Sample Project 2

FINANCIAL ANALYSIS OF PEPSICO AND COCA-COLA
Financial Analysis of PepsiCo and Coca-Cola
A01
Accounting 6351, Spring 2010
Executive Summary
This report compares two dominant companies, PepsiCo and Coca-Cola, in soft
drink/beverage industry in order to recommend the better company for investment. The
introduction covers soft drink/beverage industry economics and different strategies employed by
each company. The financial analysis covers both companies common-size income statements
and balance sheets, comparative income statements and balance sheets, and various financial
statement ratios such as liquidity, capital structure and solvency, return on investment, operating
performance, asset utilization and market measures from year 2004 to year 2008. The
conclusions are drawn based upon results of financial analysis. A recommendation is given at the
end of the report.
Both PepsiCo and Coca-Cola are strong leaders in the highly profitable soft
drink/beverage industry. Coca-Cola owns the best-known brand worldwide, whereas PepsiCo
also has great brand-name reorganization but is more diversified than Coca-Cola. From year
2004 to year 2008, PepsiCo achieved slightly better growth rate in sales and net profit, whereas
Coca-Cola have maintained better profit margin with lower cost of sales. PepsiCo posed lower
short-term liquidity risk to its investors compared to Coca-Cola. Both companies exhibited low
long-term solvency risk with PepsiCos risk being slightly higher than Coca-Colas. PepsiCos
overall asset utilization was more efficient than Coca-Cola. Both companies experienced a
similar level of investors confidence and stock pricing. Both companies stocks are dividend
generating stocks, but Coca-Cola had higher dividend yield and dividend payout rate. CocaColas higher profit margin and dividends are certainly very attractive to a potential investor, but
PepsiCos growth potentials, business diversification, low short-term liquidity risk, low longterm solvency risk, good return on investment and efficient asset utilization definitely make the
companys stock a better investment choice.
Table of Contents
Introduction ....................................................................................................................................4
Soft Drink/Beverage Industry ...................................................................................................4
PepsiCo vs. Coca-Cola Strategies.............................................................................................4
Objectives .................................................................................................................................4
Financial Analysis ..........................................................................................................................5
Common-size Analysis .............................................................................................................5
Common-size Income Statement Analysis ........................................................................5
Common-size Balance Sheet Analysis ..............................................................................5
Comparative Analysis ...............................................................................................................7
Comparative Income Statement Analysis .........................................................................7
Comparative Balance Sheet Analysis ................................................................................7
Financial ratio analysis .............................................................................................................8
Liquidity ............................................................................................................................8
Capital Structure and Solvency .......................................................................................10
Return on Investment ......................................................................................................12
Operating Performance ....................................................................................................12
Asset Utilization ..............................................................................................................14
Market Measures .............................................................................................................16
Conclusions and Recommendation for Investment ..................................................................17
References .....................................................................................................................................20
Appendices ....................................................................................................................................21
Graded Project 1 ..........................................................................................................................31
Introduction
Soft Drink/Beverage Industry
The soft drink/beverage industry is dominated by two major competitors, PepsiCo and
Coca-Cola. The industry is highly profitable, with an average return on assets rate of 14.70%,
much higher than average return on assets rate for S&P 500 companies of roughly 7.00%. In
spite of market maturity and saturation during recent years in the United States, the growth in
international market is very strong and promising. Both PepsiCo and Coca-Cola had large market
shares, dominated distribution channels, well-established brand names and consumer loyalty.
And both companies possess their own secrete formulas. All of these serve as entry barriers that
make it very difficult for a new company to enter soft drink/beverage industry. These high entry
barriers also protect the profitability of the industry.
PepsiCo vs. Coca-Cola Strategies
The competition between PepsiCo and Coca-Cola is intense, but both companies have
successfully avoided price competition in order to maintain high profit margin. Instead, both
companies have focused on improving brand images through effective advertising efforts and
marketing campaigns, and reducing costs and expenses by improving quality of operation and
management. According to Bloomberg BusinessWeek, Coca-Cola remains the best globally
recognized brand across all industries for years, while PepsiCos brand ranked number 26 in year
2008. Thus, Coca-Cola is able to charge premiums for its syrup concentrates due to its larger
market shares and better brand-name recognition. In order to compete against Coca-Cola and
increase revenue, PepsiCo has diversified its businesses into other markets such as snacks, chips
and breakfast food, with its core business focusing on soft drink.
Objectives
The main objectives of this report are to compare two major players in soft
drink/beverage industry, PepsiCo and Coca-Cola, and to make recommendation for investment.
The analysis will be made based on each companys common-size income statement, commonsize balance sheet, comparative income statement, comparative balance sheet and financial
statement ratios from year 2004 to year 2008.
Financial Analysis
Common-size Analysis
Common-size Income Statement Analysis
The common-size income statement shows PepsiCos cost of sales to sales percentage
rose slightly from 43.31% in year 2004 to 47.05% in year 2008 with a five-year average of
44.89%. Coca-Colas five-year average cost of sales to sales percentage was only 35.26%, much
lower than PepsiCo. Coca-Cola was able to obtain higher gross profit margin with lower cost of
sales to sales percentage, the result of its stronger pricing power than PepsiCo and other soft
drink companies. Coca-Cola is able to charge premiums for its syrup concentrates due to its
larger market shares and better brand-name recognition in soft drink/beverage industry.
PepsiCos slightly increasing trend of cost of sales as a percentage of sales from year 2004 to
year 2007 should not be a concern, but there was a relatively larger increase to 47.05% in year
2008 from 45.70% in previous year. According to PepsiCos Management's Discussion and
Analysis, this was due to the unfavorable net mark-to-market impact of their commodity
hedges.
PepsiCo and Coca-Colas five-year average selling, general and administrative expenses
to sales percentages are 36.85% and 37.61% respectively. With only slightly higher selling,
general and administrative expenses as a percentage of sales than its rival PepsiCo, Coca-Cola
was able to maintain higher operating profit margin and net profit margin from its higher gross
profit margin. PepsiCos net profit margin averaged at 13.84%, 6.83% less than Coca-Colas
average net profit margin of 20.67%. In year 2008, PepsiCos profit margin decreased to
11.89%. According to PepsiCos Management's Discussion and Analysis, reduced profit margin
in year 2008 was caused by unfavorable net mark-to-market impact of their commodity hedges,
the absence of the tax benefits recognized in the prior year, their increased restructuring and
impairment charges and their share of Pepsi Bottling Group 's restructuring and impairment
charges.
Common-size Balance Sheet Analysis
On average, PepsiCos current assets made up 30.73% of its total assets, whereas the
companys short-term liabilities made up 24.70% of its total liabilities and shareholdersequity
from year 2004 to 2008. The companys short-term liabilities percentage fluctuated up and down
with its current assets percentage each year and always stayed at least 7% above. Apparently,
PepsiCo had enough cushion to cover its short-term liabilities from it current assets. Coca-Cola,
on the other hand, exhibited slightly higher short-term liabilities percentage than current assets
percentage in the most recent three years. This could be a warning sign that the company
experienced some degree of difficulties to cover its short-term liabilities.
Among its current assets, PepsiCos accounts and notes receivable to total assets
percentage went up from 10.28% in year 2005 to 13.01% in 2008, due to increased collection
period of the companys accounts and notes receivable. PepsiCo inventories to total assets
percentage also went up from 5.34% in year 2005 to 7.01% in year 2008, caused by increased
number of days to sell its inventories. Increased accounts and notes receivable and increased
inventories as percentages of total assets should raise some concerns and thus need to be
analyzed further with liquidity ratios and asset utilization ratios to decide whether these are
warning signs of the companys financial health or mostly caused by other current or non-current
assets decreasing over those years.
Among its short-term liabilities, PepsiCos accounts payable to its total liabilities and
shareholdersequity went up from 18.82% in year 2005 to 22.98% in year 2008, indicating the
company could have been extending its accounts payable outstanding period slightly to leverage
off the effect of increasing accounts and notes receivable percentage to its total assets.
PepsiCos property, plant and equipment made up 30.73% of its total assets on average
from year 2004 to year 2008, indicating the company is not capital intensive. PepsiCo and its
rival Coca-Cola had always contracted out their more capital intensive bottling operations to
their affiliated bottlers. Coca-Cola operated on an even lower average property, plant and
equipment percentage, only 20.48% to its total assets.
PepsiCos long-term debt obligations to total liabilities and shareholdersequity
percentage was steady from year 2004 to year 2006 with an average of 8.12% but increased
sharply to 12.14% in year 2007 and 21.83% in year 2008, indicating the company relied much
more heavily on long-term debt to finance its property, plant and equipment growth in addition
to other sources of financing in the most recent two years. The sharp increase in long-term debt
accompanied by decreased stock price during economic downturn in year 2008 led to more
liabilities than shareholdersequity, 66.37% and 33.90% respectively. This exposed PepsiCo to a
certain degree of risk to fulfill its long-term debt obligations. Further analysis of long-term
solvency ratios is needed to determine the severity of this higher total liabilities percentage.
Comparative Analysis
Comparative Income Statement Analysis
PepsiCos sales growth rate averaged at 9.92% each year from year 2004 to year 2008.
But cost of sales grew 11.74% yearly on average. The faster growth of cost than sales lowered
the companys gross profit growth rate to an average of 8.45% yearly and operating profit
growth rate to an average of 7.89% yearly. The companys yearly growth rate of selling, general
and administrative expenses averaged at 9.44%, slightly slower than average sales growth rate.
From year 2004 to 2007, PepsiCo maintained its selling, general and administrative expenses
growth rate below sales growth rate to protect its operating profit margin. Unfortunately, in year
2008, the companys selling, general and administrative expense grew 11.92% but sales only
grew 9.57%. This, together with 12.82% rising cost, caused PepsiCos operating profit to
decrease by 3.28% in year 2008. The combination of decreased bottling equity income by
33.21% and other unfavorable conditions in interest expense and interest income negatively
impacted and reduced PepsiCos net profit by 9.12% from previous year 2007. PepsiCo also
posted reduced net profit by 3.18% in year 2005, but operating profit rose a healthy 13.79%. The
major impact of reduced net profit in year 2005 was due to a large increase in provision for
incomes taxes by 67.93%.
Coca-Cola was able to grow its sales every year by an average rate of 9.05% from year
2004 to year 2008, slightly slower than PepsiCo. But Coca-Cola maintained its yearly cost of
sales growth rate, 8.37% on average, below its sales growth rate. This could indicate that CocaCola was successful in controlling its raw ingredients cost either by buying with lower price or
by effective commodity hedging. Coca-Colas net profit grew 6.22% yearly on average, slower
than PepsiCos 8.88%.
Comparative Balance Sheet Analysis
PepsiCos five-year average total current assets growth rate was 10.13%, higher than its
average total short-term liabilities growth rate of 8.77%, consistent with the common-size
analysis of the companys capability to cover short-term liabilities with its current assets. Its rival
Coca-Colas higher average short-term liabilities growth rate of 13.38% than its average current
assets growth rate of 11.22% was also consistent with the common-size analysis of the
companys higher risk in short-term liabilities coverage.
PepsiCos account and notes receivable grew 10.69% on average each year, faster than its
average sales growth rate of 9.92%. This could indicate a slight increase in number of days it
takes for the company to collect from its customers. With an average growth rate of 12.36%
yearly, PepsiCos inventories also grew fast than its sales. This could be the result of an increase
in number of days needed to sell its inventories over years.
On average, PepsiCos property, plant and equipment grew 8.40% yearly, supporting its
average sales growth rate of 9.05%. But long-term debt grew 39.87% on average each year. The
debt seemed to grow too fast in effort to finance its property, plant and equipment growth. This
shows PepsiCo relied more and more heavily on debt financing toward year 2008.
PepsiCos total liabilities growth rate averaged at 13.69%, whereas total liabilities and
shareholder equity growth rate only averaged at 7.57%. This also signals the companys
elevated long-term solvency risk.
Financial ratio analysis
Liquidity
Current Ratio and Acid-test Ratio
PepsiCos five-year average current ratio of 1.25 and acid-test ratio of 0.89 were better
than Coca-Colas 0.99 and 0.66, indicating PepsiCo had a larger margin of short-term assets to
cover its short-term liabilities and thus was less risky in short-term liquidity.
PepsiCos current ratio from year 2004 to year 2008 always stayed well above 1.0. A
current ratio under 1.0 suggests a company experiencing possible difficulties meeting its shortterm obligations and having a high level of potential liquidity risk. Thus, PepsiCo did not have
much short-term liquidity risk. The trend of PepsiCos acid-test ratio was consistent with the
trend of its current ratio, indicating its inventory level remained relatively stable over years.
The five-year average current ratio of Coca-Cola was roughly 1 (0.99). This should raise
some concerns whether the company was in good financial health to pay off its short-term
obligations. The trend showed that current ratio of the company decreased from 1.10 at the end
of year 2004 to 0.92 at the end of year 2007. There was a slight increase to 0.94 at the end of
year 2008 from the previous year. Considering Coca-Cola as a solid company with a 9.05%
average sales growth rate and a 6.22% average net income growth rate each year, we can
speculate that the company was well aware its short-term financial health and would make an
effort to bring its current ratio above 1 in order to reduce its short-term liquidity risk. As a matter
of fact, Coca-Colas current ratio did increase dramatically in year 2009 to 1.28 at the year end.
But the effort made to improve current ratio should not be the only reason of such a large
increase. Another factor of this dramatic increase in current ratio could be recession in year 2009
when the company experienced some degree of difficulties in selling its inventories or collecting
cash from accounts receivable. The trend of acid-test ratio of Coca-Cola highly correlated with
the trend of its current ratio, decreasing from 0.81 at the end of year 2004 to 0.58 at the end of
year 2007, followed by a slight increase to 0.62 at the end of year 2008. Further increase of acidtest ratio to 0.9 in year 2009 supports the speculation of Coca-Cola making an effort to improve
