Group

Financial Analysis of Coca Cola

and PepsiCo

15/11/2021
Table of Contents
Trend Analysis.............................................................................................................................................2
Revenue Trend........................................................................................................................................2
Profit Margin Trend.................................................................................................................................3
Vertical Analysis...........................................................................................................................................6
Horizontal analysis.......................................................................................................................................7
Income Statement...................................................................................................................................7
Balance Sheet..........................................................................................................................................9
Ratios.........................................................................................................................................................10
Gross Profit Margin................................................................................................................................10
Operating Profit Margin.........................................................................................................................11
Net Income Margin................................................................................................................................11
Appendix...................................................................................................................................................13
Reference List............................................................................................................................................14
Trend Analysis
Revenue Trend
The Trend Analysis in this report was created by considering 2016 as the base year (index as 100%), then
taking all the data of each year from 2017 to 2020, dividing it by the base year's data, and multiplying by
100. The purpose of Trend Analysis is to evaluate a company's performance by observing its
development trend over the years.

Year Ended December 31, 2016 2017 2018 2019 2020

Net Operating Revenues 100 84,58 81,93 89 78,86
Cost of goods sold 100 80,56 79,42 88,85 81,64
Gross Profit 100 87,23 83,6 89,17 77,1
Operating expenses 100 87,36 72 74,9 63,10
Operating Income 100 86,96 106,1 116,9 104
Interest expense (income) 100 155 189 -161 -153.5
Income Before Income Taxes 100 82,86 101,1 132,56 119,82
Taxes 100 350,56 110,28 113,55 124,9
Consolidated Net Income 100 19,59 98,87 137,17 118,59
Trend Analysis of Income Statement of Coca Cola (2016-2020)

120

100
100
89
84.58 81.93
78.56
80

60
Revenue (%)

40

20

0
2016 2017 2018 2019 2020

Net Revenue of Coca Cola (2016-2020)

The revenue of Coca-Cola witnessed an unstable development trend, but overall it noticed a downward
trend since the sales of 2020 declined significantly by 21,14% compared to 2016. Specifically, during the
two years from 2016 to 2018, revenue decreased markedly by 18.07%; revenue in 2019 increased
slightly but still 11% lower than in 2016; a year later, revenue decreased again.

Year Ended December 31, 2016 2017 2018 2019 2020

Net Operating Revenues 100 101,31 103,13 107,11 112,23
Cost of goods sold 100 101,94 104,12 106,77 112,67
Gross Profit 100 100,44 102 107 111,56
Operating expenses 100 98,7 101,60 108 115
Operating Income 100 104,81 103,12 104,96 102,81
Net interest expense and
other 100 53,87 73,6 78,2 80,8
Income Before Income
Taxes 100 112,26 107,43 108,87 106,03
Taxes 100 215,9 -155 90,11 87,12
Consolidated Net Income 100 76,14 196,88 115,27 112,48
Trend Analysis of Income Statement of PepsiCo (2016-2020)

115
112.2

110
107

105
103
101.3
Rvenue(%)
100
100

95

90
2016 2017 2018 2019 2020

Net Revenue of PepsiCo (2016-2020)

Over the five years from 2016 to 2020, the revenue of PepsiCo beheld a gradual and steady growth;
revenue of 2020 compared to 2016 increased by 12.23%.

Profit Margin Trend

Net profit margin stands for what percentage of revenue has turned into income by dividing net income
by net revenue times 100.
 Year Ended December 31, 2016 2017 2018 2019 2020
Net Profit Margin 15,65 3,6 18,88 24,2 23,5

Profit Margin of Coca Cola (2016-2020)

30

25 24.2
23.5

20 18.88

15.65
15
Profit Margin (%)

10

5 3.6

0
2016 2017 2018 2019 2019

Profit Margin of Coca Cola (2016-2020)

The profit margin of Coca-Cola has undergone a volatile development. Profit margin in 2017 fell sharply
when it only accounted for one-quarter of the previous year's profit margin. It then developed
dramatically by five times to 18.88% in 2018. A year later, the profit margin increased by 5.2% in 2019.
Profit margin in 2020 decreased slightly by 0.58% to 2019.

