Reflections – short balance sheet review of PepsiCo (PEP)

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Noteworthy Items

  • Liquidity ratios for PEP are safe but not stellar
    • Safe when Liquidity Ratios are >1, and the higher the better
    • Notice that Monster Beverage Corp (MNST) has abnormally high Liquidity Ratios. This is because MNST uses equity to finance their projects instead of liabilities (surprisingly, their total debt is 0, which explains why their Debt-to-capital Ratio is also 0). This results in very low liabilities figures and hence very high Liquidity Ratios.
  • Relatively high Debt Ratio for PEP versus competitors
    • Partly because PEP relies more on debt (than equity) to finance projects
  • Much lower Profit Margins versus competitors
    • Coca-Cola Co’s (KO) Net Profit Margin is lower than PEP’s because a large portion of their operating profit was paid to a one-off tax in 2017. KO’s Net Profit Margin in 2016 (0.156) is however higher than PEP’s in 2016 (0.10).
  • Stellar ROE figures versus competitors

Overview

  • PEP’s balance sheet is relatively safe and are mostly superior to their competitors but the relatively low Profit Margins is a source of concern.
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