financial health by increasing its current assets to current liabilities ratio.
Collection Period
The collection period measures how many days that accounts receivable are outstanding.
PepsiCo and Coca-Cola had similar collection period, 36.70 and 36.59 on average respectively.
Both companies had longer collection period than 30 days. PepsiCo and Coca-Cola sell syrup
concentrates mainly to their bottling companies rather than directly through retail channels. This
allows both companies to grant their business partners more favorable payment terms than
average. The collection period was relatively steady with a very slight increasing trend from year
to year for both companies. The healthy business cycle and relationship with their major
customers, bottling companies, made this minor fluctuation less of a concern as the collection
period stayed within a certain range. Overall, the collection period was stable and predictable.
Days to Sell Inventory
PepsiCo held inventories much shorter than Coca-Cola. The five-year average of 66.36
days to sell inventory for Coca-Cola was 23.99 days longer than the average of 42.37 days for
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PepsiCo. One major factor could be that PepsiCo had more efficient inventory control than
Coca-Cola. Another factor could be the shorter shelf life of PepsiCos diversified product lines
of snacks and chips other than soft drinks. With similar collection period between PepsiCo and
Coca-Cola, the larger number of days it took Coca-Cola to sell its inventories translated into the
longer period required from working capital financing. Apparently, PepsiCo managed its
inventories more efficiently and turned its inventories into sales faster than Coca-Cola.
One possible adverse effect of less number of days to sell inventory is that the shorter
holding period of inventories could indicate shortage of inventories on hand. This was not a
concern for either PepsiCo or Coca-Cola.
Days to sell inventory for PepsiCo maintained relatively steady around its five-year
average with a slight increase from 41.63 days in year 2005 to 43.15 days in year 2008. But
Coca-Cola experienced relatively larger increase in number of days to sell inventory, gapped up
from 62.33 days in year 2005 to 67.51 days in year 2006 and from 67.71 days in 2007 to 70.17
days in 2008. This increasing trend was another indicator that Coca-Colas inventory control was
less effective than PepsiCos.
Capital Structure and Solvency
Total Debt to Equity Ratio and Long-term Debt to Equity Ratio
PepsiCos five-year average of total debt to equity ratio was 1.24. On average, Pepsi had
more debt financing than equity financing. Coca-Cola had a lower average total debt to equity
ratio of 0.90, which indicating the companys use of more equity financing than debt financing.
The long-term debt to equity ratio for PepsiCo averaged at 0.68, much higher than the 0.29
average long-term debt to equity ratio for Coca-Cola. PepsiCos higher debt to equity ratio put
the company in a riskier position in the times of rising interest rates.
PepsiCos debt to equity ratio increased sharply in year 2008. The economic downturn in
year 2008 that led to depression in year 2009 brought down the companys stock price
significantly. As shown in its comparative balance sheet, in order to finance the asset growth of
3.94% in year 2008, PepsiCo increased its debt borrowing by 37.33% from previous year. The
major source of this increase in debt borrowing was long-term. Thus, the decreased shareholders
equity and increased debt financing, especially long-term debt financing, raised PepsiCos debt
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to equity ratio in year 2008 significantly. Having a high 1.96 total debt to equity ratio and a 1.24
long-term debt to equity ratio, PepsiCo appeared to have experienced greater long-term solvency
risk in year 2008. With recession arrived in year 2009 and interest rate decreased to all-time low
through 2010, this higher debt to equity ratio should not be too much a cause of concern as long
as PepsiCo could manage to stop the increasing trend. In fact, PepsiCo did improve its debt to
equity ratio with a slight decrease in year 2009.
Coca-Cola, PepsiCos rivalry company, adopted a different strategy to deal with the
economic downturn in year 2008. Coca-Cola was able to stabilize its debt to equity ratio from
year 2004 to year 2008, with only slight increases in year 2007 and 2008. Coca-Colas
comparative balance sheet shows that with only 5.85% decrease in shareholders equity from
year 2007, the company did not have to increase debt borrowing when its assets decreased at a
slightly higher rate of 6.36% than shareholders equity. Coca-Cola was able to keep total debt to
equity ratio under 1.0, positioning the company at a less risky level regarding long-term capital
structure and solvency.
Times Interest Earned
Times interest earned ratio shows how well a company could cover its interest expense
on a pretax base. PepsiCo had a better five-year of average of 29.56 than Coca-Colas average of
25.75, indicating PepsiCo had enough operating profitability to cover its interest payments with a
slightly larger cushion than Coca-Cola. But, both companies times interest earned ratios were
well above 2.0, which is a margin value typically considered a warning sign of high long-term
solvency risk. Thus, both PepsiCo and Coca-Cola exhibited very low long-term solvency risk
considering each companys times interest earned ratio was at a very high level.
PepsiCo experienced decreases in times interest earned ratio in year 2005 and 2008,
mainly due to decreased profitability and increased debt level in those two years. These same
factors also caused sharp decrease in Coca-Colas times interest earned ratio from 30.90 in year
2006 to 18.27 and 17.98 in year 2007 and year 2008 respectively. The economic downturn in
2008 should play an important role in the decreased times interest earned ratio of that year for
both PepsiCo and Coca-Cola. But these ratios were well above 2.0. So it should not cause any
concern to be raised at this point other than this downward trend should be noted and
continuously monitored.
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Return on Investment
Return on Assets and Return on Common Equity
The return on assets ratio is an important profitability measure that shows how
successfully a company manages to generate earnings on every dollar of its assets independent of
sources of financing. PepsiCos five-year average return on asserts was 16.48%. Coca-Cola had a
five-year average return on asserts of 16.54%. Both were above soft drink/beverage industry
average of 14.70% with Coco-Cola slightly better than PepsiCo. With a 14.70% industry average
return on assets well above S&P 500 average of roughly 7.00%, soft drink/beverage industry is
highly profitable. Both PepsiCo and its rival Coca-Cola have large market shares in this highly
profitable soft drink/beverage industry and have developed consumer brand loyalty over years.
The return on common equity ratio is another important profitability measure that
indicates how effectively a company manages to generate earnings on its capital investments
provided by common shareholders. The return on common equity rate for both PepsiCo and
Coca-Cola were above soft drink/beverage industry average of 30.70%. A noticeable 21.00%
higher industry average return on common equity rate over S&P 500 average also indicated soft
drink/beverage industry is highly profitable. PepsiCo had a better average return on common
equity of 33.92% than Coca-Colas average of 30.29%. Apparently, PepsiCo was able to
generate more profit for its common stock investors. This made PepsiCo more attractive to a
potential investor by profitability measures.
Its worth noting that both PepsiCo and Coca-Colas profitability went down in year 2008
due to the economic downturn. The lower profitability in a time of economic downturn is highly
correlated with higher number of days to sell inventory, lower times interest earned ratio and
other financial ratio changes.
Operating Performance
Profit Margin Ratios
PepsiCos five-year average gross profit margin was 55.11%, much lower than its rival
Coca-Colas average of 64.74%. PepsiCos lower gross profit margin was a direct result of its
higher cost of sales to sales percentage. On their common-size income statements, PepsiCos
five-year average cost of sales to sales percentage was 44.89%, noticeably higher than the
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35.26% average cost of sales to sales percentage for Coca-Cola. One major contributing factor to
Coca-Colas lower cost of sales percentage was that Coca-Cola was able to charge premiums for
its syrup concentrates compared to Pepsi. Another factor could be Coca-Cola had always been
able to effectively lower the cost of raw ingredients by acquiring from suppliers with lower price
or by favorable commodity hedging. A third factor could be that PepsiCos diversified
businesses other than soft drink/beverage had lower gross profit margin in general.
By examining common-size income statements, PepsiCo and Coca-Cola had similar fiveyear average selling and administrative expenses as a percentage of sales. So operating profit
margin, pretax profit margin and net profit margin highly correlated with gross profit margin.
Coca-Cola was able to obtain higher net profit margin compared to PepsiCo by maintaining
lower cost of sales to sales percentage.
Its worth noting that PepsiCo did have a slightly lower five-year average selling and
administrative expenses to sales percentage of 36.85% than 37.61% for Coca-Cola. PepsiCos
slightly lower selling and administrative expenses and other miscellaneous expenses to sales
percentage helped to bring its profit margin a little closer to its rival, from 9.63% lagging behind
in gross profit margin to only 6.83% lagging behind in net profit margin on average.
Over years, PepsiCos gross profit margin decreased from 56.69% in year 2004 to
52.95% in year 2008, caused by increased cost of sales to sales percentage from 43.31% in year
2004 to 47.05% in year 2008. This should raise some concerns whether this trend could continue
in future years. On the other side, Coca-Colas gross profit margin had been relative steady with
well-maintained cost of sales to sales percentage.
By decreasing selling and administrative expenses to sales percentage from 37.70% in
year 2004 to 35.99% in year 2007 with a slight increase to 36.76% in year 2008, PepsiCos
operating profit margin and pretax profit margin from year to year was steady without declining
trend. The changes of income taxes percentage over years caused PepsiCos yearly net profit
margin to fluctuate a little bit. The lower profit margin in year 2008 was consistent with the
economic downtown started from that year.
Coca-Cola was able to maintain its gross profit margin in a relatively steady level year
after year with only a slight increase in year 2006. The decreased cost of sales to sales percentage
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in year 2006 was the reason for the slight increase in its gross profit margin. We dont have
enough information to find out why Coca-Cola could only bring down cost of sales to sales
percentage in that particular year but could speculate on very successful commodity hedging.
The overall trend of Coca-Colas gross profit margin as well as operating profit margin, pretax
profit margin and net profit margin were flat and steady with the exception of lower pretax profit
margin and net profit margin in year 2008. By examining its common-size balance sheet, the
economic downturn in year 2008 appeared to hurt profitability of Coco-Colas bottling company
and thus an equity loss of 2.74% to sales was posted to Coco-Colas balance sheet. The equity
loss in year 2008 brought down Coca-Colas pretax profit margin and net profit margin.
Asset Utilization
Cash Turnover
Cash turnover ratio indicates how efficient a company uses its cash and cash equivalents
to generate sales. PepsiCo had a much larger average cash turnover ratio of 26.08 than CocaColas average of 6.24, indicating PepsiCo used its cash much more efficiently to generate
revenue. Coca-Colas lower cash turnover was the result the company keeping a larger amount
of cash and cash equivalents that averaged at 13.30% of its total assets compared to PepsiCos
average 4.77%.
Over recent years, both companies improved efficiency of cash usage with the exception
of a slight decrease in year 2008 due to economic downturn. Pepsis cash turnover trended up
from 21.74 in year 2005 to 30.09 in year 2007, and Coca-Colas cash turnover trended up from
4.05 in year 2005 to 8.83 in year 2007.
Accounts Receivable Turnover
Accounts receivable turnover indicates how fast a company can collect cash from its
accounts receivable. It is inversely related to the liquidity measure of collection period discussed
above. PepsiCo and Coca-Cola had similar accounts receivable turnover, 9.95 and 9.98 on
average respectively. PepsiCo experienced a slight increase in accounts receivable turnover in
year 2005 followed by a slight decrease from 10.40 in year 2005 to 9.54 in year 2008. CocaColas accounts receivable turnover slightly increased in year 2005, trended down from year
2005 to year 2007, and followed by a slight increase in year 2008. Slightly slower accounts
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receivable turnover shouldnt be a concern for both companies as they sell mainly to their
bottling companies which allow them to grant better payment terms than average.
Inventory Turnover
Inventory turnover indicates how quickly a company can turn inventories into sales. It is
inversely related to the liquidity measure of days to sell inventory discussed above. PepsiCo had
faster inventory turnover of 8.62 on average than Coca-Colas 9.98 due to its more efficient
inventory control and shorter shelf life of its other products such as snacks and chips. Both
companies experienced slowdown of inventory turnover over years, most likely due to the
changes of average inventory turnover in soft drink/beverage industries. But PepsiCo appeared to
have better control over the decline of inventory turnover than Coca-Cola.
Working Capital Turnover
Working capital turnover indicates how efficiently a company can turn working capital
into sales. A companys working capital is calculated by total current assets minus total shortterm liabilities. When total short-term liabilities are less than total current assets, working capital
becomes negative and current ratio becomes less than 1.0, which could indicate the company has
trouble fulfilling its short-term liabilities. Coca-Cola apparently exhibited this risk in year 2006,
2007 and 2008. But the trend of negative working capital turnover reduced each of those years
with a dramatic improvement from -602.20 in year 2006 to -36.78 in year 2007, indicating the
company made efforts to improve the coverage of its short-term liabilities. In year 2004 and
2005, Coca-Colas working capital turnover was 26.23 and 30.46, better than those of PepsiCo.
But overall, PepsiCo maintained steady working capital turnover with a five-year average of
20.85, indicating the company was consistent in generating sales from the funding working
capital efficiently.
PPE Turnover
PPE turnover indicates how efficiently a company uses its property, plant and equipment
to generate sales. PepsiCo had a slight better average PPE ratio of 3.78 over 5 years than CocoColas 3.75, which could relate to its better inventory control system.
Total Assets Turnover
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Total assets turnover indicates how efficiently a company uses total assets to generate
sales. PepsiCo had a much better average total assets turnover of 1.16 over 5 years than CocoColas 0.77. This is consistent with previous analysis of other asset utilization turnover ratios
indicating PepsiCo was able to generate sales more efficiently from different types of assets than
Coca-Cola.
Market Measures
Price-to-earnings Ratio and Earnings Yield
PepsiCos five-year average price-to-earnings ratio was 20.30, slightly lower than CocaColas 21.34. This indicates Coca-Colas investors had slightly higher expectations to the
company from year 2004 to year 2008, and thus were willing to pay a little bit more to acquire
the companys stock. On the other hand, PepsiCos relatively lower price-to-earnings ratio
presented a good buying opportunity to a potential investor when the company demonstrated
better liquidity, return on investment and asset utilization than Coca-Cola.
Earnings yield is the inverse of price-to-earnings ratio. PepsiCos slightly higher fiveyear average earnings yield 4.96% than Coca-Colas 4.70% indicates PepsiCo generated a bit
more earnings than Coca-Cola on each dollar invested. This once again presented a good reason
to acquire PepsiCos stocks as it was properly priced in terms of earnings yield in those years.
Dividend Yield and Dividend Payout Rate
Coca-Cola delivered average dividend yield rate of 2.59% and dividend payout rate of
55.08%, whereas PepsiCo had relatively lower dividend yield rate of 1.99% and dividend payout
rate of 38.74% on average. It was definitely an added bonus to Coca-Colas investors to get
much more dividends out of their investments. But PepsiCos dividend yield and payout were
good and strong as well, even though Coca-Colas were much better.
Price-to-book
PepsiCos average price-to-book ratio was 6.86, slightly higher than Coca-Colas average
price-to-book ratio of 6.24. This measure indicates that PepsiCos investors paid slightly higher
price for its stocks due to relatively higher expectation on the company. PepsiCos price-to-book
jumped to 8.49 in 2008 due to investors confidence into the company.
17
Conclusions and Recommendation for Investment

