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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-Colas revenues have been generally outpaced

by PepsiCos revenues with notable eception 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-Colas income is derived from 01 of its soft drink products, while

PepsiCos soft drinks are responsible for only /1 of its income. Clearly, PepsiCos

wide range of snack products serves to cushion the company from changing consumer

preferences. This is illustrated by the eplosive growth of the bottled water sector-a

lucrative sector for both companies $i.e., Coca-Colas 2asani and PepsiCos

'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 PepsiCos 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.

+

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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 countrys

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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 contet, the margins were also on the

higher side. &ith the gradual opening up of the economy over the last decade, (*Cradham,a young pharmacist from Aew >ern,

Aorth Carolina, begins eperimenting 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>rads drinkG made of

carbonated water, sugar, vanilla, rare oils, pepsin and cola nuts.

Hne of Calebs formulations, known as G>rads 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:. >radhams neighbor, an artist designed the first

Pepsi logo and ninety-seven shares of stock for

>radhams new company were issued.

+050 - Hne of Calebs formulations, known as G>rads2rink,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.

+56 - Pepsi-Colas 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

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+54+ - The Aew )ork !tock ;change trades Pepsis stock for the first time. "n

support of the war effort, Pepsis 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: - Pepsis 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. !teeles wife,

?ollywood movie star Eoan Crawford, is instrumental in promoting the companys

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 products 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 Aion share a Pepsi.

+5= - )oung adults become the target consumers and Pepsis advertising keeps pace

with GAow its Pepsi, for those who think young.G

+5=/ - Pepsi receives its new logo, the sith in Pepsi history. The serrated bottle cap

logo debuts, accompanying the brands groundbreaking GPepsi

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+5=4 - 2iet Pepsi, introduced as 'mericas 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, Teas, 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..."tll tickle your innards.G

+58 - Pepsi leads the way into metrics by introducing

the industrys 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 'mericas 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 eperiments with new flavors. Twelve-pack cans are introduced.

+50 - Pepsi becomes number one in sales in the take home market.

++

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+50+ - PepsiCo and China reach agreement to manufacture soft drinks, with

production beginning net 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

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+55/--Pepsi-Cola launches the G

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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 worlds

first pesticides standards for soft drinks. Coke and PepsiCo opposed the move,

arguing that lab tests arent reliable enough to detect minute traces of pesticides in

comple drinks. Hn 2ecember 8, /4, "ndias !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 needed

>oth companies continue to maintain that their products meet all international safety

standards without yet implementing the !upreme Court ruling.Ocitation needed 's of

/6, The Coca-Cola Company and PepsiCo together hold 561 market share of soft-

drinksales in "ndia. PepsiCo has also been allegedOattribution needed to practice

Gwater piracyG due to its role in eploitation 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

http://en.wikipedia.org/wiki/2004http://en.wikipedia.org/wiki/December_7http://en.wikipedia.org/wiki/2004http://en.wikipedia.org/wiki/Supreme_Court_of_Indiahttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/As_of_2005http://en.wikipedia.org/wiki/As_of_2005http://en.wikipedia.org/wiki/Soft-drinkhttp://en.wikipedia.org/wiki/Soft-drinkhttp://en.wikipedia.org/wiki/Ground_waterhttp://en.wikipedia.org/wiki/Panchayathttp://en.wikipedia.org/wiki/Palakkadhttp://en.wikipedia.org/wiki/Keralahttp://en.wikipedia.org/wiki/2006http://en.wikipedia.org/w/index.php?title=Newspaper_advertisements&action=edithttp://en.wikipedia.org/wiki/Keralahttp://en.wikipedia.org/wiki/2004http://en.wikipedia.org/wiki/December_7http://en.wikipedia.org/wiki/2004http://en.wikipedia.org/wiki/Supreme_Court_of_Indiahttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/As_of_2005http://en.wikipedia.org/wiki/As_of_2005http://en.wikipedia.org/wiki/Soft-drinkhttp://en.wikipedia.org/wiki/Soft-drinkhttp://en.wikipedia.org/wiki/Ground_waterhttp://en.wikipedia.org/wiki/Panchayathttp://en.wikipedia.org/wiki/Palakkadhttp://en.wikipedia.org/wiki/Keralahttp://en.wikipedia.org/wiki/2006http://en.wikipedia.org/w/index.php?title=Newspaper_advertisements&action=edithttp://en.wikipedia.org/wiki/Kerala

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&'( 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

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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 stores owner, Eoseph '. >iedenharn. ?e began

bottling Coca-Cola to sell, using a common glass bottle called a ?utchinson.

