BAO NGOC TRAN - FCSPEP

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Drexel University *

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102

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Business

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Feb 20, 2024

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Tran 1 BAO NGOC TRAN DANA D’ ANGELO BUSN – 102 – 14H 28 JANUARY 2024 FINANCIAL CASE STUDY PART 1: BRIEF COMPANY PROFILE PepsiCo, Inc. is a global food and beverage leader with a product portfolio including 23 brands that generate more than $1 billion each in annual retail sales. Founded on August 28, 1898, with its headquarters situated in Purchase, New York, PepsiCo's products are distributed across more than 200 countries and territories, leading to annual net revenues of over $70 billion. Guided by the vision to "Be the Global Leader in Convenient Foods and Beverages by Winning with Purpose," PepsiCo integrates purpose into its business strategy and brands. Its main products include Pepsi-Cola, Lay's, Gatorade, Tropicana, and Quaker, covering diverse segments from snacks to nutrition. PepsiCo is committed to delivering sustainable growth by investing in a healthier future for people and the planet, which is evident in its agenda to boost not only performance but also purpose. The company has also been reshaping its portfolio to focus on healthier options and has made significant strides in reducing its environmental impact, marking key financial and strategic milestones in its expansive history. PART 2: INDUSTRY PROFILE AND STOCK DATA 1. - PepsiCo, Inc. belongs to Non-Alcoholic Beverage Production industry.

Tran 2 - PepsiCo, Inc. is characterized by companies that produce and market beverages that do not contain alcohol, such as soft drinks, juices, bottled water, energy drinks, and coffee and tea-based products. - Top 3 competitors of PepsiCo, Inc. are Coca-Cola, Mondelez International A and Keurig Dr Pepper 2. - PepsiCo, Inc’s Ticker Symbol is PEP-US - PepsiCo, Inc is listed on NASDAQ stock exchange. 3. - The chart displays the price history and trading volume of PepsiCo, Inc. from January 21, 2022, to January 19, 2024 - It's worth noting that periods of high trading volume tend to coincide with significant price changes, which could indicate periods of high investor interest, potentially due to earnings reports, significant corporate news, or broader market economic events. - The chart indicates the highest recorded price was on May 15, 2023, at $196.88, and lowest price recorded was on March 10, 2022, at $153.37 - The most significant increase appears to occur between November 2022 and February 2023, where the price rises sharply from around $160 to just under $200. This period shows a steep and sustained price ascent, which is one of the most bullish phases in the two-year span. - The most pronounced decrease is observed from around mid-February 2023 to late March 2023, where the price drops from its peak near $200 back down to approximately $160. This period indicates a sharp sell-off or correction following the previous increase.

Tran 3 - Post-May 2023, the stock shows a more volatile behavior with sharp increases and decreases, but the overall trend appears to maintain above the $160 level, suggesting some level of price support or consolidation in that region. 4. - PepsiCo's market capitalization, standing at approximately $229.79 billion, indicates its substantial presence within the beverage and food industry. However, it is slightly smaller than that of its notable competitor, Coca-Cola, which has a market cap of approximately $259.89 billion. This suggests that while PepsiCo has a significant share of the market, Coca-Cola holds a larger portion when it comes to investor valuation. - Comparatively, Mondelez International A has a market capitalization of approximately $99.93 billion, which is less than half of PepsiCo's. This reflects PepsiCo's stronger position and larger scale of operations relative to Mondelez in terms of market valuation. - When considering the industry, these three companies together hold a considerable portion of the market capitalization. Assuming these are the major players, PepsiCo's market cap represents a significant but not dominating share of the total market capitalization within its competitive set.

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Tran 4 PART 3: FINANCIAL STATEMENT ANALYSIS - Financial Ratios of PepsiCo, Inc. from two most recent years (Dec-2022, Dec-2021) - Compare data of Pepsi to the three competitors (Coca-Cola, Mondelez International A and Keurig Dr Pepper): - Comment on each ratio: + Current Ratio: PEPSI has a current ratio of 0.80, which is lower than COCA COLA's ratio of 1.15 but higher than Mondelez International A (0.60) and Keurig Dr Pepper (0.47). This suggests that PEPSI has less coverage of current liabilities with current assets