Both PepsiCo and Coca-Cola are strong industry players in soft drink/beverage industry.
From year 2004 to year 2008, Coca-Colas sales grew 9.05% each year on average and net profit
grew 6.22% each year on average. PepsiCo achieved even better average sales growth rate of
9.92% yearly and average net profit growth rate of 8.88% yearly. As the soft drink/beverage
market approaches maturity and saturation, the rapid growth and potential strength in
international markets keep earnings strong for both companies.
With a common understanding to avoid price competition in order to protect profitability,
both companies spent a great deal of effort to boost their brand images domestically and
internationally through advertisement and effective marketing. Coca-Cola, possessing the best
recognized brand worldwide, incurred a lower average cost of sales to sales percentage of
35.26% compared to PepsiCos average 44.89%, by charging premiums for its syrup
concentrates and by reducing the cost of raw ingredients with the help of favorable commodity
hedging. Coca-Cola exhibited higher net profit margin than PepsiCo due to its lower cost of sales
to sales percentage. PepsiCos also experience a downward trend in its gross profit margin. But,
through slightly decreasing selling and administrative expenses to sales percentage, PepsiCo was
able to stabilize its profit margin and pretax profit margin from year to year without a declining
trend. Higher net profit margin certainly made Coca-Cola attractive to a potential investor, but it
should be noted that both companies were highly profitable even in the times of economic
downturn. And it also should be noted that PepsiCo was able to deliver slightly higher sales
growth rate and net profit growth rate from year 2004 to year 2008, which could make the
company a better candidate for potential growth.
PepsiCo, in an effort to battle its rival Coca-Cola, diversified its businesses into other
products such as snacks, chips and breakfast food with core business focusing on soft drinks. But
Coco-Cola has been staying primarily in soft drink/beverage industry. PepsiCos diversity is
directly related to lower business risk. This is certainly an added bonus to a potential investor.
PepsiCos current assets averaged 30.73% of its total assets, and short-term liabilities
averaged 24.70% of its total liabilities and shareholders equity. Thus, it had a healthy average
current ratio of 1.25. Coca-Colas current assets average of 31.99% and short-term liabilities
18
average of 32.22% presented an average current ratio of 0.99. Apparently, PepsiCo was more
liquid than Coca-Cola and thus posed a lower liquidity risk to its investors in terms of current
ratio as well as acid-test ratio. PepsiCos short-term finance remained healthy over years and did
not present much short-term liquidity risk, whereas Coca-Cola had a marginal current ratio
around 1.0 from year 2004 to 2008 that could raise some concerns about its ability to cover its
short-term obligations. In addition, PepsiCo had better inventory control than Coca-Cola and
was able to turn its inventories into sales much faster than Coca-Cola. Thus, PepsiCo could gain
favoritism from a potential investor in the measure of liquidity.
PepsiCo exhibited higher long-term solvency risk due to its higher debt to equity ratio of
1.24 and higher long-term debt to equity ratio of 0.68 on average, compared to Coca-Colas 0.90
and 0.29. But both companies long-term finances are within a healthy range. PepsiCo had better
coverage of its debt responsibilities than Coca-Cola by the measure of times interest earned ratio,
while both were well above the alarming margin value of 2.0. This better interest payments
coverage should slightly offset the concern about PepsiCos elevated debt to equity ratios.
Overall, both PepsiCo and its rival Coca-Cola exhibited low long-term solvency risk with
PepsiCos risk being slightly higher than Coca-Colas because PepsiCo relied on more debt to
finance its continued growth than Coca-Cola. This could lead a potential investor to consider
lower long-term solvency risk as an added bonus to invest in Coca-Cola.
PepsiCo had a better average return on common equity of 33.92% than Coca-Colas
30.29%, whereas both companies had similar return on assets with Coca-Colas 16.54% average
only being slightly better. These results are consistent with both companies being major players
in highly profitable soft drink/beverage industry. With return on assets and return on common
equity being two major measurements of a companys profitability, PepsiCos higher return on
common equity could gain a certain degree of favoritism for the company from a potential
investor.
PepsiCo demonstrated more efficient asset utilization than Coca-Cola. PepsiCo had better
cash turnover, inventory turnover, working capital turnover, PPE turnover and total assets
turnover on average, and roughly the same account receivable turnover as Coca-Cola. PepsiCo
exhibited much more efficient cash usage towards revenue generation, with an average cash
turnover ratio of 26.08 compared to Coca-Colas average of 6.24. Coca-Cola kept a much larger
19
amount of cash and cash equivalents as 13.30% of its total assets, whereas PepsiCos cash to
total assets percentage only averaged at 4.77%. With a better inventory control system,
PepsiCos inventory turnover and PPE turnover were also better than Coca-Cola. PepsiCo
maintained a steady working capital turnover ratio averaged at 20.85. But Coca-Colas negative
but improving working capital turnover in year 2006 and 2007 should raise some concerns.
Overall, PepsiCo should be a winner in terms of better asset utilization.
PepsiCo exhibited slightly lower investors confidence and slightly cheaper stock pricing
by the measure of price-to-earnings ratio and earnings yield but slightly higher investors
confidence and slightly more expensive stock pricing by the measure of price-to-book than
Coca-Cola. Overall, both companies are at a similar level in terms of investors confidence and
stock pricing. But it is noticeable that PepsiCos price-to-book had a big increase from 6.39 in
year 2007 to 8.49 in year 2008, indicating that the company experienced increasing investors
confidence over Coca-Cola. On the other hand, it clearly is an added bonus to Coca-Colas
investors that the company had much better dividend yield and dividend payout rate.
The analysis shows that both companies are strong leaders in the highly profitable soft
drink/beverage industry. PepsiCo is definitely a better investment choice if we keep a scoreboard
for both companies in terms of growth, diversity, operating performance, liquidity, capital
structure and solvency, return on investment, asset utilization and market measures.

