PepsiCo's International Finance: Developments, Policies & Analysis

This report analyzes PepsiCo's international finance strategies, focusing on recent developments such as the plastic ban and the COVID-19 pandemic, and their impact on the company. It discusses PepsiCo's dividend policy, including its alignment with the bird in hand and relevancy theories, and examines the company's sources of finance, particularly its reliance on debt. The report includes a ratio analysis covering profitability, liquidity, efficiency, and investment ratios to assess PepsiCo's financial performance and the effects of the identified developments. The analysis provides insights into the company's strategies for navigating international financial environments and managing risks.

International Finance

Contents
INTRODUCTION...........................................................................................................................3
SECTION A.....................................................................................................................................3
Critically discuss two recent developments in the international environment appears to have
impacted on your chosen company..............................................................................................3
SECTION B.....................................................................................................................................6
Discuss dividend policy and sources of finance of selected company........................................6
SECTION C.....................................................................................................................................9
Ratio Analysis..............................................................................................................................9
Profitability ratios............................................................................................................................9
Liquidity ratios...............................................................................................................................10
Efficiency ratios.............................................................................................................................11
Investment ratios............................................................................................................................12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14
APPENDIX....................................................................................................................................16

INTRODUCTION
The corporate headquarters of the American food, snack, and beverage giant PepsiCo, Inc.
are in the hamlet of Purchases in Harrison, New York. The operation of PepsiCo includes every
facet of the foodservice industry. It is in charge of its products' production, advertising, and
delivery. With facilities everywhere globe and consumer distribution in far more than 200
nations, PepsiCo generates yearly total profits of further than US$70 billion. Consider net sales,
profit, and enterprise value, PepsiCo ranks as the second-largest food and Beverage Company in
the world. In comparison to 2019, PepsiCo's yearly gross margin for 2020 increased by 4.18
percent to $38.575 billion. PepsiCo's yearly total revenue for 2019 increased by 4.96 percent
from 2018 to $37.029B. The main purpose of this report analysis the developments in
international environments in order to analysis the impact on company. In this report discuss
about the international financial and risk management strategy of selected organization. To
analysis actual performance of company calculate financial ratios in order to see impact of
developments.
SECTION A
Critically discuss two recent developments in the international environment appears to have
impacted on your chosen company
Development in the business means the value which is development within the organisation for
the long – term to develop it value, market, customers and trend. It is the acts which ties the
organisation for its growth and benefit.
Development 1: Change in the market opposing the plastic waste
Enforcement of plastic ban: On July 1st of this year, a ban on the use of separate plastics that
was announced by the Union Environment Ministry in August 2021 went into force. An item
made out of plastic that is designed to be used "just once" before being discarded or recycled is
known as a single-use plastic. After become designated the world's top plastic polluters for the
third year in a row, Coca-Cola, PepsiCo, and Nestlé have been claimed to have made "zero
effort" in decreasing plastic trash. According to a Tearfund assessment conducted in March,
Coca-Cola, PepsiCo, Nestlé, and Unilever are accountable for half a million tonnes of plastic
pollution in six poor nations each year (Plastic ban connect with Pepsico, 2022).

Effect of development: In general, plastic bag bans raise consumer costs, reduce producer profit,
and reduce economic growth in the region that is subject to the ban. Retail business declines as a
result of the plastic bag ban. Coca-Cola and PepsiCo, two of the largest beverage companies in
the world, have come out against a trade group that aims to limit prohibitions on plastic bags.
Negative Effect: In responding to worries that their participation in the organisation conflicted
with their dedication to decreasing plastic pollution and containers, the two beverage juggernauts
have declared that they will quit the Plastics Industry or business. Its participation with the group
and its affiliates will come to an end at the conclusion of next year, a PepsiCo spokesperson said,
according to MarketWatch. They do not take part in the advisory panel or its affiliates' dedicated
to promoting activity.
Positive Effect: Together with colleagues in the industry, Pepsico have established a £1 million
fund to assist make recycling flexible plastic more affordable for recyclers and consumer-
friendly. Pepsico've teamed together with Mars, Mondelez International, Nestlé, and Unilever to
support the Fund and provide a minimum value of £100 per tonne of recovered goods to
encourage recyclers to process flexible plastic. Thus it impacts on the financial performance of
company and they have to pay in fund (Financial impact of plastic ban on Pepsico, 2022).
Strategy of development: PepsiCo today unveiled new objectives, including increasing the Soda
Stream business internationally, an applying the concept that effectively nullifies necessity
packaging applications, cutting virgin plastic per having to serve throughout its worldwide food
& beverage investment besides 50% by 2030, including using 50% recycled material in its
plastic containers. PepsiCo remains dedicated to national growth beyond our plastic reducing
waste objectives throughout a year in which the recycling sector experienced significant
challenges as a result of COVID-19 and low oil prices.
By making beverage bottles lighter, altering the way flexibility material is utilised in production,
using more recovered packaging materials, and changing to sustainable resources when practical,
PepsiCo lessens the amount of virgin plastic used in its packaging. By gentle containers, it is
possible to get the same packing efficiency while using less plastic and generating fewer
greenhouse gases overall. By 2022, PepsiCo plans to completely phase out virgin plastic from all
Pepsi brand soft drink bottles sold in nine EU regions. They predict that switching to rPET will

