Introduction
In this research, a comparative financial analysis of PepsiCo International and The Coca-Cola Company for the fiscal years 2004 and 2005 is offered, taking into account the respective firms' financial statements for those years. The offered financial analysis comprises both vertical and horizontal examination. Based on the financial study of the two firms for the two years under examination, it has been determined that PepsiCo's performance in 2005 was lower than in 2004, whilst Coca-operations Cola's and financial performance were more sustainable. Moreover, based on this conclusion, it has been suggested that PepsiCo International's financial performance can be enhanced by focusing on the ratios of income statement items to total sales revenues and by controlling the increase in the company's total liabilities relative to total liabilities and equity.
Comparative Vertical Analysis of PepsiCo, Inc. and The Coca-Cola Company
Vertical Profit and Loss Statement Analysis
The vertical examination of PepsiCo International's income statement demonstrates that the proportion of income statement items to total sales revenues has not changed significantly. Most notable is the change in net income, which indicates that the company's net profit margin decreased in 2005 compared to the prior year (Weygandt, Kimmel, & Kieso, 2008).
PepsiCo Company, Inc.
Amount in millions except 2005 2004 percentages
Net Revenue 100.00% 100.00%
Sales Expenses 43.54 % 43.31 %
Expenditures for selling, general and administrative costs 37.82% 37.70%
0.46% 0.50% Amortization of intangible assets
Restructuring and Depreciation Costs 0% 0.51
Costs Related to the Merger 0% 0%
Profit from Operations 18.19% 17.97%
Income from bottling equity 1,71 % 1,30 %
Interest Expense -0.79% -0.57%
Interest Earnings 0.49 0.25
Income before income taxes from continuing operations 19.60% 18.95%
Provision for Income Taxation 7,08% 4,61%
Continuing operations income 12.52% 14.26%
Benefit from Taxes on Discontinued Operations 0% 0.13
Net Profit 12.52 % 14.39 %
For Coca-Cola, the proportion of all goods contributing to sales revenues stayed the same between 2004 and 2005. However, gross and net profit margins exhibit only small reductions. Nonetheless, they are far greater than PepsiCo's profit margins (Weygandt, Kimmel, & Kieso, 2008).
The Coca-Cola Corporation
Amount in millions except 2005 2004 percentages
Gross Operating Income 100.00% 100.00%
Cost of Goods Sold 35.47 percent 35.30 percent
Gross Revenue 64.53 % 64.70 %
37.82% 36.29% Selling, General and Administrative Expenses
Other Operating Costs 0.37 percent 2.21 percent
Income from operations 26.34% 26.21%
Interest Earnings 1,02% 0,72%
Interest Expense 1.04% 0.90%
Net Equity Income: 2.94 % 2.86 %
Other Deficit: Net -0.40% -0.38%
Gains on Stock Issuances by Equity Investors 0.10 0.11%
Before-tax income is 28.96% 28.62%.
Income Tax Rate 7,87% 6,32%
Profit after tax 21,09% 22,29%
Vertical Balance Sheet Analysis
PepsiCo's proportion of current assets to total assets has increased in 2005, as indicated by a vertical study of the balance sheet. In contrast, the proportion of noncurrent assets to total assets has decreased. Similarly, the ratios of non-current liabilities and total equity to total liabilities and equity have declined, while the ratio for current assets has climbed (Weygandt, Kimmel, & Kieso, 2008).
PepsiCo Company, Inc.
Amount in millions except 2005 2004 percentages
Assets
Active Assets
Cash and Cash Equivalents 5.41 percent 4.57 percent
Investments for the Short Term 9.98% 7.74%
15.39% 12.31%
Net Accounts Receivable and Notes Due, 10.28% 10.72%
Inventories 5.34% 5.51%
Other Current Assets and Prepaid Expenses 1.95 2.34%
Total Current Assets 32.95% 30.87%
Net value of property, plant and equipment 27.36% 29.12%
Net Depreciation of Intangible Assets 1.67 % 2.14 %
Goodwill 12.88% 13.97%
Other Nonamortizable Intangible Assets 3.42
16.31% 17.30% Nonamortisable Intangible Assets
10.98% 11.73
Other Property 10,73 % 8,84 %
Total Assets 100.00% 100.00%
Liabilities and Equity of Shareholders
Current Liabilities
Short-Term Obligations 9.11 percent 3.77 percent
Other Current Liabilities and Accounts Payable 18,82 % 20 %
Income Taxes Payable 1.72% 0.35%
Total Current Liabilities 29.65% 24.13%
Long-Term Obligations 7.29 percent 8.56 percent
Other liabilities 13.63 percent 14.65 percent
Taxes on Income Deferred 4.52 % 4.34 %
Total Liabilities 55.08% 51.68%
Commitments and Uncertainties 0% 0%
No-Par Value Preferred Stock 0.13% 0.15%
Shares of Preferred Stock Repurchased -0.35% -0.32%
Equity of Common Shareholders 0.00% 0.00%
Common stock with a par value per share of 1 2/3 cents 0.09% 0.11%
Capital in excess of par value 1.94% 2.21%
Earnings Retained 66.56% 66.92%
Other Comprehensive Loss Accumulated -3.32 % -3.17 %
65.27% 66.07%
Less: Repurchased Common Stock, at a cost of -20.13 percent -17.5 percent.