References
Clyde P. Stickney, Paul Brown and James M. Wahlen (2006). Financial Reporting, Financial
Statement Analysis and Valuation. South-Western.
Investopedia (n.d.). Retrieved from http:// www.investopedia.com
Yahoo! Finance (n.d.). Retrieved from http://finance.yahoo.com
Yahoo! industry center (n.d.). Retrieved from http://biz.yahoo.com/ic
MSN Money (n.d.). Retrieved from http://moneycentral.msn.com
Google Finance (n.d.). Retrieved from http://www.google.com/finance
PepsiCo, Inc. and Subsidiaries. (February 19, 2009). Form 10-K.
The Coca-Cola Company and Subsidiaries. (February 26, 2009). Form 10-K.
The Coca-Cola Company and Subsidiaries. (March 4, 2005). Form 10-K.
20
21
Appendices
Table 1. PepsiCo Common-size Statement of Income
Common-size Statement of Income
PepsiCo, Inc. and Subsidiaries
Years 2008, 2007, 2006, 2005, 2004
(in percentage)
Net Revenue
Cost of sales
Selling, general and administrative expenses
Amortization of intangible assets
Restructuring and impairment charges sts
Operating Profit
Bottling equity income
Interest expense
Interest income
Income from Continuing Operations before Income Taxes
Provision for Income Taxes
Income from Continuing Operations
Tax Benefit from Discontinued Operations
Net Income
2008
100.00
47.05
36.76
0.15
16.03
0.86
(0.76)
0.09
16.23
4.34
11.89
11.89
2007
100.00
45.70
35.99
0.15
18.16
1.42
(0.57)
0.32
19.33
5.00
14.33
14.33
2006
100.00
44.86
36.18
0.46
18.50
1.57
(0.68)
0.49
19.89
3.83
16.06
16.06
2005
100.00
43.54
37.63
0.46
18.38
1.52
(0.79)
0.49
19.60
7.08
12.52
12.52
2004
100.00
43.31
37.70
0.50
0.51
17.97
1.30
(0.57)
0.25
18.95
4.69
14.26
0.13
14.39
5-Yr Avg.
100.00
44.89
36.85
0.34
0.10
17.81
1.34
(0.67)
0.33
18.80
4.99
13.81
0.03
13.84
22
Table 2. PepsiCo Common-size Balance Sheet

