Is Pepsi Financially Safe?

PepsiCo is one of the most well known forces in the convenient beverage and food industries, including such brands as Pepsi, Quaker, Frito Lay, Gatorade, and Tropicana (PepsiCo, 2009). Each section of this company has many different items available for sale and can be found at most retail stores across the country, as well as various locations throughout the world. When scanning through the financial statements it appears that this company is strong and operating at full capacity, but after digging a little deeper the appearance of the company does change slightly. From an investment standpoint, the company does pay its shareholders' dividends on a regular basis, but experts within the field only rate this company as a middle level investment opportunity, meaning that investors might want to consider other companies if they want to maximize their funds. The income statement and the balance sheets all look positive, but the cash flow statement shows that this company may be having a few problems.

The most current Statement of Income that was filed in September of 2009 shows that PepsiCo has had a decrease in net revenue since the statement was issued a year before (Morningstar, 2009). On the positive side, though, the operating profits during this year have increased, which means that they are slowly building up to the point where the operating profits exceed the operating costs, allowing them to rely on outside funds less than they have been in the past. By going off of the Statement of Income, a creditor or lender would be more than willing to support this company, and an investor would be able to see that there has been an increase in the cost of stocks, as well as an increase in the dividends paid to the stockholders, so this company may be a good investment.

The Cash Flow Statement filed at the same time also shows good and bad. The operating profits for this period have increased but the profits from investing have declined (Morningstar, 2009). After analyzing this statement further it can be seen that the funds used for investing have decreased, therefore it explains why the profits from investing have also decreased. The final section on this statement shows that the activity from financing activities have also decreased, showing once again that this company is slowly building up to the point where they can sustain their operating expenses from their own operating profits, thereby lowering the need for outside funding such as investors or loans. From this statement lenders and creditors would feel safe to loan money or advance items on credit, and investors can see that the company is a good investment for their funds.

The Balance Sheet for this time period also shows positive numbers. The net amount of the assets has increased while the net amount of liabilities has decreased (Morningstar, 2009). The other plus side shown on this statement is that the equity of this company has increased, meaning that investors are being paid back with dividend payments that they have earned throughout the year. An investor can see from the balance sheet that this is indeed a good company to have stock in, and lenders and creditors would be willing to invest their money or products into PepsiCo because they have been raising assets while lowering debts, meaning that they can pay back their liabilities without any trouble.

The last statement that an investor would look at is the Statement of Equity, which is the only section of concern found within the financial statements. This shows that the net equity for shareholders has decreased, and when looking deeper into the statement it can be seen that this has been caused by a large increase in losses from hedges that have been made by the company Morningstar ( 2009). An investor, along with the current loss shown on the stock exchange for PepsiCo stocks, would be cause to reconsider about investing their funds from this statement. It is apparent that the worth of the stocks are slowly dropping as the company moves forward with increases in operating profits, lessening the need for outside sources.

The experts forecast for PepsiCo is not great, but not horrible either. In the four sections that the company is broken down into this company did not receive a grade higher than a C (MSNmoney, 2009). They state that this company has some increases in profits and assets and a decrease in liabilities that are above the projected levels, but still not high enough to forecast a large increase in stock prices. They also show that there is room for concern because numerous top managers sold off their stocks within their own company, showing that there may be a problem arising in the near future.

The main competition for PepsiCo is Coca-Cola, and when compared to it falls well short of the level that they should be. Not only are the profits and assets larger at Coca-Cola, but they are forecasted by the experts at StockScouter to be on the verge of outperforming everyone within this market within the next six months, and is considered to be a low risk investment with mid to high level yields for the stockholders.

When analyzing all of the financial statements for PepsiCo it would appear to be a good investment for stockholders, and a safe place for lenders and creditors to advance products, but after doing some in-depth reading it is not the case. An investor needs to be aware of the fact that the main competition for this company is currently outperforming them, and that Coca-Cola is projected to control the entire market within 6 months. A lender or creditor would still feel comfortable loaning money or services to PepsiCo, but the interest rates would have to be slightly raised because of the fact that this company may be in financial trouble soon if changes are not made to quickly improve the operating cost to profit ratio.

Morningstar(2009) PEP PepsiCo Inc. Quarterly Report. Morningstar.com
MSNmoney (2009) Stockscouter Report For PepsiCo. MSNmoney.com
Pepsi(2009) PepsiCo Brands Pepsi.com