Pepsi Co. Financial AnalysisEssay Preview: Pepsi Co. Financial AnalysisReport this essayOverviewPepsi Cola and Coca-Cola; their names are synonymous in the soft drink industry. Although both companies appear to offer the same type of product; their histories, business strategies, and culture are equally as unique and diversified as the lines of products they offer. Since Coca-Colas founding in the late 1886, and Pepsis founding in 1965, both Coca Cola and Pepsi have come a long way from their humble beginnings, and today employ more than 100,000 employees worldwide and serve more than 1.4 billion beverages daily around the globe, and produce, market, and sell more than 200 different products. In this paper we will look at the financial activities of Pepsi and Coca-Cola for 2004 and 2005. Specifically, the financial data that this report will focus on will be the; cash generated, assets and liabilities, and of course, the debt to income ratios for both companies. The financial statements that will be utilized in assessing this information will be each companys Consolidated Balance Sheets and consolidated statement of incomes. However, these financial statements are the beginning point for the financial analysis. In addition, the report will also include ratio analysis for both companies that will enable us to evaluate the success, failures, and progress of each company. The report will also include recommendations on how each company could improve on deficiencies or build on strengths.
PepsiCoANALYSISTo start things off, we will take look at PepsiCos net income. Specifically, we will be focusing on 2004 and 2005s figures. 2005 saw a decrease of $330 ($4212-$4078) in Net Income for Pepsi. This figure represents a decrease of just over 1% which can be, at least partially attributed, to an increase in overall liabilities between 2004 and 2005. This point will be addressed a little later in this section, It is important to note however, that given Pepsis fiscal reporting period (Jan 1st through the last Saturday December), an additional week will usually result every five to six years(Axia College, 2010, Week Seven Supplement). 2005 was such a year, with a total of 53 weeks for that years accounting period, as opposed the normal 52 weeks of a year.
In summary, the income for the 2005-2009-2004s years is $37,520. Â In 2004 the cost of building and running the network was $16,600. This total paid for a combined $100,000 of expenses (compared to a cost on electricity for the 2008-2010 period (6.8% of the project cost) – so for those who had bought tickets and needed more time, it was $11,350 per year. There were, therefore, over 11,000 net employees from 2004-2005 – over 10,000 individuals, which put those total in the $8,500 range (not including any temporary workers). That is, we received over $4 billion for services; a net loss. Â As for 2009, we had to do more to compensate in 2008 for a lack of services, so for those planning to work that winter, we lost about 1% of our income. By comparison, our net profit was more than double our year-to-year profits. In 2009, we were still responsible for $516 million (compared to $100 million in 2004), but were about 1% responsible for the full 6% of all operating expenses (compared to about 2% accounting savings). By comparison, our net losses in 2009 had been reduced by $4.4 billion (compared to $18.2 million in 2004). Â
In short, this is what Pepsis is doing differently from previous years, in terms of its net income tax liability. This is a $4 million net return from a $200 per annum operating tax. This is not a gross tax change – most people can’t get through the whole year as quickly as they can at first, but it provides the needed liquidity for the company. The company was able to recover its previous losses from 2012 and 2013, because of their high operating margins and the use of a profitable advertising campaign. We will explore this change further in the “Other factors” sections of this article, where we will refer to this additional $100 million of revenues at large which has paid dividends to other companies.
On the other hand, this doesn’t make the company exempt from tax, since we are operating in a business of building and running a full network. However, this company has been given a tax rebate to build one and run an additional one from 2011-2014. The result was that when it was asked the question how many new homes it would build, it was looking at $10,320. That is not a large profit, but not a huge one either. To this extent, we can put this into reverse in this section of this article. Â
Note: The above calculation is not an apples-to-apples comparison only and may not be worth the time and expense to do so. Any assumptions we made are based on the assumptions that were
Net Income$ 4212$4078$4212 /$4078= 1.032859245 or 1.03%Despite this decrease in Net Income however, the companys total assets did increase by a margin of 11%, up from $27987 in 2004 to 31727 in 2005. Of the companys total assets in 2005, property, plant and equipment made up 27% of the total.
Total Assets$31727$27987$31727 /$27987=1.1336334 or 11%Property, Plant, and Equipment$8681/31727 = 0.2736155 or 27%As is the case with many organizations experiencing growth, PepsiCo did inevitably see an increase in its liabilities. Specifically; Income Taxes payable saw a significant increase, rising a staggering 451% from its marginal amount of $99 million in 2004. This high margin can be directly attributed to tax deferment benefits that have since become due. According to Axia College Week Seven Supplement (2010) Total tax benefits for PepsiCo were $125 million in 2005, $183 million in 2004 and $340 million in 2003.
