts to motor vehicles. Two
hundred fifty bottlers in /4 states are under contract to
make and sell Pepsi-Cola.
+5+, - The first Pepsi-Cola bottlers- convention is held in
Aew >ern, Aorth Carolina.
+5/, - Pepsi theme line speaks to the consumer with G2rink
Pepsi-Cola, it will satisfy you.G
+5/0 - 'fter five continuous losing years, *egargel reorganizes his company as the
Aational Pepsi-Cola Company, becoming the fourth parent company to own the Pepsi
trademark.
+5:4 - ' landmark year for Pepsi-Cola. The drink is a hit and to attract even more
sales, the company begins selling its +/-ounce drink for five cents $the same cost as
si. ounces of competitive colas%. The +/-ounce bottle debuts in >altimore, where it is
an instant success. The cost savings proves irresistible to 2epression-worn 'mericans
and sales skyrocket nationally.
Caleb >radham, the founder of Pepsi-Cola and G>rad-s 2rink,G dies at == $*ay /8th,
+0=8-(ebruary +5th, +5:4%.
+5:6 - <uth moves the entire Pepsi-Cola operation to @ong "sland City, Aew )ork,
and sets up national territorial boundaries for the Pepsi bottler franchise system.
+5:= - Pepsi grants 54 new .!.
franchises and year-end profits reach
9/,+,,,,,,.
"n +54,, the Pepsi Cola company made
history when the first advertising jingle
was broadcast nationally on the radio.
The jingle was GAickel AickelG an
advertisement for Pepsi Cola that
referred to the price of Pepsi and the
3uantity for that price GAickel AickelG
became a hit record and was recorded
into fifty-five languages.
5
+54+ - The Aew )ork !tock ;.change trades Pepsi-s stock for the first time. "n
support of the war effort, Pepsi-s bottle crown colors change to red, white, and blue.
+54/ - Hne on many company sponsored efforts to allow soldiers to communicate
with friends or family. This record was made in Aew )ork City but often booths
would be set up with mobile recording e3uipment that was bought to where the
soldiers were. !hell material on solid core. 80 rpm.
+54: - Pepsi-s theme line becomes G>igger 2rink, >etter Taste.G
+540 - Corporate head3uarters moves from @ong "sland City, Aew )ork, to midtown
*anhattan.
+56, - 'lfred A. !teele becomes President and C;H of Pepsi-Cola. *r. !teele-s wife,
?ollywood movie star Eoan Crawford, is instrumental in promoting the company-s
product line.
Pepsi receives its new logo, which incorporates the Gbottle capG
look. The new logo is the fifth in Pepsi history.
+56: - GThe @ight 7efreshmentG campaign capitalizes on a
change in the product-s formula that reduces caloric content.
+566 - ?erbert >arnet is named President of Pepsi-Cola.
+565 - Pepsi debuts at the *oscow (air. !oviet Premier
Bhrushchev and .!. Jice President Ai.on share a Pepsi.
+5=, - )oung adults become the target consumers and Pepsi-s advertising keeps pace
with GAow it-s Pepsi, for those who think young.G
+5=/ - Pepsi receives its new logo, the si.th in Pepsi history. The -serrated- bottle cap
logo debuts, accompanying the brand-s groundbreaking GPepsi <enerationG ad
campaign.
+5=: - 'fter climbing the Pepsi ladder from fountain syrup salesman, 2onald *.
Bendall is named C;H of Pepsi-Cola Company. Pepsi-Cola continues to lead the soft
drink industry in packaging innovations, when the +/-ounce bottle gives way to the
+=-ounce size. Twelve-ounce Pepsi cans are first introduced to the military to
transport soft drinks all over the world.

+,
+5=4 - 2iet Pepsi, introduced as 'merica-s first national diet
soft drink. Pepsi-Cola ac3uires *ountain 2ew from the Tip
Corporation.

+5=6 - ;.pansion outside the soft drink industry begins. (rito-
@ay of 2allas, Te.as, and Pepsi-Cola merge, forming
PepsiCo, "nc.
*ilitary +/-ounce cans are such a success that full-scale
commercial distribution begins.

*ountain 2ew launches its first campaign, G)ahoo
*ountain 2ew..."t-ll tickle your innards.G
+58, - 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 light-
weight, recyclable, plastic bottles. Jic >onomo is named
President of Pepsi-Cola. The Pepsi &orld ?ead3uarters
moves from *anhattan to Purchase, A).
+584 - (irst Pepsi plant opens in the .!.!.7. Television ads introduce the new theme
line, G?ello, !unshine, ?ello *ountain 2ew.G
+58= - Pepsi becomes the single largest soft drink brand sold in 'merican
supermarkets. The campaign is G?ave a Pepsi 2ayKG and a classic commercial,
GPuppies,G becomes one of 'merica-s best-loved ads. 's people get back to basics,
Pepsi is there as one of the simple things in life.
+588 - 't :8, marketing genius Eohn !culley is named President of Pepsi-Cola.
+580 - The company e.periments with new flavors. Twelve-pack cans are introduced.
+50, - Pepsi becomes number one in sales in the take home market.
++
+50+ - PepsiCo and China reach agreement to manufacture soft drinks, with
production beginning ne.t year.
+50/ - Pepsi (ree, a caffeine-free cola, is introduced nationwide. Pepsi Challenge
activity has penetrated 861 of the .!. market.
+504 - Pepsi advertising takes a dramatic turn as Pepsi becomes Gthe choice of a Aew
<eneration.G @emon @ime !lice, the first major soft drink with real fruit juice, is
introduced, creating a new soft drink category, Gjuice added.G "n subse3uent line of
e.tensions, *andarin Hrange !lice goes on to become the number one orange soft
drink in the .!. 2iet Pepsi is reformulated with Autra!weet $aspertame% brand
sweetener.
+506 - 'fter responding to years of decline, Coke loses to Pepsi in preference tests
by reformulating. ?owever, the new formula is met with widespread consumer
rejection, forcing there-introduction of the original formulation as GCoca-Cola
Classic.G The cola war takes Gone giant sip for mankind,G when a Pepsi Gspace canG is
successfully tested aboard the space shuttle. >y the end of +506, the Aew <eneration
campaign earns more than 60 major advertising and film-related awards. Pepsi-s
campaign featuring @ional 7ichie is the most remembered in the country, according to
consumer preference polls..
+508 - Pepsi-Cola President 7oger ;nrico is named PresidentLC;H of PepsiCo
&orldwide >everages. Pepsi-Cola &orld ?ead3uarters moves from Purchase to
!omers, Aew )ork. 'fter a /8 year absence, Pepsi returns to >roadway with the
lighting of a spectacular new neon sign in Times !3uare.
+500 - Craig &eatherup is appointed PresidentLC;H of Pepsi-Cola Company.
+505 - Pepsi lunges into the ne.t decade by declaring Pepsi lovers G' <eneration
'head.G Chris !inclair is named President of Pepsi-Cola "nternational. Pepsi-Cola
introduces an e.citing new flavor, &ild Cherry Pepsi.
+55, - 'merican *usic 'ward and <rammy winner rap artist )oung *C writes and
performs songs e.clusively for national radio ads for Pepsi. 7ay Charles joins the
Pepsi family by endorsing 2iet Pepsi. The slogan is G)ou <ot The 7ight Hne >aby.G
+55+ - Craig ;. &eatherup is named C;H of Pepsi-Cola Aorth 'merica, as Canada
becomes part of the company-s Aorth 'merican operations. Pepsi introduces the first
beverage bottles containing recycled polyethylene terephthalate $or P;T% into the
marketplace. The development marks the first time recycled plastic is used in direct
contact with food in packaging.
+/
+55/--Pepsi-Cola launches the G<otta ?ave "tG theme which supplants the
longstanding GChoice of a Aew <eneration.G
+55: - >rand Pepsi introduces its slogan, G>e )oung. ?ave (un. 2rink Pepsi.G Pepsi-
Cola profits surpass 9+ billion. Pepsi introduces an innovative /4-can multipack that
satisfies growing consumer demand for convenient large-size soft drink packaging.
GThe CubeG is easier to carry than the traditional /4-pack and it fits in the refrigerator.
+554 - Aew advertising introducing 2iet Pepsi-s freshness dating initiative features
Pepsi C;H Craig &eatherup e.plaining the relationship between freshness and
superior taste to consumers. Pepsi (oods "nternational and Pepsi-Cola "nternational
merge, creating the PepsiCo (oods and >everages Company.
+556 - "n a new campaign, the company declares GAothing else is a PepsiG and takes
top honors in the year-s national advertising championship.
+55= - "n (ebruary of this year, Pepsi makes history once again, by launching one of
the most ambitious entertainment sites on the &orld &ide &eb. Pepsi &orld
eventually surpasses all e.pectations, and becomes one of the most landed, and
copied, sites in this new media, firmly establishing Pepsi-s presence on the "nternet.
+558 - "n the early part of the year, Pepsi pushes into a new era with the unveiling of
the <eneratioAe.t campaign. <eneratioAe.t is about everything that is young and
freshM a celebration of the creative spirit. "t is about the kind of attitude that challenges
the norm with new ideas, at every step of the way.
PepsiCo. announces that, effective Hctober =th, it will spin off its restaurant division
to form Tricon <lobal 7estaurants, "nc. "ncluding Pizza ?ut, Taco
>ell, F B(C, it will be the largest restaurant company in the
world in units and second-largest in sales.
+550 - Pepsi celebrates its +,,th anniversary. PepsiCo. Chairman
and C;H 7oger '. ;nrico donates his salary to provide
scholarships for children of PepsiCo employees. Pepsi introduces
PepsiHne - the first one calorie drink without that diet tasteK