Year Ended December 31, 2016 2017 2018 2019 2020

Net Profit Margin 10,17 7,7 19,42 10,95 10,19
Profit Margin of PepsiCo (2016-2020)
 25

20 19.42

15

10.95 Profit Margin (%)

10.17 10.19
10
7.7

0
2016 2017 2018 2019 2020

Profit Margin of PepsiCo (2016-2020)

The profit margin trend of Pepsi saw many fluctuations. Clearly, the profit margin in 2017 decreased by
2.47% compared to 2016. In the following year, the profit margin increased significantly by 11.72%. In
2019, the profit margin shrank notably by 8.47%. In 2020, the profit margin reduced slightly by 0.76%

Year Ended December 31, 2016 2017 2018 2019 2020

Net Operating Revenues 100 84,58 81,93 89 78,86
Total Oprating Expense ( included COGS ) 100 84 75.6 81,7 72,2

250

200
Net Revenue (%)
150
Total Operating Expenses(%)
100

50

0
2016 2017 2018 2019 2020

Trend Analysis of Net Revenue and Total Operating Expenses of Coca Cola (2016-2020)
It can be easily seen that the trend of Revenue and Operating Expenses is alike. The reason is Revenue is
usually a result of the number of goods sold. Revenue increase means more products sold, resulting in
an increase in Operating Expenses, especially an increase in Cost of Sales because more costs are
needed to make more output, so as well the other way around.

Vertical Analysis
The Vertical Analysis in this report was created by converting the absolute figures of each account in the
Income Statement to a percentage of Net Revenue which has a value of 100%. The purpose of Vertical
Analysis is to see the weight of each account over the Revenue.

Year Ended December 31, 2020 2019

Net Operating Revenues 100 100
Cost of goods sold 40,69 39,23
Gross Profit 59,31 60,77
Selling, general and administrative expenses 29,47 32,48
Other operating charges 2,58 1,23
Operating Income 27,25 27,06
Interest income 1,12 1,51
Interest expense 4,35 2,54
Equity income (loss) — net 2,96 2,81
Other income (loss) — net 2,54 0,09
Income Before Income Taxes 29,53 28,94
Income taxes 6 4,83
Consolidated Net Income 23,53 24,11

The Vertical Analysis of the Income Statement of Coca Cola (2019&2020)

Year Ended December 31, 2020 2019

Net Operating Revenues 100 100
Cost of goods sold 45,18 44,86
Gross Profit 54,82 55,14
Selling, general and administrative expenses 40,49 39,81
Operating Income 14,32 15,32
Other pension and retiree medical benefits income/(expense) 0,16 0,06
Net interest expense and other 1,6 1,39
Income Before Income Taxes 12,89 13,86
Provision for/(benefit from) income taxes 2,7 2,92
Consolidated Net Income 10,19 10,95

The Vertical Analysis of the Income Statement of Pepsi (2019&2020)

 Year Ended December 31, 2020 2019
Gross Profit Margin 54,07 55,54
Pre tax margin 18,23 19,29
The indicators of the Non-Alcoholic Beverage Industry (2019&2020)

The three biggest accounts in the Vertical Analysis of Coca-Cola are COGS, Gross Profit, and Income
Before Taxes. Coca-Cola has the highest Gross Profit, accounting for about 60% of Revenue, 5% higher
than Pepsi, and 5% higher than the Industry. The reason is that Coca-Cola has the lowest COGS, being
around 40% of Revenue, 5% lower than Pepsi. Coca-Cola also has the highest Income before Taxes,
accounting for 29% of Revenue, much higher than Pepsi's by 16% and higher than the Industry by 10%.
That is good news for Coca because it proves that Coca-Cola is more efficient at using the essential
resources to produce the goods sold. Plus, Coca-Cola's expenses are less than Pepsi's compared to the
revenues; hence Coca-Cola is also better at managing operating costs, which means Coca-Cola has a
greater chance of making a profit than Pepsi.

Horizontal analysis
Horizontal analysis shows the differences from the base period in absolute and relative value. Absolute
differences are calculated by taking the data from the comparison year minus the data of the base year -
the previous year. The relative differences are calculated by dividing the calculated absolute differences
by the base year, then multiplying by 100.

