TAKE THE PEPSI CHALLENGE!

Your supervisor has requested that you provide a comprehensive and comparative analysis for Coca-Cola (KO) and
Pepsico (PEP). Please limit your answers to information from their most recent Forms 10-K (available from the
SEC’s website, www.sec.gov) and be concise with your responses (I have provided page limitations).

Your final submission should be a single deliverable in a pdf file submitted through Canvas. As with the Team
Project, consider this to be a professional deliverable and prepare your final submission with this in mind. There is
no “correct” format of the final report, but it should be neat, well organized, and professionally executed. For each
question (where appropriate), provide the following:

• A summary table of any ratios or information you considered

• A brief summary of your conclusions (the use of bullet points to identify key conclusions is highly encouraged).

Make sure to provide any ratios or calculations in the proper format (either % or numeric, depending upon the
ratio). Round all calculations to one decimal place.

In addition to information you access through the SEC’s website, excel copies of the balance sheet and income
statement are provided in Canvas on the “Team Project” tab.

1. Conduct a vertical analysis of KO’s and PEP’s balance sheets for the two most recent fiscal years (2021 and
2020).
• For assets, use the following categories: Cash, Inventory, all other current assets, PPE, other long-term
assets.
• For liabilities and equity, use the following categories: Current Liabilities (other than debt), Debt, other
long-term liabilities, and equity.

Summarize the major composition of each company’s total assets, liabilities, and equity and identify any
significant differences you observe (1) for each company in 2021 and 2020 and (2) between the two
companies in 2021. (limit your discussion to ½ page)

2. Conduct a vertical analysis of KO’s and PEP’s income statements for the two most recent fiscal years (2021 and
2020). Use the following categories: Cost of goods sold, other operating costs, non-operating costs and
revenues. Summarize the overall cost structure of the two companies and identify any significant differences
in cost structure you observe (1) for each company in 2021 and 2020 and (2) between the two companies in
2021. (limit your discussion to ½ page)

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Team Project: Fall 2022 Page 1
For #3 through #9 below, you should evaluate each company’s performance in 2020 and 2021. Each response
should address three questions (along with your rationale):

1. Did PEP’s performance improve or decline from 2020 to 2021?

2. Did KO’s performance improve or decline from 2020 to 2021?
3. Which company (PEP or KO) performed in a superior manner in 2021?

Make sure to include any ratios or information that support your conclusions within the summary table for each
question.

3. Evaluate the following elements of profitability (limit your discussion to ¼ page per item).
• Using resources provided by shareholders to generate net income
• Using responses provided by both lenders and shareholders to generate net income
• Obtaining a greater proportion of its resources from parties other than shareholders
• Using assets to generate revenues
• Controlling overall costs
• Controlling the following costs more effectively: (1) costs associated with products; (2) operating costs
other than costs associated with products; (3) nonoperating costs.

4. Based on your analysis in (3), evaluate overall profitability and identify which characteristics of operations
influenced your conclusions. (limit your discussion to ¼ page)

5. Identify the relative contribution of operating and nonoperating activities to each company’s ROE. Based on
this analysis, which company do you feel performed in a superior manner? (limit your discussion to ¼ page)

6. Evaluate the short-term liquidity (ability to pay vendors in the next 30-90 days) of each of these companies
(limit your discussion to ¼ page).

7. Evaluate each company’s efficiency in terms of the cash conversion cycle and ability to maximize receipt of
cash (limit your discussion to ¼ page)

8. Evaluate the long-term solvency of each of these companies (limit your discussion to ¼ page)

9. Evaluate the characteristics of each company from an investment standpoint (limit your discussion to ¼ page)

10. Review PEP’s and KO’s Statements of Cash Flows for 2020-2022. Based on this review, evaluate the priority
that each company places on investing in further growth (through capital expenditures and acquisitions)
versus returning capital to shareholders (through dividends and stock repurchases) (limit your discussion to ½
page).

11. Based on both the financial statements and supplemental disclosures (including your own analyses), respond
to the following (for 2021 only): (limit your discussion to ¼ page per item)
• Which company is more conservative (estimates a higher percentage) with respect to its uncollectible
accounts receivable? How does this affect your previous assessments of profitability, short-term liquidity,
cash collection, long-term solvency, and investment preference?
• Which company is more conservative (estimates a longer useful life) with respect to the useful life
assigned to its property, plant and equipment? How does this affect your previous assessments of
profitability, short-term liquidity, cash collection, long-term solvency, and investment preference?
• Which company is more likely to require a significant investment in its property, plant and equipment in
the near future?
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Team Project: Fall 2022 Page 2
12. Based on your work above, your supervisor has asked you to prepare a single PowerPoint® slide to summarize
which company you feel is superior on an overall basis in 2021. This slide should identify the most significant
differences between the two companies that you considered in your decision.

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Team Project: Fall 2022 Page 3