RATIO ANALYSIS OF PEPSI CO.

INTRODUCTION

History
Prepared

by Caleb Bradham Launched Pepsi-Cola Company in 1902 Official Registration "Pepsi-Cola" with the U.S. Patent Office on 16 June 1903 Diet Pepsi introduced in 1964 Mountain dew introduced in 1992 In Pakistan- First plant of Pepsi, Multan, 1971

 Mission
To

be the world's premier consumer products company

Vision
Creating

a better tomorrow than today

Philosophy
Creating

a Better Tomorrow for Future Generations

 Leadership
Indra

K. Nooyi Chairman of the Board, Chief Executive Officer, PepsiCo Saad Abdul-Latif Chief Executive Officer, PepsiCo Asia, Middle East & Africa Various other executives in team and in borad of directors

 Products
Pepsi

Cola Brands Frito Lay Brands Tropicana Brands Quaker Brands Gatorade Brands

ACTIVITY/LIQUIDITY RATIOS
Current Ratio= Current Assets/ Current Liabilities
2006 2007 2008 2009 2010 2011 1.331 1.309 1.230 1.436 1.106 0.961

INTERPRETATION
Decrease in 2007-8 as compared to 2006 Increase in 2009, again decrease in 20102011 Rule of thumb 2:1 None of the year performance up to the standards Ability to pay off debts reducing each year

QUICK RATIO (ACID TEST RATIO) = CURRENT ASSETS-INVENTORY/CURRENT LIABILITIES

2006 1.050 2007 1.014 2008 0.943 2009 1.137 2010 0.893 2011 0.750

INTERPRETATION
Reducing each year except for 2009 Rule of thumb 1:1 Meeting the standard in 2006, 2007 & 2009 For food industry inventory easily converted to cash Better position in paying off short term debts with most liquid assets Stringent as compared to current ratio

INVENTORY TURNOVER RATIO = NET SALES/ AVERAGE INVENTORY

2006 8.184 2007 8.557 2008 9.061 2009 8.593 2010 10.440 2011 11.450

INTERPRETATION
Declining 2006-9, sudden increase in 201011 Average amount of inventory sufficient Shows decline in the sales Sales are increasing in 2010-2011 Inventory maintained well during these years

INVENTORY CONVERSION PERIOD = DAYS IN A YEAR/ INVENTORY TURNOVER RATIO

2006 43.989 2007 42.071 2008 39.731 2009 41.895 2010 34.484 2011 31.441

INTERPRETATION
Average time of conversion (inventory-sales) Decreasing each year- lowest on 2010-11 Also obvious from inventory turnover ratio Days to dispose inventory reduced from 41 to 33 days

DEBTORS TURNOVER RATIO = NET SALES/ AVERAGE DEBTORS

2006 9.433 2007 9.730 2008 10.139 2009 9.926 2010 12.179 2011 13.016

INTERPRETATION
Shows velocity of debt collection Increasing 2006-11 Collection of receivables improving Overall position- lower ratio

AVERAGE COLLECTION PERIOD = NO. OF WORKING DAYS/ DEBTORS TURNOVER RATIO

2006 38.165 2007 37.000 2008 35.505 2009 36.267 2010 29.558 2011 27.658

INTERPRETATION
Number of days to collect debtors As debtors turnover ratio increasing- average collection period decreasing Shows improvement in performance Debtors collected in shorter period of time Standard 10-15 days Needs overall improvement- as not according to rule of thumb

CREDITORS TURNOVER RATIO = NET ANNUAL PURCHASES/ AVERAGE CREDITORS

2006 2.426 2007 2.559 2008 2.729 2009 2.636 2010 3.208 2011 3.565

INTERPRETATION
Measures how fast company paying creditors Calculations indicating increase in ratio Better companys position- short time between purchases and paying Judge companys incoming cash situation

AVERAGE PAYMENT PERIOD = NO. OF WORKING DAYS/ CREDITORS TURNOVER RATIO

2006 148.367 2007 2008 2009 2010 2011

140.683 131.911 136.565 112.222 100.993

INTERPRETATION
Indicates time to pay off creditors Very large time period Trend indicates decrease in payment time Period must lie between 30-60 days None of the year paying period matches the standard Company needs improvement