Common-size Balance Sheet
Years 2008, 2007, 2006, 2005, 2004
(in percentage)
ASSETS
Current Assets
Cash and cash equivalents
Short-term investments
Accounts and notes receivable, net
Inventories
Prepaid expenses and other current assets
Total Current Assets
Property, Plant and Equipment, net
Amortizable Intangible Assets, net
Goodwill
Other nonamortizable intangible assets
Nonamortizable Intangible Assets
Investments in Noncontrolled Affiliates
Other Assets
Total Assets
LIABILITIES AND SHAREHOLDERS EQUITY
Current Liabilities
Short-term obligations
Accounts payable and other current liabilities
Income taxes payable
Total Current Liabilities
Long-Term Debt Obligations
Other Liabilities
Deferred Income Taxes
Total Liabilities
Commitments and Contingencies
Preferred Stock, no par value
Repurchased Preferred Stock
Common Shareholders Equity
Common stock, par value 1 2/3 per share
(issued 1,782 shares)
Capital in excess of par value

Retained earnings
Accumulated other comprehensive loss
2008
2007
2006
2005
2004
5-Yr Avg.
5.73
0.59
13.01
7.01
3.68
30.02
32.40
2.03
14.24
3.13
17.37
10.79
7.38
100.00
2.63
4.54
12.67
6.61
2.86
29.31
32.42
2.30
14.93
3.60
18.53
12.57
4.86
100.00
5.52
3.91
12.45
6.44
2.20
30.50
32.37
2.13
15.35
4.05
19.40
12.33
3.27
100.00
5.41
9.98
10.28
5.34
1.95
32.95
27.36
1.67
12.88
3.42
16.31
10.98
10.73
100.00
4.57
7.74
10.72
5.51
2.34
30.87
29.12
2.14
13.97
3.33
17.30
11.73
8.84
100.00
4.77
5.35
11.82
6.18
2.60
30.73
30.73
2.05
14.27
3.51
17.78
11.68
7.02
100.00
1.03
22.98
0.40
24.41
21.83
19.49
0.63
66.37
21.95
0.44
22.39
12.14
13.84
1.87
50.23
0.92
21.70
0.30
22.92
8.52
15.45
1.76
48.65
9.11
18.82
1.72
29.65
7.29
13.63
4.52
55.08
3.77
20.01
0.35
24.13
8.56
14.65
4.34
51.68
2.96
21.09
0.64
24.70
11.67
15.41
2.62
54.40
0.11
(0.38)
0.12
(0.38)
0.14
(0.40)
0.13
(0.35)
0.15
(0.32)
0.13
(0.37)
0.08
0.98
85.12
(13.04)
73.14
0.09
1.30
81.39
(2.75)
80.03
0.10
1.95
82.98
(7.50)
77.53
0.09
1.94
66.56
(3.32)
65.27
0.11
2.21
66.92
(3.17)
66.07
0.09
1.67
76.59
(5.96)
72.41
(39.23)
33.90
100.00
(30.00)
50.03
100.00
(25.92)
51.61
100.00
(20.13)
45.14
100.00
(17.58)
48.49
100.00
(26.57)
45.83
100.00
Less: repurchased common stock, at cost