Total Equity of Common Stockholders 45.14 % 48.49 %
Total Liabilities and Shareholders' Equity 100 percent 100 percent
For Coca-Cola, the opposite has been true. The percentage of current assets to total assets has declined, while the proportion of non-current assets has climbed. In 2005, the proportion of current liabilities and total equity has increased, whilst the share of noncurrent liabilities has decreased (Weygandt, Kimmel, & Kieso, 2008).
The Coca-Cola Corporation
Amount in millions except 2005 2004 percentages
Assets
Active Assets
15.98% 21.33 % Cash and Cash Equivalents
Marketable Securities 0.22 percent 0.19 percent
Trade Accounts Receivable, Subtracting Allowances of $72 and $69, Respectively 7.75% 7.14%
Inventories 4.84% 4.52%
Other Assets and Prepaid Expenses 6.04 % 5.88 %
Total Current Assets 34.83% 39.06%
Investments
Equity Method Investments
Coca-Cola Enterprises Incorporation 5.88% 4.99%
The Coca-Cola Hellenic Bottling Corporation S.A. 3.53% 3.39%
Coca-Cola FEMSA, S.A. de C.V. 3.34% 2.52%
Coca-Cola Amatil Limited 2.54% 2.34%
Other, primarily bottling companies: 7.01 percent 5.51 percent
Cost Method Investments, primarily in bottling firms 1,22 % 1,13 %
Total Investments 23.52% 19.88%
Other Assets 9.0 percent 9.4 percent
Net Property, Plant and Equipment 19,66% 19,37%
6,61 % 6,48 % of all trademarks have a permanent existence
Goodwill 3.56% 3.49%
Other Intangible Assets 2.81 percent 2.23 percent
Total Assets 100.00% 100.00%
Liabilities and Equity of Shareholders
Current Liabilities
15.27% 14.0% Accounts Payable and Accrued Expenses
Loans and notes payable 15,35 percent 14.41 percent
Current Long-Term Debt Maturities 0.10 4.74%
Income Taxes Due 2,71 % 2,26 %
Total Current Liabilities 33.43% 35.41%
Long-Term Debt 3.92% 3.68%
Other Obligations 5,88% 8,95%
Income Taxes Deferred 1,20% 1,28%
Equity held by stockholders
Typical Shares 2,98% 2,78%
Capital Surplus 18.66% 15.67%
106.36% reinvested earnings 92.57%
Other Comprehensive Income (Loss) Accumulated -5.67 % -4.29 %
Treasury Stock -66.76 percent -56.0 percent
Total shareholder equity 55.58 percent 50.68 percent
Total Obligations and Shareholders' Equity 100 % 100 %
Comparative Horizontal Analysis of PepsiCo, Inc. and The Coca-Cola Company
Analysis horizontal of Income Statement
Comparing 2005 to 2004, the majority of the revenue statement items for PepsiCo International have increased significantly. The increase in operating costs has been offset by the increase in revenues; in fact, the increase in revenues exceeded the change in operating costs, resulting in an increase in the company's operating profits. In contrast, interest expense and income tax provision grew dramatically from 2004 to 2005, resulting in a fall in the company's net profits in 2005. (Weygandt, Kimmel, & Kieso, 2008).
PepsiCo Company, Inc.
Amount in millions unless expressed as a percentage
Net Revenue 11.28%
11.85% of Sales Cost
Expenses for selling, general and administrative functions 11.63%
2.04 % of intangible assets are amortized.
Costs of Restructuring and Impairment -100.00%
Transaction-Related Costs
12.61% Operating Profit
Revenue from bottling equity 46.58%
Interest Expense 53.29%
Interest Earnings 114,86%
15.07% of income from continuing operations prior to income taxes
67.93% Provision for income taxes
-2.30% loss in earnings from continuing operations
-100% Tax Benefit from Discontinued Operations
Net Income -3.18%
Horizontal investigation has revealed essentially comparable trends for Coca-Cola. Almost every line item on the 2005 income statement increased, with the exception of other operating expenses and gains on stock issuances by equity investees (Weygandt, Kimmel, & Kieso, 2008).
The Coca-Cola Corporation
Amount in millions unless expressed as a percentage
6.26 % of Net Operating Revenues
6.79% Cost of Goods Sold
Gross Revenue 5.98%
10.76% of selling, general, and administrative expenses
Other Operating Costs -82.29 percent
6.79% of Operating Income
Return on Investment 49.68%
Interest Expense 22.45%
Net Income from Equity – 9.50%
13.41% Net Other Loss
Gains on Stock Issuances by Equity Investors -4.17%
7.52 % of Income Prior to Income Taxes
32.22% Income Taxes
0.52 % of Net Revenue
Horizontal Balance Sheet Analysis
In 2005, PepsiCo Incorporated's balance sheet reveals a growth in the company's total assets. Current assets and intangible assets have experienced the greatest growth. On the other hand, the company's overall liabilities have increased significantly due to an increase in current obligations and deferred income taxes. In 2005, total equity also increased by 5.51 percent (Weygandt, Kimmel, & Kieso, 2008).