WORKING CAPITAL TURNOVER RATIO = COST OF SALES/ AVERAGE WORKING CAPITAL

2006 6.944 2007 7.728 2008 9.130 2009 7.655 2010 10.910 2011 16.532

INTERPRETATION
Directly related to sales Current Assets- Current Liabilities No proper utilization of working capital Improving each year Yet overall lower

CASH RATIOS
Cash / Current Liabilities
2006 0.241 2007 0.117 2008 0.235 2009 0.450 2010 0.374 2011 0.224

INTERPRETATION
Graph indicate up and down trend Decrease in 2007 Increase in 2008-9, again decrease 2010-11 Same trend as in quick ratio Ratio of 0.5:1 considered good Cash assets insufficient to pay short term debt

CASH EQUIVALENT+MARKETABLE SECURITIES / CURRENT LIABILITIES

2006 0.411 2007 0.320 2008 0.259 2009 0.472 2010 0.401 2011 0.244

INTERPRETATION
Shows immediate amount of cash to pay short term debt Ratio reducing each year Lowest in 2011 Same trend as in current and quick ratio Not sufficient cash assets for current liabilities

CASH FLOW / TOTAL DEBT

2006 0.113 2007 0.052 2008 0.086 2009 0.176 2010 0.127 2011 0.078

INTERPRETATION
Ability of firm to cover total debt through cash flow Better in 2006 & 2009 Greater than 1 indicates greater debt burden Not good enough cash flow to cover total debt

CASH FLOW/ LONG TERM DEBT

2006 0.647 2007 0.217 2008 0.263 2009 0.533 2010 0.297 2011 0.198

INTERPRETATION
Sharp up and down trends Funds available for long term debt Better in 2006 & 2009 relative to other years Not very good in rest of years Highest in 2006- 64% funds available to pay long term debts

CASH+ MARKETABLE SECURITIES + RECEIVABLES/ YEARS CASH EXPENSE

2006 0.513 2007 0.484 2008 0.438 2009 0.583 2010 0.556 2011 0.451

INTERPRETATION
How year cash expense covered by current assets Better ratios in terms of percentages All years above than 40% Not equal to or greater than 1 in a single year

CASH FLOW-CAPITAL EXPENDITURE RATIO = CASH FLOW FROM OPERATIONS-DIVIDENDS/ EXPENDITURE FROM PLANT AND EQUIPMENT
2006 0.331 2007 0.327 2008 0.294 2009 0.237 2010 0.248 2011 0.243

INTERPRETATION
Ability to maintain plant and equipment from cash through operations Constant decrease each year Indicate whether company in position to grow or not Analysts keenly interest in ratio

CASH ADEQUACY RATIO = 5 YEARS CASH FLOW FROM OPERATIONS/ 5 YEARS SUM OF CAPEX + INVENTORY + CASH DIVIDENDS
0.315 (2007-11) Shows five years performance related to capex inventory, dividends and cash flow Primary measure of cash sufficiency Ratio must be 1 or higher 31.5% cash flow form operations covering capex, inventory & dividends Indicates potential liquidity problems

SUMMARY
Ratios not negative Satisfactory performance of the company Ratios not compared to the industry averages So, the financial analysis may have reservation

DEBT TO EQUITY RATIO

2006 130% 2007 118% 2008 47% 2009 68% 2010 24% 2011 130%

1.4 D to Equity R ebt atio 1.2 1 0.8 0.6 0.4 0.2 0 2011 2010 2009 2008 2007 Y S EAR Trend

INTERPRETATION
Debt-to-equity ratios deteriorate from 2009 to 2010 In 2011 the company relies on 130% on debt finances Highest value in 2011 as compare to last five years. Shows that the company hasn't have any cushion available to the outsiders on the liquidation of Firm

