PepsiCo Inc. (NASDAQ:PEP)

Over the five-year period, net operating profit after taxes (NOPAT) exhibited fluctuations. Initially decreasing from US$9,629 million in 2021 to US$9,364 million in 2022, NOPAT then increased, peaking at US$10,978 million in 2024 before declining to US$9,762 million in 2025. The cost of capital remained relatively stable, experiencing a slight increase from 8.59% in 2021 to 8.83% in 2022, followed by a gradual decrease to 8.57% in 2025. Invested capital demonstrated a consistent upward trend, growing from US$69,829 million in 2021 to US$83,234 million in 2025. Consequently, economic profit mirrored the NOPAT trend, with increases and decreases observed throughout the period.

NOPAT Trend

The initial decline in NOPAT between 2021 and 2022 was followed by a period of growth, suggesting improved operational efficiency or increased revenue generation. The subsequent decrease in 2025 warrants further investigation to determine the underlying causes, such as increased costs or decreased sales volume.

Cost of Capital Stability

The relative stability of the cost of capital indicates consistent market perceptions of the company’s risk profile over the analyzed period. The minor fluctuations suggest limited changes in interest rates or the company’s capital structure.

Invested Capital Growth

The continuous increase in invested capital suggests ongoing investments in the business, potentially through capital expenditures, acquisitions, or working capital increases. This expansion could be driving the growth in NOPAT, although the relationship is not always directly proportional as evidenced by the 2025 decline.

Economic Profit Analysis

Economic profit peaked in 2024 at US$4,402 million, indicating the company generated returns exceeding its cost of capital during that year. The decrease to US$2,626 million in 2025, despite continued growth in invested capital, suggests that the returns on those investments were insufficient to cover the cost of capital, or that NOPAT declined more significantly than anticipated. The economic profit figures generally follow the NOPAT trend, as expected, given the relatively stable cost of capital.

Overall, the period demonstrates a dynamic relationship between NOPAT, invested capital, and economic profit. While the company has been increasing its investment base, maintaining profitability and generating positive economic profit are crucial for sustained value creation. The decline in both NOPAT and economic profit in 2025 requires attention and further analysis to understand the contributing factors and implement corrective measures.

Analysis of the presented financial information reveals trends in net income attributable to PepsiCo and net operating profit after taxes (NOPAT) over a five-year period. NOPAT demonstrates a generally positive trajectory, while net income exhibits more fluctuation.

NOPAT Trend

NOPAT experienced a slight decrease from US$9,629 million in 2021 to US$9,364 million in 2022. However, subsequent years show consistent growth, reaching US$10,029 million in 2023 and further increasing to US$10,978 million in 2024. A modest decline is observed in 2025, with NOPAT reported at US$9,762 million. Overall, the period indicates a positive trend in NOPAT, despite the final year’s reduction.

Net Income Trend

Net income attributable to PepsiCo increased from US$7,618 million in 2021 to US$8,910 million in 2022. This growth continued into 2023, reaching US$9,074 million, and further to US$9,578 million in 2024. A notable decrease is observed in 2025, with net income falling to US$8,240 million. The net income trend is characterized by more variability than the NOPAT trend.

Relationship between NOPAT and Net Income

While both metrics generally increased between 2021 and 2024, the divergence in 2025 suggests a potential shift in factors impacting profitability. The larger decrease in net income compared to NOPAT in 2025 could indicate changes in non-operating items, such as interest expense or other income, or a difference in the effective tax rate. Further investigation into these areas would be warranted.

The observed trends suggest that the core operating performance, as measured by NOPAT, remains relatively strong. However, fluctuations in net income highlight the importance of considering factors beyond core operations when assessing overall financial performance.

The provision for income taxes and cash operating taxes exhibited distinct patterns over the five-year period. While the provision for income taxes fluctuated, cash operating taxes generally increased before declining in the most recent year.

Provision for Income Taxes

The provision for income taxes decreased from US$2,142 million in 2021 to US$1,727 million in 2022, representing a decline of approximately 19.3%. It then increased to US$2,262 million in 2023 and further to US$2,320 million in 2024. A subsequent decrease was observed in 2025, with the provision falling to US$1,949 million. This indicates volatility in reported income tax expense.

Cash Operating Taxes

Cash operating taxes demonstrated an upward trend from 2021 to 2024. Starting at US$2,131 million in 2021, it rose to US$2,660 million in 2022, an increase of roughly 24.8%. Continued growth was seen in 2023, reaching US$2,970 million, and in 2024, reaching US$3,060 million. However, 2025 saw a decrease to US$2,351 million, representing a decline of approximately 23.1% from the 2024 peak. This suggests a potential shift in the company’s actual cash tax payments.

