PepsiCo is a food and beverage giant company that operates in almost all regions of the world. It possesses a group of products and brands that many consumers from different places find delicious. Initially established in 1965 through the consolidation of Pepsi-Cola and Frito-Lay, PepsiCo has become one of the biggest global manufacturers of food and non-alcoholic beverages. PepsiCo is based in Purchase, New York, and it distributes its products to more than 200 countries and territories in the globe, providing beverage, snack, and nutrition products. These are some of the brands, and they can be further categorized into beverages comprising of soft drinks and water, snacks, and nutritional products; the former include Pepsi, Mountain Dew, Gatorade, Tropicana, 7UP, and Aquafina while the latter depicts Lay’s, Doritos, Cheetos, Tostitos, Fritos, Quaker, Tropicana, and Naked Juice.

Section 1-Events & Effects

Event 1 that Effected the PEPSCI during 2022

Supply Chain Disruptions

The financial year 2022 could have been better for PepsiCo as supply chain disruptions always happened. These disruptions primarily stemmed from the COVID-19 pandemic, which impacted global distribution channels, labor availability, and inflation, presenting itself in raw material and transport costs. These factors affected the procurement of critical ingredients, packaging material, and transportation, affecting the overall Amalgam’s capability to maintain the production and delivery schedules (Barman et al., 2021).

Impact of Supply Chain Disturbances on Performance

The problems in the supply chain deeply affected PepsiCo’s financial situation. The high costs of raw materials, other operational costs, and distribution costs affected the firm’s operating margins. For instance, the cost of sales of PepsiCo went up by 10 % from $32.98 Billion in 2021 to $ 36.34 billion in 2022. Nevertheless, these costs have escalated and continued to directly impact the company’s sales, where the net revenues of PepsiCo were about 8.7% from $79.47 billion in 2021 to $86.39 billion. Although the number is projected to reach 39 billion in 2022 (Barroso et al., 2008)

Operating profit was also negatively impacted. For instance, the operating profit in the form of PepsiCo Beverages North America has reduced, and this can be associated with a rise in the cost of goods sold and transport costs. Specifically, the company’s operating profit was recorded at $2.064 billion for PepsiCo Beverages North in the 36 weeks ending September 3, 2022, Which is $0.204 billion higher as against $2.319 billion in the same period in 2021​

Event 2 that Effected the PEPSCI during 2022

Geopolitical Instability in Europe

The geopolitical threat was a significant issue in Europe due to the Russia-Ukraine conflict, which created operational challenges for PepsiCo. These tensions manifested in sanctions, product navigation, and shifts in customers’ consumptive patterns that pressured the PepsiCo European business. Due to the conflict and its effect on the economy, the company faced problems with regulations and general tendencies in the market (Barroso et al., 2010).

Effect of Geopolitical Instability over finance performance of PEPSCI during 2022

The companies’ operations proved that geopolitical tensions and their impacts on the economies influenced PepsiCo’s financial outcomes in Europe. The principal fluctuation was observed in the European sector, defining the operating profit’s character. For example, Europe’s stated operating profit was $1. 036 billion for the 36 weeks ended September 3September 3, 2022, a decline from $1.383 billion to that in the same period in 2021​ (Zhang, 2023)

However, apart from operating profit, the conflict was also detrimental to supply chain management, and thus, the cost of raw materials and logistics in the region was affected. The overall revenue from Europe was also found to have decreased in the same position, implying the economic environment and market interference stress. For example, regions like Europe realized a net revenue of $12.38 Billion. In 2021, the amount decreased to $10.976 billion 2022 (Xie, 2024) ​.

Section 2- Dividend & Sources

Dividend Payment History for 2021 & 2022

In 2021, PepsiCo will have an annual dividend of $4.30 per share. This made it 49th years on end that the company has been issuing out increased dividends, again an affirmation of PepsiCo’s unrelenting streak of creating value for its shareholders (Zhang, 2023). As projected and advanced to 2022, the company declared a 7% annual dividend increase to $4.6 per share. This rise commenced with the dividend issued in June 2022, and a 50-year consecutive annual dividend growth is a clear sign of the company’s financial solidity and shareholders’ relations’ commitment.

