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Introduction of Financial Analysis of Pepsi

Category: Financial Statement Analysis Paper Type: Assignment Writing Reference: APA Words: 1500

The aim of this paper is to provide a brief financial overview of the Pepsi organization. Pepsi is a multinational organization and have presence in many countries around the world. In the past several years the organization has experience growth. In the paper the financial ratio analysis has been performed to evaluate the financial position. More over CAGR has been evaluated to know the growth of the corporation. The financial analysis of the organization has huge significance because it helps the management to take accurate financial decision and utilized the resources of the organization appropriately.

Income Statement of Financial Analysis of Pepsi

*PEPSICO INC (PEP) CashFlowFlag INCOME STATEMENT*
Fiscal year ends in December. USD in millions except per share data.	2013-12	2014-12	2015-12	2016-12	2017-12	TTM
Revenue	66415	66683	63056	62799	63525	64663
Cost of revenue	31243	30884	28384	28209	28785	29513
Gross profit	35172	35799	34672	34590	34740	35150
Operating expenses
Sales, General and administrative	25357	26126	24885	24735	24231	24668
Other operating expenses	110	92	75	70
Total operating expenses	25467	26218	24960	24805	24231	24668
Operating income	9705	9581	9712	9785	10509	10482
Interest Expense	911	909	970	1342	1151	1269
Other income (expense)	97	85	-1300	110	244	372
Income before taxes	8891	8757	7442	8553	9602	9585
Provision for income taxes	2104	2199	1941	2174	4694	4588
Net income from continuing operations	6787	6558	5501	6379	4908	4997
Other	-47	-45	-49	-50	-51	-46
Net income	6740	6513	5452	6329	4857	4951
Preferred dividend	1	1	1	1	4	3
Net income available to common shareholders	6739	6512	5451	6328	4853	4948
Earnings per share
Basic	4.37	4.31	3.71	4.39	3.4	3.49
Diluted	4.32	4.27	3.67	4.36	3.38	3.48
Weighted average shares outstanding
Basic	1541	1509	1469	1439	1425	1418
Diluted	1560	1527	1485	1452	1438	1428
EBITDA	12465	12291	10828	12263	13122	13255

The net income of the Pepsi Corporation is showing a declining trend. In 2013 the net income was $6740 which decreased significantly over the years and in 2017 reaches up to $4857. However the operating income of the organization increased. The reason for decrease in net income is declining revenues over the 5 year period (Pandey, 2015).

*Key Ratios -> Growth*
	2013-12	2014-12	2015-12	2016-12	2017-12
Revenue %
Year over Year	1.41	0.4	-5.44	-0.41	1.16
3-Year Average	4.72	0.09	-1.26	-1.85	-1.6
5-Year Average	8.96	9.05	1.74	-1.14	-0.61
10-Year Average	9.43	8.59	6.83	5.98	4.87
Operating Income %
Year over Year	6.51	-1.28	1.37	0.75	7.4
3-Year Average	5.22	-0.18	2.15	0.27	3.13
5-Year Average	6.95	3.56	3.11	0.31	2.89
10-Year Average	6.88	5.88	5.07	4.27	3.9
Net Income %
Year over Year	9.1	-3.37	-16.29	16.09	-23.26
3-Year Average	2.17	0.36	-4.08	-2.08	-9.32
5-Year Average	5.56	1.84	-2.91	-0.36	-4.7
10-Year Average	6.57	4.46	2.95	1.16	-1.51
EPS %
Year over Year	10.2	-1.16	-14.05	18.8	-22.48
3-Year Average	3.38	1.95	-2.17	0.31	-7.5
5-Year Average	6.12	2.52	-1.26	1.59	-2.92
10-Year Average	7.74	5.76	4.38	2.7	-0.09

The Revenue of Pepsi Co. has experienced the growth rate of 0.4 in 2014 which experience decline in 2016 up to -0.41%. Operating income however grow with rate of 0.75% in 2016 (Fridson & Alvarez, 2011).

Margins of Financial Analysis of Pepsi

Pepsi corporation gross margin has increased over the period. In 2017 the gross margin is 54.7% and the operating profit of the organization is 16.5%.

	2013-12	2014-12	2015-12	2016-12	2017-12
Revenue USD Mil	66,415	66,683	63,056	62,799	63,525
Gross Margin %	53	53.7	55	55.1	54.7
Operating Income USD Mil	9,705	9,581	9,712	9,785	10,509
Operating Margin %	14.6	14.4	15.4	15.6	16.5

Earnings, Dividends, Free Cash Flow of Financial Analysis of Pepsi

Pepsi Corporation is paying dividend to its shareholders. It can be seen that the amount of dividend is increasing in each upcoming year. In 2017 Pepsi has paid 3.17 USD dividend on the shares. Earnings per share however has experienced fluctuation in the 5 year period. The Free Cash flow of the organization has increased in the 5 years period from $6893 to $7364 (Pandey, 2015).