FUNDED DEBT TO TOTAL CAPITALIZATION RATIO

2006 58.3% 2007 2008 2009 2010 2011

55.8% 43.6% 55.1% 39.0% 58.3%

0.7

F unded Debt to Total Capitalization R atio

0.6 0.5 0.4 0.3 0.2 0.1 0 2011 2010 2009 2008 2007 Trend

YEARS

INTERPRETATION
Increased from 2010-11 Increase due to the rise in long term debt Declines from 2008-09 because of decrease in the amount of long term debt for the purpose of funding as compared to the previous year

PROPRIETARY RATIO/ EQUITY RATIO

2006 54%
P roprie ry R tio/ E ta a quity R tio a

2007 55%

2008 44%

2009 31%

2010 44%

2011 54%

0 .6 0 .5 0 .4 0 .3 0 .2 0 .1 0 21 01 21 00 20 09 YA S ER 20 08 20 07 Te d rn

INTERPRETATION
In 2010: 55% = shareholders funds 45% =creditors of all the funds used in business. In 2009: Shareholders contributed 31% funds used in the business Creditors contributed 69% funds

SOLVENCY RATIO / RATIO OF TOTAL LIABILITIES TO TOTAL ASSETS

2007 71% 2008 68% 2009 56% 2010 65% 2011 50%

S enc R olv y atio / R atio of Total L iability to Total As ets s

0 .8 0 .7 0 .6 0 .5 0 .4 0 .3 0 .2 0 .1 0 21 21 20 20 20 01 00 09 08 07 YA S ER

T n re d

INTERPRETATION

Ratio is continuously rising accept for the year 2008 2009 (65% -56%)

Highest dependency on external financing is in 2011.ie 71%.

FIXED ASSETS TO NET WORTH RATIO

2007 401% 2008 346% 2009 175% 2010 215% 2011 146%

F e A s ts to Ne W ix d s e t orth

4 .5 4 3 .5 3 2 .5 2 1 .5 1 0 .5 0 21 01 21 00 20 09 YA S ER 20 08 20 07

R tio a

Te d rn

INTERPRETATION
Fixed asset to net worth ratio for year 2011 = 401% 2010 = 345% 2009 = 175 %. All the ratio are more then 100% which implies
Owners

funds were not sufficient to finance the fixed assets the firm had to depend upon outsiders to finance the fixed ratio. Whereas from 2010-11 the ratio is increasing.

FIXED ASSET RATIO

2007 201% 2008 178% 2009 122% 2010 130% 2011 117%

2 .5 F ixed As et R tio s a 2 1 .5 1 0 .5 0 21 21 01 00 20 09 YA S ER 20 20 08 07 T d ren

INTERPRETATION

Current 201% repayment capacity in 201011 through fixed assets.

Company using its short term funds for long term assets.

CURRENT ASSET TO PROPRIETORS FUND RATIO

2007 84.7% 2008 83.0% 2009 74.8% 2010 89.3% 2011 58.9%

Current As setsto Proprietors F und R atio

1 0.8 0.6 0.4 0.2 0 2011 2010 2009 2008 2007 YEARS Trend

INTERPRETATION

In 2011 84% of the proprietors funds invested in current assets.

Its 58.9 % in & 89.3% in 2008 is it shows that ratio is increasing rapidly.

INTEREST COVERAGE RATIO

2007 1132% 2008 1012% 2009 2135% 2010 2241% 2011 3512%

40 35 30 25 20 15 10 5 0 2011 2010 2009 2008 2007 YEARS

Interest Coverag Ratio e

Trend

INTERPRETATION
3512% in 2007 Reduces to 1132% in 2011. Trend is highly volatile. That means the company earnings increased the interest to be paid .

CASH TO DEBT SERVICE RATIO

2007 3.2 2008 2.6 2009 4.1 2010 4.7 2011 6.4

Cash to Debt S ervice R atio

7 6 5 4 3 2 1 0 2011 2010 2009 YEARS 2008 2007 Trend

INTERPRETATION

6.4 times cash from the profit available for paying interest in 2007

Gradual reduction to 3.2 in 2011 due to the increase in the interest charges.

