PepsiCo Inc. (NASDAQ:PEP)

The solvency position of the company exhibits a generally stable profile over the five-year period, with some nuanced shifts in leverage and coverage metrics. Overall debt levels, relative to equity, capital, and assets, remain consistently high, suggesting a reliance on debt financing. However, coverage ratios demonstrate a capacity to service debt obligations, though with a declining trend in later years.

Debt Levels

Debt to equity ratios decreased from 2.51 in 2021 to 2.28 in 2022, then fluctuated between 2.38 and 2.46 over the subsequent three years, ending at 2.41 in 2025. Inclusion of operating lease liabilities results in slightly higher ratios, ranging from 2.42 to 2.65 over the same period, concluding at 2.60. Debt to capital ratios followed a similar pattern, remaining relatively stable between 0.69 and 0.73. Debt to assets ratios show a gradual increase from 0.44 in 2021 to 0.46 in 2025, with a similar trend when including operating lease liabilities, rising from 0.46 to 0.49.

Leverage

Financial leverage decreased from 5.76 in 2021 to 5.38 in 2022, then experienced a slight increase to 5.51 in 2024 before decreasing to 5.26 in 2025. This indicates a moderate fluctuation in the company’s use of debt to amplify returns, with a slight reduction in overall leverage by the end of the period.

Coverage Ratios

Interest coverage ratios increased significantly from 5.94 in 2021 to 10.57 in 2022, then decreased steadily over the following years, reaching 6.57 in 2025. This suggests an initial improvement in the ability to cover interest expenses, followed by a weakening of this position. Fixed charge coverage ratios mirrored this trend, increasing from 4.85 in 2021 to 7.28 in 2022, and then declining to 4.77 in 2025. The consistent decline in both coverage ratios in the later years warrants attention, as it indicates a diminishing cushion for debt service.

In summary, while the company maintains a substantial debt load, its ability to meet its fixed charges has decreased over the observed period. The stability in debt-to-equity and debt-to-capital ratios, coupled with the declining coverage ratios, suggests a potential increase in risk as the company’s earnings capacity relative to its debt obligations diminishes.

The Debt-to-Equity ratio exhibits a fluctuating pattern over the five-year period. Initially, the ratio decreased before stabilizing and then increasing again. Total debt and total shareholders’ equity both generally increased throughout the period, but at differing rates, influencing the ratio’s movement.

Overall Trend

The Debt-to-Equity ratio began at 2.51 in 2021, decreased to 2.28 in 2022, and then increased to 2.38 in 2023. It continued to rise to 2.46 in 2024 before slightly decreasing to 2.41 in 2025. This indicates a period of decreasing leverage followed by a period of increasing leverage, with a slight moderation in the most recent year.

Debt Levels

Total debt decreased from US$40,334 million in 2021 to US$39,071 million in 2022. However, it subsequently increased to US$44,105 million in 2023, US$44,306 million in 2024, and further to US$49,182 million in 2025. This demonstrates a consistent upward trend in debt levels over the latter part of the observed period.

Equity Levels

Total PepsiCo common shareholders’ equity increased from US$16,043 million in 2021 to US$17,149 million in 2022 and continued to rise to US$18,503 million in 2023. A slight decrease was observed in 2024, with equity falling to US$18,041 million, before increasing again to US$20,406 million in 2025. The growth in equity, while generally positive, experienced a temporary setback in 2024.

Ratio Interpretation

The Debt-to-Equity ratio consistently remained above 2.0 throughout the period, suggesting that debt financing represents a significant portion of the company’s capital structure. The increase in the ratio from 2022 to 2025 indicates a growing reliance on debt relative to equity. While not necessarily indicative of financial distress, this trend warrants continued monitoring.

The debt to equity ratio, inclusive of operating lease liabilities, exhibits a generally stable pattern over the five-year period, with some fluctuation. Total debt increased from 2021 to 2025, while total shareholders’ equity also increased, though not consistently at the same rate.