*Earnings Per Share USD*	4.32	4.27	3.67	4.36	3.38
Dividends USD	2.24	2.53	2.76	2.96	3.17
Payout Ratio % *	51.9	54.1	80.6	63.8	64.3
Shares Mil	1,560	1,527	1,485	1,452	1,438
Book Value Per Share USD*	14.55	15.48	9.27	8.8	9.33
Operating Cash Flow USD Mil	9,688	10,506	10,580	10,404	9,994
Cap Spending USD Mil	-2,795	-2,859	-2,758	-3,040	-2,969
Free Cash Flow USD Mil	6,893	7,647	7,822	7,364	7,025
Free Cash Flow Per Share USD*	4.62	4.48	5.21	5.17	4.65
Working Capital USD Mil	4,364	2,571	5,453	5,954	10,525

Liquidity Analysis of Financial Analysis of Pepsi

The liquidity position of Pepsi organization is also stable because the organization does have sufficient amount of current assets. It is important that the organization should maintain enough cash through which operations can be managed appropriately (Spender, 2014).

Capital Structure Analysis of Financial Analysis of Pepsi

*Balance Sheet Items (in %)*	2013-12	2014-12	2015-12	2016-12	2017-12	Latest Qtr
Cash & Short-Term Investments	12.49	12.38	17.24	21.75	24.45	18.87
Accounts Receivable	8.98	9.43	9.24	9.03	8.8	10.83
Inventory	4.4	4.46	3.9	3.67	3.69	4.27
Other Current Assets	2.79	3.04	2.68	2.09	1.94	1.12
Total Current Assets	28.66	29.31	33.06	36.54	38.88	35.1
Net PP&E	23.97	24.46	23.42	22.38	21.6	22.46
Intangibles	42.14	41.2	39.13	37.59	35.82	37.75
Other Long-Term Assets	5.22	5.03	4.39	3.49	3.7	4.69
Total Assets	100	100	100	100	100	100
Accounts Payable	6.3	7.28	7.97	8.32	8.44	20.71
Short-Term Debt	6.86	7.21	5.85	9.31	6.88	6.08
Taxes Payable
Accrued Liabilities	2.9	3.16	3.33	3.3	3
Other Short-Term Liabilities	7	8.05	8.11	7.62	7.4
Total Current Liabilities	23.06	25.7	25.27	28.55	25.72	26.8
Long-Term Debt	31.45	33.84	42	40.6	42.4	41.67
Other Long-Term Liabilities	14.11	15.69	15.59	15.86	18.22	17.54
Total Liabilities	68.62	75.23	82.86	85.01	86.34	86.01
Total Stockholders' Equity	31.38	24.77	17.14	14.99	13.66	13.99
Total Liabilities & Equity	100	100	100	100	100	100

It can be seen that the capital structure of Pepsi organization consist of both debt and equity. Pepsi organization is financed more from debt than equity. The significant amount of debt is a matter of concern for the organization because if the level of debt is not managed appropriately than major financial issues can occur in future (Campbell, Edgar, & Stonehouse, 2011).

Pro Forma Income Statement of Financial Analysis of Pepsi

*PEPSICO INC (PEP) CashFlowFlag INCOME STATEMENT*
Fiscal year ends in December. USD in millions except per share data.	2017-12	2018	2019	2020
Revenue	63525	64160.25	64801.85	65449.87
Cost of revenue	28785	29072.85	29363.58	29657.21
Gross profit	34740	35087.4	35438.27	35792.66
Operating expenses		0	0	0
Sales, General and administrative	24231	24473.31	24718.04	24965.22
Other operating expenses		0	0	0
Total operating expenses	24231	24473.31	24718.04	24965.22
Operating income	10509	10614.09	10720.23	10827.43
Interest Expense	1151	1162.51	1174.135	1185.876
Other income (expense)	244	246.44	248.9044	251.3934
Income before taxes	9602	9698.02	9795	9892.95
Provision for income taxes	4694	4740.94	4788.349	4836.233
Net income from continuing operations	4908	4957.08	5006.651	5056.717
Other	-51	-51.51	-52.0251	-52.5454
Net income	4857	4905.57	4954.626	5004.172
Preferred dividend	4	4.04	4.0804	4.121204
Net income available to common shareholders	4853	4901.53	4950.545	5000.051
Earnings per share		0	0	0
Basic	3.4	3.434	3.46834	3.503023
Diluted	3.38	3.4138	3.447938	3.482417
Weighted average shares outstanding		0	0	0
Basic	1425	1439.25	1453.643	1468.179
Diluted	1438	1452.38	1466.904	1481.573
EBITDA	13122	13253.22	13385.75	13519.61

Conclusion of Financial Analysis of Pepsi

If all the above discussion is summarized than it is evident that the financial situation of the corporation is stable and corporation is moving in the right direction. However the corporation needs to focus on capital structure because the organization has huge amount of debt which can cause problem for the organization. Pepsi should also improve its sales so that it can enhance its profitability. The profitability is necessary for sustaining in the long run.

References of Financial Analysis of Pepsi

Campbell, D., Edgar, D., & Stonehouse, G. (2011). Business Strategy: An Introduction. Macmillan International Higher Education.

Fridson, M. S., & Alvarez, F. (2011). Financial Statement Analysis: A Practitioner's Guide. John Wiley & Sons.

Pandey, I. (2015). Financial Management. Vikas Publishing House.

Spender, J.-C. (2014). Business Strategy: Managing Uncertainty, Opportunity, and Enterprise. OUP Oxford.