Comparative Financial Analysis: Coca-Cola and PepsiCo (2016)

This business memo provides a comparative analysis of the financial statements of Coca-Cola and PepsiCo for the year 2016. The memo examines key financial metrics, including methods used for determining the cost of inventory, inventory turnover ratios, and depreciation methods. It further explores accumulated depreciation and amortization, the estimated useful life of furniture and fixtures, and the original cost of leasehold improvements. The analysis also covers depreciation and amortization expenses, shares of common stock, classes of common stock, dividend rates of preferred stock, and dividends paid. Details of treasury stock, stock dividends, stock splits, common stock par value, and buybacks of common stock are also included. The report also delves into marketable securities, cash used to purchase them, and the direct and indirect methods of cash flow from operations. It further analyzes financing and investing cash flow, the methods used to calculate cash flow from operations, the usage of cash from investing activities, and major sources of cash from investing and financing activities. Finally, it examines cash dividends paid by both companies, offering a recommendation for potential investors. The report uses data from 2016 financial statements and provides a comprehensive overview of each company's financial performance.

Comparing Companies
Business Memo (Coca Cola and
Pepsico)

Table of Contents
BUSINESS MEMO.........................................................................................................................1
4. Methods used to determine cost of inventory.........................................................................1
5. Inventory turnover ratio..........................................................................................................1
6. Method of depreciation...........................................................................................................1
7. Amount of accumulated depreciation and Amortization........................................................2
8. Estimated useful life for furniture and fixtures.......................................................................2
9. Original cost of leasehold improvements................................................................................2
10. Depreciation and amortization expense................................................................................2
11. Shares of common stock ......................................................................................................2
12. Classes of common stock......................................................................................................2
13. Dividend rate of preferred stock...........................................................................................3
14. Dividend paid........................................................................................................................3
15. Details of treasury stock........................................................................................................3
16. Details of stock dividend and stock split...............................................................................3
17. Common stock par value.......................................................................................................3
18. Buy back of common stock...................................................................................................3
19. Details of Marketable securities............................................................................................3
20. Cash used to purchase marketable securities........................................................................4
21. Direct and indirect method of cash flow from operations.....................................................4
22. Financing and investing cash flow........................................................................................4
23. Methods used by the company to calculate cash flow from operations................................4
24. Usage of cash from investing activities................................................................................4
25. Major sources of cash from investing activities....................................................................4
26. Sources of cash in financing activities section......................................................................4
27. Cash dividend paid by the companies...................................................................................5
RECOMMENDATION ..................................................................................................................5

Index of Tables
Table 1: Calculation of stock turnover ratio for Coca cola..............................................................1
Table 2: Calculation of stock turnover ratio for Pepsico.................................................................1