Debt to Equity Ratio - Overall Trend

The ratio began at 2.64 in 2021, decreased to 2.42 in 2022, and then increased to 2.65 in 2024 before settling at 2.60 in 2025. This indicates a slight increase in financial leverage over the period, but remains within a relatively narrow range.

Debt Evolution

Total debt demonstrated an initial decrease from US$42,378 million in 2021 to US$41,487 million in 2022. However, subsequent years show a consistent upward trend, reaching US$53,028 million by 2025. This suggests an increasing reliance on debt financing.

Equity Evolution

Total shareholders’ equity increased from US$16,043 million in 2021 to US$20,406 million in 2025. The growth was not linear; a decrease was observed between 2023 (US$18,503 million) and 2024 (US$18,041 million) before resuming an upward trajectory. This indicates fluctuating retained earnings and/or other equity account changes.

The observed increase in debt, coupled with the fluctuating equity, contributes to the slight increase in the debt to equity ratio. While the ratio remains relatively stable, the upward trend in debt warrants continued monitoring to assess potential financial risk.

The Debt to Capital ratio exhibits a relatively stable pattern over the five-year period. While fluctuations are present, the ratio remains within a narrow range, indicating a consistent capital structure from a debt perspective.

Overall Trend

The Debt to Capital ratio began at 0.72 in 2021, decreased slightly to 0.69 in 2022, and then experienced a modest increase, reaching 0.71 in both 2024 and 2025. The ratio was 0.70 in 2023. This suggests a generally consistent reliance on debt financing relative to total capital.

Total Debt

Total debt decreased from US$40,334 million in 2021 to US$39,071 million in 2022. Subsequently, it increased to US$44,105 million in 2023, US$44,306 million in 2024, and further to US$49,182 million in 2025. This indicates a growing absolute level of debt over the latter part of the observed period.

Total Capital

Total capital remained relatively stable between 2021 and 2022, at US$56,377 million and US$56,220 million respectively. It then increased to US$62,608 million in 2023, US$62,347 million in 2024, and US$69,588 million in 2025. The growth in total capital parallels the increase in total debt, contributing to the stable Debt to Capital ratio.

The concurrent increases in both debt and capital suggest that the company is financing its growth through a combination of debt and equity, maintaining a consistent financial leverage profile. The slight initial decrease in the ratio in 2022, followed by stabilization, indicates a period of potential debt reduction or capital reinvestment that was later offset by increased borrowing.

The Debt to Capital ratio, inclusive of operating lease liabilities, exhibits a relatively stable pattern over the five-year period. While fluctuations are present, the ratio remains within a narrow range, indicating a consistent, though leveraged, capital structure.

Total Debt (including operating lease liability)

Total debt demonstrates an initial decrease from 42,378 US$ millions in 2021 to 41,487 US$ millions in 2022. Subsequently, an upward trend is observed, with debt increasing to 47,061 US$ millions in 2023, 47,751 US$ millions in 2024, and reaching 53,028 US$ millions in 2025. This suggests an increasing reliance on debt financing in the later years of the observed period.

Total Capital (including operating lease liability)

Total capital generally follows an increasing trend. It rises from 58,421 US$ millions in 2021 to 58,636 US$ millions in 2022, then continues to increase to 65,564 US$ millions in 2023, 65,792 US$ millions in 2024, and finally to 73,434 US$ millions in 2025. This indicates a growing overall capital base.

Debt to Capital Ratio

The Debt to Capital ratio begins at 0.73 in 2021, decreases slightly to 0.71 in 2022, and then stabilizes around 0.72 to 0.73 for the subsequent years (2023, 2024, and 2025). The consistency in this ratio, despite the absolute increases in both debt and capital, suggests that the company is maintaining a relatively constant proportion of debt financing within its capital structure. The slight decrease in 2022, followed by stabilization, could indicate a period of capital structure optimization before resuming growth in both debt and equity.

The observed trend in debt levels, coupled with the stable Debt to Capital ratio, implies that the company’s growth is being financed through a combination of debt and equity, with debt playing a significant and consistently proportioned role.