Income Statement
2018-2019 2019-2020
Year Ended December 31, 2018 2019 2020 $ % $ %
Net Operating Revenues $ 34,300  $ 37,266  $ 33,014  2966 8.6 -4252 -11.4
Cost of goods sold 13,067  14,619  13,433  1552 12 -1186 -8
Gross Profit 21,233  22,647  19,581  1414 6.6 -3066 -13.5
Selling, general and administrative expenses 11,002  12,103  9,731  1101 5.2 -2372 -19.6
Other operating charges 1,079  458  853  -621 -57.5 395 86
Operating Income 9,152  10,086  8,997  934 10 -1089 -11
Interest income 689  563  370  -126 -18 -193 -34.3
Interest expense 950  946  1,437  -4 0 491 52
Equity income (loss) — net 1,008  1,049  978  41 4 -71 -6.7
Other income (loss) — net -1674 34  841  1708 102 807 2373
Income Before Income Taxes 8,225  10,786  9,749  2561 31 -1037 -9.6
Income taxes 1,749  1,801  1,981  52 3 180 10
Consolidated Net Income 6,476  8,985  7,768  2509 39 -1217 -13.5

The Horizontal Analysis of the Income Statement of Coca Cola (2018-2020)

In the period of 2018-2019, the three most significant accounts of the Income Statement have seen
major changes in absolute differences as well relative differences are Net Income, Revenue, Other
Income. Other Income is the largest percentage change, as Coca-Cola not only has no money loss for
Other but also gets income from Other. However, the increase in Revenues has a bigger impact on the
Net Income increase, when the absolute value (money) are considered.

In the period of 2019-2020 , the three most weighty accounts of the Income Statement have seen big
changes in absolute differences as well relative differences are Net Income, Gross Profit, Other Income.
Other Income is the biggest percentage change. Gross Profit is the greatest dollar change, down by 3066
million dollar mainly due to a $4252 million dollar drop in Revenues. The notable drop in Gross Profit
contributed to the decline in Net Income, which fell $1217 million dollar. However, the decrease in Net
Income is not as much as the decrease in Revenue, thanks to a considerable reduction of COGS, Selling,
and A&G expenses and a huge growth in Other Income.
Balance Sheet
2018-2019 2019-2020
December 31, 2018 2019 2020 $ % $ %

ASSETS
Current Assets
Cash and cash equivalents 9,077 6,480 6,795 -2,597 -28.61 315 4.86
Short-term investments 2,025 1,467 1,771  -558 -27.5 304 20.72
Total Cash, Cash Equivalents and Short-Term Investments 11,102 7,947 8,566  -3,155 -28.42 619 7.8
Marketable securities 5,013 3,228 2,348  -1,785 -35.61 -880 -27.26
Trade accounts receivable, less allowances of $524 and $501, respectively
3,685 3,971 3,144  286 7.76 -827 -20.82
Inventories 3,071 3,379 3,266  308 10.03 -113 -3.3
Prepaid expenses and other assets 2,059 1,886 1,916  -173 -8.4 30 1.6
Total Current Assets 24,930 20,411 19,240  -4519 -18.13 -1171 -5.7
Equity method investments 19,412 19,025 19,273  -387 -2 248 1.3
Other investments 867 854 812  -13 -1.5 -42 -5
Other assets 4,148 6,075 6,184  1927 46.5 109 1.8
Deferred income tax assets 2,674 2,412 2,460  -262 -10 48 2
Property, plant and equipment — net 9,598 10,838 10,777  1240 13 -61 -0.5
Trademarks with indefinite lives 6,682 9,266 10,395  2584 38.7 1129 12
Bottlers' franchise rights with indefinite lives 51 109 _ 58 113.7 _ _
Goodwill 14,109 16,764 17,506 2,656 19 742 4
Other intangible assets 745 627 649 -118 -15.8 22 3.5
Total Assets 83,216 86,381 87,296 3,165 3.8 915 1
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable and accrued expenses 9,533 11,312 11,145 1779 18.6 -167 -1.5
Loans and notes payable 13,835 10,994 2,183  -2841 -20.53 -8811 -80
Current maturities of long-term debt 5,003 4,253 485  -750 -15 -3768 -88.6
Accrued income taxes 411 414 788  3 0.7 374 90
Total Current Liabilities 28,782 26,973 14,601  -1989 -7 -12372 -46
Long-term debt 25,376 27,516 40,125  2140 8.4 12609 46
Other liabilities 7,646 8,510 9,453  864 11 943 11
Deferred income tax liabilities 2,354 2,284 1,833  -70 -3 -451 -20
The Coca-Cola Company Shareowners' Equity
Common stock, $0.25 par value; authorized — 11,200 shares; issued —
1,7607,040 shares
1,760 1,760  0 0 0 0
Capital surplus 16,520 17,154 17,601  634 3.8 447 2.6
Reinvested earnings 63,234 65,855 66,555  2621 4 700 1
Accumulated other comprehensive loss 12,814 13,544 14,601 730 5.7 1,057 7.8
Treasury stock, at cost — 2,760 and 2,772 shares, respectively 51,719 52,244 52,016 525 1 -228 0
Equity Attributable to Shareowners of The Coca-Cola Company16,981 18,981 19,299  2000 11.7 318 1.7
Equity attributable to noncontrolling interests 2,077 2,117 1,985  40 2 -132 -6.2
Total Equity 19,058 21,098 21,284  2040 10.7 186 1
Total Liabilities and Equity 83,216 86,381 87,296 3,165 3.8 915 1