+:
/,,, - 'lthough Pepsi is a great place to work, !teven Truitt $aka -struitt-% takes his
skills and hard work elsewhere $for more money of courseK%, therefore putting an end
to his Pepsi pageK (or more information about Pepsi, choose a search engine and
search for -Pepsi- or visit www.pepsi.com or www.pepsico.com.
/,,6 - Pepsi invited to introduce new brand cola
#E#SICO IN INDIA
PepsiCo gained entry to "ndia in +500 by creating a joint venture with the Punjab
government-owned Punjab 'gro "ndustrial Corporation $P'"C% and Joltas "ndia
@imited. This joint venture marketed and sold @ehar Pepsi until +55+, when the use of
foreign brands was allowedM PepsiCo bought out its partners and ended the joint
venture in +554. Hthers claim that firstly Pepsi was banned from import in "ndia, in
+58,, for having refused to release the list of its ingredients and in +55:, the ban was
lifted, with Pepsi arriving on the market shortly afterwards. These controversies are a
reminder of G"ndia-s sometimes acrimonious relationship with huge multinational
companies.G "ndeed, some argue that PepsiCo and The Coca-Cola Company have
Gbeen major targets in part because they are well-known foreign companies that draw
plenty of attention.G
"n /,,:, the Centre for !cience and ;nvironment $C!;%, a non-governmental
organization in Aew 2elhi, said aerated waters produced by soft drinks manufacturers
in "ndia, including multinational giants PepsiCo and The Coca-Cola Company,
contained to.ins, including lindane, 22T, malathion and chlorpyrifos N pesticides
that can contribute to cancer, a breakdown of the immune system and cause birth
defects. Tested products included Coke, Pepsi, 8 p, *irinda, (anta, Thums p,
@imca, and !prite. C!; found that the "ndian-produced Pepsi-s soft drink products
had := times the level of pesticide residues permitted under ;uropean nion
regulationsM Coca Cola-s :, times. C!; said it had tested the same products in the !
and found no such residues. ?owever, this was the ;uropean standard for water, not
for other drinks. Ao law bans the presence of pesticides in drinks in "ndia.
The Coca-Cola Company and PepsiCo angrily denied allegations that their products
manufactured in "ndia contained to.in levels far above the norms permitted in the
+4
developed world. >ut an "ndian parliamentary committee, in /,,4, backed up C!;-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
comple. drinks. Hn 2ecember 8, /,,4, "ndia-s !upreme 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.
Ocitation neededP
>oth companies continue to maintain that their products meet all international safety
standards without yet implementing the !upreme Court ruling.Ocitation neededP 's of
/,,6, The Coca-Cola Company and PepsiCo together hold 561 market share of soft-
drink sales in "ndia. PepsiCo has also been allegedOattribution neededP to practice
Gwater piracyG due to its role in e.ploitation of ground water resources resulting in
scarcity of drinking water for the natives of Puthussery panchayat in the Palakkad
district in Berala, "ndia. @ocal residents have been pressuring the government to close
down the PepsiCo unit in the village.
"n /,,=, the C!; again found that soda drinks, including both Pepsi and Coca-Cola,
had high levels of pesticides in their drinks. >oth 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. "n the "ndian state of Berala, sale
and production of Pepsi-Cola, along with other soft drinks, has been banned. (ive
other "ndian states have announced partial bans on the drinks in schools, colleges and
hospitals.
+6
&'( Hi")*i")ts of #e%siCo in India#
&orld leader - Convenient (oods and >everages
7evenues of more than 9:6 billion
*ore than +,=0,,,, employees
'vailable in nearly /,, countries and territories
<roupCs :8 bottling plants in "ndia
+= are company owned and /+ are franchisee owned
Tropicana was ac3uired in +550 and PepsiCo merged with The Iuaker Hats
Company in /,,+
<enerates direct employment for more than 4,,, people in "ndia and indirect
employment for =,,,,, people
!et up 0 <reenfield sites in backward regions of different states. PepsiCo
intends to e.pand its operations and is planning an investment of
appro.imately !9 +6, million in the ne.t two-three years.
'nnual e.ports from "ndia are worth over .!9=, million
PepsiCo (ounded in +5=6 through the merger of Pepsi-Cola and (rito-@ay
PepsiCo entered "ndia in +505
+=
COCACO+A
HISTORY OF COCA CO+A
Coca-Cola originated as a soda fountain beverage in +00= selling for five cents a
glass. ;arly growth was impressive, but it was only when a strong bottling system
developed that Coca-Cola became the world-famous brand it is today.
(,-. / A $odest start for a !o*d Idea
"n a candy store in Jicksburg, *ississippi, brisk sales of the new fountain beverage
called Coca-Cola impressed the store-s owner, Eoseph '. >iedenharn. ?e began
bottling Coca-Cola to sell, using a common glass bottle called a ?utchinson.
>iedenharn sent a case to 'sa <riggs Candler, who owned the Company. Candler
thanked him but took no action. Hne of his nephews already had urged that Coca-Cola
be bottled, but Candler focused on fountain sales.
(,-- T)e first 0ott*in" a"ree$ent
Two young attorneys from Chattanooga, Tennessee
believed they could build a business around bottling Coca-
Cola. "n a meeting with Candler, >enjamin (. Thomas and
Eoseph >. &hitehead obtained e.clusive rights to bottle
Coca-Cola across most of the nited !tates $specifically e.cluding Jicksburg% -- for
the sum of one dollar. ' third Chattanooga lawyer, Eohn T. @upton, soon joined their
venture.
(-112(-1- 3 Ra%id "ro4t)
The three pioneer bottlers divided the country into territories and
sold bottling rights to local entrepreneurs. Their efforts were
boosted by major progress in bottling technology, which
improved efficiency and product 3uality. >y +5,5, nearly 4,,
Coca-Cola bottling plants were operating, most of them family-owned businesses.
!ome were open only during hot-weather months when demand was high.
+8
(-(5 3 !irt) of t)e ontour 0ott*e
>ottlers worried that the straight-sided bottle for Coca-Cola was
easily confused with imitators. ' group representing the Company
and bottlers asked glass manufacturers to offer ideas for a distinctive
bottle. ' design from the 7oot <lass Company of Terre ?aute,
"ndiana won enthusiastic approval in +5+6 and was introduced in
+5+=. The contour bottle became one of the few packages ever
granted trademark status by the .!. Patent Hffice. Today, it-s one of
the most recognized icons in the world - even in the darkK
(-61s 3 !ott*in" o7erta8es fountain sa*es
's the +5/,s dawned, more than +,,,, Coca-Cola bottlers
were operating in the .!. Their ideas and zeal fueled steady
growth. !i.-bottle cartons were a huge hit after their +5/:
introduction. ' few years later, open-top metal coolers became the forerunners of
automated vending machines. >y the end of the +5/,s, bottle sales of Coca-Cola
e.ceeded fountain sales.
(-61s and &1s 3 Internationa* e9%ansion
@ed by longtime Company leader 7obert &. &oodruff, chief
e.ecutive officer and chairman of the >oard, the Company began
a major push to establish bottling operations outside the .!.
Plants were opened in (rance, <uatemala, ?onduras, *e.ico,
>elgium, "taly, Peru, !pain, 'ustralia and !outh 'frica. >y the
time &orld &ar "" began, Coca-Cola was being bottled in 44
countries.
(-.1s 3 #ost24ar "ro4t)
2uring the war, =4 bottling plants were set up around the world
to supply the troops. This followed an urgent re3uest for
bottling e3uipment and materials from <eneral ;isenhower-s
base in Aorth 'frica. *any of these war-time plants were later
converted to civilian use, permanently enlarging the bottling system and accelerating
the growth of the Company-s worldwide business.
+0
PERIOD ENDING 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
Assets
CURRENT ASSETS
Cash a! cash e"#i$a%ets
629&00
0 6'7&000 966&000

7'7&333 786&778 833&370

789&160 803&103
Sh()t te)* i$est*ets - - -
Net )ecei$a+%es 1&332&000 1&,20&000 1&371&000 1&'07&667 1&'32&889 1&'03&8,2

1&'1'&802 1&'17&181
I$et()- ,33&000 ,77000 ,28000 ,'6&000 ,,0&333 ,'1&'''

,',&926 ,',&901
(the) c#))et assets 2,,000 3'2000 276000 291&000 303&000 290&000

29'&667 29,&889
TOTA. CURRENT ASSETS

2&7'9&000

3&086&000

3&1'1&000

2&992&000

3&073&000

3&068&667

3&0''&,,6

3&062&07'
%(/ te)* i$est*ets - - 619000 619&000 619&000 619&000

619&000 619&000
P)(pe)t- p%ats a!
e"#ip*ets 3&78,&000 '&080&000 3&882&000 3&91,&667 3&9,9&222 3&918&963

3&931&28' 3&936&'90
G((!0i%% 1&'90&000 1&,33&000 1&'3'&000 1&'8,&667 1&'8'&222 1&'67&963

1&'79&28' 1&'77&1,6
Ita/i+%e assets 3&768&000 '&181&000 3&7,1&000 3&900&000 3&9''&000 3&86,&000

3&903&000 3&90'&000
Acc#*#%ate! a*()ti1ati( 0 0 0 0 0 - 0
(the) assets 13,&000 23,&000 1,,&000 17,&000 188&333 172&778

178&70' 179&938
TOTA. ASSETS

11&927&00
0

13&11,&000

12&982&000 13&087&333
13&267&77
8
13&112&37
0

13&1,,&827 13&178&6,8
.ia+i%ities
CURRENT .IA2I.ITIES
acc(#ts pa-a+%e 1&37,&000 1&968&000 1&67,&000 1&672&667 1&771&889 1&706&,19

1&717&02, 1&731&811
sh()t3%(/ te)* !e+t 37'&000 2'7&000 1&'08&000 676&333 777&111 9,3&81,

802&'20 8''&''9
(the) c#))et %ia+i%ities 302&000 0 0 100&667 33&,,6 ''&7'1

,9&6,' ',&98'
TOTA. CURRENT .IA2I.ITES 2&0,1&000 2&21,&000 3&083&000 2&''9&667 2&,82&,,6 2&70,&07'

2&,79&099 2&622&2'3
.(/ te)* !e+t '&7,'&000 '&770&000 '&78'&000 '&769&333 '&77'&''' '&77,&926

'&773&23, '&77'&,3,
(the) %ia+i%ities 1&20,&000 1&186&000 1&6,8&000 1&3'9&667 1&397&889 1&'68&,19

1&'0,&3,8 1&'23&922
!e44e)e! %(/ te)* %ia+i%ities 1&293&000 1&3,6&000 9&66&000 1&32'&,00 1&3'0&2,0 1&332&37,

1&332&37, 1&33,&000
*i()it- ite)est ,'0&000 973&000 1&1'8&000 887&000 1&002&667 1&012&,,6

967&'07 99'&210
Ne/ati$e /((!0i%% 0 0 0 0 0 0 - 0
TOTA. .IA2I.ITIES 7&792&000 8&28,&000 7&,90&000 8&330&,00 3&7'0&806 8&,89&37,

