PepsiCo, Inc – Financial Performance

Introduction

PepsiCo, Inc. is one of the leading brands in the beverage and convenience food industry worldwide with its wide range of brands including Lay, Doritos, Cheetos, Gatorade, Pepsi-Cola, Mountain Dew, Quaker, and SodaStream. The company operates in more than 200 countries and territories worldwide, offering a vast variety of products, including snacks, cereals, beverages, and other convenient food items. In the last two years, PepsiCo has shown solid financial growth, and according to the annual report, the net revenue in 2023 was reported to be $91.5 billion, which is 6 %more than in 2022, when it was $86.4 billion. The company’s fundamental profit through operation experienced an increase of 13 percent, reaching 13.88 billion in 2023, compared to 12.33 billion in 2022. This report aims to consider the Pepsi New development that occurred throughout 2023, as well as its effect on the financial position. Moreover, the philosophy of dividends should be discussed with the audience concerning the generation of cash and gearing ratio. Lastly, the session will conclude with a comment on the financial ratios of the organization.

Section A

Development One: Entry into New Markets

PepsiCo advanced significantly in developing its activities in emerging markets, especially in Asia and Latin America. This step aimed to expand the company’s global presence by capitalizing on high-growth markets with growing middle classes and transforming consumption habits.(Liu et al., 2024)

Impact on the Financial Performance:

The growth had, on the positive side, been attributed to the financial performance of PepsiCo, which had achieved a significant rise in its worldwide revenues. As an example, PepsiCo achieved net revenue of $91.5 billion in 2023, which was a 6 %growth over the past year. Moreover, the international business of the company recorded a 12% and 8% rise in organic growth in Latin America and the Asia-Pacific regions, respectively.(Wang, 2021)

Strategy Implemented:

The company also invested heavily in fostering good rapport with local distributors and shopkeepers by strategically placing its products in accessible locations, thereby promoting sales in these new areas. Sustainability was also a priority aimed at these markets by PepsiCo, in line with its larger initiatives as a company under its umbrella initiative called “pep+.”(Tomić, 2025)

Development Two: Geopolitical Tensions Can Cause Supply Chain Disruptions

Global supply chains were seriously affected by the ongoing geopolitical spillovers, especially the conflict in Ukraine. PepsiCo also experienced setbacks in the supply of raw materials, and transportation and energy expenses were higher. The conflict in Ukraine led to price volatility in commodities and availability restrictions, impacting PepsiCo’s ability to source ingredients and distribute products efficiently in certain areas.(Anukeerthi and Baranidharan, 2024)

Impact on Financial Performance:

In 2023, PepsiCo has to report the remarkable growth of operating costs because of the rise in commodity prices and logistical difficulties. To illustrate, the total cost of revenue by the company spiked, which in turn mitigated the boost in revenue. Although the net revenue rose by 6%, PepsiCo experienced a squeeze in its profit margins because the increase in operating profit was lower than the increase in revenue by 4%. Moreover, the company’s free cash flow decreased to $8.12 billion in 2023, representing a marginal decline from the previous year’s free cash flow of $5.86 billion.

Strategy Implemented:

To ensure efficient inventory management and improve forecasting accuracy, the company invested more in technology, particularly automation and data analytics. Also, PepsiCo has accelerated the implementation of renewable energy sources in its operations to reduce its dependency on unstable energy markets. The latter were aimed at curbing efficiency and cost pressures in the long run.(Hirsch, 2023)

Section B

Dividend

Dividend Theory Applied to PepsiCo

The current dividend policy at PepsiCo complies with the Dividend Relevance Theory, which argues that shareholder value is increased when paying out dividends. According to the theory, the issuance of dividends is an indication that informs investors that a company has a healthy financial standing and can provide reliable cash flows. In addition, the strategy of PepsiCo integrates with Progressive Dividend Policy, whereby the company aims at increasing dividend distribution in parallel with the rise in earnings and at the same time maintaining a steady dividend payout ratio.  (Obayagbona and Omodamwen, 2022)

Dividend History and Policy for the Last 2 Years

• 2023- $ 1.18 per Share
• 2022 – $1.15 per Share

Dividend Payment Frequency and Policy

PepsiCo pays dividends four times a year, which adds a source of income to its stockholders. The company has an increasing policy, as indicated by the increase in paid dividends over the last three years. This path can be attributed to the growth strategy adopted by PepsiCo, whereby dividends increase to indicate good financial performance and the ability to return value to shareholders. Notably, the policy is neither erratic nor steady, but it aims to increase dividends in line with the overall increase in the company’s earnings over time.  (Ain and Manping, 2022)