(229, 177, 144, 126 and 103 shares, respectively for 2008-2004)
Total Common Shareholders Equity

Total Liabilities and Shareholders Equity
23
Table 3. PepsiCo Comparative Statement of Income

Comparative Statement of Income
Years 2008, 2007, 2006, 2005, 2004
(in percentage)
Net Revenue
Cost of sales
Amortization of intangible assets
Restructuring and impairment charges sts
Operating Profit
Bottling equity income
Interest expense
Interest income
Income from Continuing Operations before Income Taxes
Provision for Income Taxes
Income from Continuing Operations
Tax Benefit from Discontinued Operations
Net Income
2008
9.57
12.82
11.92
10.34
(3.28)
(33.21)
46.88
(67.20)
(7.99)
(4.76)
(9.12)
(9.12)
2007
12.34
14.44
11.78
(64.20)
10.27
1.27
(6.28)
(27.75)
9.19
46.47
0.28
0.28
2006
7.91
11.19
3.75
8.00
8.66
11.72
(6.64)
8.81
9.51
(41.54)
38.35
38.35
2005
11.28
11.85
11.07
2.04
(100.00)
13.79
30.26
53.29
114.86
15.07
67.93
(2.30)
(100.00)
(3.18)
2004
8.49
8.41
8.70
1.38
2.04
10.00
17.65
2.45
45.10
11.10
(3.65)
16.98
18.05
5-Yr Avg.
9.92
11.74
9.44
(8.49)
(19.59)
7.89
5.54
17.94
14.76
7.37
12.89
8.84
(20.00)
8.88
24
Table 4. PepsiCo Comparative Balance Sheet

Comparative Balance Sheet
Years 2008, 2007, 2006, 2005, 2004
(in percentage)
ASSETS
Current Assets
Short-term investments
Accounts and notes receivable, net
Inventories
Prepaid expenses and other current assets
Total Current Assets
Property, Plant and Equipment, net
Amortizable Intangible Assets, net
Goodwill
Other nonamortizable intangible assets
Nonamortizable Intangible Assets
Investments in Noncontrolled Affiliates
Other Assets
Total Assets
LIABILITIES AND SHAREHOLDERS EQUITY
Current Liabilities
Short-term obligations
Accounts payable and other current liabilities
Income taxes payable
Total Current Liabilities
Long-Term Debt Obligations
Other Liabilities
Deferred Income Taxes
Total Liabilities
Commitments and Contingencies
Preferred Stock, no par value
Repurchased Preferred Stock
Common Shareholders Equity
Common stock, par value 1 2/3 per share
(issued 1,782 shares)
Capital in excess of par value
Retained earnings
Accumulated other comprehensive loss
Less: repurchased common stock, at cost
(229, 177, 144, 126 and 103 shares, respectively for
2008-2004)
Total Common Shareholders Equity
Total Liabilities and Shareholders Equity
2008
2007
2006
2005
2004
5-Yr Avg.
126.81
(86.44)
6.70
10.13
33.60
6.45
3.87
(8.04)
(0.87)
(9.62)
(2.57)
(10.82)
58.03
3.94
(44.88)
34.16
17.83
18.90
50.84
11.18
15.91
24.96
12.52
2.97
10.52
17.99
71.63
15.70
(3.79)
(63.01)
14.23
13.76
6.31
(12.67)
11.59
20.19
12.38
11.60
12.21
5.88
(71.20)
(5.66)
34.06
46.24
8.74
9.86
(5.50)
21.01
6.53
(11.37)
4.58
16.40
6.86
6.12
37.49
13.36
56.10
83.32
5.97
9.14
(4.80)
24.66
4.10
(16.71)
2.98
7.36
3.79
12.47
9.22
10.50
33.66
2.85
10.69
12.36
16.09
10.13
8.40
1.80
6.32
5.74
6.16
6.33
21.04
7.57
8.83
(3.97)
13.34
86.96
46.43
(65.02)
37.33
(100.00)
17.03
67.78
13.02
64.82
3.63
22.35
19.45
(90.52)
8.79
(83.52)
(27.07)
10.25
6.96
(63.18)
(16.67)
174.10
6.64
451.52
39.31
(3.50)
5.46
17.93
20.82
78.34
7.40
(83.80)
5.25
40.83
0.59
(3.57)
7.52
12.38
9.74
69.60
8.77
39.87
12.62
(18.30)
13.69
0.00
4.55
0.00
10.00
0.00
9.09
0.00
22.22
0.00
42.86
0.00
17.74
0.00
(22.00)
8.71
393.07
(5.01)
0.00
(22.95)
13.48
(57.61)
19.42
0.00
(4.89)
17.62
113.30
12.06
0.00
(0.65)
12.74
18.85
11.98
0.00
12.77
17.35
(30.07)
21.08
0.00
(7.54)
13.98
87.51
11.91
35.96
(29.56)
3.94
33.89
12.16
15.70
21.47
7.87
(5.66)
29.82
5.51
13.36
45.73
14.09
10.50
33.37
2.01
7.57
25
Table 5. Coca-Cola Common-size Statement of Income

Common-size Statements of Income
The Coca-Cola Company and Subsidiaries
Years 2008, 2007, 2006, 2005, 2004
(in percentage)
NET OPERATING REVENUES
Cost of goods sold
GROSS PROFIT
Other operating charges
OPERATING INCOME
Interest income
Interest expense
Equity income (loss)net
Other income (loss)net
Gains on issuances of stock by equity method investees
INCOME BEFORE INCOME TAXES
Income taxes
NET INCOME
2008
100.00
35.61
64.39
36.86
1.10
26.44
1.04
1.37
(2.74)
(0.09)
23.29
5.11
18.18
2007
100.00
36.06
63.94
37.93
0.88
25.13
0.82
1.58
2.31
0.60
27.28
6.56
20.73
2006
100.00
33.89
66.11
39.15
0.77
26.19
0.80
0.91
0.42
0.81
27.31
6.22
21.09
2005
100.00
35.47
64.53
37.82
0.37
26.34
1.02
1.04
2.94
(0.40)
0.10
28.96
7.87
21.09
2004
100.00
35.30
64.70
36.29
2.21
26.21
0.72
0.90
2.86
(0.38)
0.11
28.62
6.32
22.29
5-Yr Avg.
100.00
35.26
64.74
37.61
1.06
26.06
0.88
1.16
1.16
0.11
0.04
27.09
6.42
20.67
26
Table 6. Coca-Cola Common-size Balance Sheet