6&886&89' 6&'0,&691
S5ARE 5O.DER6S E7UIT8
p)e4e)e! st(c9s 0 0 0 0 0 0 - 0
c(**( st(c9s 3000 3000 3000 3&000 3&000 3&000

3&000 3&000
)etai ea)i/s 2&708&000 31&2'&000 31&30&000 2&708&000 2&708&000 2&708&000

2&708&000 2&708&000
t)eas#)- st(c9s -2017000 -2269000 -2703000 -2&329&667 -2&'33&889 -2&'88&8,2

:2&'17&'69; -2&''6&737
capita% s#)p%#s 17,1000 180,000 18,1000 1&802&333 1&819&''' 1&82'&2,9

1&81,&3'6 1&819&683
(the) st(c9 h(%!e) e"#it- :3&61&000; -'8&000 :9&38&000; -'8&000 -'8&000 -'8&000

:'8&000; -'8&000
TOTA. STOC<5O.DER
E7UIT8 2&08'&000 26&1,&000 13&'3&000 2&08'&000 2&08'&000 2&08'&000

2&08'&000 2&08'&000
NET TANGI2.E ASSETS -317'000 -3099000 -38'2000 -3&371&667 -3&'37&,,6 -3&,,0&'07

:3&',3&210; -3&'80&391
+5
(-:1s 3 #a8a"in" inno7ations
(or the first time, consumers had choices of Coca-Cola package size and type -- the
traditional =.6-ounce contour bottle, or larger servings including +,-, +/- and /=-
ounce versions. Cans were also introduced, becoming generally available in +5=,.
(-51s 3 Ne4 0rands introdued
(ollowing (antaQ in the +56,s, !priteQ, *inute *aidQ, (rescaQ and Ta>Q joined
brand Coca-Cola in the +5=,s. *r. PibbQ and *ello )elloQ were added in the +58,s.
The +50,s brought diet CokeQ and Cherry CokeQ, followed by PH&;7'2;Q and
2'!'A"Q in the +55,s. Today hundreds of other brands are offered to meet
consumer preferences in local markets around the world.
(-;1s and ,1s 3 Conso*idation to ser7e usto$ers
's technology led to a global economy, the retailers who sold Coca-Cola merged and
evolved into international mega-chains. !uch customers re3uired a new approach. "n
response, many small and medium-size bottlers consolidated to better serve giant
international customers. The Company encouraged and invested in a number of
bottler consolidations to assure that its largest bottling partners would have capacity to
lead the system in working with global retailers.
(--1s 3 Ne4 and "ro4in" $ar8ets
Political and economic changes opened vast markets that were closed or
underdeveloped for decades. 'fter the fall of the >erlin &all, the Company invested
heavily to build plants in ;astern ;urope. 'nd as the century closed, more than 9+.6
billion was committed to new bottling facilities in 'frica.
6(st Century
The Coca-Cola bottling system grew up with roots deeply planted in local
communities. This heritage serves the Company well today as people seek brands that
honor local identity and the distinctiveness of local markets. 's was true a century
ago, strong locally based relationships between Coca-Cola bottlers, customers and
communities are the foundation on which the entire business grows.
!RANDS OF COCA CO+A
Coca-Cola ReroQ has been one of the most successful
product launch hes in Coca ColaCs history. "n /,,8, Coca
/,
ColaCs sold nearly 46, million cases globally. Put into perspective, that-s roughly the
same size as Coca ColaCs total business in the Philippines, one of our top +6 markets.
's of !eptember /,,0, Coca-Cola Rero is available in more than +,, countries.
Ener"y Drin8s
(or those with a high-intensity approach to
life, Coca ColaCs brands of ;nergy 2rinks
contain ingredients such as ginseng e.tract,
guarana e.tract, caffeine and > vitamins.
<uies=<uie Drin8s
&e bring innovation to the goodness of
juice in Coca ColaCs more than /, juice and
juice drink brands, offering both adults and
children nutritious, refreshing and flavorful
beverages.
Soft Drin8s
Coca ColaCs dozens of soft drink brands
provide flavor and refreshment in a variety
of choices. (rom the original Coca-Cola to
most recent introductions, soft drinks from
The Coca-Cola Company are both icons and
innovators in the beverage industry.
S%orts Drin8s
/+
Carbohydrates, fluids, and electrolytes team together in Coca ColaCs !ports 2rinks,
providing rapid hydration and terrific taste for fitness-seekers at any level
Tea and Coffee
>ottled and canned teas and coffees
provide consumers- favorite drinks in
convenient take-anywhere packaging,
satisfying both traditional tea drinkers and
today-s growing coffee culture.
>ater
!mooth and essential, our &aters and
&ater >everages offer hydration in its
purest form.
Other Drinks
!o much more than soft drinks. Coca
ColaCs brands also include milk products,
soup, and more so you can choose a Coca Cola Company product anytime, anywhere
for nutrition, refreshment or other needs.
//
'A'@)!"!
!a*ane s)eet ana*ysis
PERIOD ENDING:c(cac(%a 31-Dec-06
31-Dec-
07 31-Dec-08
31-Dec-
09
31-Dec-
10
31-Dec-
11
31-Dec-
12
31-Dec-
13
Assets
CURRENT ASSETS
Cash a! cash e"#i$a%ets 2''0000 '093000 '701000 37''667 '179,,6 '208'07 '0''210 '1''0,8
Sh()t te)* i$est*ets 1,0000 21,000 278000 21'333 23,778 2'270' 230938 236'73=3
Net )ecei$a+%es 270'000 3317000 3090000 3037000 31'8000 3091667 3092222 3110630
I$et()- 161'000 2220000 2187000 2007000 2138000 2110667 208,222 2111296
Othe) c#))et assets 1,06000 2260000 1920000 189,333 202,111 19'681, 19,,7,3 197,893
TOTA. CURRENT ASSETS 8'1'000
1210,00
0 12176000
1089833
3
11726''
'
116002,
9
11'083'
6 11,783,0
%(/ te)* i$est*ets 6783000 7777000 ,779000 6779667 6778,,6 6'',7'1 6667988 6630761
P)(pe)t- p%ats a!
e"#ip*ets 6903000 8'93000 8326000 7907333 82'2111 81,8'81 81026'2 81677',
G((!0i%% 1'03000 '2,6000 '029000 3229333 3838111 369881, 3,887,3 3708,60
Ita/i+%e assets 3732000 7963000 8'76000 6723667 7720889 76'018, 7361,80 7,7'218
Acc#*#%ate! a*()ti1ati( 0 0 0 0 0 0 0 0
Othe) assets 2,33000 267,000 1733000 2313667 22'0,,6 209,7'1 22166,' 218'317
!e44e)e! %(/ te)* cha)/es 168000 168000 168000 168000 168000 168000
TOTA. ASSETS 29936000
'326900
0 '0,19000
3802000
0
'071'66
7
3980722
2
39,1396
3 '00119,1
.ia+i%ities
CURRENT .IA2I.ITIES
Acc(#ts pa-a+%e ,622000 7173000 61,2000 631,667 6,'6889 633818, 6'002'7 6'28''0
Sh()t3%(/ te)* !e+t 3268000 60,2000 6,31000 ,283667 ,9,,,,6 ,923'07 ,720877 ,866613
Othe) c#))et %ia+i%ities 0 0

30,&000=0
0 101667 13,,,6 1807'1 139321 1,1872='
TOTA. CURRENT .IA2I.ITES 8890000
1322,00
0 12988000
1170100
0
1263800
0
12''233
3
12260''
' 12''6926
.(/ te)* !e+t 1&31'&000

3&277&00
0

2&781&000 2',7333 2838''' 26922,9 2662679 2731128
Othe) %ia+i%ities 1&873&000

3&133&00
0

3&'01&000 2802333 3112111 310,1'8 3006,31 307',97
!e44e)e! %(/ te)* %ia+iit-
cha)/es 608&000