PepsiCo Company, Inc.
Amount in millions unless expressed as a percentage
Assets
Active Assets
Cash and Cash Equivalents 34.06 percent
Investing in Short-Term Assets 46,24 %
41.71%
Net Accounts Receivable and Notes Payable, 8.74%
Inventories 9.86%
Other Current Assets and Other Prepaid Expenses -5.50%
Total Current Assets 21.01%
Net Property, Plant, and Equipment, 6.53 percent
Net Amortization of Intangible Assets -11.37%
Goodwill 4.58%
16.40% Other Nonamortizable Intangible Assets
6.86% Nonamortizable Intangible Assets
Investing in Noncontrolling Affiliates 6.12%
Other Property 37.39%
Total Assets 13.36%
Liabilities and Equity of Shareholders
Current Liabilities
Financial Obligations 174.10%
6,64 % – Accounts Payable and Other Current Liabilities
Income Taxes Payable 451.52%
Total Current Liabilities 39.31%
Long Term Debt Obligations -3.50%
5.46 % Other Liabilities
17.93% Deferred Income Taxes
Total Liabilities 20.82%
Commitments and Uncertainties
Preferred Stock with No Par Value
Purchased 22.22% of Preferred Stock
Equity held in common by stockholders
0% Common Stock with a par value of 1 2/3 cents per share
Capital in excess of par value -0.65%
Retained Earnings 12.74%
18.85% Accumulated Other Comprehensive Loss
11.98%
Less: Common Stock Repurchased at a Cost of 29.82%
5.51% of Total Common Stockholder Equity
Total Obligations and Shareholder Equity, 13.36%
Coca Cola's balance sheet reveals a fall in total assets, mostly attributable to decreases in current assets, property, plant, and equipment, and intangible assets. In 2005, however, both current and noncurrent liabilities have decreased. However, the company's total equity has increased slightly in 2005 as a result of an increase in capital surplus and reinvested earnings (Weygandt, Kimmel, & Kieso, 2008).
The Coca-Cola Corporation
Amount in millions unless expressed as a percentage
Assets
Active Assets
Cash and Cash Equivalents -29.99 percent
Investment Securities 8.20%
1.65% of $72 and $69 in Trade Accounts Receivable, Less Allowances
Inventories 0.28%
Expenses paid in advance and other assets -3.84%
Total Current Assets -16.54%
Investments
Method of Equity Investments
10.33% Coca-Cola Enterprises Incorporated
The Coca-Cola Hellenic Bottling Corporation S.A. -2.62%
Coca-Cola FEMSA, S.A. de C.V. 23.99%
Coca-Cola Amatil Limited 1.63%
Other, primarily bottling companies account for 18.98%
Cost Method Investments, primarily in bottling businesses 1.41%
Total Investments 10.72%
Other Assets -11.17 Percent
Net Property, Plant, and Equipment -5.01%
-4.47 % for trademarks with an infinite lifespan
Goodwill -4.56%
Other Intangible Assets Account for 17.95% of Total Assets
Total Assets -6.41%
Liabilities and Equity of Shareholders
Current Liabilities
2,04 % of Accounts Payable and Accrued Expenses
-0.29% Loans and Notes Payable
Current Long-Term Debt Maturities -98.12%
12.41% of Accrued Income Taxes
Total Current Liabilities -11.65%
Long-Term Debt -0.26%
Other Obligations -38.52%
-12.44 % Deferred Income Taxes
Equity held by stockholders
Common Stock 0.23 percent
Capital Surplus 11.44%
7,54 % Reinvestment of Earnings
Other Comprehensive Income (Loss) Accumulated 23.81%
Treasury Securities 11.46%
Total shareholder equity 2.64 percent
Total Obligations and Shareholders' Equity -6.41%
Recommendations to Enhance Financial Results
On the basis of the horizontal and vertical analyses offered in this study, it is suggested that PepsiCo International control its operating and non-operating expenses in order to increase its profitability. Since both revenue and expenses have increased similarly, the impact of the revenue rise has been insignificant. On the other hand, the company's management should also consider improving the balance sheet by controlling the ratio of total liabilities to total assets, because an increase in the ratio of total liabilities to total liabilities and equity indicates that liabilities cover a greater proportion of the company's total assets. In contrast, an examination of Coca Cola's income statement and balance sheet reveals good performance trends. However, based on the findings of the horizontal analysis, it is advised that minor increases in the company's operations and other costs be taken into account.
Bibliography
Weygandt, J., Kimmel, D., & Kieso, E. (2008). Financial Reporting Hoboken: Wiley.
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