Question

Prepare a vertical analysis or same size income statement and balance sheet for Pepsi and Coca Cola for 2016 and 2017. Write a paragraph highlighting what you learn from the percentages of sales or total assets calculated from the financial statements. Write also about the comparison between 2016 and 2017 and between Coke and Pepsi.

Answer 1

A vertical analysis or same size income statement shows the relative expenditure incurred with reference to sales revenue. The base is set as 'sales revenue' at 100% and every other line item in the income statement is represented as a percentage with reference to Sales Revenue.

Find below the income statements of Coca-Cola and PepsiCo for 2016 and 2017

The Coco-Cola Company and Subsidiaries
Consolidated Statements of Income
Year Ended December 31	2017	Percentage	2016	Percentage
(In millions except per share data)
Net Operating Revenue	35410	100	41863	100
Cost of goods sold	13256	37	16465	39
Gross Profit	22154	63	25398	61
Selling, General and administrative expenses	12496	35	15262	36
Other operating charges	2157	6	1510	4
Operating income	7501	21	8626	21
Interest income	677	2	642	2
Interest expenses	841	2	733	2
Equity income - loss - net	1071	3	835	2
Other income - loss - net	-1666	-5	-1234	-3
Income from continuing operations before income taxes	6742	19	8136	19
Income taxes from continuing operations	5560	16	1586	4
Net income from continuing operations	1182	3	6550	16
Income from discontinued operations	101	0.28	Nil	Nil
Consolidated Net income	1283	4	6550	16
Less Net income attributable to non-controlling interest	35	0.10	23	0.05
Net income attributable to the share holders of the coca-cola company	1248	4	6527	16

On comparison of the income statements for 2016 and 2017 of Coca-Cola, it can be seen that income tax payments have considerably risen in 2017. Hence the shareholders net income has reduces compared to revenue which has infact reduced from 2016 to 2017.

Pepsico Inc and Subsidiaries
Consolidated Statements of Income
Year Ended December 31	2017	Percentage	2016	Percentage
(In millions except per share amounts)
Net Revenue	63525	100	62799	100
Cost of goods sold	28796	45	28222	45
Gross Profit	34729	55	34577	55
Selling, General and administrative expenses	24453	38	24773	39
Operating income	10276	16	9804	16
Other pension and retiree medical benefits income/(expenses)	233	0.37	-19	-0.03
Interest expenses	-1151	-2	-1342	-2
Interest income & other	244	0.38	110	0.18
Income befor income taxes	9602	15	8553	14
Benefit From/provision of income taxes	4694	7	2174	3
Net income	4908	8	6379	10
Less Net income attributable to non-controlling interest	51	0.08	50	0.08
Net income attributable to Pepsico Co.	4857	8	6329	10
Net income attributable to Pepsico Co. per common share
Basic	3.4		4.39
Diluted	3.38		4.36
Weighted average common share O/S
Basic	1425		1439
Diluted	1438		1452

On comparison of the income statement of PepsiCo between 2016 and 2017, it is seen that there is no major difference between the incomes of 2016 and 2017 and it has remained same.

On comparison of Coca-Cola income statement with PepsiCo financial statements, the companies re spending equally on its expenses as the percentages are similar. Its can be seen that the net income is lower for Coca-Cola due to discontinued operation.

II.Vertical analysis of balance sheet

The Coco-Cola Company and Subsidiaries
Consolidated Balance Sheet
Year Ended December 31	2017	Percentage	2016	Percentage
(In millions except par value)
Assets
Current Assets :
Cash and cash equivalents	6006	7	8555	10
Short term investments	9352	11	9595	11
Total cahs & cash equivalent & hort term invesements	15358	17	18150	21
Marketable Securities	5317	6	4051	5
Trade account receivale less allowance $477 and $466 respectively	3667	4	3856	4
Inventories	2655	3	2675	3
Prepaid expenses and other assets	2000	2	2481	3
Assets held for sale	219	0.25	2797	3
Assets held for sale - discontinued operations	7329	8	Nil	Nil
Total Current assets	36545	42	34010	39
Equit method investments	20856	24	16260	19
Other investments	1096	1	989	1
Property plant & equipment - net	8203	9	10635	12
Trademarks with indefinite lives	6729	8	6097	7
Bottlers Franchise rights with indefinite lives	138	0.16	3676	4
Goodwill	9401	11	10629	12
Other intangible assets	368	0.42	726	1
Total Assets	87896	100	87270	100
Liabilities & Equity
Current Liabilities :
Accounts payable and accrued expenses	8748	10	9490	11
Loans and notes payable	13205	15	12498	14
Current maturities of long-term debt	3298	4	3527	4
Accrued income taxes	410	0.47	307	0.35
Liabilities held for sale	37	0.04	710	0.81
Liabilities held for sale - discontinued operations	1496	2	Nil	Nil
Total Current liabilities	27194	31	26532	30
Long term debt	31182	35	29684	34
Other liabilities	8021	9	4081	5
Deferred income taxes	2522	3	3753	4
The Coco-Cola Company share owners equity	1760	2	1760	2
Capital Surplus	15864	18	14993	17
Reinvested earnings	60430	69	65502	75
Accumulated other comprehensive income(loss)	-10305	-12	-11205	-13
Treasury stock	-50667	-58	-47988	-55
Equity attributable to the share owners of the coca-cola company	17072	19	23062	26
Equity attributable to non-controlling interest	1905	2	158	0.18
Total equity	18977	22	23220	27
Total liabilities & equity	87896	100	87270	100

On comparison of the 2016 and 2017 balance sheet with respect to the total assets of coca-cola, the bottle franchise rights with indefinite lives has reduced in 2017 indicating a reduction in the number of franchise investments. There has been discontinued operations too in 2017 and reduction in retained earnings of the company.

==> Do similar Balance sheet percentage calculation for PepsiCo. Analysis is below.

On comparison of the 2016 and 2017 balance sheet of Pepsico Inc, it can be seen that there is not much of variance between the two years except that retained earning have reduced in 2017, probably due to reduction in net income.

On comparison of the balance sheets of Coca-cola and Pepsico, it is evident that coca-cola has a bigger total assets as compared to pepsico and Pepsico holds more cash in had as compared to coca-cola. Pepsico also owns more Property, plant and equipment as compared to coca-cola and enjoys better goodwill and bigger share of intangible assets. Also Coca cola has a higher capital surplus than Pepsico indicating more investments can be made by the company