1&890&00
0

877&000 112,000 1297333 1099778 117'037 1190383
*i()it- ite)est 3&,8&000 0 0 0 0 0 0 0
Ne/ati$e /((!0i%% 0 0 0 0 0 0
TOTA. .IA2I.ITIES 1268,000
21,2,00
0 200'7000
1808,66
7
1988,88
9
19339,1
9
1910369
1 19''3033
S5ARE 5O.DER6S E7UIT8
p)e4e)e! st(c9s 0 0 0 0 0 0
c(**( st(c9s 807000 880000 880000 8,,667 871888=9 86918,=2 86,,80 86888'=8
Retai ea)i/s 33'68000
3623,00
0 38,13000
3607200
0
369'000
0
3717,00
0
3672900
0 369'8000
t)eas#)- st(c9s -22118000
-
2337,00
0 -2'213000
-
2323,33
3
-
2360777
8
-
2368,37
0
-
23,09'9
'
-
23600867
capita% s#)p%#s ,983000 7378000 7966000 7109000 7'8'333 7,19778 7371037 7',8383
Othe) st(c9 h(%!e) e"#it- -1291000 626000 -267'000 -1113000 -10,3667 -1613,,6 -126007' -1309099
TOTA. STOC<5O.DER
E7UIT8 16920000
217''00
0 16920000
18,2800
0
1906'00
0
1817066
7
18,87,,
6 18607'07
NET TANGI2.E ASSETS 1178,000 9,2,000 79670000
3366000
0
'09,166
7
,1'2722
2
'201296
3 ''79728'
/:
The analysis of three years of balance sheet of pepsi and pepsi has been done and
from those data the projected balance sheet for the years of /,,5 to /,+: of five years
has been counted with the simple average method.
ASSETS?
'ssets are the most important part of the company it provides resources to the
company. CompanyCs position can be predicted by the assets holding capacity. larger
the capacity ,stronger the position of the company. assets includes cash receivables,
short term investment ,inventory which will come under title of current assets. other
assets like goodwill, plant, intangible assets will also included in the non title of fi.ed
assets
's per the projected data the coca colaCs last : years assets are /55:=,,,$in ,=%,$in
/,,8% and :0,/,,, $in /,,0%.while the projected assets calculated with simple
average method the assets of coca cola is increasing every year than past three
years.in /,,5 the assets will be 4,8+4==8, which is highest for the coca cola. Pepsi is
having the assets as of half than coca cola. "n the year /,,= Pepsi is having assets of
++5/8,,,,in /,,8$+:++6,,,%and in year 0 $+/50/,,,% that has decreased from the
previous year. The main reason for the Pepsi is having higher assets is itCs long term
investment and property plant and e3uity more than pepsi.in /,,0 Coca-Cola is
having /1 decrease in the assets while Pepsi is having 01 decrease in the assets.
from the projected data of +, the assets of Pepsi should be increased by /1 but coca
cola will increase its assets more 81 in /,+,.cocacola is having larger assets than
Pepsi so we can say that coca cola is very larger firm than Pepsi. Comparing the cash
and cash e3uivalents Coca-Cola is generating higher cash than Pepsi. PepsiCs cash
generation is very small and it will take long time to increase because it is almost 4
times lesser than of Coca-Cola. Hther assets including inventory, goodwill, intangible
assets are more of Coca-Cola than Pepsi...
+IA!I+ITIES?
/4
@iabilities are the application of the resource of assets. liabilies are the responsibility
of the company. Company has to pay all its liability within certain time period.
@iabilities include two parts one is fi.ed liabilities and other is current liabilities.
'ccount payable, short term debt will come under title of current liabilities. long term
debt and other liabilities will come under title of fi.ed liabilities.
Pepsi is having less liability than Coca-Cola. for the year /,,= it is of 885/,,,$in
thousand% than it increase in /,,8 to 0/06,,, because of increase in the differed long
term liabilities and interest. Than it again reduces to 865,,, in /,,0 this year
company has reduced its differed long term liabilies. for the year /,,5 company had
paid the amount of +,,==8 under title of other current liabilities.which has increased
to the total liability for pepsi.cocacola is having more liabilities than pepsi which is
almost of / times than pepsi. for the year /,,= to /,,0 the lianilities are
+/=06,,,,/+6/6,,,,/,,48,,, respectively. Hf which /+6/6,,, is the highest even
comparing with projected liability of the ne.t five year.there has been consistent
stability has been seen in the projected liability of cocacola .for the year /,,5 it is of
+0,06=,8 it increases in the /,+, to +5006005 than there has not been much change
in the liability of the year /,+, to /,+: as seen in the balance sheet above Comparing
both companies liabilities The ratio of the liabilities of the both companies ate of =#4
in the year of /,,= than the ratio incease to 8#: in year /,,8.in /,,0 it remains 8M:.for
the projected years the ratio "n /,,5 the ratio is of 0#/ which tells how cocacola is
having giant liabilities than pepsi. working capital helps the company to maintain the
level of cash for the day to day transactions. "t helps to cycle of provide ade3uate cash
for the working of firm. >or8in" a%ita*, also known as net 4or8in" a%ita* or
A&C, is a financial metric which represents operating li3uidity available to a
business. 'long with fi.ed assets such as plant and e3uipment, working capital is
considered a part of operating capital. "t is calculated as current assets minus current
liabilities. "f current assets are less than current liabilities, an entity has a 4or8in"
a%ita* defiieny, also called a 4or8in" a%ita* defiit.
>or8in" Ca%ita* @ Current Assets A Current +ia0i*ities
' company can be endowed with assets and profitability but short of li3uidity if its
assets cannot readily be converted into cash. Positive working capital is re3uired to
ensure that a firm is able to continue its operations and that it has sufficient funds to
/6
satisfy both maturing short-term debt and upcoming operational e.penses. The
management of working capital involves managing inventories, accounts receivable
and payable and cash.