>iedenharn sent a case to 'sa y +55, 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

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(-(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 y the end of the +5/s, bottle sales of Coca-Cola

eceeded fountain sales.

(-61s and &1s 3 Internationa* e9%ansion

@ed by longtime Company leader 7obert &. &oodruff, chief

eecutive officer and chairman of the >oard, the Company began

a major push to establish bottling operations outside the .!.

Plants were opened in (rance, 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

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(-: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 +56s, !priteQ, *inute *aidQ, (rescaQ and Ta>Q joined

brand Coca-Cola in the +5=s. *r. PibbQ and *ello )elloQ were added in the +58s.

The +50s brought diet CokeQ and Cherry CokeQ, followed by PH&;7'2;Q and

2'!'A"Q in the +55s. 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 Colas history. "n /8, Coca

/

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Colas sold nearly 46 million cases globally. Put into perspective, thats roughly the

same size as Coca Colas 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 Colas brands of ;nergy 2rinks

contain ingredients such as ginseng etract,

guarana etract, caffeine and > vitamins.

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Carbohydrates, fluids, and electrolytes team together in Coca Colas !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

todays 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

Colas 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.

//

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'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-

13Assets

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 8'1'0001210,00

0 121760001089833

311726''

'116002,

911'083'

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((!i%% 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*()tiati( 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 '0,190003802000

0'071'66

73980722

239,1396

3 '00119,1

.ia+i%ities

CURRENT .IAI.ITIES

Acc(#ts paa+%e ,622000 7173000 61,2000 631,667 6,'6889 633818, 6'002'7 6'28''0

Sh()t%(/ 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 .IAI.ITES 88900001322,00

0 129880001170100

01263800

012''233

312260''

' 12''6926

.(/ te)* !e+t 1&31'&0003&277&000 2&781&000 2',7333 2838''' 26922,9 2662679 2731128

Othe) %ia+i%ities 1&873&0003&133&000 3&'01&000 2802333 3112111 310,1'8 3006,31 307',97

!e44e)e! %(/ te)* %ia+iitcha)/es 608&000

1&890&000 877&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 /((!i%% 0 0 0 0 0 0

TOTA. .IAI.ITIES 1268,000

21,2,00

0 200'7000

1808,66

7

1988,88

9

19339,1

9

1910369

1 19''3033

S5ARE 5O.DERS EUIT

p)e4e)e! st(cs 0 0 0 0 0 0

c(**( st(cs 807000 880000 880000 8,,667 871888=9 86918,=2 86,,80 86888'=8

Retai ea)i/s 33'680003623,00

0 38,130003607200

0369'000

03717,00

03672900

0 369'8000

t)eas#) st(cs -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(c h(%!e) e"#it -1291000 626000 -267'000 -1113000 -10,3667 -1613,,6 -126007' -1309099

TOTA. STOC

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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. Companys position can be predicted by the assets holding capacity. larger

the capacity ,stronger the position of the company. assets includes cash receivables,short term investment ,inventory which will come under title of current assets. other

assets like goodwill, plant, intangible assets will also included in the non title of fied

assets

's per the projected data the coca colas 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 48+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 its 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. Pepsis 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

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@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 fied 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 fied 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 net five year.there has been consistent

stability has been seen in the projected liability of cocacola .for the year /5 it is of

+006=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 fied 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 Current +ia0i*ities

' company can be endowed with assetsandprofitabilitybut short ofli3uidity 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

http://en.wikipedia.org/wiki/Accounting_liquidityhttp://en.wikipedia.org/wiki/Current_assetshttp://en.wikipedia.org/wiki/Current_liabilitieshttp://en.wikipedia.org/wiki/Current_liabilitieshttp://en.wikipedia.org/wiki/Assetshttp://en.wikipedia.org/wiki/Profit_(accounting)http://en.wikipedia.org/wiki/Liquidityhttp://en.wikipedia.org/wiki/Accounting_liquidityhttp://en.wikipedia.org/wiki/Current_assetshttp://en.wikipedia.org/wiki/Current_liabilitieshttp://en.wikipedia.org/wiki/Current_liabilitieshttp://en.wikipedia.org/wiki/Assetshttp://en.wikipedia.org/wiki/Profit_(accounting)http://en.wikipedia.org/wiki/Liquidity

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satisfy both maturing short-term debt and upcoming operational epenses. 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 +./1decTotal inLdec - 86:1inc - ++6.6dec

's from the table pepsi is having total increase increase in the working capital of

86:1 .cocacolas 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 flowresulting from operating activities, cash flow resulting from investing activities, andcash flow resulting from financing activities.

