PepsiCo’s Balance Sheet

If you want to improve your investing, you should learn how to navigate your way around financial statements such as balance sheets.

Some financial statements, such as an income statement, reflect a company’s performance over a period of time, such as a quarter or year. But a balance sheet reflects its financial condition at a specific moment — typically the end of a quarter.

Here’s a look at PepsiCo’s balance sheet, reflecting the end of its last fiscal year in December 2020. There’s $8.3 billion in cash and cash equivalents, up from $5.6 billion the previous year. A growing pile of cash is good, but at some point, if a company has more than it can put to good use, it might pay out more in dividends to shareholders.

It’s generally best for companies to have little or no debt, but taking on manageable debt — especially when interest rates are very low — can be an effective way to finance operations. Between fiscal 2019 and 2020, PepsiCo’s debt jumped from $32 billion to $44 billion. A peek at the notes in PepsiCo’s annual report reveals most of its debt at interest rates below 3.5%.

Next up on the balance sheet: inventory. PepsiCo’s rose 25%. Rising inventories can reflect unused production materials and unsold products languishing on shelves Ideally, inventory growth shouldn’t outpace sales (or revenue) growth.

Calculating inventory turnover can be informative, too, as it reflects how many times per year the company sells out its inventory. Take 2020’s cost of goods sold (from the income statement) of $31.8 billion and divide it by the average of 2019 and 2020 inventory ($3.8 billion) to arrive at turnover of 8.4. The higher the number the better, and increasing turnover rates are promising. (PepsiCo’s turnover rate was 9.4 a year earlier.)

Balance sheets and other financial statements are generally available on a company’s website in the “Investors” section. They’re included in quarterly earnings and annual reports.