&orking
capital
Pepsi Cocacola
,= 698&000 - -48=,,, -
,8 871&000 /61in -++/,,,, +:61dec
,0 ,8&000 5:1dec -0+/,,, /8.61in
,5 ,'2&333 0:61in -0,/==8 +./1in
+, '90&''' 5.=1dec -5++66= +:.=dec
++ 363&,93 /=1dec -04/,84 8.=1in
+/ '6,&',7 /01in -06/,50 +./1dec
Total inLdec - 86:1inc - ++6.6dec
's from the table pepsi is having total increase increase in the working capital of
86:1 .cocacolaCs working capital is decreasing every year.major change in working
capital of pepsi came in /,,5 which is projected data.working capital in year /,,0 is
lowest after a year it will increase to 64/:::from just 60,,,.though cocacola is
having more assets than pepsi it lack in working capital as importance of working
capital mentioned above.
Cas) f*o4 ana*ysis
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.
Cas) f*o4 of oao*a'
PERIOD ENDING c(cac(%a
31-Dec-
06
31-Dec-
07
31-Dec-
08
NET INCO>E ,080000 ,981000 ,807000
Ope)ati/ acti$it-&cash 4%(0 p)($i!e! +- () Use! i
!ep)iciati( 938000 1163000 1228000
a!?#st*ets t( et ic(*e ,,'000 - 122'000
cha/es i acc(#ts )ecei$a+%es -21'000 -'06000 1'8000
/=
cha/es i %ia+i%ities -99000 91'000 -73'000
cha/es i i$et()- -1,0000 -2,8000 -16,000
cha/e i (the) (pe)ati/ acti$it- -1,2000 -2''000 63000
TOTA. CAS5 @.OA @RO> OPERATING
ACTIBITES ,9,7000 71,0000 7,71000
i$esti/ acti$ities&cash 4%(0s p)($i!e! +- () Use!
i
capita% eCpe!it#)e
-
1'07000
-
16'8000
-
1968000
I$est*est ,,8000 3'9000 -2'0000
(the) cash 4%(0s 4)(* i$esti/ acti$ities -8,1000
-
,'20000 1,,000
TOTA. CAS5 @.OAS @RO> INBESTING
ACTIBITIES
-
1700000
-
6719000 2363000
@iaci/ acti$ities &cash 4%(0s p)($i!e! +- () #se! i
!i$i!e! pai!
-
2911000
-
31'9000
-
3,21000
sa%e p#)chase (4 st(c9
-
2268000 -219000 -'93000
et +())(0i/s
-
1'0'000 '3'1000 29000
(the) cash 4%(0s4)(* 4iaci/ acti$ities - -
TOTA. CAS5 @RO> @IANACING ACTIBITIES
-
6,83000 973000
-
398,000
E@@ECT O@ EDC5ANGE RATE C5ANGES 6,000 2'9000 -61,000
C5ANGE IN CAS5 AND E7UIBA.ENTS
-
2261000 16,3000 608000
#roBeted as) f*o4 of oao*a
PERIOD ENDING c(cac(%a
31-Dec-
09
31-Dec-
10
31-Dec-
11
31-Dec-
12
31-Dec-
13
NET INCO>E ,622667 ,803,,6 ,7'''07 ,723,'3 ,7,7169
Dep)iciati( 1109667 1166889 116818, 11'82'7 1161107
a!?#st*ets t( et ic(*e 889000 10,6,00 10,6,00 1000667 1037889
cha/es i acc(#ts )ecei$a+%es -1,7333 -138''' -'92,9 -11,012 -10090,
cha/es i %ia+i%ities 27000 69000 -212667 -38889 -608,2
cha/es i i$et()- -191000 -20'667 -186889 -19'18, -19,2'7
cha/e i (the) (pe)ati/ acti$it- -111000 -97333 -'8''' -8,,93 -77123
ACTIBITES 6892667 720',,6 72227'1 71066,' 717798'
I$esti/ acti$ities&cash 4%(0s p)($i!e! +- () Use! i
capita% eCpe!it#)e
-
167'333 -1763''' -1801926
-
17'6,68 -17706'6
i$est*est 222333 110''' 30926 12123, 87,3,
(the) cash 4%(0s 4)(* i$esti/ acti$ities
-
2038667 -2'3',,6 -1'39'07
-
1970877 -19'8280
/8
ACTIBITIES
-
2018667 -212'889 -,93,19
-
1,7902, -1'32'77
Di$i!e! pai! -
3193667
-3287889 -333'18, -
327191' -3297996
sa%e p#)chase (4 st(c9 -993333 -,68''' -68'926 -7'8901 -667'2'
et +())(0i/s 988667 1786222 93'630 1236,06 1319119
(the) cash 4%(0s4)(* 4iaci/ acti$ities
TOTA. CAS5 @RO> @IANACING ACTIBITIES -
3198333
-2070111 -308''81 -
278'309 -26'6300
E@@ECT O@ EDC5ANGE RATE C5ANGES -100333 -1,,''' -2902,9 -182012 -209239
C5ANGE IN CAS5 AND E7UIBA.ENTS 0 7,3667 ',3889 '02,19 ,36691
Cas) f*o4 of %e%si
PERIOD ENDING pepsi
31-Dec-
06
31-Dec-
07
31-Dec-
08
NET INCO>E ,22000 ,32000 162000
!ep)iciati( 6'9000 669000 673000
a!?#st*ets t( et ic(*e 329000 '0'000 ,16000
cha/es i acc(#ts )ecei$a+%es -120000 -110000 '0000
cha/es i %ia+i%ities 86000 19'000 -120000
cha/es i i$et()- -,7000 -19000 3000
ACTIBITES 1228000 1'37000 128'000
i$esti/ acti$ities&cash 4%(0s p)($i!e! +- () Use! i
capita% eCpe!it#)e -72,000 -8,'000 -760000
I$est*est - - -
(the) cash 4%(0s 4)(* i$esti/ acti$ities -6000 -29000 -998000
ACTIBITIES -731000 -883000
-
17,8000
!i$i!e! pai! -109000 -130000 -208000
sa%e p#)chase (4 st(c9 -38,000 -280000 -139000
et +())(0i/s 10'000 -168000 1198000
(the) cash 4%(0s4)(* 4iaci/ acti$ities 19000 1'000 -1000
TOTA. CAS5 @RO> @IANACING ACTIBITIES -371000 -,6'000 8,0000
E@@ECT O@ EDC5ANGE RATE C5ANGES 1000 28000 -,7000
C5ANGE IN CAS5 AND E7UIBA.ENTS 127000 18000 319000
/0
#roBeted as) f*o4 of %e%si
PERIOD ENDING
31-Dec-
09 31-Dec-10 31-Dec-11 31-Dec-12 31-Dec-13
NET INCO>E '0,333 366''' 3112,9 361012 3'6239
Ope)ati/ acti$it-&cash 4%(0 p)($i!e! +- ()
Use! i
!ep)iciati( 663667 668,,6 668'07 666877 6679'7
A!?#st*ets t( et ic(*e '16333 '',''' ',92,9 ''03'6 ''83,0
cha/es i acc(#ts )ecei$a+%es -63333 -''''' -22,93 -'3',7 -36831
cha/es i %ia+i%ities ,3333 '2''' -807' 2923, 21202
cha/es i i$et()- -2'333 -13''' -11,93 -16',7 -13831
ACTIBITES
131633
3 13',778 131,370 132,827 1328992
i$esti/ acti$ities&cash 4%(0s p)($i!e! +- ()
Use! i
capita% eCpe!it#)e -779667 -797889 -77918, -78,,80 -787,,1
I$est*est
(the) cash 4%(0s 4)(* i$esti/ acti$ities -3''333 -',7111 -,9981, -'67086 -,0800'
ACTIBITIES
-
112'00
0 -12,,000 -1379000 -12,2667 -129,,,6
!i$i!e! pai! -1'9000 -162333=3 -173111 -161'81=, -16,6'2
Sa%e p#)chase (4 st(c9 -268000 -229000 -212000 -236333=3 -22,777=8
et +())(0i/s 378000 '69333=3 681777=8 ,09703=7 ,,360'=9
(the) cash 4%(0s4)(* 4iaci/ acti$ities 10667 7889 ,8,2 8136 7292
TOTA. CAS5 @RO> @IANACING
ACTIBITIES -28333 8,889 302,19 12002, 169'77
E@@ECT O@ EDC5ANGE RATE C5ANGES -9333 -12778 -26370 -16160 -18'36
C5ANGE IN CAS5 AND E7UIBA.ENTS
1,'666=
7 163888=9 212,18=, 17702'=69 18''77='
/5
O%eratin" ati7ities
Hperating 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.
nder "'! 8, operating cash flows include#
7eceipts from the sale of goods or services
7eceipts for the sale of loans, debt or e3uity instruments in a trading
portfolio
"nterest received on loans
2ividends received on e3uity securities
Payments to suppliers for goods and services
Payments to employees or on behalf of employees
"nterest payments $alternatively, this can be reported under financing
activities in "'! 8, and ! <''P%
"tems which are added back to Oor subtracted from, as appropriate the net
income figure $which is found on the "ncome !tatement% to arrive at cash
flows from operations generally include#
2epreciation $loss of tangible asset value over time%
2eferred ta.
'mortization $loss of intangible asset value over time%
'ny gains or losses associated with the sale of a non-current asset,
because associated cash flows do not belong in the operating section.
$unrealized gainsLlosses are also added back from the income
statement%
's cocacolaCs investment in the long term assets increasing itCs
depreciation is also increasing .i has been increased ++=:,,, in /,,8 from
5:0,,, in /,,=and it increase more in /,,0 of +//0,,,,for the year ,=
:,
and ,8 the amount receivable has been in negative./,,0 has account
receivable has been positive which is +40,,,.liabilites has been increased
of 55,,, in /,,=.then it is decreased of 5+4,,, in /,,8 but then again
increased of 8:4,,,.total cash flow from operating activities has been
increased over year.
CocacolaCs operating cash flow is more than pepsi.which shows that
cocacola handles its cash operations more effectively. pepsiCs operating
activity cashflow for the year /,,0 is +/04,,,.while the projected amount
is much more higher than /,,,0 and previous years.it increases of /5446
than decreases in /,++ of :,4,0.again increase in /,+/ and in /,+:. the
projected data of cocacola is very stable there has been not much change
from /,+, to /,+:.which remains around 8+,==64 to 8///84+.
In7estin" ati7ities?
Cocacola has purchased more assets in /,,8 .the other investment has
been decreasing evry year it remarks sharp decrease in /,,0.projected
investment is also decreasing .total cash flow from investing activities of
cocacola is decreasing which tells total investment of company is reducing
.pepsiCs capital e.penditure includes the purchasing and selling of assets
while there is no investment .total cash flow is positive in /,,0 then it
came neagative in /,+/.
Finanin" ati7ities#
CocacolaCs dividend distribution increases every year.in /,,8 cocacola has
paid 01 more dividend than /,,=.while pepsi has reatained earnings for
all years. 7etain earning is increasing in the projected years.
Coca-Cola has paid uninterrupted dividends on its common stock since
+05: and increased payments to common shareholders every year for 48
years. rom the end of +550 up until 2ecember /,,5 this dividend growth
stock has delivered a egative annual average total return of /.+,1 to its
shareholders. The stock has largely raded between 9=6 and 94, over the
past decade.
:+
!ource#big charts.com
The company has managed to deliver a +,.5,1 average annual increase in its
;P! between +555 and /,,5. 'nalysts are e.pecting an increase in ;P! to
9:.,6-9:.+, for /,+, and 9:./6-9:.:, by /,++. This would be a nice increase
from the /,,5 earnings per share of 9/.45. (uture drivers for earnings could
be the companyCs tea, coffee and water perations. Cost savings initiatives
could also add to the bottom line over time.
!ource# morning star.com
!ome analysts believe that Coca Cola could follow arch rival Pepsi CoCs
moves to ac3uire its own bottlers in an effort to gain more control over the
production and distribution of its beverages in key markets. Coke holds a :61
interest in its largest manufacturer and distributor of Coca Cola products,
Coca-Cola ;nterprises "n. . Coca- ola ;nterprises "nc. accounts for about 4,1
:/
of CokeCs concentrate sales and +=1 of the companyCs worldwide volume,
which makes it a likely target of ac3uisition, The 7eturn on ;3uity has been in
a decline after hitting a high in /,,+. 7ather than focus on absolute values for
this indicator, "nvestors generally want to see at least a stable return on e3uity
over time.
'nnual dividends have increased by an average of +,.+,1 annually since
+555, which is slightly lower than the growth in ;P!. The company last raised
its dividend by 01 in (ebruary /,,5, for the 48th year in a row.
::
' +, 1 growth in dividends translates into the dividend payment doubling
every seven years. "f we look at historical data, going as far back as +5=5, The
Coca Cola Company has indeed managed to double its dividend payment
every seven years on average.
The dividend payout ratio remained above 6,1 for the majority of the past
decade. ' lower payout is always a plus, since it leaves room for consistent
dividend growth minimizing the impact of short-term fluctuations in earnings.
Currently Coca Cola is trading at /, times earnings and yields :.:,1. "n
comparison arch rival in the cola wars Pepsi Co trades at a PL; multiple of +6
and yields :.6,1. thus,The Coca Cola Company is not as attractively valued
at the moment as Pepsi Co
2ividend stock analysis of pepsi
PepsiCo has been consistently increasing its dividends for := consecutive
years. (rom the end of +550 up until 2ecember /,,5 this dividend growth
stock has delivered a 4.8,1 annual average total return to its shareholders.
:4
source#big charts.com
't the same time company has managed to deliver a 5.5,1 average annual
increase in its ;P! since +555.
The 7H; has remained largely between :+1 and :01, with the e.ception of
/,,4, when it fell to as low as //1.
:6
'nnual dividend payments have increased by an average of +:.6,1 annually
since +555, which is much higher than the growth in ;P!. 'nalysts are
e.pecting slight increase in ;P! for /,,5 compared to /,,0M given the
sluggish state of Aorth 'merican economies. The strong ! dollar could
potentially hurt sales, as over 441 of PepsiCoCs revenues are derived
internationally.
' +:.6, 1 growth in dividends translates into the dividend payment doubling
almost every five years. !ince +580 PepsiCo has actually managed to double
its dividend payment every si. years on average.
:=
The dividend payout has remained in a range between :+1 and 4/1. "n /,,0
the dividend payout ratio has surged to 6+1. ' 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.
PepsiCo is currently attractively valued. The stock trades at a priceLearnings
multiple of +6, has an ade3uately covered dividend payout and the current
dividend yield at :.6,1,
:8
Ino$e state$ent ana*ysis
#roBeted ino$e state$ent for oa o*a
2009 2010 2011 2012 2013
NET Ope)ati/ )e$e#e 28296 29699 29980 2932, 29668
c(st (4 /((!s s(%! 9981 10,87 106'7 10'0, 10,'7
/)(ss p)(4it 1831, 19112 19332 18920 19121
SE..ING GENERA. AND a!*iist)ati$e eCp 10717 111', 11212 1102,
(the) (pe)ati/ cha)e/es 263 289 301 28' 291
(pe)ati/ ic(*e 733, 7678 7820 7611 7703
ite)st ic(*e 2,' 27' 287 272 278
ite)est eCp= 371 '22 '10 '01 '11
e"#it- ic(*e:%(ss; -3, -80 -330 -1'8 -186
(the) ic(*e %(ss 113 86 ,7 86 76
P+t 7297 7,36 7'2' 7'19 7'60
ic(*e taC 167' 1733 1680 169, 1703
NET INCO>E ,623 ,80' ,7'' ,72' ,7,7
#roBeted ino$e state$ent for %e%si'
2009 2010 2011 2012 2013
et )e$e#e 39287 37966 37'63 38239 37890
C(/s 180,0 17283 17032 17',, 172,7
se%%i/&/ee)a% eCp= 1'273 13731 13,72 138,9 13720
a*()ta1ati( (4 ita/i+%e
assets 9, 10, 121 107 111
(pe)ati/ p)(4it 6869 68'7 6739 6818 6802
+(tta%i/ e"#it ic(*) '96 ,36 ,28 ,20 ,28
it=eCp -26' -2'2 -2'8 -2,2 -2'7
it=ic(*e 113 137 1'1 130 136
P2T 721' 7278 7160 7217 7218
TaC 1733 168' 1,88 1668 16'7
et ic(*e ,'81 ,,9' ,,72 ,,'9 ,,71
:0
O%earint" %rofit?
(or the year /,,0 operating profit for the cocacola is more than pepsi.cocacolaCs
profit is increasing every year but there has not been any major change in the profit of
pepsi.profit for cocacola in year /,,0 is 044= 9 mill.pepsiCs profit in the same year is
=6,/.there has been defference of 81 in the profit of both companies.
Net ino$e?
Cocacola is earning +=6 mill 9 more profit than pepsi which in 1 term +.44 1 more
than pepsi. &e can say that pepsi is earning very good profit though the assets of the
pepsi is less than cocacola, pepsi is having almost similar profit.
:5
>ei")ted A7era"e Cost of Ca%ita*
'll the financial figures utilized in the weighted average cost of capital computation
were derived from the companiesC +,-B reports and from )ahoo (inance, unless
otherwise noted