reduce greenhouse gases from bottles by around 40% while also eliminating approximately
70,000 tonnes of traditional virgin plastic annually (Strategies for Pepsico, 2022). These
strategies are impacting on the financial activities in positive manner because company link with
committee so it will help to cover more market.
Development 2
COVID 19 Pandemic: Lockdowns were implemented in most regions of the world during the
start of the COVID-19 pandemic to stop the coronavirus's transmission. The public's access to
enough feed ingredients was a responsibility assigned to the agricultural and food and beverage
sectors. Concerns concerning food product offerings, affordability, use, and sustainability were
raised by the many parties involved in the food supply chain. The supply chain for food was
severely hampered by logistical, transportation, and distribution issues, which was a very
worrying problem.
Effect on Pepsico: Its international activities keep exposing us to the COVID-19 pandemic's
hazards. As a consequence of COVID-19, we have seen changes in customer demand and may
continue to do so.
Negative Impact: People may no longer be able to acquire our goods because of sickness,
quarantined or other limitations, shop shutdown, or financial difficulty. They have also seen
changes in consumer behaviour for products and distribution channels, along with a growth in e-
commerce demands, which has affected and may continue to affect our productivity and revenue.
Clients' financial situation may be negatively impacted by decreased general price level of goods,
shifts in consumer purchasing trends, and ongoing economic unpredictability, which may lead to
personal bankruptcies or the failure to afford for their purchases.
Positive Impact: Operating profit rose by 5.5 percent, principally resulting in an increase in net
sales, efficiency gains, and a 3-point reduction in expenses due to the COVID-19 epidemic. Due
to the coronavirus (COVID-19) pandemic, PepsiCo, Inc.'s second-quarter profitability was
hampered by foodservice shutdown and a reduction in consumer visitation to convenience shops
and petrol stations. The challenges weighed heavily on the firm's North American beverage
market, which saw organic revenues decrease 7% and overall production plummet 10% for the
quarter ended 13. PepsiCo's net earnings declined as during quarter to $1.7 billion, or $1.18 per

share on common shares, from $2 billion, or $1.44 per share, in the prior year's comparable
quarter. Revenue dipped to $16 billion in the second quarter, down from $16.5 billion the
previous year.
Strategy of development: The pandemic will cause significant disruption for PepsiCo, as it
would for the majority of businesses in the consumer products industry. In contrast, PepsiCo's
business in the industry segments will prove to be advantageous due to COVID-induced changes
in customer demand and rising at-home usage, helping the company to mitigate damages
resulting from lower demand in other industry sectors, such as non-alcoholic beers and baby care
products, in 2020. PepsiCo's food business will assist the corporation mitigate losses caused by
weaker demand in those other industries like non-alcoholic drinks and infant care goods in 2020.
Furthermore, the preventative measures taken by the corporation to assure the continuous safety
of its goods and production sites across the world would enhance the reputation.
SECTION B
Discuss dividend policy and sources of finance of selected company
Dividend policy:
In 2022, the business will continue this trend. A quarterly dividend of $1.15 per shares of
PepsiCo common stock was announced by the management board of PepsiCo, Inc. (NASDAQ:
PEP) today, a growth of 7% from the same time last year. The move made today is in line with
PepsiCo's previously disclosed increase in its yearly dividend, which will start with the June
2022 payment and go from $4.30 per share to $4.60 per share.

Investors in the firm will be happy to see that they have been getting dividend payments for such
years. From over previous five years, PepsiCo's profits per share have only increased by 4.8
percent annually. It isn't optimal that PepsiCo's earnings per share have scarcely increased;
possibly it's why the business returns the bulk of its shareholder dividends.
As per annual report 2020, Since 1965, we have distributed regular quarterly dividend payout.
Subject to the Governing board' authorization, the recording dates for such dividend payouts are
anticipated to be June 4, September 3, and December 3, 2021.
Pepsico follow bird in hand theory of dividend According to the bird in hand idea, a
firm dividend-paying policy has an effect on its stock price and financial behavior. According to
the hypothesis, a low dividend distribution raises a company’s financial performance. According
to the study, dividends contribute for approximately 40% of total market returns well over long-
term. McDonald's and PepsiCo are other attractive dividend companies to consider.
Company follow relevancy theory of dividend that states a well reasoned dividend policy
that can impactt on the business in positive manner. Through this policy increase value of stock
because company follow Pepsi can afford to keep raising its payout every year, thus it will soon