Tran 5 than COCA COLA, which might indicate a less favorable short-term financial position compared to COCA COLA but not as tight as Mondelez and Keurig Dr Pepper. + Return on Equity (ROE): PEPSI has an ROE of 52%, which is higher than all the competitors listed. This indicates that PEPSI is generating a higher return on shareholders' equity, showcasing a potentially more efficient management team in generating profits from their equity financing compared to its competitors. + Profit Margin (Return on Sales): With a profit margin of 10%, PEPSI's profitability on sales is in the middle of the range among these companies, tied with Keurig Dr Pepper, and doing better than Mondelez International A but worse than COCA COLA. This indicates that PEPSI's operations are relatively efficient, but there may be room for improvement in cost management or pricing strategies to enhance profitability. + Debt to Equity Ratio: The debt-to-equity ratio for PEPSI is quite high at 463%, which is significantly more than Keurig Dr Pepper and Mondelez International A but less than COCA COLA. This implies that PEPSI is using more debt financing relative to its equity than Mondelez and Keurig Dr Pepper, which could signal higher financial risk but also potentially higher returns on equity as it is leveraging its capital structure. + Inventory turnover: PEPSI has an inventory turnover of 7.71, which is higher than Keurig Dr Pepper and COCA COLA but less than Mondelez International A. This suggests that PEPSI is turning over its inventory faster than Keurig Dr Pepper and COCA COLA, which could indicate more efficient inventory management and sales processes, but not as efficient as Mondelez International A.

Tran 6 (PepsiCo, Inc.’s Income Statement)

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Tran 7 (PepsiCo, Inc.’s Balance Sheet)

Tran 8 PART 4: INTERPRETIVE ANALYSIS 1. Liquidity is how fast and easily assets can be turned into cash. Liquidity figures can have an impact on current ratio, which is calculated by dividing current assets by current liabilities. Over the two-year period evaluated, PepsiCo experience a marginal decrease in liquidity, as evidenced by a slight decrease in the Current Ratio from 0.83 (2021) to 0.80 (2022). Although the current ratio is below 1, this number does not necessarily signal financial distress, especially for a company with PepsiCo’s strong market position and revenue streams. The slight decrease might be attributable to strategic decisions such as investing in fixed assets for long-term growth or acquiring inventory for anticipated sales. 2. Profitability is the state to which a business yields profit or financial gain. The profit margin is found by dividing the net income by sales. The profit margin represents what percentage of sales has turned into profits. It is used by creditors, investors, and businesses as indicator of a company’s financial health, management’s skill, and growth potential. PepsiCo’s profitability, as caculated by ROE, increased from 47% to 52% over the two-year period. This 5% inprovement demonstrates the company’s ability to generate profits from shareholders’ equity. This reflects successful product launches and market expansion strategies 3. Leverage is borrowing funds to increase the potential return of an investment. The debt-to-equity ratio compares liabilities to owner’s equity to measure the degree to which a business relies on borrowed money to fund in its operations. PepsiCo’s Debt to Equity Ratio showed a modest decrease from 472% to 463%. This reduction in

Tran 9 leverage suggests that the company is either improving equity, reducing debt. Debt to equity figures can impact short term performance because the liabilities need to be paid within a year. In the long term, a high debt to equity can indicate that the firms are not making enough money to pay back its creditors. 4. Looking at PepsiCo’s numbers from 2021 and 2022 and the stock price till 24 th January 2024, my recommendation is to sell the stocks. Firstly, a discernible contraction in net income, from $7,618M in December 2021 to $7,161M a year later, raises concerns over the firm’s profit-generating capacity. Secondly, inventory levels swelled from $4,347M to $5,222M across the same period, which might suggest that the company is facing decreased demand for its product or inefficiencies in inventory management. Thirdly, the cash and short-term investments decreased from $5,988M in December 2021 to $5,348M in December 2022, indicating that the company has less liquidity, which could be a potential risk if this trend continues. Fourthly, as I have searched for investment data recently of PepsiCo, in 2022, there was an extraordinary increase in investing activities to $3.467 billion, up from just $5 million the year before (PepsiCo Investing Activities - Other 2010-2023: PEP). This huge jump could be a sign of PepsiCo making significant investments in its business or acquiring new assets. However, the following year saw a sharp decline of 65.83%, with investing activities dropping to $3.548 billion (PepsiCo Investing Activities - Other 2010-2023: PEP). A sharp decline in investing activities could mean that the company is pulling back on investing in growth or that it is selling off assets, which could suggest that the business is facing challenges or shifting its focus. If I were an investor, these financial movements could make me nervous because I imply

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Tran 10 uncertainty about the company's future growth and profitability. I typically prefer stability and steady growth in a company's investing activities, indicating thoughtful and well-planned asset management.

Tran 11 WORKS CITED 1. PepsiCo, Inc. Snapshot. FactSet 2. Mondelez International, Inc. Class A Snapshot. FactSet 3. Coca-Cola Company Snapshot. FactSet 4. Keurig Dr Pepper Inc. Snapshot. FactSet 5. “PepsiCo Investing Activities - Other 2010-2023: PEP.” Macrotrends , www.macrotrends.net/stocks/charts/PEP/pepsico/investing-activities- other#:~:text=PepsiCo%20investing%20activities%20%2D%20other%20for%20the%20t welve%20months%20ending%20September,a%2087.5%25%20decline%20from%20202 0. Accessed 27 Jan. 2024.

BAO NGOC TRAN - FCSPEP

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