Common ;3uity#
+,-)ear T-bondS=./81
!FP 6,, returnS+/1
PepsiCo beta S,.6
Coca-Cola betaS,.=:
C'P* ;3uation# 7sS7rf T$7Pm%b
PepsiCo# 7sS=./8T$+/-=./8%,.6 S5.+:6
Coca-Cola# 7sS=./8T$+/-=./8%,.=: S5.05
@ong-Term 2ebt#
PepsiCo
debt# 4,/,:,,,,,,,, S :.61
Common stock# ++6,:=,,08=,=,, S5=.61
++5,6=:,08=,=,, S+,,1
Coca-Cola
debt# :,/88,,,,,,,, S /.41
Common stock# +:6,6+:,+4/,/,, S58.=1
+:0,85,,+4/,/,, S+,,1
PepsiCo &'CC#
&d7d T &ce7s
S.,:6$8.,1% T .5=6$5.+:61%
S5.,461
Coca-Cola &'CC#
&d7d T &ce7s
S .,/4$8.+1% T .58=$5.05%
S 5.081
4,
"tCs important to note here that neither PepsiCo nor Coca-Cola issue preferred stock,
so that component was not utilized in the &'CC computation. ' surprising discovery
was the low ta. rate for both of these corporations# /=1 for PepsiCo and //1 for
Coca-Cola. This may be attributed to lower ta. rates overseas, where these companies
derive a significant portion of their revenues from.
PepsiCoCs lower &'CC $5.+:61% versus Coca-ColaCs $5.051% gives it greater
latitude in selecting investment projects. PepsiCoCs lower &'CC will also result in
greater valuation for its stock. This has happened within the last +, years# "ts stock
price has climbed in value from 94,.0+ in +550 to its most recent price of 9=0./,.
Coca-Cola, meanwhile, seems to have suffered a reversal of fortune in the same time
frame. "ts stock price has declined from 980.:0 to its most recent price of 960.8/.
Conclusion and 7ecommendation
*y research reveals that the strongest candidate as an investment opportunity is
PepsiCo. The &'CC computation made the choice easier. Aevertheless, Coca-Cola is
a strong performer and is poised for a comeback. PepsiCo cannot rest on its laurels, if
it neglects any aspect of its core business it is bound to be overtaken by its eternal
rival.
4+
RATIO ANA+YSIS
Finania* Ratios
(inancial ratios are useful indicators of a firm-s performance and financial situation.
*ost ratios can be calculated from information provided by the financial statements.
(inancial ratios can be used to analyze trends and to compare the firm-s financials to
those of other firms. "n some cases, ratio analysis can predict future bankruptcy.
(inancial ratios can be classified according to the information they provide. The
following types of ratios fre3uently are used#
@i3uidity ratios
'sset turnover ratios
(inancial leverage ratios
Profitability ratios
2ividend policy ratios
+iCuidity Ratios
Liquidity ratios provide information about a firm-s ability to meet its short-term
financial obligations. They are of particular interest to those e.tending short-term
credit to the firm. Two fre3uently-used li3uidity 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 Ratio
@
Current Assets
Current +ia0i*ities
!hort-term creditors prefer a high current ratio since it reduces their risk. !hareholders
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. (or
e.ample, firms in cyclical industries may maintain a higher current ratio in order to
remain solvent during downturns.
Hne drawback of the current ratio is that inventory may include many items that are
difficult to li3uidate 3uickly and that have uncertain li3uidation values. The 3uick
ratio is an alternative measure of li3uidity that does not include inventory in the
current assets. The 3uick ratio is defined as follows#
Dui8 Ratio
@
Current Assets 2 In7entory
4/
Current +ia0i*ities
The current assets used in the 3uick ratio are cash, accounts receivable, and notes
receivable. These assets essentially are current assets less inventory. The 3uick ratio
often is referred to as the acid test.
(inally, the cash ratio is the most conservative li3uidity ratio. "t e.cludes all current
assets e.cept the most li3uid# cash and cash e3uivalents. The cash ratio is defined as
follows#
Cas) Ratio
@
Cas) E Mar8eta0*e Seurities
Current +ia0i*ities
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 Turno7er Ratios
'sset 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.
7eceivables turnover is an indication of how 3uickly the firm collects its accounts
receivables and is defined as follows#
Reei7a0*es Turno7er
@
Annua* Credit Sa*es
Aounts Reei7a0*e
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. "t is the accounts receivable balance divided by the average
daily credit sales, calculated as follows#
A7era"e Co**etion #eriod
@
Aounts Reei7a0*e
4:
Annua* Credit Sa*es = &5:
The collection period also can be written as#
A7era"e Co**etion #eriod
@
&5:
Reei7a0*es Turno7er
'nother major asset turnover ratio is inventory turnover. "t is the cost of goods sold in
a time period divided by the average inventory level during that period#
In7entory Turno7er
@
Cost of Goods So*d
A7era"e In7entory
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#
In7entory #eriod
@
A7era"e In7entory
Annua* Cost of Goods So*d = &5:
The inventory period also can be written as#
In7entory #eriod
@
&5:
In7entory Turno7er
Hther asset turnover ratios include fi.ed asset turnover and total asset turnover.
44
Finania* +e7era"e Ratios
(inancial leverage ratios provide an indication of the long-term solvency of the firm.
nlike li3uidity ratios that are concerned with short-term assets and liabilities,
financial leverage ratios measure the e.tent to which the firm is using long term debt.
The debt ratio is defined as total debt divided by total assets#
De0t Ratio
@
Tota* De0t
Tota* Assets
The debt-to-equity ratio is total debt divided by total e3uity#
De0t2to2ECuity Ratio
@
Tota* De0t
Tota* ECuity
2ebt ratios depend on the classification of long-term leases and on the classification
of some items as long-term debt or e3uity.
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#
Interest Co7era"e
@
E!IT
Interest C)ar"es
where ;>"T S ;arnings >efore "nterest and Ta.es
#rofita0i*ity Ratios
Profitability ratios offer several different measures of the success of the firm at
generating profits.
46
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.
"t is defined as follows#
Gross #rofit Mar"in
@
Sa*es 2 Cost of Goods So*d
Sa*es
Return on assets is a measure of how effectively the firm-s assets are being used to
generate profits. "t is defined as#
Return on Assets
@
Net Ino$e
Tota* 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. 7eturn on e3uity is defined
as follows#
Return on ECuity
@
Net Ino$e
S)are)o*der ECuity
4=
Di7idend #o*iy Ratios
2ividend policy ratios provide insight into the dividend policy of the firm and the
prospects for future growth. Two commonly used ratios are the dividend yield and
payout ratio.
The dividend yield is defined as follows#
Di7idend Yie*d
@
Di7idends #er S)are
S)are #rie
' high dividend yield does not necessarily translate into a high future rate of return. "t
is important to consider the prospects for continuing and increasing the dividend in
the future. The dividend payout ratio is helpful in this regard, and is defined as
follows#
#ayout Ratio
@
Di7idends #er S)are
Earnin"s #er S)are
Use and +i$itations of Finania* Ratios
'ttention should be given to the following issues when using financial ratios#
' 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.
*ost 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.
)ear-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. !uch changes may distort the value of the
ratio. 'verage values should be used when they are available.
7atios are subject to the limitations of accounting methods. 2ifferent accounting
choices may result in significantly different ratio value
48
Ratio Ana*ysis
To illustrate efficiency as a good investment choice, we will use data from the annual
reports of PepsiCo, Coca-Cola, for the fiscal year /,,0, in order to form comparative
ratios. To realize the values of the ratios, it is necessary to compare them with
benchmark values. Hne benchmark consists of similar firms in the same industry.
+iCuidity?
@i3uidity refers to a company-s ability to meet its re3uirements for cash. @i3uidity is
necessary to meet both e.pected and une.pected cash demands. 'll businesses need
li3uidity to operate. "nade3uate li3uidity can stunt growth and ultimately lead to
bankruptcy if debts cannot be repaid. ?owever, too much li3uidity can detract from
profits because li3uid assets are low returning investments. The standard measure of
li3uidity is the current ratio, calculated by dividing Gcurrent assetsG by Gcurrent
liabilitiesU. The current ratio for PepsiCo of +.+ indicates it is the more li3uid of coke,
and also performing better than the beverage industry with a +.,, figure. The ratios
for Coca-Coca is close to +.,,. ?owever, this is not the norm for high 3uality
company with easy access to capital markets to finance une.pected cash
re3uirements.
Pepsi Cocacola industry
Current ratio +.+ + +
#rofita0i*ity?
Two common measures of profitability are the net profit margin and the return on
assets ratios. ;ach provides a different perspective about the firm-s profits. To