The Debt-to-Assets ratio exhibits a generally increasing trend over the observed five-year period. While fluctuations occur, the ratio demonstrates a consistent move towards greater leverage. Initial values indicate a moderate level of debt relative to assets, which gradually shifts towards a higher proportion of debt financing.

Debt-to-Assets Ratio Trend

In 2021, the Debt-to-Assets ratio stood at 0.44. A slight decrease was noted in 2022, with the ratio falling to 0.42. However, this was followed by a return to 0.44 in 2023. The ratio continued to climb in 2024, reaching 0.45, and further increased to 0.46 in 2025. This indicates a strengthening reliance on debt to finance assets.

The increase in the ratio from 2022 through 2025 suggests a potential shift in the company’s capital structure. While the initial decrease in 2022 might have indicated deleveraging, subsequent years demonstrate a reversal of this trend. The magnitude of the increase, though incremental year-over-year, warrants monitoring to assess the long-term implications for financial risk and flexibility.

Total Debt and Total Assets

Total debt increased from US$40,334 million in 2021 to US$49,182 million in 2025. Total assets also increased over the same period, moving from US$92,377 million to US$107,399 million. The growth in debt, however, slightly outpaced the growth in assets, contributing to the observed increase in the Debt-to-Assets ratio.

The consistent growth in both total debt and total assets suggests overall business expansion. However, the increasing proportion of debt financing requires continued assessment to ensure it remains aligned with the company’s risk tolerance and long-term strategic objectives.

The Debt to Assets ratio, including operating lease liability, exhibits a consistent upward trend over the five-year period. Total debt has generally increased, while total assets experienced fluctuations but ultimately trended upwards as well. This analysis details these observations.

Overall Trend

The Debt to Assets ratio increased from 0.46 in 2021 to 0.49 in 2025. This indicates a growing proportion of assets are financed by debt. The increase, while gradual, suggests a potential shift in the company’s capital structure towards greater leverage.

Total Debt

Total debt decreased slightly from US$42,378 million in 2021 to US$41,487 million in 2022. However, it then increased significantly to US$47,061 million in 2023, continuing to US$47,751 million in 2024, and reaching US$53,028 million in 2025. This demonstrates a clear pattern of increasing debt levels in the latter part of the analyzed period.

Total Assets

Total assets remained relatively stable between 2021 and 2022, at US$92,377 million and US$92,187 million respectively. A substantial increase was observed in 2023, reaching US$100,495 million, followed by a slight decrease to US$99,467 million in 2024. Assets continued to grow in 2025, reaching US$107,399 million. Despite these fluctuations, assets generally increased over the period.

Ratio Interplay

The consistent rise in the Debt to Assets ratio, despite asset growth, suggests that debt is increasing at a faster rate than assets. While the ratio remains below 0.5, the upward trajectory warrants monitoring to assess potential risks associated with increased financial leverage. The increase in debt from 2022 onwards is the primary driver of this trend.

In conclusion, the observed trends indicate a growing reliance on debt financing. Continued monitoring of this ratio, alongside other solvency metrics, is recommended to fully understand the implications for the company’s financial health.

The financial leverage of the company, as indicated by the relationship between total assets and total shareholders’ equity, demonstrates a relatively stable pattern over the five-year period. While fluctuations are present, the company consistently maintains a significant degree of financial leverage.

Overall Trend

Financial leverage initially decreased from 5.76 in 2021 to 5.38 in 2022, suggesting a reduction in the proportion of assets financed by equity. It then experienced a slight increase to 5.43 in 2023, followed by a further increase to 5.51 in 2024. The most recent year, 2025, shows a decrease to 5.26, representing the lowest level of leverage observed during the period.

Asset and Equity Relationship

Total assets experienced a moderate increase over the period, moving from US$92,377 million in 2021 to US$107,399 million in 2025. Total shareholders’ equity also increased, from US$16,043 million to US$20,406 million, but at a slower rate than the growth in total assets. This disparity contributes to the observed fluctuations in financial leverage.