The Horizontal Analysis of the Balance Sheet of Coca Cola (2018-2020)

In the period of 2018-2019, the most noteworth accounts of the Assets have seen considerable changes
in absolute differences and relative differences are Total Cash, Cash Equivalents & Short-Term
Investments, Trademarks with indefinite lives, Other assets, Marketable securities. The loss in Total
Cash, Cash Equivalents & Short-Term Investments is caused by a decline in both Cash & cash equivalents
and Short-term investments. The decrease in Total Cash, Cash Equivalents & Short Term Investments
and Marketable securities is the main factor leading to the decline of Total Current Assets. In the period
of 2019-2020, the biggest accounts of the Assets have seen great changes are Short-term investments,
Marketable securities, Trademarks with indefinite lives, Trade accounts receivable.

In the period of 2018-2019, Accounts payable and accrued expenses, Loans and notes payable, Long-
term debt, Total Equity are accounts of Liabilities and Equity that have large changes in both dollars and
percentages. In the period of 2019-2020, Loans and notes payable, Current maturities of long-term debt,
Total Current Liabilities, Long-term debt are accounts of Liabilities and Equity that have massive changes
in both dollars and percentages. The plummet in Loans &notes payable and Current maturities of long-
term debt, reduced by about 80%, was the leading reason for the nearly halving plunge in Total Current
Liabilities compared to the last year.

Ratios
The ratios related to Coca-Cola's Income Statement were already obtained when doing the vertical
analysis, where Pepsico ratios and the Non-alcoholic Beverage industry were also used as a benchmark
to evaluate the Coca-Cola's performance.

Gross Profit Margin

Gross profit margin measures the remaining percentage of the sale if company has paid for its goods. So
if a company has a high Gross Profit Margin then it may be good, because the lower the relative cost of
selling goods (Brigham, E. F., & Houston, 2011, quoted in Nariswari and Nugraha, 2020).

The formula for Gross Profit margin is: ((Revenue – COGS)/ Net Revenue) x 100.

62
60.77

60 59.31

58

Coca Cola (%)

56 55.54
55.14 PepsiCo (%)
54.82
Industry (%)
54.07
54

52

50
2019 2020

Gross Profit Margin

As it can be seen, Coca-Cola has the highest gross profit. Besides proving that Coca Cola is better at using
direct cost to generate profit, it also means that Coca Cola has a higher ability to pay its indirect and
other costs.

Operating Profit Margin

Operating Profit Margin measures the company’s ability to generate sales and control its expenses
(Chibili, Michael, 2016).

The formula for Operating Profit margin is : (Operating Profit/ Net Revenue ) x 100

30
27.06 27.25

25
21.4
20.1
20

15.32 Coca Cola (%)

15 14.32
PepsiCo (%)
Industry (%)
10

0
2019 2020

Operating Profit Margin

The Coca-Cola Company has the highest Operating Profit Margin, about 12% higher than PepsiCo and
about 7% higher than the Industry. That proves Coca Cola is doing a better job of managing operating
costs to generate profits than its competitors.