be proclaimed the new Dividends King. but for the time being still a Dividend Aristocrat. It is
progressive dividend policy that increase last 46 years that increase their divided every year.
Yes, Pepsico divided policy making signal theory because they are announce their
increase dividend payout for future prospects. Such as, The Board of Directors has the authority
to declare and pay dividends in the future. The Board members announced a $1.0225 dividend
payment on February 4, 2021, which will be paid to stockholders on March 31, 2021.
Sources of finance: A source of finance is the place from which a company obtains funds to
carry out its operations. An organization can obtain funding from both diverse sources. This is a
reference to how businesses obtain funding for their operating needs. According to Pepsico, debt
instead of stock is the main source of funding. Debt is a widely available form of financing with
lower interest rates, but it does not let the firm to share earnings with outside parties like
stockholders. This is the key reason why the corporation chose debt to finance its activities. The
second justification for using debt to finance operations is that it demands a fixed yearly interest
payment regardless of the company's profitability.
Use of gearing ratio: A series of financial measurements known as gearing ratios assesses the
firm's level of leverage and financial health by contrasting stockholders' capital to corporate debt
in diverse manners. Gearing is a measurement of the proportion of an operational business that is
financed by debt as opposed to source of support from investors. In this ratio include debt to
equity, EBIT, total assets, total debt, and total equity.
Debt to equity: Total debt / total equity:
In 2021: (36026+4308) / 16151 = 2.49
In 2020 = (40370+3780) / 13552 = 3.26
Non-current liability: There are mentioned non-current liabilities are such as:
Long term debt obligation: 36026
Deferred income taxes: 4826
Other liability: 9154

Non-current liability of Pepsico: From 2010 through 2022, PepsiCo's other non-current
liabilities. The term "other non-current liabilities" refers to a category that includes the total of all
non-current liabilities which can be standardized into the next category and those that the firm
aggregates and they're too tiny to be listed individually on their own.
 For such quarter that ended June 30, 2022, PepsiCo's other non-current liabilities were
$9.121B, a 14.8 percent year-over-year decrease.
 Various non-current liabilities at PepsiCo were $9.154 billion in 2021, down 19.28
percent from 2020.
 Overall non-current liabilities for PepsiCo in 2020 were $11.34B, up 13.64% from 2019.
 External non-current liabilities for PepsiCo in 2019 was $9.979B, up 9.49% from 2018.
WACC of Pepsico:
WACC = E / (E +
D) * Cost of Equity + D / (E + D) * Cost of
Debt * (1 - Tax Rate)
= 0.8457 * 6.174% + 0.1543 * 4.3635% * (1 - 21.345%)
= 5.75%
For Coca-Cola and Pepsi, the capital structure trade-off theory is used. The weighted
average cost of capital (WACC) under various total debt ratio levels must be calculated using
real market prices for the cost of debt and the cost of equity utilizing real financial information
for Coke and Pepsi as well as simulation model for alternate debt loads.
SECTION C
Ratio Analysis
Profitability ratios
Gross profit ratios: The portion of income left over after deducting the cost of products sold is
known as the gross profit margin.
Formula = Gross profit/sales*100
For 2020- 7.72/20.16*100-38.29%
For 2021- 9.72/25.00*100=38.88%

Interpretation: The company is not turning a profit in line with the business norms with a GPS
of 38.29 percent in 2020 and a GPR of 38.88 percent in 2021. The movement in the ratio
because of changes in gross profit in the different year. The company is also growing slowly
compared to the rate at which the industry is. As a result, in order to increase income, top
businesses need to establish certain strategies.
Net profit ratios: The net profits of a corporation are shown by the profitability ratio. A high net
profit margin is a reliable sign of a successful company.
Formula= Net profit/sales*100
For 2020- -0.54/20.16*100=-2.67%
For 2021- -1.39/25.00*100= -5.56%
Interpretation: As shown by the net profit ratios of -2.67 percent in 2020 and -5.56 percent in
2021. Management should make some crucial informed choices certain strategies to improve the
net profit ratio if the business is to keep afloat. Considering the existing situation, it may provide
a bundle of amenities to encourage clients to pay subscription services, which would help to
boost the industry's overall income and allow it to create a profitable place in the industry.
Liquidity ratios
Current ratios: The understanding of the firm's ability to satisfy its financial commitments over
the next 12 months will be based on the present ratio.
Formula= Current assets/ current liabilities
For 2020- 6.18/6.86= 0.900
For 2021- 9.76/7.81= 1.2496
Interpretation: Pepsico's 2020 current ratio of 0.900, however, demonstrates that the company
is not producing a sufficient profit to cover its debts. In 2021, the average figure of 1.2496 means
that the managers has implemented the necessary initiatives and improved organisational
performance, which has raised their current ratio and shown that the business is generating