Common-size Balance Sheets
Years 2008, 2007, 2006, 2005, 2004
(in percentage)
ASSETS
CURRENT ASSETS
Marketable securities
Trade accounts receivable, less allowances
Inventories
Prepaid expenses and other assets
TOTAL CURRENT ASSETS
INVESTMENTS
Equity method investments:
Coca-Cola Enterprises Inc.
Coca-Cola Hellenic Bottling Company S.A.
Coca-Cola FEMSA, S.A.B. de C.V.
Coca-Cola Amatil Limited
Other, principally bottling companies and joint ventures
Cost method investments, principally bottling companies
TOTAL INVESTMENTS
OTHER ASSETS
PROPERTY, PLANT AND EQUIPMENTnet
TRADEMARKS WITH INDEFINITE LIVES
GOODWILL
OTHER INTANGIBLE ASSETS
TOTAL ASSETS
LIABILITIES AND SHAREOWNERS EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses
Loans and notes payable
Current maturities of long-term debt
Accrued income taxes
TOTAL CURRENT LIABILITIES
LONG-TERM DEBT
OTHER LIABILITIES
DEFERRED INCOME TAXES
SHAREOWNERS EQUITY
Common stock, $0.25 par value
Capital surplus
Reinvested earnings
Accumulated other comprehensive income (loss)
Treasury stock
TOTAL SHAREOWNERS EQUITY
TOTAL LIABILITIES AND SHAREOWNERS EQUITY
2008
2007
2006
2005
2004
5-Yr Avg.
11.60
0.69
7.63
5.40
4.74
30.05
9.46
0.50
7.67
5.13
5.22
27.98
8.14
0.50
8.63
5.48
5.42
28.17
15.98
0.22
7.75
4.69
6.04
34.68
21.33
0.19
7.14
4.52
5.88
39.06
13.30
0.42
7.76
5.04
5.46
31.99
3.67
2.16
1.57
5.71
1.14
14.26
4.28
20.55
14.95
9.94
5.97
100.00
3.78
3.58
2.30
1.86
5.32
1.13
17.97
6.18
19.63
11.91
9.84
6.49
100.00
4.38
4.18
2.79
2.73
6.99
1.58
22.64
9.01
23.04
6.83
4.68
5.63
100.00
5.88
3.53
3.34
2.54
7.01
1.22
23.52
9.00
19.82
6.61
3.56
2.81
100.00
4.99
3.39
2.52
2.34
5.51
1.13
19.88
9.48
19.37
6.48
3.49
2.23
100.00
3.81
3.67
2.62
2.21
6.11
1.24
19.66
7.59
20.48
9.36
6.30
4.63
100.00
15.31
14.97
1.15
0.62
32.05
6.86
8.39
2.16
15.98
13.68
0.31
0.60
30.56
7.57
7.24
4.37
16.87
10.80
0.11
1.89
29.67
4.39
7.45
2.03
15.27
15.35
0.10
2.71
33.43
3.92
5.88
1.20
14.00
14.41
4.74
2.26
35.41
3.68
8.95
1.28
15.49
13.84
1.28
1.61
32.22
5.28
7.58
2.21
2.17
19.66
95.05
(6.60)
(59.76)
50.52
100.00
2.03
17.05
83.74
1.45
(54.02)
50.25
100.00
2.93
19.97
111.70
(4.31)
(73.82)
56.47
100.00
2.98
18.66
106.36
(5.67)
(66.76)
55.58
100.00
2.78
15.67
92.57
(4.29)
(56.06)
50.68
100.00
2.58
18.20
97.88
(3.88)
(62.08)
52.70
100.00
27
Table 7. Coca-Cola Comparative Statement of Income

Comparative Statements of Income
Years 2008, 2007, 2006, 2005, 2004
(in percentage)
NET OPERATING REVENUES
Cost of goods sold
GROSS PROFIT
Other operating charges
OPERATING INCOME
Interest income
Interest expense
Equity income (loss)net
Other income (loss)net
Gains on issuances of stock by equity method investees
INCOME BEFORE INCOME TAXES
Income taxes
NET INCOME
2008
10.70
9.30
11.48
7.57
37.80
16.46
41.10
(3.95)
(230.84)
(116.18)
(5.51)
(13.74)
(2.91)
2007
19.80
27.46
15.87
16.05
37.30
14.97
22.28
107.27
554.90
(11.28)
19.69
26.30
17.74
2006
4.26
(0.38)
6.81
7.92
117.65
3.66
(17.87)
(8.33)
(85.00)
(309.68)
(100.00)
(1.67)
(17.60)
4.27
2005
6.26
6.79
5.98
10.76
(82.29)
6.79
49.68
22.45
9.50
13.41
(4.17)
7.52
32.22
0.52
2004
4.24
(1.31)
7.55
8.28
(16.23)
9.14
(10.80)
10.11
52.96
(40.58)
200.00
13.23
19.77
11.50
5-Yr Avg.
9.05
8.37
9.54
10.12
18.84
10.20
16.88
25.51
60.30
(92.86)
19.17
6.65
9.39
6.22
28
Table 8. Coca-Cola Comparative Balance Sheet

Comparative Balance Sheets
Years 2008, 2007, 2006, 2005, 2004
(in percentage)
2008
2007
ASSETS
CURRENT ASSETS
14.85
67.75
Marketable securities
29.30
43.33
Trade accounts receivable, less allowances
(6.84)
28.22
Inventories
(1.49)
35.28
Prepaid expenses and other assets
(15.04)
39.25
TOTAL CURRENT ASSETS
0.59
43.41
INVESTMENTS
Equity method investments:
Coca-Cola Enterprises Inc.
(100.00)
24.77
Coca-Cola Hellenic Bottling Company S.A.
(4.00)
23.82
Coca-Cola FEMSA, S.A.B. de C.V.
(11.95)
19.28
Coca-Cola Amatil Limited
(20.84)
(1.35)
Other, principally bottling companies and joint ventures
0.56
9.83
Cost method investments, principally bottling companies
(5.12)
3.17
TOTAL INVESTMENTS
(25.69)
14.65
OTHER ASSETS
(35.21)
(0.96)
PROPERTY, PLANT AND EQUIPMENTnet
(1.97)
23.03
TRADEMARKS WITH INDEFINITE LIVES
17.58
151.98
GOODWILL
(5.33) 203.35
OTHER INTANGIBLE ASSETS
(13.99)
66.57
TOTAL ASSETS
(6.36)
44.41
LIABILITIES AND SHAREOWNERS EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses
(10.27)
36.80
Loans and notes payable
2.48
82.97
Current maturities of long-term debt
249.62
303.03
Accrued income taxes
(2.33) (54.50)
TOTAL CURRENT LIABILITIES
(1.79)
48.76
LONG-TERM DEBT
(15.14) 149.39
OTHER LIABILITIES
8.55
40.43
DEFERRED INCOME TAXES
(53.60) 210.86
SHAREOWNERS EQUITY
Common stock, $0.25 par value
0.00
0.23
Capital surplus
7.97
23.32
Reinvested earnings
6.29
8.27
Accumulated other comprehensive income (loss)
(527.16) (148.49)
Treasury stock
3.59
5.68
TOTAL SHAREOWNERS EQUITY
(5.85)
28.51
TOTAL LIABILITIES AND SHAREOWNERS EQUITY
(6.36)
44.41
2006
2005
2004
5-Yr Avg.
(48.10)
127.27
13.42
19.00
(8.72)
(17.29)
(29.91)
8.20
1.65
(2.89)
(3.84)
(16.90)
99.49
-49.17
7.32
13.42
17.7
46.27
20.82
31.79
8.75
12.67
5.87
11.22
(24.21)
20.40
(14.97)
9.22
1.60
31.39
(2.01)
2.00
18.38
5.09
34.00
103.74
1.82
10.33
(2.62)
23.99
1.63
18.98
1.41
10.72
(11.17)
(4.27)
(4.47)
(4.56)
17.95
(6.41)
24.52
13.39
17.51
12.88
2.12
13.06
12.89
-10.26
-0.1
2.93
6.61
-28.44
14.99
(12.92)
10.20
6.77
0.31
6.62
8.78
2.11
(11.12)
7.02
34.62
46.81
29.17
9.69
12.51
(28.40)
17.86
(28.86)
(9.62)
13.86
28.96
72.73
2.04
(0.29)
(98.12)
12.41
(11.65)
(0.26)
(38.52)
(12.44)
8.5
75.42
361.3
-23.1
41.17
-54.03
12.02
19.29
9.92
26.44
166.74
(19.27)
13.38
18.77
10.29
47.37
0.11
8.94
6.93
(22.65)
12.59
3.45
1.82
0.23
11.44
7.54
23.81
11.46
2.64
(6.41)
0.11
0.14
12.13
12.76
9.06
7.62
-32.43 (141.38)
11.05
8.87
13.09
8.37
14.99
9.69
29
Table 9. PepsiCo Financial Statement Ratios