The money coming into the business is called cash inflow, and moneygoing out from

the business is called cash outflow.

Cas) f*o4 of oao*a'

PERIOD ENDING c(cac(%a31-Dec-

0631-Dec-

0731-Dec-

08

NET INCO>E ,080000 ,981000 ,807000

Ope)ati/ acti$it&cash 4%( p)($i!e! + () Use! i

!ep)iciati( 938000 1163000 1228000

a!?#st*ets t( et ic(*e ,,'000 - 122'000cha/es i acc(#ts )ecei$a+%es -21'000 -'06000 1'8000

/=

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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 @.O @RO> OPERATINGACTIBITES ,9,7000 71,0000 7,71000

i$esti/ acti$ities&cash 4%(s p)($i!e! + () Use!

i

capita% epe!it#)e-

1'07000-

16'8000-

1968000

I$est*est ,,8000 3'9000 -2'0000

(the) cash 4%(s 4)(* i$esti/ acti$ities -8,1000-

,'20000 1,,000

TOTA. CAS5 @.OS @RO> INBESTINGACTIBITIES

-1700000

-6719000 2363000

@iaci/ acti$ities &cash 4%(s p)($i!e! + () #se! i

!i$i!e! pai!-

2911000-

31'9000-

3,21000

sa%e p#)chase (4 st(c

-

2268000 -219000 -'93000

et +())(i/s-

1'0'000 '3'1000 29000

(the) cash 4%(s4)(* 4iaci/ acti$ities - -

TOTA. CAS5 @RO> @IANACING ACTIBITIES-

6,83000 973000-

398,000

E@@ECT O@ EC5ANGE RATE C5ANGES 6,000 2'9000 -61,000

C5ANGE IN CAS5 AND EUIBA.ENTS-

2261000 16,3000 608000

#roBeted as) f*o4 of oao*a

PERIOD ENDING c(cac(%a31-Dec-

0931-Dec-

1031-Dec-

1131-Dec-

1231-Dec-

13

NET INCO>E ,622667 ,803,,6 ,7'''07 ,723,'3 ,7,7169

Ope)ati/ acti$it&cash 4%( p)($i!e! + () Use! i

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

TOTA. CAS5 @.O @RO> OPERATINGACTIBITES 6892667 720',,6 72227'1 71066,' 717798'

I$esti/ acti$ities&cash 4%(s p)($i!e! + () Use! i

capita% epe!it#)e-

167'333 -1763''' -1801926-

17'6,68 -17706'6

i$est*est 222333 110''' 30926 12123, 87,3,

(the) cash 4%(s 4)(* i$esti/ acti$ities-

2038667 -2'3',,6 -1'39'07-

1970877 -19'8280

/8

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TOTA. CAS5 @.OS @RO> INBESTINGACTIBITIES

-2018667 -212'889 -,93,19

-1,7902, -1'32'77

@iaci/ acti$ities &cash 4%(s p)($i!e! + () #se! i

Di$i!e! pai! -3193667

-3287889 -333'18, -327191' -3297996

sa%e p#)chase (4 st(c -993333 -,68''' -68'926 -7'8901 -667'2'et +())(i/s 988667 1786222 93'630 1236,06 1319119

(the) cash 4%(s4)(* 4iaci/ acti$ities

TOTA. CAS5 @RO> @IANACING ACTIBITIES -3198333

-2070111 -308''81 -278'309 -26'6300

E@@ECT O@ EC5ANGE RATE C5ANGES -100333 -1,,''' -2902,9 -182012 -209239

C5ANGE IN CAS5 AND EUIBA.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

Ope)ati/ acti$it&cash 4%( p)($i!e! + () Use! i

!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

TOTA. CAS5 @.O @RO> OPERATING

ACTIBITES 1228000 1'37000 128'000

i$esti/ acti$ities&cash 4%(s p)($i!e! + () Use! i

capita% epe!it#)e -72,000 -8,'000 -760000

I$est*est - - -

(the) cash 4%(s 4)(* i$esti/ acti$ities -6000 -29000 -998000

TOTA. CAS5 @.OS @RO> INBESTINGACTIBITIES -731000 -883000

-17,8000

@iaci/ acti$ities &cash 4%(s p)($i!e! + () #se! i

!i$i!e! pai! -109000 -130000 -208000

sa%e p#)chase (4 st(c -38,000 -280000 -139000

et +())(i/s 10'000 -168000 1198000(the) cash 4%(s4)(* 4iaci/ acti$ities 19000 1'000 -1000