enough to really pay its present liabilities. The movement in the ratio because of changes in
current liabilities of company that impact on the ratio in direct manner.
Quick ratio: The quick ratio, also known as the acid-test ratio, compares a company's cash, cash
equivalents, and liabilities to its obligations. This provides insight into the business's capacity to
meet its present responsibilities.
Formula= current assets- inventories/current liabilities
For 2020- 6.18/6.86=0.900
For 2021- 9.76/7.81= 0.900
Interpretation: The proportion, meanwhile, is 0.900 in 2020 and 0.900 in 2021, showing that
the company is not making enough money to pay its creditors on time. Lowering membership
costs or providing more services to customers might help the aforementioned corporation
increase its fast ratio by luring customers to purchase Pepsico products. Therefore, by using this
method, the corporation may raise its fast ratio and get to its target level.
Efficiency ratios
Account payable turnover ratio: The account payable turnover ratio, which measures how
frequently a firm pays off its current liabilities over the course of a period, is a gauge of brief
stability.
Formula= Net credit sales/ Average accounts payable
For 2020- 20.16/1.52= 13.26 days
For 2021- 25.00/ 1.76= 14.20 days
Interpretation: If durations are shorter, the firm is better able to meet its current obligations
loans. This ratio was 13.26 times for the companies have successfully in 2020 but will be 14.20
times in 2021. Due to an increasing ratio, the company's brief borrowing was repaid in 2020 in
14 days as opposed to the prior year's 13 days. The movement in the ratio because of changes in
credit sales because of increase credit customers.
Asset turnover ratio: This ratio may reveal how effectively the business manages its stock.

Formula= net sales/ average total assets.
For 2020- 20.16/33.98=0.5932
For 2021- 25.00/39.28=0.636
Interpretation: For the aforementioned company, the asset turnover ratio was 0.5932 in 2020
and 0.636 in 2021. This shows that the company is not utilising its tools to boost sales to their
full potential. As a result, top managers should put certain tactics into practise so they can use
their resources in such a way that will boost a group's earnings or revenues.
Investment ratios
Debt to equity ratios: This ratio displays the proportion of debt and equity in a company's
capital structure. Debt to equity ratios of one to five are frequently considered to be
advantageous for corporations.
Formula= Debt/ equity.
For 2020- 15.81/11.07= 1.42
For 2021- 14.76/7.58= 1.94
Interpretation: In 2021, this ratio increased to 1.94 using Amazon as an illustration, from 1.42
in 2020. The ratio is higher than the average, indicating that the company uses financial leverage
rather than stock more regularly to sustain activities.
Return on equity: This ratio demonstrates how well a firm is employing shareholder funds to
generate revenue for the business. In other words, it demonstrates how much profit a company
generates from each dollar of shareholder equity.
Formula= Net income/ shareholder equity
For 2020- 20.16/7.58= 2.695%
For 2021- 25.00/ 11.07= 2.25%

Interpretation: The return on equity ratio for the aforesaid organisation was 2.695 percent in
2020 and 2.25 percent in 2021, indicating that the business is not making the best use of its
shareholders' wealth.
By all over the ratio it has been analyzed that the company compete with their rival
company Coca cola and provide tough competition. As a result, company set effective
benchmark for the business.
CONCLUSION
It is clear from the research above that PepsiCo has a lot of issues controlling its resources
and turning a profit. The development of Covid-19 has caused the firm to suffer greatly. And
although e-commerce has been implemented, the company is still unable to generate significant
revenue. It is making every effort to hold onto its standing and generate its earnings.
Additionally, it is crucial to assess the company's financial reporting and condition.

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Online
Plastic ban connect with Pepsico, 2022. [Online]. Available
through;<https://www.fooddive.com/news/pepsico-to-cut-use-of-virgin-plastic-as-part-of-broad-
sustainability-goal/606634/>
Financial impact of plastic ban on Pepsico, 2022. [Online]. Available through;
<https://www.pepsico.co.uk/news/stories/we-ve-joined-the-flexible-plastic-fund>
Strategies for Pepsico, 2022. [Online]. Available through;
<https://www.pepsico.co.uk/sustainability/sustainable-food-system/packaging>
Covid 19 impact on financial performance of Pepsico, 2022. [Online]. Available through;
<https://www.foodbusinessnews.net/articles/16414-pepsico-second-quarter-buffeted-by-covid-
19-headwinds>

APPENDIX