measure the profitability of a company-s operations, you calculate the net profit
margin $AP*% by dividing Gnet incomeG with GsalesU. >oth entries come from the
income statement. Aet profit margin indicates the percentage of each dollar of sales
that the firm is able to flow to the bottom line as profit. AP* is a function of the price
of the product $which produces sales revenue% and efficiency of operations $cost of
goods sold%. ' firm selling a uni3ue product to a captive market may be able to
charge a premium price and thus generate greater AP*. Conversely, a firm selling a
generic product in a highly competitive market will have a low AP*. "t must be a
40
very efficient company, or it will not survive. The net profit margins of our / sample
firms illustrate these concepts. Coca-ColaCs AP* of 0.0 percent is low compared with
PepsiCoCs AP* of +=.= percent.This is due primarily to its proprietary product and
monopolies in certain foreign markets. PepsiCo derives the majority of its income
from lower margin snack foods and restaurants. @ess than half its sales come from
soft drinks.
The 7eturn on 'ssets ratio $7H'%, which is also known as the 7eturn on "nvestment
ratio, is calculated by dividing Gnet profitG by Gtotal assetsU. "t indicates the rate of
return provided by the book value of the company-s assets. The higher the 7H', the
more profitable the company is. Consistent with the AP*, PepsiCo has the highest
7H' with +6.0+ percent, making Coca-Cola-s +4.4= percent second. This reflects
PepsiCoCs ability to generate significant sales volume from its asset base.
Pepsi Cocacola "ndustry
Aet profit
margin
+,.= 5.0 0.,6
7eturn on assets +6.0+ +4.4= +,.58
Total asset turn
over
/ +.0+ /.:,
"nventory turn
over
8.5 6.4 /.+5
Tota* Asset Turno7er Ratio?
'nother indicator of a company-s ability to generate profits is the total asset turnover
ratio, calculated by dividing GsalesG by Gtotal assetsU. "t indicates how effectively the
company generates sales from its asset base. The more effective the company is in
generating sales revenue, the higher the asset turnover ratio will be. ?owever,
PepsiCo and Coca-Cola-s ratios are, /.,, and +.0+ respectively. these are driven
primarily by their high inventory turnover, and efficient use of fi.ed assets. Thus,
cokeCs low AP* is offset to some e.tent by its ability to generate sales from its asset
base $the company is a high volume, low overhead
producer%.
45
In7entory Turno7er Ratio?
(or companies that have a large investment in inventory, it is useful to calculate the
"nventory turnover ratio, which is the Gcost of goods soldG from the income statement
divided by the GinventoryG shown on the balance sheet. ' low turnover ratio indicates
too much investment in inventory. &hereas a high turnover ratio could cause lost
sales due to lack of merchandise to meet customer demand. PepsiCo-s is higher,This
reflects differences in their distribution methods, with Pepsi-s snack foods driving the
ratio higher than for typical merchandisers.
Finania* +e7era"e?
(inancial leverage is the use of fi.ed cost funds such as debt or preferred stock to
increase the common stockholder-s return. sing 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. Hne major factor is management-s willingness to accept financial risk. '
second factor is earnings predictability. Two debt ratios that were computed are the
debt to total assets ratio, or the Gdebt ratio,G and the e3uity multiplier.
De0t Ratio?
The 2ebt ratio is calculated as the sum of all the liability accounts divided by Gtotal
assets.G (or our four sample firms, the numerator is the sum of everything on the right
side of the balance sheet from Gcurrent liabilitiesG through Gdeferred income ta.esU.
's you can see for our firms, their debt ratios vary from PepsiCoCs 8+./ percent. &e
can conclude that Pepsi is using more financial leverage in the firm and thus is
e.posed to more financial risk than cocacola.
2ebt ratio 8+./ =4./ 6/
;3uity multiplier +.08 +.=/ +.66
The ;3uity multiplier is a similar calculation, determined by dividing Gtotal assetsG by
the
GCommon e3uityG account. "f a firm is totally financed by e3uity, the e3uity multiplier
will e3ual +.,,. The larger the number, the more highly leveraged is the firm.
6,
Consistent with the Gdebt ratio,G the e3uity multipliers of the / firms display that
Pepsi has the greatest amount of leverage, and cocacola has lower.
Return on ECuity?
*any would argue that the most important ratio to calculate for a company is its
return on e3uity $7H;%, which is Gnet income available to common stockholdersG
divided by Gcommon e3uityU. 7H; represents the rate of return the company earned
on the book value of its e3uity investment. The higher the number, the greater the
return the company
is earning for its shareholders. (or our companies, PepsiCo has the greatest 7H;,
:5.04 percent, which is an e.ceptionally high number. Coca-ColaCs is /0.8: percent.
>oth are relatively high compared with industry, which is e.tremely low compared to
the industryCs /0.=51 consensus.
7eturn on e3uity :5.04 /0.8: /0.=5
PepsiCo has an e.cellent 7H;. "t 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.
7eturn on
e3uity
Aet profit
margin
Total turn
over
;3uity
muliplier
Pepsi :5.=4 +,.= / +.0=
Cocacola /0.8: 5.0 +.0+ +.=/
6+
#rie=Earnin"s Ratio?
The PriceL ;arnings 7atio is used to gauge the relative value of a security in the light
of current market conditions. "t is determined by dividing the price of a share of stock
by its earnings per share for a +/-month period. !ometimes the PL; is referred to as
the GmultipleU because it shows how much investors are willing to pay per dollar of
earnings. PepsiCo has a high PL;, which means high projected earnings in the future,
in comparison to its competitors in the beverage industry.
pLe //.+= /+.8/ /:./4
#rie=Cas) F*o4?
The PriceL Cash (low is calculated by dividing the closing price with the cash flow
per share from the last +/ months. 'n alternative to the PL; ratio, this ratio removes
depreciation and other non-cash charges from the e3uation. 'nother advantage of the
PriceLCash (low ratio is that it makes it easier to analyze various companies across
the board. 's displayed above, Coca-Cola has the most efficient PriceLCash (low
ratio than PepsiCoCs +8./0 ratios, which displays that three of the four companies
have ample money available to spend on research and development, to e.pand
operations, and to pay dividends to investors.
PriceLcash flow +8./0 /+.+4 +/.6
Gross #rofit Mar"in Ratio?
The <ross Profit *argin ratio indicates how efficiently a business is using its
materials and labor in the production process. "n other words, gross margin is e3ual
to gross income divided by net sales, and is e.pressed as a percentage. Coca- Cola
and PepsiCo have the highest gross profit margin values of =:.=0 and 6:.=8. >oth are
outperforming the industry, which indicates that the companies can make a reasonable
profit on sales, as long as it keeps overhead costs in control.
6/
<ross margin 6:.=8 =:.=0 4:
Tota* De0t2ECuity Ratio?
Total debt-e3uity ratio is the ratio of a company-s long-term liabilities to its e3uity.
cocacola has the higher level of debt, making it very important for the company to
have positive earnings and steady cash flow. 2ebt in and of itself is not harmful, but it
does re3uire the timely payout of interest to debt holders. PepsiCo has the chances of
defaulting on debt.
Earnin"s %er S)are?
;arnings per share is the proportionate amount of a company-s profit, or earnings, for
each outstanding share of common stock. "t is calculated as net income minus
dividends divided by average outstanding shares. This is the single most popular
variable in dictating a share-s price. ;P! indicates the profitability of a company.
PepsiCo, Coca- Cola are outperforming the industry average of +.6/.
;P! +.06 +.= +.6/
2ebt to e3uity .: .46 .=:
@ong term debt to
total e3uity
./: ./4 .8=
6:
Return on Sa*es?
This ratio is a measure of profitability e.pressed as a percent of sales. "t is the usual
definition of percent profit. The calculation is net income divided by net sales. "t can
help you determine if you are making enough of a return on your sales effort. "f your
company is e.periencing a cash flow crunch, it could be because its mark-up is not
enough to cover e.penses. 7eturn on sales can help point this out, and allow you to
adjust prices for an ade3uate profit. 'lso, be sure to look for trends in this figure. "f it
appears to be dropping over time, it could be a signal that you will soon be
e.periencing financial problems. Coca-Cola has the highest 7eturn on !ales ratio,
/,.:/, detecting operational efficiency, accompanied by PepsiCoCs +:.+5 ratio.
7eturn on sales +:.+5 /,.:/ +,.6+
64
Con*usion
#e%si Co'?
- current ratio is high V short-term solvency is favorable
- greater volatility in ratios