BUSINESS MEMO
TO: XYZ
FROM: ABC
SUBJECT: Comparing Companies Business Memo (Coca Cola and Pepsico)
DATE: 30th August 2017
A comparison of the financial statement of Pepsico and Coca-Cola cola has been
addressed below considering all the factors that are relevant for the investor to make investing
decisions.
4. Methods used to determine cost of inventory
Average costing method have been used Coca cola in order to determine the cost of
inventory lying in 2016. However, LIFO method is used by Pepsico.
5. Inventory turnover ratio
Stock Turnover ratio = Cost of sales / Average stock (Chakroun, Nekhili and Chtioui, 2016)
Table 1: Calculation of stock turnover ratio for Coca cola
Particulars 2016 2015 2014
Cost of sales 16465 17482 17889
Average stock 2788.5 3001 3188.5
Stock turnover ratio 5.90 5.83 5.61
Table 2: Calculation of stock turnover ratio for Pepsico
Particulars 2016 2015 2014
Cost of sales 28209 28384 30884
Average stock 2721.5 3066.5 3411
Stock turnover ratio 10.37 9.26 9.05
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6. Method of depreciation
Coca cola use straight line method to calculate depreciation on the fixed assets of the
company. Same method is used for every asset; however, it is reviewed periodically that whether
to sell the asset or not (Higgins, 2012). Further, same method is used by Pepsico in order to
depreciate its assets for the year 2016.
7. Amount of accumulated depreciation and Amortization
Accumulated depreciation for the year 2016 for Pepsico is $20,227 million and
amortization value is $1479 million. However, in case of Coca cola, $10621 million is the
accumulated depreciation and $688 million is the amortization for the company.
8. Estimated useful life for furniture and fixtures
No depreciation has been charged by both the companies on furniture and fixtures.
Hence, there s no useful life taken into consideration by Coca Cola and Pepsico.
9. Original cost of leasehold improvements
The original cost of lease improvement for the year 2016 is $1575 million for Coca cola
company. However, for Pepsico, the original cost is $1780 million for the year 2016.
10. Depreciation and amortization expense
Depreciation expense for 2016 for Pepsico is $2217 million and amortization expense is
$70 million. However, in case of Coca Cola, the total of depreciation and amortization expense is
$1787 million for the year 2016.
11. Shares of common stock
Coca cola is authorised to have 500 million shares, out of which 30269230 have been
purchased by the company and remaining are outstanding. In case of Pepsico, the number of
common stock outstanding are 1,427,214,232.
12. Classes of common stock
Different classes of common stock of coca cola for 2016 are:
 Common Stock, $0.25 Par Value
 Floating Rate Notes Due 2017
 Floating Rate Notes Due 2019
 1.125% Notes Due 2022
 0.75% Notes Due 2023
 1.875% Notes Due 2026
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 1.125% Notes Due 2027
 1.625% Notes Due 2035
 1.100% Notes Due 2036
Different classes of common stock of Pepsico for 2016 are:
 Common Stock, par value 1-2/3 cents per share
 2.500% Senior notes Due 2022
 1.750% Senior notes Due 2021
 2.625% Senior notes Due 2026
 0.875% Senior notes Due 2028
13. Dividend rate of preferred stock
Preferred stock was issued by Pepsico where dividend was extended to the shareholders
at $5.46 per share. However, in case of Coca cola, no preference shares have been issued to the
public for the purpose of investment in the company.
14. Dividend paid
Pepsico has paid dividend on common stock for the year 2016 amounting to $4282
million. However, in case of Coca cola, common stock dividend amounting to $6043 million was
extended to the shareholders in the year 2016.
15. Details of treasury stock
Coca cola hold treasury stock amounting to $47988 million. However, in case of Pepsico
no treasury stock is hold by the company.
16. Details of stock dividend and stock split
No stock split or stock dividend have been issued Pepsico and Coca cola in last 3 years.
Hence, no adjustment has been made in the financial accounts as well.
17. Common stock par value
The par value of the common stock of Coca Cola is $0.25. However, in case of Pepsico,
it is 1-2/3 cents per share for the year 2016.
18. Buy back of common stock
Pepsico have repurchased 20 million shares which has led to decrease the total shares to
1428 for the year 2016. However, In case of Coca cola, company has repurchased its 86 million
shares by the end of 2016.
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19. Details of Marketable securities
Coca cola have marketable securities amounting to $4051 million which are all on sort
term basis. However, In case of Pepsico, the company do not own any marketable securities.
20. Cash used to purchase marketable securities
Coca cola has spent $282 million for marketable securities in the year 2016. The
information was available in the working noes of consolidated balance sheet.
21. Direct and indirect method of cash flow from operations
Both the companies have used indirect method in order to calculate cash flow from
operations. However, the result received considering both the methods is same. Indirect method
provides detailed information and hence adopted by the companies (Fifka, 201).
22. Financing and investing cash flow
The result received from both the method is same and hence any of the two can be use by
the company as per the suitability. However, indirect method is considered as a detailed
statement of cash flow in comparison to that of direct one.
23. Methods used by the company to calculate cash flow from operations
The companies have used indirect method to calculate cash flow from operations. It can
be noticed through the details which are being used in calculating net cash flow. The three main
items of the cash from operations section are:
 Depreciation and Amortization (Brigham and Houston, 2012)
 Net income
 Restructuring charges
 Foreign currency adjustment
24. Usage of cash from investing activities
The majority of cash used in investing activities by Pepsico is capital spending
amounting to $3040 million. However, in case of Coca cola it is purchase of investment
amounting to $15499 million.
25. Major sources of cash from investing activities
Coca cola's major source of cash from investing activities is proceeds from disposals of
investment worth $16624 million. However, in case of Pepsico, major source of cash is proceeds
from short term investment made for three months amounting to $8399 million.
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26. Sources of cash in financing activities section
There are various sources of cash that are present in the financial statements of Pepsico.
They are:
 Proceeds from issuance of long term debt amounting to $7818 million
 Short term borrowings for more than three months for $59 million.
 Short term borrowing for three months or fewer for $1505 million.
 Proceeds from excises of stock options.
 Excess tax benefits from share based payment arrangements (Ongore and Kusa, 2013)
In case of Coca cola the main sources of finance in financing activities are:
 Issuance of debt amounting to $27281 million.
 Issuance of stock for $1434 million
 Other financing activities $79 million.
27. Cash dividend paid by the companies
Pepsico has paid cash dividends for last three years and it is amounting to $4227 million
for both common and preferred stock in the year 2016. However, in case of Coca cola, has paid
$6043 million in 2016. Hence, dividend paid by coca cola is higher in comparison to Pepsico.
RECOMMENDATION
From the above analysis it can be ascertained that the performance of both the companies
is good. However, for investment purpose, an investor should invest in Coca cola ad its
performance is slightly higher in comparison to that of Pepsico.
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REFERENCES
Brigham, E. F. and Houston, J. F., 2012. Fundamentals of financial management. Cengage
Learning.
Chakroun, H., Nekhili, M. and Chtioui, T., 2016. Complementarities In Organizational Design
Of Franchising Networks. Journal of Applied Business Research (JABR). 32(4).
pp.1199-1216.
Fifka, M. S., 2013. Corporate responsibility reporting and its determinants in comparative
perspective–a review of the empirical literature and a meta‐analysis. Business strategy
and the environment. 22(1). pp.1-35.
Higgins, R. C., 2012. Analysis for financial management. McGraw-Hill/Irwin.
Ongore, V. O. and Kusa, G. B., 2013. Determinants of financial performance of commercial
banks in Kenya. International Journal of Economics and Financial Issues. 3(1). p.237.
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