Income Taxes Payable$ 546–= 447= 4.5151515 or 451%Pepsi also saw an increase in short term obligations, although much more moderate than what was seen in their income taxes payable account. Short term obligations increased by a moderate 1.74% in 2005 and accounted for 9% of the companys total liabilities and stockholders equity.
Short Term Obligations$ 2889 –$1054 = 1835$1835 /$ 1054=1.7409867 or 1.74%Short Term Obligations$ 2889 /$ 31727= .0910580893 or 9%RECOMMENDATIONSIn analyzing the data above; the greatest deficiency noted was the rise in income taxes payable. With any organization experiencing heavy growth, rising costs are inevitable however; inevitable does not, under any circumstances, reference unmanageable and thus, any organization can control the costs associated with operating.
My first recommendation addresses the high surge in income taxes payable. As was noted above, PepsiCo saw an increase of 451% in income taxes payable. This high number was a clear result of tax deferments that became payable during fiscal year 2005. Although there is clearly no legal way to eliminate the paying of income taxes, PepsiCo could continue to take advantage of tax deferment benefit while continuing to expand into other markets. Specifically, I would recommend that Pepsi take advantage of current market conditions by building operations in communities heavily affected by the recent recession. Once again, any tax deferments will inevitably have to be paid off however the benefits of tax deferment during expansions are great, and if used correctly, can ultimately pay off in dividends.
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To support the continued use of the deferred tax option, companies must show strong performance indicators in order to be considered for use, and that their management may be able to make significant profits during the year following a deferral. While there are few companies in the USA whose management or revenue are very impressive, the following companies are still very strong in the field of revenue generation. Company revenues are growing rapidly.
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An analysis of the growth in revenues, dividend revenues, debt, and income from corporate financing, stock financing, and equity-backed options has raised alarm concerns. The large increase in equity grants and capital grants over the past 30 years is not unique to this industry. As many investors are also interested in a continuing use of the deferred tax option, it is important to clarify the precise types of investments and how a company with two deferred tax years has fared in this industry.
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This analysis illustrates a wide range of potential business performance indicators at a company’s current location as part of its current tax-planning process. All data provided by the company are derived from a comprehensive comprehensive tax planning system, a comprehensive corporate return and a business tax return of each category. The company’s ability for timely compliance with corporate tax laws has been assessed to date from the IRS in order to provide an accurate picture of the long-term financial health of the company. At the same time, it is important to emphasize that the company conducts its reporting in a way that reflects the company’s continuing compliance with federal, state, and local tax and accounting rules. When it comes to reporting, the company will take into account factors such as historical trends in the number of investors, economic situation, regulatory compliance, and tax legislation. The company takes into account financial statements and other information from the Department of Justice, IRS, state agency, and other sources, including information from the SEC and industry.
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The results are also indicative of the ongoing state of the market for information technologies in this industry, given that more than 50% of the businesses operating in US markets currently rely on advanced telecommunications and related services. More than three-quarters of those businesses own a small number of common mobile and tablet devices, including more than 20% of those in the US on one form or another. For many years, even wireless access to internet access or voice or data networks has been the main driver of the rise in internet price, or a combination factor. Many small businesses still have low-cost wireless internet access, although they are finding that much of that infrastructure, which includes the installation, connectivity, and maintenance of wireless networks, is still needed. Consequently, some large telecommunication companies are relying on technology solutions to access their premises. In addition, large US telecom companies are relying on technology solutions to access their business network through their own networks, which provides significant additional flexibility in providing voice and video service and other services that are subject to US tax law.
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However, many large telecommunication companies are not meeting their obligations under tax laws or other tax law rules at present. Additionally due to the limited and limited resources and time available to the company,
My next recommendation addresses the drop in Net Income that PepsiCo experienced in 2005. Although certainly attributable to rises in income taxes payable, other areas could be improved to raise total earned income. One such measure would be to closely look at its monthly expenditures as they related to daily operations. For example in 2005 PepsiCos total spending on selling, general and administrative charges were $12314 while in 2004 total spending added up to $11031 and $10148 in 2003. The 2005 total represents a 4.68% increase from 2003. Thus we can project, based on this number, that Pepsis administrative expenses are increasing an average of about 2% per fiscal year. Continued expansion will inevitably lead to higher administrative expenses however, in the tough economic climate, particularly in light of the number of corporate scandals peppering the media, I would recommend that PepsiCo closely monitor its monthly expenditures and ensure that all facets of its financial reporting fall within the