TOTA. CAS5 @RO> @IANACING ACTIBITIES -371000 -,6'000 8,0000

E@@ECT O@ EC5ANGE RATE C5ANGES 1000 28000 -,7000

C5ANGE IN CAS5 AND EUIBA.ENTS 127000 18000 319000

/0

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#roBeted as) f*o4 of %e%si

PERIOD ENDING31-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$it&cash 4%( p)($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

TOTA. CAS5 @.O @RO> OPERATINGACTIBITES

1316333 13',778 131,370 132,827 1328992

i$esti/ acti$ities&cash 4%(s p)($i!e! + ()Use! i

capita% epe!it#)e -779667 -797889 -77918, -78,,80 -787,,1

I$est*est

(the) cash 4%(s 4)(* i$esti/ acti$ities -3''333 -',7111 -,9981, -'67086 -,0800'

TOTA. CAS5 @.OS @RO> INBESTINGACTIBITIES

-112'00

0 -12,,000 -1379000 -12,2667 -129,,,6

@iaci/ acti$ities &cash 4%(s p)($i!e! + () #se! i

!i$i!e! pai! -1'9000 -162333=3 -173111 -161'81=, -16,6'2

Sa%e p#)chase (4 st(c -268000 -229000 -212000 -236333=3 -22,777=8et +())(i/s 378000 '69333=3 681777=8 ,09703=7 ,,360'=9

(the) cash 4%(s4)(* 4iaci/ acti$ities 10667 7889 ,8,2 8136 7292

TOTA. CAS5 @RO> @IANACINGACTIBITIES -28333 8,889 302,19 12002, 169'77

E@@ECT O@ EC5ANGE RATE C5ANGES -9333 -12778 -26370 -16160 -18'36

C5ANGE IN CAS5 AND EUIBA.ENTS1,'666=

7 163888=9 212,18=, 17702'=69 18''77='

/5

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O%eratin" ati7ities

Hperating activities include the production, sales and delivery of the

companys 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 !

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!ource#big charts.com

The company has managed to deliver a +.51 average annual increase in its

;P! between +555 and /5. 'nalysts are epecting 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 companys 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 Cos

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 41

:/

http://www.dividendgrowthinvestor.com/2009/03/pepsico-pep-dividend-stock-analysis.htmlhttp://www.dividendgrowthinvestor.com/2009/03/pepsico-pep-dividend-stock-analysis.html

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of Cokes concentrate sales and +=1 of the companys 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.

!ource# morning star.com

'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 dividendby 01 in (ebruary /5, for the 48th year in a row.

!ource# morning star.com

::

http://www.dividendgrowthinvestor.com/2009/02/dividend-aristocrats-strike-back.htmlhttp://www.dividendgrowthinvestor.com/2009/02/dividend-aristocrats-strike-back.htmlhttp://www.dividendgrowthinvestor.com/2009/02/dividend-aristocrats-strike-back.htmlhttp://www.dividendgrowthinvestor.com/2009/02/dividend-aristocrats-strike-back.html

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source#big charts.com

't the same time company has managed to deliver a 5.51 average annual

increase in its ;P! since +555.

!ource# morning star.com

The 7H; has remained largely between :+1 and :01, with the eception of

/4, when it fell to as low as //1.

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!ource# morning star.com'nnual dividend payments have increased by an average of +:.61 annually

since +555, which is much higher than the growth in ;P!. 'nalysts are

epecting 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 PepsiCos 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.

!ource# morning star.com

:=

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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.

