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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. NooyiChairman of the Board, Chief Executive Officer, PepsiCo
Saad Abdul-LatifChief 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 2010-
2011 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 2007 2008 2009 2010 2011
1.050 1.014 0.943 1.137 0.893 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 2007 2008 2009 2010 2011
8.184 8.557 9.061 8.593 10.440 11.450
INTERPRETATION Declining 2006-9, sudden increase in 2010-
11 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 2007 2008 2009 2010 2011
43.989 42.071 39.731 41.895 34.484 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 2007 2008 2009 2010 2011
9.433 9.730 10.139 9.926 12.179 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 2007 2008 2009 2010 2011
38.165 37.000 35.505 36.267 29.558 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 2007 2008 2009 2010 2011
2.426 2.559 2.729 2.636 3.208 3.565
INTERPRETATION Measures how fast company paying creditors Calculations indicating increase in ratio Better company’s position- short time
between purchases and paying Judge company’s incoming cash situation
AVERAGE PAYMENT PERIOD = NO. OF WORKING DAYS/ CREDITORS TURNOVER RATIO
2006 2007 2008 2009 2010 2011
148.367 140.683 131.911 136.565 112.222 100.993
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 2007 2008 2009 2010 2011
6.944 7.728 9.130 7.655 10.910 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 2007 2008 2009 2010 2011
0.241 0.117 0.235 0.450 0.374 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 2007 2008 2009 2010 2011
0.411 0.320 0.259 0.472 0.401 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 2007 2008 2009 2010 2011
0.113 0.052 0.086 0.176 0.127 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 2007 2008 2009 2010 2011
0.647 0.217 0.263 0.533 0.297 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 2007 2008 2009 2010 2011
0.513 0.484 0.438 0.583 0.556 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 2007 2008 2009 2010 2011
0.331 0.327 0.294 0.237 0.248 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 2007 2008 2009 2010 2011
130% 118% 47% 68% 24% 130%
0
0.2
0.4
0.6
0.8
1
1.2
1.4
2011 2010 2009 2008 2007
YEARS
Deb
t to
Equ
ity
Rati
o
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 2007 2008 2009 2010 2011
58.3% 55.8% 43.6% 55.1% 39.0% 58.3%
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
2011 2010 2009 2008 2007
YEARS
Fund
ed D
ebt t
o To
tal
Capi
taliz
ation
Rati
o
Trend
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 2007 2008 2009 2010 2011
54% 55% 44% 31% 44% 54%
0
0.1
0.2
0.3
0.4
0.5
0.6
2011 2010 2009 2008 2007
YEARS
Pro
pri
etar
y R
atio
/ Eq
uit
y R
atio
Trend
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 2008 2009 2010 2011
71% 68% 56% 65% 50%
00.10.20.30.40.50.60.70.8
2011 2010 2009 2008 2007
YEARS
Solv
ency
Rati
o /
Rati
o of
Tot
al
Liab
ility
to
Tota
l Ass
ets
Trend
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 2008 2009 2010 2011
401% 346% 175% 215% 146%
00.5
11.5
22.5
33.5
44.5
2011 2010 2009 2008 2007
YEARS
Fixe
d A
sset
s to
Net
Wo
rth
R
atio
Trend
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 2008 2009 2010 2011
201% 178% 122% 130% 117%
0
0.5
1
1.5
2
2.5
2011 2010 2009 2008 2007
YEARS
Fixe
d A
sset
Rati
o
Trend
INTERPRETATION
Current 201% repayment capacity in 2010-11 through fixed assets.
Company using its short term funds for long term assets.
CURRENT ASSET TO PROPRIETOR’S FUND RATIO
2007 2008 2009 2010 2011
84.7% 83.0% 74.8% 89.3% 58.9%
0
0.2
0.4
0.6
0.8
1
2011 2010 2009 2008 2007
YEARS
Curr
ent A
sset
s to
Prop
rieto
rs
Fund
Rati
o
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 2008 2009 2010 2011
1132% 1012% 2135% 2241% 3512%
05
10152025303540
2011 2010 2009 2008 2007
YEARS
Inte
rest
Cov
erag
e Ra
tio
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 2008 2009 2010 2011
3.2 2.6 4.1 4.7 6.4
0
1
2
3
4
5
6
7
2011 2010 2009 2008 2007
YEARS
Cash
to D
ebt S
ervi
ce R
atio
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 2009 2010 2011
55.14% 54.30% 52.94 53.50 54.05 52.49
INTERPRETATION Efficiency in covering overheads
Expenses incurred from 1$ of sales
Half sales cover expenses
OPERATING RATIO
2006 2007 2008 2009 2010 2011
81.21 81.69 83.81 81.24 85.39 85.31
INTERPRETATION Earnings from operations
Improved over years
Slight decrease in 2009
OPERATING PROFIT RATIO
2006 2007 2008 2009 2010 2011
18.32 18.16 16.03 18.60 14.40 14.48
INTERPRETATION Profits before interest & expenses
Higher is better
Overall profitability is observed
C.G.S RATIO
2006 2007 2008 2009 2010 2011
44.85 45.70 47.05 46.49 45.94 47.50
INTERPRETATION Cost incorporated in selling goods
Sales revenue is measured
Mixed trend is observed
ADMIN & SELLING EXPENSE RATIO
2006 2007 2008 2009 2010 2011
36.35 35.99 36.76 34.75 39.44 37.80
INTERPRETATION Measures the expenses incurred against
sales
Lower is better
Effects overall profits
Controlled on average
NET PROFIT RATIO
2006 2007 2008 2009 2010 2011
16.05 14.33 11.88 13.75 10.95 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 2007 2008 2009 2010 2011
17.63 17.64 15.17 17.22 14.63 13.43
INTERPRETATION Profit earned on sales
Significant increase in 2010
Increase in overall expenses
RETURN ON SHAREHOLDER’S INVESTMENT
2006 2007 2008 2009 2010 2011
36.52 32.66 42.13 34.09 29.51 31.21
INTERPRETATION Profit measured by shareholder’s
Good returns in 2008
Turned low in 20101
Increase in selling & admin expenses
Increase in interest expense
RETURN ON EQUITY CAPITAL
2006 2007 2008 2009 2010 2011
24.52 19.93 21.31 18.42 15.64 21.43
INTERPRETATION Over all returns of the business
Higher is better
Decreased in 2011
Depicting low growth periods
CAPITAL TURNOVER RATIO
2006 2007 2008 2009 2010 2011
68.32 67.11 78.75 64.64 38.99 57.72
INTERPRETATION
Utilization of capital
Higher is better
Low in 2010
Requires improvement in capital management
FIXED ASSET TURNOVER
2006 2007 2008 2009 2010 2011
2.71 2.81 3.25 2.41 1.01 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 2007 2008 2009 2010 2011
6.94 7.52 10.07 5.26 15.84 -44.31
INTERPRETATION Ability to manage current liabilities
Abrupt changes observed
Negative in 2011
More liabilities than assets
Increased debt financing
INTERRELATIONSHIP OF RATIOSRETURN ON INVESTMENT
2006 2007 2008 2009 2010 2011
24.45 21.05 19.89 19.12 9.29 11.80
INTERPRETATION Highest in 2006
Low growth in 2011
Increase in expenses
DUPONT ANALYSISRETURN ON EQUITY
2006 2007 2008 2009 2010 2011
36.52 32.65 42.13 34.09 29.51 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
o 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
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