A

A capstone
capstone project
project presentation
presentation
on
on
A competitive comparison of Soft drink
industry in India in context of PepsiCo and
Coca cola ent.inc.
Prepared by: Akshaykumar Jadav(34)

Project guide: Prof.Sandhya Harkawat

S.K. PATEL INSTITUTE OF MANAGEMENT & COMPUTER STUDIES

Sector: 23, GH-6 Road corner, Gandhinagar-382 023
Phone: 079- 23245729 fax: 079-23248119
Website: www.skpatel.org, E-mail:skpinfo@skpatel.org
Flow of the presentation
 Introduction
 Industry
 Company
 Pepsi
 Cocacola
 Research objective
 Blancesheet analysis
 Working capital analysis
 Cashflow analysis
 Incomestatement analysis
 Ratio analysis
 Conclusion
 Bibliography
FMCG INDUSTRY
OVERVIEW
 The FMCG sector represents consumer goods required for
daily or frequent use. The main segments of this sector are
personal care (oral care, hair care, soaps, cosmetics, and
toiletries), household care (fabric wash and household
cleaners), branded and packaged food, beverages (health
beverages, soft drinks, staples, cereals, dairy products,
chocolates, bakery products).
 The Indian FMCG sector is an important contributor to the
country's GDP.
 This industry has witnessed strong growth in the past decade.
 Unlike the perception that the FMCG sector is a producer of
luxury items targeted at the elite, in reality, the sector meets
the every day needs of the masses.
Company overview-Pepsi
 PepsiCo, Inc. was founded in 1965
 Tropicana was acquired in 1998.
 In 2001, PepsiCo merged with the Quaker Oats Company,
creating the world’s fifth-largest food and beverage company,
with 15 brands – each generating more than $1 billion in
annual retail sales. PepsiCo’s success is the result of superior
products, high standards of performance, distinctive
competitive strategies and the high level of integrity of our
people.
Company overview-
cocacola
 Coca-Cola originated as a soda fountain beverage in 1886
selling for five cents a glass.
 Early growth was impressive, but it was only when a strong
bottling system developed that Coca-Cola became the world-
famous brand it is today.
Research objective
 The main objective of theproject report is:
 To have comparative financial analysis of softdrink industry in
context of pepsico. and cocacola enterprise inco.
 Sub objectives are:
 To have balancesheet analysis of the respected companies
to analyse financial streanghts of the companies
 To find cash conditions of the companies
 To find out cost of capital.
 To find out which compay is better for investment.
Balancesheet analysis
 The analysis of three years of balancesheet of pepsi and pepsi has
been done and from those data the projected balacesheet for the
years of 2009 to 2013 of five years has been counted with the
simple average method. (all figures are in thousands)
Balancesheet analysis
 ASSETS:
 Assets are the most important part of the company it provides
resources to the company. company's position can be
predicted by the assets holding capacity.
 larger the capacity ,stronger the position of the
company.assets includes cash receivables,short term
investment , inventory which will come under title of current
assets.
 other assets like goodwill,plant,intangible assets will also
included in the non title of fixed assets.
 As per the projected data the cocacola’s last 3 years assets are
29936000(in 06),(in 2007) and 3802000 (in 2008).while the
projected assets calculated with simple average method the assets
of cocacola is increasing every year than past three years.
 in 2009 the assets will be 40714667, which is highest for the
cocacola.pepsi is having the assets as of half than cocacola. In the
year 2006 pepsi is having assets of 11927000, in
2007(13115000)and in year 8 (12982000) that has decreased
from the previous year.
 The main reason for the pepsi is having higher assets is it’s long
term investment and property plant and equity more than pepsi.in
2008 cocacola is having 2% decrease in the assets while pepsi is
having 8% decrease in the assets.from the projected data of 10
the assets of pepsi should be increased by 2% but cocacola will
increase its assets more 7% in 2010.cocacola is having larger
assets than pepsi so we can say that cocacola is very larger firm
than pepsi.
 comparing the cash and cash equivalents cocacola is generating
higher cash than pepsi.pepsi’s cash generation is very small and it
will take long time to incease because it is almost 4 time lesser
than of cocacola. the assets including inventory
,goodwill,intangible assets are more of cocacola than pepsi.
 LIABILITIES:
 Liabilities are the application of the resource of assets.liabilies
are the responsibility of the company.company has to pay all
it’s liability with in certain time period.liabilites include two
parts one is fixed liabilities and othe is current
liabilities.account payabe,short term debt will come under title
of current liabilities.long term debt and other liabilities will
come under title of fixed liabilities.
 Pepsi is having less liabilities than cocacola.for the year
2006 it is of 7792000(in thousand) than it increase in 2007
to 8285000 because of increase in the deffered long term
liabilitesand interest.
 than it again reduces to 759000 in 2008 this year company
has reduced its deffered long term iabilies.for the year
2009 company had paid the amount of 100667 under title
of other current liabilities.
 which has increased to the total liability for pepsi.cocacola
is having more liabilities than pepsi which is almost of 2
times than pepsi. for the year 2006 to 2008 the lianilities
are 12685000,21525000,20047000 respectively.
 The ratio of the liabilities of the both companies is of 6:4 in
the year of 2006 than the ratio incease to 7:3 in year
2007.in 2008 it remains 7;3.for the projected years the
ratio In 2009 the ratio is of 8:2 which tells how cocacola is
having giant liabilities than pepsi.
Working capital analysis
 working capital helps the company to maintain the level of cash
for the day to day transactions.