Influence on Dividend Decision and Capacity to Pay

In 2023, PepsiCo achieved net revenue of 91.5 billion and grew its core operating profit by 13 percent, providing the company with the financial vitality to maintain its dividend programme. Despite the presence of geodynamics, high commodity prices, and a severed supply chain, PepsiCo has maintained its payroll power as well as the ability to raise long-term payments in terms of dividends. (Nababan et al., 2024)

Dividend Irrelevance Theory

In cases where PepsiCo decides to deny dividends or substantially reduce the same, the Dividend Irrelevance Theory may prevail. Based on this framework, the value of a firm does not depend on dividend policy since investors will put in place similar incomes through strategic share trades. In this situation, paying the funds as a dividend might increase the long-term shareholder value by reinvesting it into development opportunities, as per this theory.(Azekkar et al., 2025)

Source of Finance

Source of Finance: Equity and Non-Current Liabilities

The equity of PepsiCo has also been showing volatility in the recent past, which could be attributed mainly to the earnings retention practice adopted by the company and the subsequent share buyback programs. The equity position is supported by the fact that the company has reported a net income growth of 12 percent, that is, per share equivalent to $7.62 in 2023 compared with 2022. Share buybacks have also played their part, contributing as PepsiCo planned to spend about a billion dollars on the purchase of ordinary shares in 2023.(Bajaj, Kashiramka and Singh, 2020)

At the same time, the non-current liabilities of PepsiCo have grown, primarily due to the increase in long-term debt issued to fund strategic acquisitions and capital expenditures. To illustrate, the company would make an offering of 1.5 billion senior notes in 2023 to finance long-term growth projects

Capital Structure Analysis and Theories

Further, the capital structure of the company is approaching the implications of the M&M irrelevance theory. This theory assumes that the capital structure does not matter in the value of the firm, based on certain assumptions. Comparatively, PepsiCo’s gearing ratio is high compared to firms with low gearing ratios, aligning more with the Traditional view (net income approach). The improvement in the gearing Ratio of PepsiCo indicates that it has no fear of using debt as a source of capital, which is also cushioned by strong cash flows and profit margins made by the firm.(Brusov and Filatova, 2023)

Cash Management and Financial Risks

PepsiCo’s capital structure exposes it to risks, particularly fluctuations in interest rates and refinancing risks, given its moderately high gearing of 84%. Both the company and the stock can be exposed to high gearing in the instances of economic recessions or an increase in interest rates, with such cases forcing the company to make additional cash outflow to pay to its debtors. This may diminish its capability to reinvest in operations or react to unforeseen opportunities and threats. (Badakhshan and Ball, 2022). It is also good news that the company’s free cash flow in 2023 is valued at 8.12 billion, enabling it to take care of its debts.

Capital Structure Influences

Several key aspects affect the determination of the capital structure of PepsiCo. These include:(Boateng et al., 2022)

• Potential to grow: PepsiCo’s expansion strategy, which involves issuing debt to acquire companies and expand its international presence, has led to increased dependence on non-current liabilities.
• Market: The interest rates, the state of the economy, and investor psychology are significant factors that affect PepsiCo when deciding whether or not to issue additional debt or buy back stocks.
• Corporate strategy: PepsiCo has concentrated on the acquisition strategy, usually funding it through a combination of book and loans financing. The company aims to maintain a flexible capital structure, enabling it to finance expansion projects effectively.

Section C

Profitability Ratio

Gross Profit Percentage

Gross profit percentage measures the percentage of revenue that is left after the direct costs incurred in the production process are deducted; they are often referred to as cost of goods sold (COGS). This Ratio is an indicator of the efficiency of this firm in converting its inputs to its outputs and converting its sales to profits. Mathematically, this is calculated as:(Martini et al., 2023)

Gross Profit % = (Total Sales – Total Cost of Goods Sold)/Total Sales*100

PepsiCo has a gross profit percentage of 54.2% in 2023 as compared to a figure of 53.0% in 2022. The positive increase in numbers implies that the company has enhanced its ability to manage costs in proportion to revenue generation on a slight scale. Several items can contribute to this gain, including increased volume sales, stricter cost control, or a better price advantage to protect or improve the profit margin.

