Question

1. What amount is reported in the balance sheets as property, plant, and equipment (net) of Coca-Cola at December 31, 2017, and of PepsiCo at December 31, 2017? What percentage of total assets is invested in property, plant, and equipment by each company?

2. What depreciation methods are used by Coca-Cola and PepsiCo for property, plant, and equipment? How much depreciation and amortization was reported by Coca-Cola and PepsiCo in 2017? In 2016? (Use cash flow statement amounts.)

3. Compute and compare the following ratios for Coca-Cola and PepsiCo for 2017.

a. Asset turnover.

b. Profit margin on sales.

c. Return on assets.

4. What amount was spent in 2017 for capital expenditures by Coca-Cola and PepsiCo?

Answer 1

(1)

Property, plant, and equipment, net of accumulated depreciation:

Coca-Cola at 12/31/17 $8,203 million
PepsiCo at 12/31/17 $17,240 million

Percent of total assets:

Coca-Cola ($8,203 ÷ $87,896) 9.33%
PepsiCo ($17,240 ÷ $79,804) 21.60%

(2)

Coca-Cola and PepsiCo depreciate property, plant, and equipment principally by the straight-line method over the estimated useful lives of the assets. Depreciation expense was reported by (in the cash flow statement) Coca-Cola (includes amortization) and PepsiCo as follows:

  Coca-Cola PepsiCo
2017 $1,260 million $2,369 million
2016 1,787 million 2,368 million
2015 1,970 million 2,416 million

(3)

(1) Asset turnover:

(2) Profit margin on sales:

(3) Return on assets:

With the exception of profit margin, each of PepsiCo’s ratios are stronger compared to Coca-Cola’s. PepsiCo’s lower profit margin is primarily due to its large food business which experiences larger investments in property, plant, and equipment and lower margins compared to the beverage segment. Coca-Cola sales are derived almost entirely from higher margin beverages.

(4)

Coca-Cola’s capital expenditures were $1,675 million in 2017 while PepsiCo’s capital expenditures were $2,969 million in 2017.