Professional Documents
Culture Documents
Prepared for
Name
Matrix Num
CEA140033
CEA140093
CEA140097
CEA140107
CONTENT
NUM
1.
Introduction
(i)
2.
3.
PAGES
Company Background
PepsiCo, Inc
(ii)
Industry Overview and Competitive Events
Objective
Financial Analysis
4.
5.
6.
ITEM
13
56
78
9
10
marketed
and
distributed
variety
of
noncarbonated-beverage
products, including Minute Maid orange juice and Dasani bottled water.
However, the company had run into difficulties at certain point in its
growth. Business mistakes by Doug Ivester, CEO from 1997 to 1999
aggravated the situation. During Ivesters approximately two-year term, net
income fell by 41 percent. The companys board of directors eased Ivester
out in December 2000.
Douglas Daft, head of Coca-Colas Middle and Far East and Africa
groups, was chosen to succeed Ivester. Daft and his executives worked hard
to bring back the glory days of the Coca-Cola Company by making few
changes to the company. Some analysts were optimistic that the change in
1
During 2000, PepsiCo, Inc. was a company involved in the snack food,
soft drink and noncarbonated beverage businesses. The company sold and
distributed salty and sweet snacks under the Frito-Lay trademark and
manufactured concentrates of Pepsi, Mountain Dew and other brands to sell
to franchised bottlers. The company also produced and distributed juices and
other noncarbonated beverages.
In
2000,
the
beverage
industries
transformation;
the
noncarbonated
drinks
was
undergoing
segment,
although
rapid
still
the ads and replaced them with the Life Tastes Good series, which marked
a return to Cokes traditional feel-good themes, while being trendy at the
same time.
OBJECTIVE
FINANCIAL ANALYSIS
The WACC of a firm increase as if the beta and rate of return on equity
increases, this is a sign of a decrease in valuation and a higher risk.
6
FINANCIAL COMPARISON
Exhibit 1 shows that from the year 1994 to 2000, Coca-Cola has a
relatively stable EVA as compared to Pepsi Co. regardless of the fact that
Coca-Colas EVA is declining from year to year. On the other hand, Pepsi Co.
has gained negative EVA in the past but has been steadily growing and
surpassed Coca-Colas EVA in 2000.
The trend in Pepsi Co.s EVA was the direct impact of its CEO, Rogers
Enricos decision to sell off KFC, Taco Bell and Pizza Hut in 1997 as part of a
move to revamp the company and focus more on snack and beverage.
Business mistakes of its CEO, Doug Ivester, largely contributed Coca-Colas
low EVA more than the global economic environment during that period.
8
During 1994 to 1998, both Coca-Cola and Pepsi have similar WACC values
but Coca-Cola had lesser capital investment with higher ROICs and EVAs than
Pepsi. By 2000, Pepsi Co. now has higher EVA which makes it stand almost
on the same level as Coca-Cola. Based on these observations, it can be
assumed that Return on Investment Capital (ROIC) is a prime deciding factor
for EVA analysis.
CONCLUSION
it should be
noted that attempt of both Coca-Cola and Pepsi Co.s to enter other market
segments is likely to be highly profitable. This is due to the changes in
customer orientation to a non-carbonated drink.
To have a more exact and clear view of the situation, we looked at the
EVA figures for both Coca-Cola and Pepsi Co from the year 1994 to 2000
together. It can be seen that in the long run, Coca-Cola can survive more
efficiently than Pepsi Co. since it has faced near bankruptcy cases and still
can be recovered from them whereas Pepsi Co. has not.
shareholders
over
the
period.
RECOMMENDATION
11