!ource# morning star.com

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 :.61,

:8

http://www.dividendgrowthinvestor.com/2008/07/my-dividend-growth-plan-stock-selection.htmlhttp://www.dividendgrowthinvestor.com/2008/07/my-dividend-growth-plan-stock-selection.html

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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 ep 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 ep= 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 ta 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% ep= 1'273 13731 13,72 138,9 13720

a*()taati( (4 ita/i+%eassets 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=ep -26' -2'2 -2'8 -2,2 -2'7

it=ic(*e 113 137 1'1 130 136

PT 721' 7278 7160 7217 7218

Ta 1733 168' 1,88 1668 16'7

et ic(*e ,'81 ,,9' ,,72 ,,'9 ,,71

:0

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O%earint" %rofit?

(or the year /0 operating profit for the cocacola is more than pepsi.cocacolas

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.pepsis 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.

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>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 companies +-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 $7Pm%b

PepsiCo# 7sS=./8$+/-=./8%.6 S5.+:6

Coca-Cola# 7sS=./8$+/-=./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 &ce7sS.:6$8.1% .5=6$5.+:61%

S5.461

Coca-Cola &'CC#

&d7d &ce7s

S ./4$8.+1% .58=$5.05%

S 5.081

4

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"ts 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.

PepsiCos lower &'CC $5.+:61% versus Coca-Colas $5.051% gives it greater

latitude in selecting investment projects. PepsiCos 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.

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RATIO ANA+YSIS

Finania* Ratios

(inancial ratios are useful indicators of a firms 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 firms financials tothose of other firms. "n some cases, ratio analysis can predict future bankruptcy.

(inancial ratios can be classified according to the information they provide. Thefollowing types of ratios fre3uently are used#

@i3uidity ratios

'sset turnover ratios

(inancial leverage ratios

Profitability ratios 2ividend policy ratios

+iuidity Ratios

Liquidity ratios provide information about a firms ability to meet its short-termfinancial obligations. They are of particular interest to those etending short-termcredit to the firm. Two fre3uently-used li3uidity ratios are the current ratio $orworking 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. !hareholdersmay prefer a lower current ratio so that more of the firms assets are working to growthe business. Typical values for the current ratio vary by firm and industry. (oreample, firms in cyclical industries may maintain a higher current ratio in order toremain solvent during downturns.

Hne drawback of the current ratio is that inventory may include many items that aredifficult to li3uidate 3uickly and that have uncertain li3uidation values. The 3uickratio is an alternative measure of li3uidity that does not include inventory in thecurrent assets. The 3uick ratio is defined as follows#

ui8 Ratio

@

Current Assets 2 In7entory

4/

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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 ratiooften is referred to as the acid test.

(inally, the cash ratiois the most conservative li3uidity ratio. "t ecludes all currentassets ecept the most li3uid# cash and cash e3uivalents. The cash ratio is defined asfollows#

Cas) Ratio @

Cas) Mar8eta0*e Seurities

Current +ia0i*ities

The cash ratio is an indication of the firms ability to pay off its current liabilities if forsome 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 assetmanagement ratios. Two commonly used asset turnover ratios are receivablesturnoverand inventory turnover.

7eceivables turnover is an indication of how 3uickly the firm collects its accountsreceivables 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 creditsales remain in accounts receivable before they are collected. This number is knownas the collection period. "t is the accounts receivable balance divided by the averagedaily credit sales, calculated as follows#

A7era"e Co**etion #eriod

@

Aounts Reei7a0*e

4:

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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 ina 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 numberof days worth of inventory on hand, calculated by dividing the inventory by theaverage 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 fied asset turnover and total asset turnover.

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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 etent to which the firm is using long term debt.

The debt ratiois defined as total debt divided by total assets#

De0t Ratio

@

Tota* De0t

Tota* Assets

The debt-to-equityratio is total debt divided by total e3uity#

De0t2to2Euity Ratio @

Tota* De0t

Tota* Euity

2ebt ratios depend on the classification of long-term leases and on the classificationof some items as long-term debt or e3uity.

The times interest earnedratio indicates how well the firms earnings can cover theinterest payments on its debt. This ratio also is known as the interest coverageand iscalculated as follows#

Interest Co7era"e @

E!IT

Interest C)ar"es

where ;>"T S ;arnings >efore "nterest and Taes

#rofita0i*ity Ratios

Profitability ratios offer several different measures of the success of the firm atgenerating profits.