Factors Effected the Dividend Payment in 2022

The following are the provoking features that were accountable for shaping PepsiCo’s stake distributions in 2022: First of all, the company received significant revenue growth throughout all the reported segments. For instance, the operating profit of the PepsiCo Beverages North America segment reached 25% growth in 2021, mainly due to the growth of net revenues and efficiency improvement (Dang et al., 2018).

In addition, managing and directing divestitures had a beneficial influence on the firm’s cash flow. The spin-off of Tropicana, Naked, and another select juice brand from the company to PAI Partners for consideration of $3 Billion. An availability to pay $5 billion from cash and a 39% non-controlling interest in a newly formed joint venture improved the company’s liquidity. This increased fund made it possible to pay more returns to shareholders. Moreover, Latam F.X. helped increase PepsiCo’s revenues, and the region’s solid execution contributed to the company’s capacity to raise dividend distributions (Masry, 2018).

Source of funding during 2022

The company’s funding sources in the year 2022 were more than adequate and very diversified. A substantial part of the amount was funded by the operating cash flow, the major used for dividend distribution. The firm recorded a healthy operating cash flow because of efficient working capital management and a good showing of its segments. Massive divestitures were also instrumental, especially through the sale of juice brands to PAI Partners, which brought in about $3.50 billion in cash. This acquisition in cash significantly increased PepsiCo’s liquidity and allowed for the provision of funds for dividends and share repurchase, as is its tradition (Feyzullaev et al., 2021).

Besides the above, sustained productivity improvements in all operations also helped to support the funding pool (Wati & Winarno, 2018). These were achieved due to continuous improvement of efficiency and productivity, which enabled PepsiCo to sustain and grow its dividend payouts. In addition, PepsiCo declared its new share repurchase program of up to $10 billion of its common stock by February 28, 2026, along with the dividends, to provide more value to the shareholders.

Section B- Dividend Theories

Trade-Off Theory – 2022

The trade-off theory of capital structure states that companies attempt to optimally balance the benefits of debt, such as tax shields, with the costs of debt, such as bankruptcy and financial distress. In 2022, PepsiCo can be seen as an example of the correct use of this theory because the management tried to control the capital structure to reach maximum financial results (Agyei et al., 2020).

Total long-term debt was $36. 5 billion of total capital during 2021 compared to $ 36.4 Billion on 31-Dec-2022​. Next, the interest expense on the company’s borrowed money was $ 1.1 billion in 2022, proved by its constant endeavour to control the costs inherited from its debt levels. Also, while there was a slight decline in long-term debt, PepsiCo’s good credit ranking was again used to lock in good borrowing rates, thus enjoying the wishes of interest rates.

The firm also upheld healthy cash status as cash and cash equivalent stood at $6.2 Billion at the end of the year 2022 as compared to $ 5.6 billion in 2021. As a result of the strong liquidity, this was the right place for PepsiCo to increase its investments in attractive opportunities and distribute value with the help of dividends and share repurchases. The inverted U shape of the `net debt’ – ‘market capitalization’ relationship additionally underlined the trade-off between using credit to avoid taxes and preserving significant liquidity for unloading detrimental performance impacts.

Pecking Order Theory

The pecking order theory is based on the idea that, owing to its financing method, a company has a priority order of sources of funds for financing its activities. The pecking order hypothesis portrays firms’ sources of funds for financing new investments as internal funds, debt, and equity (Vasiliou et al., 2009).

Fiscal year 2022 operating cash flow for the organization was good as it stood at $11. 6 billion, compared to $10.6 billion. A healthy cash from operations in this period supported the firm’s investment in capital assets, expansion strategies, and other initiatives alongside the shareholders’ remunerations without extensive reliance on external sources. Investments amounted to $4.6 billion in the year 2022 compared to $ 4.0 billion in the year 2021, revealing the company’s commitment to advancing its infrastructure and strategic development projects​  . In addition, PepsiCo also participated in the share repurchase operations; this demonstrates the company’s confidence in future cash generation capabilities and share buyback initiatives of assets. In 2022, the company Treasurer repurchased $1.5 billion worth of shares, stressing the application of the excess cash to improve the capital structure and, thus, the shareholder value.

