PepsiCo Debt
| PEP Stock | EUR 137.08 0.70 0.51% |
PepsiCo has over 35.66 Billion in debt which may indicate that it relies heavily on debt financing. . PepsiCo's financial risk is the risk to PepsiCo stockholders that is caused by an increase in debt.
Asset vs Debt
Equity vs Debt
PepsiCo's liquidity is one of the most fundamental aspects of both its future profitability and its ability to meet different types of ongoing financial obligations. PepsiCo's cash, liquid assets, total liabilities, and shareholder equity can be utilized to evaluate how much leverage the Company is using to sustain its current operations. For traders, higher-leverage indicators usually imply a higher risk to shareholders. In addition, it helps PepsiCo Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect PepsiCo's stakeholders.
For most companies, including PepsiCo, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for PepsiCo, the most critical issue when managing liquidity is ensuring that current assets are properly aligned with current liabilities. If they are not, PepsiCo's management will need to obtain alternative financing to ensure there are always enough cash equivalents on the balance sheet to meet obligations.
Given that PepsiCo's debt-to-equity ratio measures a Company's obligations relative to the value of its net assets, it is usually used by traders to estimate the extent to which PepsiCo is acquiring new debt as a mechanism of leveraging its assets. A high debt-to-equity ratio is generally associated with increased risk, implying that it has been aggressive in financing its growth with debt. Another way to look at debt-to-equity ratios is to compare the overall debt load of PepsiCo to its assets or equity, showing how much of the company assets belong to shareholders vs. creditors. If shareholders own more assets, PepsiCo is said to be less leveraged. If creditors hold a majority of PepsiCo's assets, the Company is said to be highly leveraged.
PepsiCo |
PepsiCo Debt to Cash Allocation
Many companies such as PepsiCo, eventually find out that there is only so much market out there to be conquered, and adding the next product or service is only half as profitable per unit as their current endeavors. Eventually, the company will reach a point where cash flows are strong, and extra cash is available but not fully utilized. In this case, the company may start buying back its stock from the public or issue more dividends.
PepsiCo has accumulated 35.66 B in total debt with debt to equity ratio (D/E) of 232.6, indicating the company may have difficulties to generate enough cash to satisfy its financial obligations. PepsiCo has a current ratio of 0.84, indicating that it has a negative working capital and may not be able to pay financial obligations in time and when they become due. Debt can assist PepsiCo until it has trouble settling it off, either with new capital or with free cash flow. So, PepsiCo's shareholders could walk away with nothing if the company can't fulfill its legal obligations to repay debt. However, a more frequent occurrence is when companies like PepsiCo sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for PepsiCo to invest in growth at high rates of return. When we think about PepsiCo's use of debt, we should always consider it together with cash and equity.PepsiCo Assets Financed by Debt
Typically, companies with high debt-to-asset ratios are said to be highly leveraged. The higher the ratio, the greater risk will be associated with the PepsiCo's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of PepsiCo, which in turn will lower the firm's financial flexibility.PepsiCo Corporate Bonds Issued
Most PepsiCo bonds can be classified according to their maturity, which is the date when PepsiCo has to pay back the principal to investors. Maturities can be short-term, medium-term, or long-term (more than ten years). Longer-term bonds usually offer higher interest rates but may entail additional risks.
Understaning PepsiCo Use of Financial Leverage
PepsiCo's financial leverage ratio helps determine the effect of debt on the overall profitability of the company. It measures PepsiCo's total debt position, including all outstanding debt obligations, and compares it with PepsiCo's equity. Financial leverage can amplify the potential profits to PepsiCo's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if PepsiCo is unable to cover its debt costs.
PepsiCo, Inc. operates as a food and beverage company worldwide. The company was founded in 1898 and is headquartered in Purchase, New York. PEPSICO INC operates under Beverages - Soft Drinks classification in Germany and is traded on Frankfurt Stock Exchange. It employs 267000 people. Please read more on our technical analysis page.
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Additional Information and Resources on Investing in PepsiCo Stock
When determining whether PepsiCo is a good investment, qualitative aspects like company management, corporate governance, and ethical practices play a significant role. A comparison with peer companies also provides context and helps to understand if PepsiCo Stock is undervalued or overvalued. This multi-faceted approach, blending both quantitative and qualitative analysis, forms a solid foundation for making an informed investment decision about Pepsico Stock. Highlighted below are key reports to facilitate an investment decision about Pepsico Stock:Check out the analysis of PepsiCo Fundamentals Over Time. For more detail on how to invest in PepsiCo Stock please use our How to Invest in PepsiCo guide.You can also try the Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
What is Financial Leverage?
Financial leverage is the use of borrowed money (debt) to finance the purchase of assets with the expectation that the income or capital gain from the new asset will exceed the cost of borrowing. In most cases, the debt provider will limit how much risk it is ready to take and indicate a limit on the extent of the leverage it will allow. In the case of asset-backed lending, the financial provider uses the assets as collateral until the borrower repays the loan. In the case of a cash flow loan, the general creditworthiness of the company is used to back the loan. The concept of leverage is common in the business world. It is mostly used to boost the returns on equity capital of a company, especially when the business is unable to increase its operating efficiency and returns on total investment. Because earnings on borrowing are higher than the interest payable on debt, the company's total earnings will increase, ultimately boosting stockholders' profits.Leverage and Capital Costs
The debt to equity ratio plays a role in the working average cost of capital (WACC). The overall interest on debt represents the break-even point that must be obtained to profitability in a given venture. Thus, WACC is essentially the average interest an organization owes on the capital it has borrowed for leverage. Let's say equity represents 60% of borrowed capital, and debt is 40%. This results in a financial leverage calculation of 40/60, or 0.6667. The organization owes 10% on all equity and 5% on all debt. That means that the weighted average cost of capital is (.4)(5) + (.6)(10) - or 8%. For every $10,000 borrowed, this organization will owe $800 in interest. Profit must be higher than 8% on the project to offset the cost of interest and justify this leverage.Benefits of Financial Leverage
Leverage provides the following benefits for companies:- Leverage is an essential tool a company's management can use to make the best financing and investment decisions.
- It provides a variety of financing sources by which the firm can achieve its target earnings.
- Leverage is also an essential technique in investing as it helps companies set a threshold for the expansion of business operations. For example, it can be used to recommend restrictions on business expansion once the projected return on additional investment is lower than the cost of debt.