Financial Statement Ratios
Years 2008, 2007, 2006, 2005, 2004
2008
Liquidity
Current ratio
Acid-test ratio
Collection period (in days)
Days to sell inventory
Total debt to equity
Long-term debt to equity
Times interest earned
Return on assets
Return on common equity
Gross profit margin
Operating profit margin (pretax)
Pretax profit margin
Net profit margin
Asset Utilization
Cash turnover
Accounts receivable turnover
Inventory turnover
Working capital turnover
PPE turnover
Total assets turnover
Market Measures
Price-to-earnings ratio
Earnings yield
Dividend yield
Dividend payout rate
Price-to-book
2007
2006
2005
2004
5-Yr Avg.
1.23
0.79
38.28
43.15
1.31
0.89
37.51
42.66
1.33
0.95
36.28
41.90
1.11
0.87
35.09
41.63
1.28
0.95
36.36
42.52
1.25
0.89
36.70
42.37
1.96
1.24
22.34
1.00
0.56
35.07
0.94
0.50
30.24
1.22
0.56
25.93
1.07
0.57
34.21
1.24
0.68
29.56
15.17%
34.83%
17.98%
34.53%
18.81%
37.91%
14.22%
29.24%
16.21%
33.08%
16.48%
33.92%
52.95%
16.03%
16.23%
11.89%
54.30%
18.16%
19.33%
14.33%
55.14%
18.50%
19.89%
16.06%
56.46%
18.38%
19.60%
12.52%
56.69%
17.97%
18.95%
14.39%
55.11%
17.81%
18.80%
13.84%
29.09
9.54
8.46
19.58
3.78
1.22
30.83
9.73
8.56
16.91
3.77
1.22
20.87
10.06
8.71
21.18
3.83
1.14
21.74
10.40
8.77
22.19
3.87
1.09
27.87
10.04
8.58
24.36
3.66
1.10
26.08
9.95
8.62
20.85
3.78
1.16
20.20
4.95%
2.51%
49.69%
8.49
19.63
5.09%
2.09%
39.08%
6.39
17.86
5.60%
1.90%
32.75%
6.52
22.87
4.37%
1.82%
40.33%
6.48
20.94
4.78%
1.66%
31.84%
6.41
20.30
4.96%
1.99%
38.74%
6.86
30
Table 10. Coca-Cola Financial Statement Ratios

Financial Statement Ratios
Years 2008, 2007, 2006, 2005, 2004
2008
Liquidity
Current ratio
Acid-test ratio
Collection period (in days)
Days to sell inventory
Total debt to equity
Long-term debt to equity
Times interest earned
Return on assets
Return on common equity
Gross profit margin
Operating profit margin (pretax)
Pretax profit margin
Net profit margin
Asset Utilization
Cash turnover
Accounts receivable turnover
Inventory turnover
Working capital turnover
PPE turnover
Total assets turnover
Market Measures
Price-to-earnings ratio
Earnings yield
Dividend yield
Dividend payout rate
Price-to-book
2007
2006
2005
2004
5-Yr Avg.
0.94
0.62
36.60
70.71
0.92
0.58
37.34
67.71
0.95
0.58
36.88
67.51
1.04
0.72
35.74
62.33
1.10
0.81
36.39
63.54
0.99
0.66
36.59
66.36
0.98
0.34
17.98
0.99
0.38
18.27
0.77
0.25
30.90
0.80
0.20
28.88
0.97
0.27
32.74
0.90
0.29
25.75
14.54%
27.51%
17.14%
30.94%
17.59%
30.53%
16.52%
30.18%
16.92%
32.29%
16.54%
30.29%
64.39%
26.44%
23.29%
18.18%
63.94%
25.13%
27.28%
20.73%
66.11%
26.19%
27.31%
21.09%
64.53%
26.34%
28.96%
21.09%
64.70%
26.21%
28.62%
22.29%
64.74%
26.06%
27.09%
20.67%
7.26
9.97
5.16
(33.07)
3.80
0.76
8.83
9.78
5.39
(36.78)
3.75
0.79
6.75
9.90
5.41
(602.20)
3.78
0.81
4.05
10.21
5.86
30.46
3.88
0.76
4.32
10.03
5.74
26.23
3.57
0.74
6.24
9.98
5.51
(123.07)
3.75
0.77
21.41
4.67%
2.83%
60.56%
6.08
20.77
4.81%
2.53%
52.51%
5.73
20.31
4.92%
2.83%
57.41%
6.08
20.96
4.77%
2.62%
54.90%
6.25
23.22
4.31%
2.15%
50.00%
7.07
21.34
4.70%
2.59%
55.08%
6.24
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FINANCIAL ANALYSIS OF PEPSICO AND COCA-COLA

Financial Analysis of PepsiCo and Coca-Cola

FINANCIAL ANALYSIS OF PEPSICO AND COCA-COLA

FINANCIAL ANALYSIS OF PEPSICO AND COCA-COLA

FINANCIAL ANALYSIS OF PEPSICO AND COCA-COLA

FINANCIAL ANALYSIS OF PEPSICO AND COCA-COLA

FINANCIAL ANALYSIS OF PEPSICO AND COCA-COLA

FINANCIAL ANALYSIS OF PEPSICO AND COCA-COLA

FINANCIAL ANALYSIS OF PEPSICO AND COCA-COLA

FINANCIAL ANALYSIS OF PEPSICO AND COCA-COLA

FINANCIAL ANALYSIS OF PEPSICO AND COCA-COLA

FINANCIAL ANALYSIS OF PEPSICO AND COCA-COLA

FINANCIAL ANALYSIS OF PEPSICO AND COCA-COLA

FINANCIAL ANALYSIS OF PEPSICO AND COCA-COLA

FINANCIAL ANALYSIS OF PEPSICO AND COCA-COLA

FINANCIAL ANALYSIS OF PEPSICO AND COCA-COLA

FINANCIAL ANALYSIS OF PEPSICO AND COCA-COLA

FINANCIAL ANALYSIS OF PEPSICO AND COCA-COLA

Conclusions and Recommendation for Investment

FINANCIAL ANALYSIS OF PEPSICO AND COCA-COLA

FINANCIAL ANALYSIS OF PEPSICO AND COCA-COLA

FINANCIAL ANALYSIS OF PEPSICO AND COCA-COLA

FINANCIAL ANALYSIS OF PEPSICO AND COCA-COLA

FINANCIAL ANALYSIS OF PEPSICO AND COCA-COLA

Table 2. PepsiCo Common-size Balance Sheet

Capital in excess of par value

Less: repurchased common stock, at cost

Total Common Shareholders Equity

FINANCIAL ANALYSIS OF PEPSICO AND COCA-COLA

Table 3. PepsiCo Comparative Statement of Income

FINANCIAL ANALYSIS OF PEPSICO AND COCA-COLA

Table 4. PepsiCo Comparative Balance Sheet

FINANCIAL ANALYSIS OF PEPSICO AND COCA-COLA

Table 5. Coca-Cola Common-size Statement of Income

FINANCIAL ANALYSIS OF PEPSICO AND COCA-COLA

Table 6. Coca-Cola Common-size Balance Sheet

FINANCIAL ANALYSIS OF PEPSICO AND COCA-COLA

Table 7. Coca-Cola Comparative Statement of Income

FINANCIAL ANALYSIS OF PEPSICO AND COCA-COLA

Table 8. Coca-Cola Comparative Balance Sheet

FINANCIAL ANALYSIS OF PEPSICO AND COCA-COLA

Table 9. PepsiCo Financial Statement Ratios

FINANCIAL ANALYSIS OF PEPSICO AND COCA-COLA

Table 10. Coca-Cola Financial Statement Ratios

FINANCIAL ANALYSIS OF PEPSICO AND COCA-COLA

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