Traditional Theory – 2022

Based on the analysis of PepsiCo’s financial management results for 2022, the company clearly successfully implemented the policy of reaching the optimum capital structure (Ardalan, 2017). Equity funding was maintained at PepsiCo, where the total shareholders’ equity was $18. 9 billion at the end of 2022, up from $18.3 billion in December 2021. The financial leverage indicator, the debt/equity ratio, was 1.93 in Dec-2022 compared to 1.99 in 2021, showing that the firm was conservative in its capital structure management​.

Also, PepsiCo’s regular dividend policy and share repurchase plans substantiated its capital structure management and shareholder returns objective. The company raised its annualized dividend to $4.6 per share in December 2022 from $4.30 per share in December 2021. This shows that PepsiCo has been making good investments in growth opportunities while at the same time ensuring that shareholders get the desired returns.

Section C- Financial Ratios

Profitability Ratio

Gross Profit %

Gross Profit Margin, as the name suggests, is one of the principal measures of the financial performance of a company and its efficiency in creating products (Nariswari & Nugraha, 2020).

Formula = (Gross Profit / Net Revenue ) X100

Thus, for the financial year ended 2022, the Gross Profit Margin of PepsiCo was 53.03%, which seems a bit low compared to the previous standard of 53.35%. This marginal reduction of control also means that though PepsiCo was very well controlling its production cost in terms of its net revenue, there was a slightly increased cost of the goods sold or a decreased pricing power.

Operating Profit %

The Operating Profit Margin indicates the firm’s efficiency in generating operational profit, net of financing, and taxes (Jayathilaka, 2020).

Formula= (Operating Profit / Net Revenue) X 100

The calculation of PepsiCo’s Operating Profit Margin for 2022 was 13.33%, down from 14.04% in 2021. This suggests that the company’s operating costs increased or that revenues did not rise as fast as the company’s operating expenses in the year 2022. Nevertheless, keeping a double-figure operating profit margin signifies the company’s sound operational management and generating hefty operating income from revenues.

Liquidity Ratio

Current Ratio

The Current Ratio deals with short-term solvency, which clearly shows how well a company is placed in settling its short-term debts using its short-term resources (Herawati & Fauzia, 2018).

Formula = Total Current Assets / Total Current Liabilities

PepsiCo’s current Ratio came to 0.80 in 2022, just marginally below the 0. 83 reported in 2021. This Ratio means that $0.8 of PepsiCo’s current assets is available for every dollar of the current liability. Current assets should be $0.80 in 2022 compared to $0.83 in 2021. The decline observed indicates a mild reduction in the overall size of the firm’s liquidity position, making it probable that PepsiCo faced slightly more incredible difficulty settling all its near-term obligations using the available current assets in its midst. However, this Ratio is usually preferred to be more than one, although a more prominent figure is more comforting regarding liquidity.

Quick Ratio

The Quick Ratio, or the Acid-Test Ratio, eliminates inventories from current assets to provide a slightly more stringent measure of a company’s liquidity (Derestiyani & Susetyo, 2023).

Formula = Total Current Assets-Inventories / Total Current Liabilities

The Quick Ratio for PepsiCo in 2022 is 0.61, down from 0. 66 in 2021. This Ratio reveals that for each dollar of current liabilities, PepsiCo had $0.61 in easily convertible items into cash and other current assets in 2022, other than Inventory, $0.66 in 2021. The decrease implies a lower ability to fund short-term obligations without using Inventory as a source of funding, which is less reliable.

Efficiency Ratio

Inventory Turnover Ratio

The Inventory Turnover Ratio allows for assessing the number of times the company’s Inventory is sold and restocked over a certain period (Kwak, 2019).

Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory

Average Inventory = (Inventory Beginning +Inventory Ending ) /2

PepsiCo’s Inventory Turnover Ratio is 8.48 in 2022 compared to 8.97 in 2021. This small change of only a couple of basis points may have meaningfully indicated that PepsiCo was selling through its Inventory at a slightly faster rate, turning over its Inventory. The decline in the rate of movement results from instances like lower sales demand, changes in strategies for managing Inventory, or even supply chain issues. Average Inventory was accomplished from $4,135. 00 million to $ 4,784 million in the year 2021. This increase indicates that, on average, PepsiCo had more inventories throughout 2022. Although sustaining elevated Inventory to ensure end users get whatever they want without going elsewhere is a positive action because a businessperson loses a client once they procured elsewhere, high Inventory slows more capital. It might depict inefficiency if the product could be faster-moving.

Receivable Turnover Ratio

The receivable turnover ratio calculates the firm’s effectiveness in collecting receivable accounts (Eryatna et al., 2021).

Receivable Turnover Ratio= Net Credit Sales / Average Account Receivable

Average Inventory= (Receivable Beginning +Receivable Ending) /2

Based on the facts presented, PepsiCo received 9.17 times the accounts receivable turnover in 2022, compared to 9.88 times in 2021. Thus, the decline in this Ratio indicates that PepsiCo’s rate of receivables collections slowed down slightly, which may affect its cash flows. The financial data analyzed above showed that the Average Accounts Receivable rose from $8,045 million to $9,421.50 million in 2022. The higher average of receivables can be explained by the fact that the company is experiencing higher sales on credit or by slow recovery processes. Though credit sales do have a way of improving the sales aspect, credit sales will always bring in some element of risk to the business because there are always cases of bad debts, which will affect the company in the aspect of liquidity if the business is unable to recover the money for a long time.

Gearing Ratio

Debt to Equity Ratio

From this perspective, the Debt-to-Equity Ratio shows how much funding is obtained from creditors compared to shareholders. This is a financial ratio that compares the amount of non-current liabilities to equity of a company.  (Ataullah et al., 2007).

Formula= Liabilities- Non-Current / (Liabilities- Non-Current + Equity) X 100

From the analysis of ratios we see that for the PepsiCo the Debt/Equity ratio went up slightly from 71.81 in 2021 to 72.59 in 2022. This increase is due to increased use of debt compared to equity in 2022 than the year before it. A higher ratio entails higher financial risk but it also means the organization is using coins to generate sales and potentially earn more income for the shareholders. Still, it is necessary to compare this number to others like companies in the same sector or other ratios associated with this measure to make a sound conclusion, it is crucial to have the general view on the company’s financial plan and on the market in which it is operating.

Interest Coverage Ratio

The Interest Coverage Ratio indicates a company’s capacity to meet the expenses on the interest on borrowed money out of operating profit (Malikov et al., 2019).

Formula= Operating Profit / Net Interest Expense

The Interest Coverage Ratio was indicated to be 12.26 times for PepsiCo, which is relatively higher than 5. 99 in 2021. The markup in this Ratio suggests a significantly enhanced capacity to generate enough cash from its operating profits to meet the required interest due to improved profitability or reduced interest rates. Thus, an interest coverage ratio that is more significant than one is considered favorable for a firm’s financial health since it shows that it can meet debt servicing without a substantial level of operating income.

Conclusion

Summing up the financial discussion of 2021 and 2022, it is possible to indicate the stabilization of PepsiCo’s performance and several factors for development. Money profitability analysis shows that the company has been managing its cost line efficiently and had good control over its profits during the period of business fluctuation. However, assessing the third indicator of the amount of working capital, one can find a slight worsening of the situation with short-term solvency. The efficiency ratios reveal some of the issues with inventory and receivables management. The fact that the company’s Debt-to-equity Ratio is declining also means that the level of debt financing is going down. Thus, it reduces credit risk and enhances the prognosis of financial health. These trends indicate that PepsiCo has done praiseworthy in achieving commendable levels on the economic structure and guaranteeing adequate operating profits to cover interest charges to support the next stage of continued structure and growth. In conclusion, from these aspects, it could be seen that PepsiCo has well-developed product portfolios, sound strategic management on the company’s sustainable development, superior financial performance, and effective strategic management on innovation and digital transformation, thus making PepsiCo the outstanding food and beverage company globally.

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