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Thegross profit margin is a measure of the gross profit earned on sales. The grossprofit margin considers the firms 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 assetsis a measure of how effectively the firms assets are being used togenerate 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 theprofits earned for each dollar invested in the firms stock. 7eturn on e3uity is definedas follows#

Return on Euity @

Net Ino$e

S)are)o*der Euity

4=

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Di7idend #o*iy Ratios

2ividend policy ratios provide insight into the dividend policy of the firm and theprospects for future growth. Two commonly used ratios are the dividend yield andpayout 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. "tis important to consider the prospects for continuing and increasing the dividend inthe future. The dividend payout ratio is helpful in this regard, and is defined asfollows#

#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 firms forecasts, or ratios ofsimilar 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 firmssituation.

)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 accountingperiod because of seasonal factors. !uch changes may distort the value of theratio. 'verage values should be used when they are available.

7atios are subject to the limitations of accounting methods. 2ifferent accountingchoices may result in significantly different ratio value

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very efficient company, or it will not survive. The net profit margins of our / sample

firms illustrate these concepts. Coca-Colas AP* of 0.0 percent is low compared with

PepsiCos 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 companys 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-Colas +4.4= percent second. This reflects

PepsiCos ability to generate significant sales volume from its asset base.

Pepsi Cocacola "ndustry

Aet profitmargin

+.= 5.0 0.6

7eturn on assets +6.0+ +4.4= +.58

Total asset turn

over

/ +.0+ /.:

"nventory turnover

8.5 6.4 /.+5

Tota* Asset Turno7er Ratio?

'nother indicator of a companys 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-Colas ratios are, /. and +.0+ respectively. these are driven

primarily by their high inventory turnover, and efficient use of fied assets. Thus,

cokes low AP* is offset to some etent by its ability to generate sales from its asset

base $the company is a high volume, low overhead

producer%.

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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. PepsiCos is higher,This

reflects differences in their distribution methods, with Pepsis snack foods driving the

ratio higher than for typical merchandisers.

Finania* +e7era"e?

(inancial leverage is the use of fied cost funds such as debt or preferred stock to

increase the common stockholders 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 managements 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 taesU.

's you can see for our firms, their debt ratios vary from PepsiCos 8+./ percent. &e

can conclude that Pepsi is using more financial leverage in the firm and thus is

eposed to more financial risk than cocacola.

Pepsi Cocacola "ndustry

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.

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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 Euity?

*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 eceptionally high number. Coca-Colas is /0.8: percent.>oth are relatively high compared with industry, which is etremely low compared to

the industrys /0.=51 consensus.

Pepsi Cocacola "ndustry

7eturn on e3uity :5.04 /0.8: /0.=5

PepsiCo has an ecellent 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+

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#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 stockby 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.

Pepsi Cocacola "ndustry

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 PepsiCos +8./0 ratios, which displays that three of the four companies

have ample money available to spend on research and development, to epand

operations, and to pay dividends to investors.

Pepsi Cocacola "ndustry

PriceLcash flow +8./0 /+.+4 +/.6

Gross #rofit Mar"in Ratio?

The

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Pepsi Cocacola "ndustry

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Return on Sa*es?

This ratio is a measure of profitability epressed 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 eperiencing a cash flow crunch, it could be because its mark-up is not

enough to cover epenses. 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

eperiencing financial problems. Coca-Cola has the highest 7eturn on !ales ratio,

/.:/, detecting operational efficiency, accompanied by PepsiCos +:.+5 ratio.

Pepsi Cocacola "ndustry

7eturn on sales +:.+5 /.:/ +.6+

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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 eceed 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 epenses

- !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

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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 sed In

De.reciati&n 1"$$8"000 1"163"000 #38"000

Adust(ents '& Net Inc&(e 1"$$!"000 - ))!"000

Chanes In Acc&unts Receiva*es 1!8"000 !06"0009 $1!"0009

Chanes In ,ia*iities 73!"0009 #1!"000 ##"0009

Chanes In Invent&ries 16)"0009 $)8"0009 1)0"0009

Chanes In Other O.eratin Activities 63"000 $!!"0009 1)$"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 sed In