 Working Capital = Current Assets −

Current Liabilities
Working capital Pepsi Cocacola

6 698,000 - -476000 -

7 871,000 25%in -1120000 135%dec

8 58,000 93%dec -812000 27.5%in

9 542,333 835%in -802667 1.2%in

10 490,444 9.6%dec -911556 13.6dec

11 363,593 26%dec -842074 7.6%in

12 465,457 28%in -852098 1.2%dec

Total in/dec - 753%inc - 115.5dec

Cashflow analysis
 Operating activities
 Operating activities include the production, sales and delivery
of the company's product as well as collecting payment from
its customers. This could include purchasing raw materials,
building inventory, advertising, and shipping the product.
 As cocacola’s investment in the long term assets
increasing it’s depreciation is also increasing .i has been
increased 1163000 in 2007 from 938000 in 2006and it
increase more in 2008 of 1228000,for the year 06 and
07 the amount receivable has been in negative.
 2008 has account receivable has been positive which is
148000.liabilites has been increased of 99000 in
2006.then it is decreased of 914000 in 2007 but then
again increased of 734000.total cash flow from
operating activities has been increased over year.
 Cocacola’s operating cash flow is more than pepsi.
 which shows that cocacola handles its cash operations
more effectively.
 pepsi’s operating activity cashflow for the year 2008 is
1284000.while the projected amount is much more
higher than 2008 and previous years.it increases of
29445 than decreases in 2011 of 30408.again increase
in 2012 and in 2013. the projected data of cocacola is
very stable there has been not much change from 2010
to 2013.which remains around 7106654 to 7222741.
 Investing activities:
 Cocacola has purchased more assets in 2007 .the other
investment has been decreasing evry year it remarks sharp
decrease in 2008.projected investment is also decreasing .
 total cash flow from investing activities of cocacola is
decreasing which tells total investment of company is reducing
.pepsi’s capital expenditure includes the purchasing and selling
of assets while there is no investment .total cash flow is
positive in 2008 then it came neagative in 2012.
 Financing activities:
 Cocacola’s dividend distribution increases every year.in 2007
cocacola has paid 8% more dividend than 2006.
 while pepsi has reatained earnings for all years. Retain earning
is increasing in the projected years.
 Coca-Cola has paid uninterrupted dividends on its common
stock since 1893 and increased payments to common
shareholders every year for 47 years.From the end of 1998 up
until December 2009 this dividend growth stock has delivered
a negative annual average total return of 2.10% to its
shareholders. The stock has largely raded between $65 and
$40 over the past decade.
Income statement analysis
 Opearintg profit :
 For the year 2008 operating profit for the
cocacola is more than pepsi.
 cocacola’s profit is increasing every year but there has not
been any major change in the profit of pepsi.profit for cocacola
in year 2008 is 8446 $ mill.pepsi’s profit in the same year is
6502.there has been defference of 7% in the profit of both
companies.
 Net income:
 Cocacola is earning 165 mill $ more profit than pepsi which in
% term 1.44 % more than pepsi. We can say that pepsi is
earning very good profit though the assets of the pepsi is less
than cocacola, pepsi is having almost similar profit.
Weighted Average Cost of
Capital
 All the financial figures utilized in the weighted average cost of
capital computation were derived from the companies’ 10-K
reports and from Yahoo Finance, unless otherwise noted.

 Common Equity:
10-Year T-bond=6.27%
S&P 500 return=12%
PepsiCo beta =0.5
Coca-Cola beta=0.63

CAPM Equation: Rs=Rrf +(RPm)b

 CAPM Equation: Rs=Rrf +(RPm)b

PepsiCo: Rs=6.27+(12-6.27)0.5
=9.135

Coca-Cola: Rs=6.27+(12-6.27)0.63
=9.89
 Long-Term Debt:

PepsiCo
 debt: 4,203,000,000 = 3.5%
Common stock: 115,360,876,600 =96.5%
119,563,876,600 =100%