Net Income Margin

The formula for Operating Profit margin is : (Net Income/ Net Revenue ) x 100
 30

25 24.11 23.53

20

15.7
14.7 Coca Cola (%)
15
PepsiCo (%)
10.95 Industry (%)
10.19
10

0
2019 2020

Net Income Margin

There is no surprise when Coca-Cola's Net Income Margin continues to hold the top spot, about 13%
higher than PepsiCo and about 8.5% above the Industry, since, as mentioned above, Coca-Cola does well
in managing costs to generate profits.
Appendix
Year Ended December 31, 2020 2019 2018 2017 2016
Net Operating Revenues 33,014  $ 37,266  $ 34,300  $ 35,410 $ 41,863
Cost of goods sold 13,433  14,619  13,067  13,256 16,465
Gross Profit 19,581  22,647  21,233  22,154 25,398
Selling, general and administrative expenses 9,731  12,103  11,002  12,496 15,262
Other operating charges 853  458  1,079  2,157 1,510
Operating Income 8,997  10,086  9,152  7,501 8,626
Interest income 370  563  689  677 642
Interest expense 1,437  946  950  841 733
Equity income (loss) — net 978  1,049  1,008  1,071 835
Other income (loss) — net 841  34  -1674 -1,666 -1,234
Income Before Income Taxes 9,749  10,786  8,225  6,742 8,136
Income taxes 1,981  1,801  1,749  5,560 1,586
Net Income From Continuing Operation 7,768 8,985 6,476 1,182 6,550

Income from discontinued operations _ _ _ 101 _

Consolidated Net Income 7,768  8,985  6,476  1,283 6,550
Less: Net income (loss) attributable to noncontrolling interests 21  65  42 35 23
Net Income Attributable to Shareowners of The Coca-Cola Company 7,747  $ 8,920  $ 6,434  $ 1,248 $ 6,527

Appendix 1: The Income Statement of the Coca Cola Company.

Year Ended December 31, 2020 2019 2018 2017 2016

Net Operating Revenues 70,372 $ 67,161 $ 64,661 $ 63,525 $ 62,700
Cost of goods sold 31,797 30,132 29,381 28,769 28,222
Gross Profit 38,575 37,029 35,280 34,729 34,577
Selling, general and administrative expenses 28,495 26,738 25,170 24,453 24,773
Operating Income 10,080 10,291 10,110 10,276 9,804
Other pension and retiree medical benefits income/(expense) 117 -44 298 233 -19
Net interest expense and other -1,128 -935 -1,219 -907 -1232
Income Before Income Taxes 9,069  9,312 9,189 9,602 8,553
Provision for/(benefit from) income taxes 1,894 1,959 -3,370 4,694 2,174
Consolidated Net Income 7,175 7,353 12,559 4,908 6,379
Less: Net income (loss) attributable to noncontrolling interests 55 39 44 51 50
Net Income Attributable to PepsiCo 7,120 $ 7,314 $ 12,515 $ 4,857 $ 6,329

Appendix 1: The Income Statement of the PepsiCo Company.

Reference List

Annual Filings (10-K). (n.d.). The Coca-Cola Company.

https://investors.coca-colacompany.com/filings-reports/annual-filings-10-k

Nonalcoholic Beverages Industry Profitability by quarter, Gross, Operating and Net Margin

from 3 Q 2021. (n.d.). Csimarket.

https://csimarket.com/Industry/industry_Profitability_Ratios.php?ind=502

Annual Reports and Proxy Information. (n.d.). PepsiCo, Inc. Official Website.

https://www.pepsico.com/investors/financial-information/annual-reports-and-proxy-information

Chibili, M. (2019). Basic Management Accounting for the Hospitality Industry (2nd ed.).
Routledge.

Profit Margin. (2021, March 19). Investopedia.

https://www.investopedia.com/terms/p/profitmargin.asp

Indeed Editorial Team. (2021, April 8). Horizontal Analysis vs. Vertical Analysis: What’s the

Difference? Indeed Career Guide.

https://www.indeed.com/career-advice/career-development/horizontal-analysis-vs-vertical

analysis

Nariswari, T. N. (2020, November 20). Profit Growth : Impact of Net Profit Margin, Gross

Profit Margin and Total Assests Turnover | International Journal of Finance & Banking Studies

(2147–4486). Finance & Banking Studies.

https://www.ssbfnet.com/ojs/index.php/ijfbs/article/view/937