Ca.ita E:.enditures 1"#68"0009 1"6!8"0009 1"!07"0009

Invest(ents $!0"0009 3!#"000 ))8"000

Other Cash&/s r&( Investin Activities 1))"0009 )"!$0"0009 8)1"0009

'&ta Cash 4&/s 4r&( InvestinActivities

$"363"0009 6"71#"0009 1"700"0009

4inancin Activities" Cash 4&/s Pr&vided 5+ &r sed In

Dividends Paid 3")$1"0009 3"1!#"0009 $"#11"0009

%ae Purchase & %t&c; !#3"0009 $1#"0009 $"$68"0009

Net 5&rr&/ins $#"000 !"3!1"000 1"!0!"0009

Other Cash 4&/s r&( 4inancinActivities

- - -

'&ta Cash 4&/s 4r&( 4inancin

Activities 3"#8)"0009 #73"000 6")83"0009

Eect O E:chane Rate Chanes 61)"0009 $!#"000 6)"000

Chane In Cash and Cash Equivaents

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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. ANDa!*iist)ati$e ep 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 ep= 220 ',6 '38e"#it ic(*e:%(ss; 102 668 -87'

Othe) ic(*e %(ss 19, 173 -28

P+t 6,78 7873 7'39

Ic(*e ta 1'98 1892 1632

NET INCO>E ,080 ,981 ,807

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!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

Intani*e Assets 3"7)1"000 !"181"000 3"768"000

Accu(uated A(&rtiati&n - - -

Other Assets 1))"000 $3)"000 13)"000

Deerred ,&n 'er( Asset Chares - - -

'&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

Deerred ,&n 'er( ,ia*iit+ Chares #66"000 1"3)6"000 1"$#3"000

in&rit+ Interest 1"1!8"000 #73"000 )!0"000

Neative G&&d/i - - -

'&ta ,ia*iities 11"63#"000 10")00"000 #"8!3"000

=

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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 sed In

De.reciati&n 673"000 66#"000 6!#"000

Adust(ents '& Net Inc&(e )16"000 !0!"000 3$#"000

Chanes In Acc&unts Receiva*es !0"000 110"0009 1$0"0009

Chanes In ,ia*iities 1$0"0009 1#!"000 86"000

Chanes In Invent&ries 3"000 1#"0009 )7"0009

Chanes In Other O.eratin Activities 10"000 $33"0009 181"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 sed In

Ca.ita E:.enditures 760"0009 8)!"0009 7$)"0009

Invest(ents - - -

Other Cash&/s r&( Investin Activities ##8"0009 $#"0009 6"0009

'&ta Cash 4&/s 4r&( Investin Activities 1"7)8"0009 883"0009 731"0009

4inancin Activities" Cash 4&/s Pr&vided 5+ &r sed In

Dividends Paid $08"0009 130"0009 10#"0009

%ae Purchase & %t&c; 13#"0009 $80"0009 38)"0009

Net 5&rr&/ins 1"1#8"000 168"0009 10!"000

Other Cash 4&/s r&( 4inancin

Activities1"0009 1!"000 1#"000

'&ta Cash 4&/s 4r&( 4inancinActivities

8)0"000 )6!"0009 371"0009

Eect O E:chane Rate Chanes )7"0009 $8"000 1"000

Chane In Cash and Cash Equivaents

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INCOMESTATEMENT OF #E#SI'

Pepsi 2009 2010 2011

et )e$e#e '32,1 39'7' 3,137

C(/s 203,1 18038 1,762se%%i/&/ee)a% ep= 1,901 1'208 12711

a*()taati( (4 ita/i+%e assets 6' ,8 162

(pe)ati/ p)(4it 693, 7170 6,02

(tta%i/ e"#it ic(*) 37' ,60 ,,3

it=ep -329 -22' -239

it=ic(*e '1 12, 173

PT 7021 7631 6989

Ta 1879 1973 13'7

et ic(*e ,1'2 ,6,8 ,6'2

%t&c;h&ders= Equit+

>isc St(cs Opti(sa))ats

- - -

Re!ee*a+%e P)e4e))e!St(c

- - -

P)e4e))e! St(c - - -

C(**( St(c 3&000 3&000 3&000

Retaie! Ea)i/s 3&130&000 3&12'&000 2&708&000T)eas#) St(c :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(ch(%!e) E"#it :938&000; :'8&000; :361&000;

'&ta %t&c;h&der Equit+ 1"3!3"000 $"61)"000 $"08!"000

Net 'ani*e Assets

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EUITY OF #E#SI.

ey 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 turno7er

;'- :'. 6'(-

De0t ratio ;('6 5.'6 :6

Euity

$u*ti%*ier

(',; ('56 ('::

Return on

euity

&-',. 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 euity '& '.: '5&

+on" ter$ de0t

to tota* euity

'6& '6. ';5

E#S (',: ('5 (':6

Return on sa*es (&'(- 61'&6 (1':(

=:

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