Coca-Cola
debt: 3,277,000,000 = 2.4%
Common stock: 135,513,142,200 =97.6%
138,790,142,200 =100%
 PepsiCo WACC:
 WdRd + WceRs
=.035(7.0%) + .965(9.135%)
=9.045%
 Coca-Cola WACC:
 WdRd + WceRs
= .024(7.1%) + .976(9.89)
= 9.87%
 It’s important to note here that neither PepsiCo nor Coca-
Cola issue preferred stock, so that component was not
utilized in the WACC computation.
 A surprising discovery was the low tax rate for both of
these corporations: 26% for PepsiCo and 22% for Coca-
Cola. This may be attributed to lower tax rates overseas,
where these companies derive a significant portion of their
revenues from.
 research reveals that the strongest candidate as an
investment opportunity is PepsiCo. The WACC computation
Made the choice easier. Nevertheless, Coca-Cola is a strong
performer and is poised for a comeback. PepsiCo cannot
rest on its laurels, if it neglects any aspect of its core
business it is bound to be overtaken by its eternal rival.
Ratio analysis
 To illustrate efficiency as a good investment choice, we will use
data from the annual reports of PepsiCo, Coca-Cola, for the fiscal
year 2008, in order to form comparative ratios. To realize the
values of the ratios, it is necessary to compare them with
benchmark values. One benchmark consists of similar firms in the
same industry.
 Liquidity:
 Liquidity refers to a company's ability to meet its requirements
for cash. Liquidity is necessary to meet both expected and
unexpected cash demands.
 The standard measure of liquidity is the current ratio,
calculated by dividing "current assets" by "current liabilities”.
The current ratio for PepsiCo of 1.1 indicates it is the more
liquid of coke, and also performing better than the beverage
industry with a 1.00 figure.

  Pepsi Cocacola industry

Current ratio 1.1 1 1

 Profitability:

 Two common measures of profitability are the net profit margin

and the return on assets ratios. Each provides a different
perspective about the firm's profits.
 Coca-Cola’s NPM of 8.8 percent is low compared with PepsiCo’s
NPM of 16.6 percent.This is due primarily to its proprietary
product and monopolies in certain foreign markets. PepsiCo
derives the majority of its income from lower margin snack foods
and restaurants. Less than half its sales come from soft drinks.
  Pepsi Cocacola Industry

Net profit margin 10.6 9.8 8.05

Return on assets 15.81 14.46 10.97

Total asset turn over 2 1.81 2.3

Inventory turn over 7.9 5.4 2.19

 The Return on Assets ratio (ROA), which is also known as the
Return on Investment ratio, is calculated by dividing "net profit"
by "total assets”. It indicates the rate of return provided by the
book value of the company's assets. The higher the ROA, the
more profitable the company is. Consistent with the NPM, PepsiCo
has the highest ROA with 15.81 percent, making Coca-Cola's
14.46 percent second. This reflects PepsiCo’s ability to generate
significant sales volume from its asset base.
 Total Debt-Equity Ratio:
 Total debt-equity ratio is the ratio of a company's long-term
liabilities to its equity.
 cocacola has the higher level of debt, making it very
important for the company to have positive earnings and
steady cash flow. Debt in and of itself is not harmful, but it
does require the timely payout of interest to debt holders.
PepsiCo has the chances of defaulting on debt.

  Pepsi Cocacola Industry

Debt to 0.3 0.45 0.63

equity

Long term 0.23 0.24 0.76

debt to
total
equity
 conclusion
 Pepsi Co.:
 Coca Cola Co.:
 current ratio is high – short-term
 current ratio is slightly increasing, under that
solvency is favorable of Pepsi Co.
 greater volatility in ratios
 low volatility in ratios
 greatly reduces D/E ratio
 stable Debt ratios
 increases TIE ratio – solvency
 decreases TIE ratio – lowers ability to cover
interest expenses
 shorter days sales of inventory
period – better inventory
 significantly high inventory turnover – not as
management good inventory management as Pepsi Co.
 increases slightly asset turnover
 improvement in asset turnover
 capital intensity increases – better
 capital intensity increases slightly
capital utilization to realize sales  profit margin decreases sharply
 profit margin increases  both ROA and ROE decrease greatly, starting
significantly around 1998 and reach a stage below those
 both ROA and ROE increase of Pepsi Co.
significantly and even exceed
those of Coca Cola Co.
 the ratios of Pepsi Co. significantly improve and lose their
worrisome volatility with time.
 . They reach levels as high, if not higher, than those of their main
competitor, Coca Cola Co.
 These changes are evidence for the stable positioning of Pepsi Co.
and their increase in market share compared to that of Coca Cola
Co. Therefore, the comparative ratio analysis of the two
competing companies supports the conclusion that Pepsi Co. is
doing better within its internal operations and market penetration.
Thus, Pepsi Co. would be the more profitable investment
Bibliography
WWW.SCRIBD.COM
WWW.BIGCHARTS.COM
WWW.MORNINGSTAR.COM
WWW.YAHOOFINANCE.COM
WWW.AUTHORSTREAM.COM
PEPSICO WEBSITE,www.pepsico.com
COCACOLA WEBSITE,WWW.COCACOLA.COM
PEPSICO INTERNATIONAL INTERNAL REPORT
COCACOL INTERNATIONAL INTERNAL REPORT
Thank you!