GROSS PROFIT RATIO

2006 2007 2008 52.94 2009 53.50 2010 54.05 2011 52.49

55.14% 54.30%

INTERPRETATION

Efficiency in covering overheads Expenses incurred from 1$ of sales Half sales cover expenses

OPERATING RATIO
2006 81.21 2007 81.69 2008 83.81 2009 81.24 2010 85.39 2011 85.31

INTERPRETATION

Earnings from operations Improved over years Slight decrease in 2009

OPERATING PROFIT RATIO

2006 18.32 2007 18.16 2008 16.03 2009 18.60 2010 14.40 2011 14.48

INTERPRETATION

Profits before interest & expenses Higher is better Overall profitability is observed

C.G.S RATIO
2006 44.85 2007 45.70 2008 47.05 2009 46.49 2010 45.94 2011 47.50

INTERPRETATION

Cost incorporated in selling goods Sales revenue is measured Mixed trend is observed

ADMIN & SELLING EXPENSE RATIO

2006 36.35 2007 35.99 2008 36.76 2009 34.75 2010 39.44 2011 37.80

INTERPRETATION

Measures the expenses incurred against sales Lower is better Effects overall profits Controlled on average

NET PROFIT RATIO

2006 16.05 2007 14.33 2008 11.88 2009 13.75 2010 10.95 2011 9.71

INTERPRETATION

Profit made on sales Higher is better Ensures safety & low risk Constant decrease May result in net loss

CASH PROFIT RATIO

2006 17.63 2007 17.64 2008 15.17 2009 17.22 2010 14.63 2011 13.43

INTERPRETATION

Profit earned on sales Significant increase in 2010 Increase in overall expenses

RETURN ON SHAREHOLDERS INVESTMENT

2006 36.52 2007 32.66 2008 42.13 2009 34.09 2010 29.51 2011 31.21

INTERPRETATION

Profit measured by shareholders Good returns in 2008 Turned low in 20101 Increase in selling & admin expenses Increase in interest expense

RETURN ON EQUITY CAPITAL

2006 24.52 2007 19.93 2008 21.31 2009 18.42 2010 15.64 2011 21.43

INTERPRETATION

Over all returns of the business Higher is better Decreased in 2011 Depicting low growth periods

CAPITAL TURNOVER RATIO

2006 68.32 2007 67.11 2008 78.75 2009 64.64 2010 38.99 2011 57.72

INTERPRETATION

Utilization of capital Higher is better Low in 2010 Requires improvement in capital management

FIXED ASSET TURNOVER

2006 2.71 2007 2.81 2008 3.25 2009 2.41 2010 1.01 2011 1.01

INTERPRETATION

Efficient use of fixed assets Efficient use in 2998 Poor management in 2011 Less contribution towards revenue generation

WORKING CAPITAL TURN OVER

2006 6.94 2007 7.52 2008 10.07 2009 5.26 2010 15.84 2011 -44.31

INTERPRETATION

Ability to manage current liabilities Abrupt changes observed Negative in 2011 More liabilities than assets Increased debt financing

INTERRELATIONSHIP OF RATIOS RETURN ON INVESTMENT

2006 24.45 2007 21.05 2008 19.89 2009 19.12 2010 9.29 2011 11.80

INTERPRETATION

Highest in 2006 Low growth in 2011 Increase in expenses

DUPONT ANALYSIS RETURN ON EQUITY

2006 36.52 2007 32.65 2008 42.13 2009 34.09 2010 29.51 2011 31.21

INTERPRETATION OF VERTICAL ANALYSIS OF INCOME STATEMENT

Highest in 2006 Suffered low growth in 2011 Ability to manage operations Requires proper mix of financing

INTERPRETATION

Increase in cost of sales Increase in selling & admin expenses Increase in interest expenses Decrease in overall profits

INTERPRETATION OF VERTICAL ANALYSIS OF BALANCE SHEET

Better liquidity ratios Able to cover current liabilities Increase in debt financing Increase in interest expense