Leverage Fluctuations

The increase in leverage from 2022 to 2024 suggests the company may have increased its reliance on debt financing relative to equity. The subsequent decrease in 2025 indicates a potential shift back towards a more balanced capital structure, possibly through increased equity or reduced debt. The changes, while present, remain within a narrow range, indicating a consistent approach to capital structure management.

In summary, the company’s financial leverage remains consistently high throughout the observed period, with minor variations suggesting active, but controlled, management of its capital structure. The growth in assets outpaces the growth in equity, contributing to the observed leverage dynamics.

The interest coverage ratio exhibits fluctuations over the five-year period. Earnings before interest and tax (EBIT) generally increased from 2021 to 2023, followed by a slight decrease in 2025, while interest expense demonstrated an initial decrease, then an increase throughout the period. These movements have a combined effect on the interest coverage ratio.

Overall Trend

The interest coverage ratio began at 5.94 in 2021, increased substantially to 10.57 in 2022, then decreased progressively to 6.57 in 2025. While remaining above 5.0 throughout the period, the declining trend in later years warrants attention.

EBIT Analysis

EBIT demonstrated a modest increase from US$11,809 million in 2021 to US$11,824 million in 2022. A more significant increase was observed in 2023, reaching US$12,854 million, followed by a further rise to US$13,552 million in 2024. However, EBIT decreased to US$12,084 million in 2025.

Interest Expense Analysis

Interest expense decreased considerably from US$1,988 million in 2021 to US$1,119 million in 2022. It then increased in subsequent years, reaching US$1,437 million in 2023, US$1,606 million in 2024, and US$1,840 million in 2025. This upward trend in interest expense partially offset the gains from increased EBIT in later years.

Ratio Interaction

The substantial increase in the interest coverage ratio in 2022 was primarily driven by the significant decrease in interest expense, despite only a slight increase in EBIT. The subsequent decline in the ratio from 2023 onwards is attributable to the combination of increasing interest expense and the decrease in EBIT in 2025. The ratio’s sensitivity to changes in both EBIT and interest expense is apparent.

The observed trends suggest a potential weakening in the company’s ability to cover its interest obligations, particularly if the increase in interest expense and the decrease in EBIT continue. Continued monitoring of these figures is recommended.

The company demonstrates a fluctuating ability to cover its fixed charges over the five-year period. Earnings before fixed charges and tax generally increased, though with a recent decline, while fixed charges exhibited a more consistent, albeit increasing, pattern. This interplay resulted in varying fixed charge coverage ratios.

Earnings Before Fixed Charges and Tax

Earnings before fixed charges and tax increased from US$12,372 million in 2021 to US$12,409 million in 2022, representing a modest increase. Further growth was observed in 2023, reaching US$13,520 million, and continued into 2024 with a value of US$14,340 million. However, a decrease is noted in 2025, with earnings falling to US$12,964 million.

Fixed Charges

Fixed charges decreased significantly from US$2,551 million in 2021 to US$1,704 million in 2022. Subsequently, fixed charges increased to US$2,103 million in 2023 and US$2,394 million in 2024. This upward trend continued into 2025, with fixed charges reaching US$2,720 million.

Fixed Charge Coverage

The fixed charge coverage ratio peaked at 7.28 in 2022, indicating a strong ability to meet fixed obligations. While remaining above 4.85 throughout the period, the ratio decreased to 6.43 in 2023 and further to 5.99 in 2024. A continued decline is observed in 2025, with the ratio falling to 4.77. This suggests a weakening, though still adequate, capacity to cover fixed charges as earnings decreased and fixed charges increased.

The initial improvement in the fixed charge coverage ratio in 2022 was driven by a substantial decrease in fixed charges. However, subsequent increases in fixed charges, coupled with the earnings decline in 2025, have eroded the coverage ratio. The company’s ability to comfortably cover its fixed obligations appears to be diminishing, warranting continued monitoring.