Net Income Percentage

In comparison, the net income percentage further quantifies the leftover portion of revenue that remains disaggregated as profit after removing increasing costs, duties, and other expenses; thus, it serves as a determinant of total profitability. Its equation is the following. (Evmenchik et al., 2021)

Net Income % = (Net Income)/Total Sales*100

By 2023, the net income percentage of PepsiCo also decreased to 9.9 %, which was lower than that of 2022 (10.3%). The cut can either be caused by high operating costs or increased interest and taxes. Venue levels had been robust, but the increase in the selling, general, and administrative expenses further lowered profitability, and accordingly, the converted sales to net income were also relatively lower.

Efficiency Ratio

Receivables Days (Days Sales Outstanding)

The Receivables Days, usually termed as Days Sales Outstanding (DSO), are basically the days that a company takes to receive money after a sale has been made. A low DSO is often a good indicator of strong accounts receivable collection procedures; a high DSO, in the meantime, is often a sign of weak, inefficient collection machinery. DSO is computed by the following formula: (Nguyen, 2021)

Total Days Receivables = (Total Accounts Receivable / Total Sales Revenue) * 365

DSO of PepsiCo grew by a tiny margin from 429 to 432 days in 2023. The periodical extension indicates that customers became, on average, slower to pay the balances in the 2023 fiscal year. For instance, this could have been due to a change in the method of providing credit to customers, or a growth of receivables past due. Consequently, signals are evident in economic pits and when regions experience peaks in demand or payment periods.

Payables Days (Days Payables Outstanding)

Payables Days, on the other hand, measures the number of days commonly used for paying suppliers. An extended period is usually an intentional strategy to conserve cash resources. (Baker, Filbeck and Barkley, 2022)

Total Days Payables = (Total Accounts Payables / Total Cost of Sales Revenue) * 365

In the 2023 fiscal year, the Payables Days of PepsiCo increased to 219 days in comparison to the 212 days in the 2022 fiscal year. The 7-day extension is an indication of a deliberate choice to extend payment terms and fortify cash-flow management with improved bargaining power over suppliers. Although these practices may increase short-term liquidity, they could harm supplier relations if payment delays are too high.

Liquidity Ratio

Debt to Equity Ratio

The Debt to Equity Ratio is used to measure total debt against the total equity and reflects the financial leverage of a firm. The larger the Ratio, the higher the percentage of debt financing, which in turn increases the sentiment of credit risk exposure. (Susilawati, Shavab and Mustika, 2022)

Total Debt to Equity Ratio: Total Debt / Total Equity

The Ratio of PepsiCo decreased to 2.02 in 2023 from 2.06 in 2022, indicating a slight decrease in the level of debt. This contraction can be based upon a larger base of equity created out of retained earnings or through active reduction of borrowing, which would imply a more mature character of capital.

Interest Cover

Interest Cover measures how much the operating earnings could be used to cover interest obligations. A larger ratio indicates comfort in being able to pay off debt service needs. (Meryana and Setiany, 2021)

Interest Cover = Operating Profit / Net Interest Expense

The Interest Cover of PepsiCo has increased, rising from 12.3 times in 2022 to 14.6 times in 2023. This indicates that the company is better positioned to cover interest expenses, driven by stronger growth in operating profits or a decline in interest expenses.

Investment Ratio

ROCA (Return on Current Assets)

Return on current assets (ROCA) can provide another essential source of insight to determine the efficiency of the firm. The greater ROCA is indicative of better conversion of current assets into a profit. (Krstić et al., 2023)

ROCA = (Net Income / Total Current Assets)  X 100

The ROCA of PepsiCo decreased to 33.7 %in 2023, down from 41.3 %in 2022. This decrease was associated with a more significant increase in current assets compared to the growth in net income, indicating less efficient use of current resources. This also shows high levels of inventory or results in other current assets obligations, which may provide few further returns.

Earning Per share

Earnings per share is calculated as Distribution of Net Income over the Weighted Average Number of Ordinary Share. It tells how much organization earns over the number for shares. (Dong, 2022)

Earnings per share = Net income / Weighted Average Number of Ordinary Share

The EPS of PepsiCo only grew by approximately 2%, reaching 6.56 in 2023 as compared to 6.42 in 2022. The major boost is attributed to a greater net income realized in 2023 that increased to 9,074 million dollars to 8,910 Million dollars in 2022. As a result of the minimal drop in the weighted average shares outstanding, PepsiCo managed to sustain its growth curve.

Conclusion

Potential conditions can be observed through contemporary global macroeconomic volatility, which is evident in inflationary pressures and logistical limitations. Despite these doubts, solid cash-flow generation and a tendency toward reinvestment of capital in growth opportunities rather than paying dividends indicate the ability of the company to continue to pay. They may have an increasing ability to pay dividends in the future.

Reference

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