- greatly reduces 2L; ratio
- increases T"; ratio V solvency
- shorter days sales of inventory period V better inventory management
- increases slightly asset turnover
- capital intensity increases V better capital utilization to realize sales
- profit margin increases significantly
- >oth 7H' and 7H; increase significantly and even e.ceed those of Coca
Cola Co.
Coa Co*a Co'?
- Current ratio is slightly increasing, under that of Pepsi Co.
- low volatility in ratios
- stable 2ebt ratios
- decreases T"; ratio V lowers ability to cover interest e.penses
- !ignificantly high inventory turnover V not as good inventory management as
Pepsi Co.
- improvement in asset turnover
- capital intensity increases slightly
- profit margin decreases sharply
- >oth 7H' and 7H; decrease greatly, starting around +550 and reach a stage
below those of Pepsi Co.
"n 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, Coca Cola Co. These changes are evidence for the stable positioning of
Pepsi Co. and their increase in market share compared to that of Coca Cola Co.
Therefore, the comparative ratio analysis of the two competing companies supports
the conclusion that Pepsi Co. is doing better within its internal operations and market
penetration. Thus, Pepsi Co. would be the more profitable investment
66
Anne9ure
!A+ANCE SHEET OF COCA2CO+A.
PERIOD ENDING 31-Dec-08 31-Dec-07 31-Dec-06
Assets
Current Assets
Cash And Cash Equivaents !"701"000 !"0#3"000 $"!!0"000
%h&rt 'er( Invest(ents $78"000 $1)"000 1)0"000
Net Receiva*es 3"0#0"000 3"317"000 $"70!"000
Invent&r+ $"187"000 $"$$0"000 1"6!1"000
Other Current Assets 1"#$0"000 $"$60"000 1")06"000
'&ta Current Assets 1$"176"000 1$"10)"000 8"!!1"000
,&n- 'er( Invest(ents )"77#"000 7"777"000 6"783"000
Pr&.ert+ Pant and Equi.(ent 8"3$6"000 8"!#3"000 6"#03"000
G&&d/i !"0$#"000 !"$)6"000 1"!03"000
Intan-i*e Assets 8"!76"000 7"#63"000 3"73$"000
Accu(uated A(&rti0ati&n - - -
Other Assets 1"733"000 $"67)"000 $")33"000
De1erred ,&n- 'er( Asset Char-es - - 168"000
'&ta Assets !0")1#"000 !3"$6#"000 $#"#63"000
,ia*iities
Current ,ia*iities
Acc&unts Pa+a*e 6"1)$"000 7"173"000 )"6$$"000
%h&rt2Current ,&n- 'er( De*t 6")31"000 6"0)$"000 3"$68"000
Other Current ,ia*iities 30)"000 - -
'&ta Current ,ia*iities 1$"#88"000 13"$$)"000 8"8#0"000
,&n- 'er( De*t $"781"000 3"$77"000 1"31!"000
Other ,ia*iities 3"!01"000 3"133"000 1"873"000
De1erred ,&n- 'er( ,ia*iit+ Char-es 877"000 1"8#0"000 608"000
3in&rit+ Interest - - 3)8"000
Ne-ative G&&d/i - - -
'&ta ,ia*iities $0"0!7"000 $1")$)"000 13"0!3"000
6=
CASHF+O> OF COCACO+A
PERIOD ENDING 31-Dec-08 31-Dec-07 31-Dec-06
Net Inc&(e )"807"000 )"#81"000 )"080"000
O.eratin- Activities" Cash 4&/s Pr&vided 5+ &r 6sed In
De.reciati&n 1"$$8"000 1"163"000 #38"000
Ad7ust(ents '& Net Inc&(e 1"$$!"000 - ))!"000
Chan-es In Acc&unts Receiva*es 1!8"000 8!06"0009 8$1!"0009
Chan-es In ,ia*iities 873!"0009 #1!"000 8##"0009
Chan-es In Invent&ries 816)"0009 8$)8"0009 81)0"0009
Chan-es In Other O.eratin- Activities 63"000 8$!!"0009 81)$"0009
'&ta Cash 4&/ 4r&( O.eratin- Activities 7")71"000 7"1)0"000 )"#)7"000
Investin- Activities" Cash 4&/s Pr&vided 5+ &r 6sed In
Ca.ita E:.enditures 81"#68"0009 81"6!8"0009 81"!07"0009
Invest(ents 8$!0"0009 3!#"000 ))8"000
Other Cash1&/s 1r&( Investin- Activities 81))"0009 8)"!$0"0009 88)1"0009
'&ta Cash 4&/s 4r&( Investin-
Activities
8$"363"0009 86"71#"0009 81"700"0009
4inancin- Activities" Cash 4&/s Pr&vided 5+ &r 6sed In
Dividends Paid 83")$1"0009 83"1!#"0009 8$"#11"0009
%ae Purchase &1 %t&c; 8!#3"0009 8$1#"0009 8$"$68"0009
Net 5&rr&/in-s $#"000 !"3!1"000 81"!0!"0009
Other Cash 4&/s 1r&( 4inancin-
Activities
- - -
'&ta Cash 4&/s 4r&( 4inancin-
Activities
83"#8)"0009 #73"000 86")83"0009
E11ect O1 E:chan-e Rate Chan-es 861)"0009 $!#"000 6)"000
Chan-e In Cash and Cash Equivaents <608"000 <1"6)3"000 8<$"$61"0009
68
INCOME STATEMENT OF COCACO+A
.
C(cac(%a 2006 2007 2008
NET Oi )e$e#ePe)at 2'088 288,7 319''
c(st (4 /((!s s(%! 816' 10'06 1137'
G)(ss p)(4it 1,92' 18',1 20,70
SE..ING GENERA. AND
a!*iist)ati$e eCp 9'31 109', 1177'
Othe) (pe)ati/ cha)e/es 18, 2,' 3,0
(pe)ati/ ic(*e 6308 72,2 8''6
ite)st ic(*e 193 236 333
ite)est eCp= 220 ',6 '38
e"#it- ic(*e:%(ss; 102 668 -87'
Othe) ic(*e %(ss 19, 173 -28
P+t 6,78 7873 7'39
Ic(*e taC 1'98 1892 1632
NET INCO>E ,080 ,981 ,807
60
EDUITY OF COCACO+A
%t&c;h&ders= Equit+
>isc St(c9s Opti(s Aa))ats - - -
Re!ee*a+%e P)e4e))e! St(c9 - - -
P)e4e))e! St(c9 - - -
C(**( St(c9 880&000 880&000 878&000
Retaie! Ea)i/s 38&,13&000 36&23,&000 33&'68&000
T)eas#)- St(c9 :2'&213&000; :23&37,&000; :22&118&000;
Capita% S#)p%#s 7&966&000 7&378&000 ,&983&000
Othe) St(c9h(%!e) E"#it- :2&67'&000; 626&000 :1&291&000;
'&ta %t&c;h&der Equit+ $0"!7$"000 $1"7!!"000 16"#$0"000
Net 'an-i*e Assets <7"#67"000 <#")$)"000 <11"78)"000
65
!A+ANCESHEET OF #E#SI CO'
Assets
Current Assets
Cash And Cash Equivaents #66"000 6!7"000 6$#"000
%h&rt 'er( Invest(ents - - -
Net Receiva*es 1"371"000 1")$0"000 1"33$"000
Invent&r+ )$8"000 )77"000 )33"000
Other Current Assets $76"000 3!$"000 $))"000
'&ta Current Assets 3"1!1"000 3"086"000 $"7!#"000
,&n- 'er( Invest(ents 61#"000 - -
Pr&.ert+ Pant and Equi.(ent 3"88$"000 !"080"000 3"78)"000
G&&d/i 1"!3!"000 1")33"000 1"!#0"000
Intan-i*e Assets 3"7)1"000 !"181"000 3"768"000
Accu(uated A(&rti0ati&n - - -
Other Assets 1))"000 $3)"000 13)"000
De1erred ,&n- 'er( Asset Char-es - - -
'&ta Assets 1$"#8$"000 13"11)"000 11"#$7"000
,ia*iities
Current ,ia*iities
Acc&unts Pa+a*e 1"67)"000 1"#68"000 1"37)"000
%h&rt2Current ,&n- 'er( De*t 1"!08"000 $!7"000 37!"000
Other Current ,ia*iities - - 30$"000
'&ta Current ,ia*iities 3"083"000 $"$1)"000 $"0)1"000
,&n- 'er( De*t !"78!"000 !"770"000 !"7)!"000
Other ,ia*iities 1"6)8"000 1"186"000 1"$0)"000
De1erred ,&n- 'er( ,ia*iit+ Char-es #66"000 1"3)6"000 1"$#3"000
3in&rit+ Interest 1"1!8"000 #73"000 )!0"000
Ne-ative G&&d/i - - -
'&ta ,ia*iities 11"63#"000 10")00"000 #"8!3"000
=,
CASH F+O> OF #E#SI'
>ie/? Annua Data@uarter+ Data A nu(*ers in th&usands
PERIOD ENDING $7-Dec-08 $#-Dec-07 30-Dec-06
Net Inc&(e 16$"000 )3$"000 )$$"000
O.eratin- Activities" Cash 4&/s Pr&vided 5+ &r 6sed In
De.reciati&n 673"000 66#"000 6!#"000
Ad7ust(ents '& Net Inc&(e )16"000 !0!"000 3$#"000
Chan-es In Acc&unts Receiva*es !0"000 8110"0009 81$0"0009
Chan-es In ,ia*iities 81$0"0009 1#!"000 86"000
Chan-es In Invent&ries 3"000 81#"0009 8)7"0009
Chan-es In Other O.eratin- Activities 10"000 8$33"0009 8181"0009
'&ta Cash 4&/ 4r&( O.eratin- Activities 1"$8!"000 1"!37"000 1"$$8"000
Investin- Activities" Cash 4&/s Pr&vided 5+ &r 6sed In
Ca.ita E:.enditures 8760"0009 88)!"0009 87$)"0009
Invest(ents - - -
Other Cash1&/s 1r&( Investin- Activities 8##8"0009 8$#"0009 86"0009
'&ta Cash 4&/s 4r&( Investin- Activities 81"7)8"0009 8883"0009 8731"0009
4inancin- Activities" Cash 4&/s Pr&vided 5+ &r 6sed In
Dividends Paid 8$08"0009 8130"0009 810#"0009
%ae Purchase &1 %t&c; 813#"0009 8$80"0009 838)"0009
Net 5&rr&/in-s 1"1#8"000 8168"0009 10!"000
Other Cash 4&/s 1r&( 4inancin-
Activities
81"0009 1!"000 1#"000
'&ta Cash 4&/s 4r&( 4inancin-
Activities
8)0"000 8)6!"0009 8371"0009
E11ect O1 E:chan-e Rate Chan-es 8)7"0009 $8"000 1"000
Chan-e In Cash and Cash Equivaents <31#"000 <18"000 <1$7"000
=+
INCOMESTATEMENT OF #E#SI'
Pepsi 2009 2010 2011
et )e$e#e '32,1 39'7' 3,137
C(/s 203,1 18038 1,762
se%%i/&/ee)a% eCp= 1,901 1'208 12711
a*()ta1ati( (4 ita/i+%e assets 6' ,8 162
(pe)ati/ p)(4it 693, 7170 6,02
2(tta%i/ e"#it ic(*) 37' ,60 ,,3
it=eCp -329 -22' -239
it=ic(*e '1 12, 173
P2T 7021 7631 6989
TaC 1879 1973 13'7
et ic(*e ,1'2 ,6,8 ,6'2
%t&c;h&ders= Equit+
>isc St(c9s Opti(s
Aa))ats
- - -
Re!ee*a+%e P)e4e))e!
St(c9
- - -
P)e4e))e! St(c9 - - -
C(**( St(c9 3&000 3&000 3&000
Retaie! Ea)i/s 3&130&000 3&12'&000 2&708&000
T)eas#)- St(c9 :2&703&000; :2&269&000; :2&017&000;
Capita% S#)p%#s 1&8,1&000 1&80,&000 1&7,1&000
Othe) St(c9h(%!e) E"#it- :938&000; :'8&000; :361&000;
'&ta %t&c;h&der Equit+ 1"3!3"000 $"61)"000 $"08!"000
Net 'an-i*e Assets 8<3"8!$"0009 8<3"0##"0009 8<3"17!"0009
=/
EDUITY OF #E#SI.
Fey ratios
#e%si oao*a Industry
Current ratio ('( ( (
Net %rofit
$ar"in
(1'5 -', ,'1:
Return on
assets
(:',( (.'.5 (1'-;
Tota* asset turn
o7er
6 (',( 6'&1
In7entory turn
o7er
;'- :'. 6'(-
De0t ratio ;('6 5.'6 :6
ECuity
$u*ti%*ier
(',; ('56 ('::
Return on
eCuity
&-',. 6,';& 6,'5-
%=e 66'(5 6(';6 6&'6.
#rie=as) f*o4 (;'6, 6('(. (6':
Gross $ar"in :&'5; 5&'5, .&
De0t to eCuity '& '.: '5&
+on" ter$ de0t
to tota* eCuity
'6& '6. ';5
E#S (',: ('5 (':6
Return on sa*es (&'(- 61'&6 (1':(
=:
!i0*io"ra%)y
#E#SICO >E!SITEG444'%e%sio'o$
COCACO+A >E!SITEG>>>'COCACO+A'COM
>>>'YAHOOFINANCE'COM
>>>'MORNINGSTAR'COM
>>>'!IGCHARTS'COM
COCACO+ INTERNATIONA+ INTERNA+ RE#ORT
#E#SICO INTERNATIONA+ INTERNA+ RE#ORT
>>>'SCRI!D'COM
>>>'AUTHORSTREAM'COM
=4

Ussama

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Ussama

Uploaded by

Copyright:

Available Formats

EXECUTIVE SUMMARY

You might also like