Relationship between Provision and Cash Taxes

The difference between the provision for income taxes and cash operating taxes varied across the period. In 2021, the difference was minimal, at US$11 million. This difference widened in 2022 to US$933 million, and further in 2023 to US$708 million, and 2024 to US$740 million. The gap narrowed significantly in 2025, falling to US$398 million. These variations could be attributed to factors such as deferred tax assets/liabilities, tax credits, or changes in tax laws impacting the timing of cash tax payments versus reported tax expense.

The divergence between the provision for income taxes and cash operating taxes warrants further investigation to understand the underlying drivers and potential implications for future cash flows and economic value added calculations.

Over the five-year period examined, invested capital demonstrated a generally increasing trend. While fluctuations occurred, the overall trajectory indicates growing capital employed within the business. A closer examination of the components contributing to invested capital reveals further insights.

Total Reported Debt & Leases

Total reported debt and leases exhibited initial stability, decreasing from US$42,378 million in 2021 to US$41,487 million in 2022. However, beginning in 2022, an upward trend is observed, with values reaching US$47,061 million in 2023, US$47,751 million in 2024, and culminating in US$53,028 million in 2025. This suggests an increasing reliance on debt financing or potentially significant capital lease obligations.

Total PepsiCo Common Shareholders’ Equity

Total PepsiCo common shareholders’ equity generally increased throughout the period. From US$16,043 million in 2021, it rose to US$17,149 million in 2022 and continued to US$18,503 million in 2023. A slight decrease was noted in 2024, falling to US$18,041 million, before resuming an upward trend and reaching US$20,406 million in 2025. This indicates growing retained earnings and/or successful equity issuance.

Invested Capital

Invested capital, calculated as the sum of total debt and shareholders’ equity, remained relatively stable between 2021 and 2022, fluctuating around US$69.8 billion. A noticeable increase occurred in 2023, reaching US$75,038 million, and continued into 2024 with a value of US$76,674 million. The most substantial increase was observed between 2024 and 2025, with invested capital growing to US$83,234 million. This growth is consistent with the trends observed in both debt and equity, suggesting a deliberate expansion of the capital base.

The consistent growth in invested capital, particularly in the later years of the period, warrants further investigation to determine the effectiveness of capital allocation and its impact on returns. The increasing proportion of debt within the capital structure should also be monitored for potential financial risk.

The period under review demonstrates fluctuating performance in economic profit and invested capital, resulting in a corresponding variability in the economic spread ratio. Overall, the economic spread ratio exhibits an initial decline followed by an increase and then a subsequent decrease.

Economic Spread Ratio

The economic spread ratio began at 5.20% in 2021, indicating a return on invested capital exceeding the cost of capital by that margin. A decrease was observed in 2022, with the ratio falling to 4.66%, and remained relatively stable at 4.67% in 2023. A notable increase occurred in 2024, reaching 5.74%, suggesting improved profitability relative to invested capital. However, this positive trend reversed in 2025, with the ratio declining significantly to 3.16%, representing the lowest value within the observed timeframe.

Economic profit experienced a decrease from US$3,629 million in 2021 to US$3,233 million in 2022. It then recovered to US$3,505 million in 2023 and further increased to US$4,402 million in 2024. A substantial decrease in economic profit was recorded in 2025, falling to US$2,626 million.

Invested Capital

Invested capital remained relatively stable between 2021 and 2022, fluctuating between approximately US$69.4 billion and US$69.8 billion. A more pronounced increase was observed from 2022 to 2023, rising to US$75.0 billion. This upward trend continued through 2024, reaching US$76.7 billion, and accelerated in 2025, with invested capital reaching US$83.2 billion. The consistent growth in invested capital, particularly in the latter years, may be contributing to the observed decline in the economic spread ratio in 2025 despite a positive economic profit.

The interplay between economic profit and invested capital suggests that while profitability improved in 2024, the substantial increase in capital employed in both 2024 and 2025 ultimately impacted the economic spread ratio. The decline in the economic spread ratio in 2025, despite positive economic profit, indicates that the growth in invested capital outpaced the growth in profit.

The economic profit margin exhibited fluctuations over the five-year period. Initial values demonstrated a decline followed by a recovery and subsequent decrease. A review of the economic profit and net revenue figures reveals the underlying drivers of these margin changes.

Economic Profit Margin Trend

The economic profit margin began at 4.57% in 2021, decreasing to 3.74% in 2022. A modest increase was then observed in 2023, with the margin reaching 3.83%. The most substantial change occurred between 2023 and 2024, where the margin rose to 4.79%. However, this positive trend did not continue, as the margin decreased significantly to 2.80% in 2025.

Relationship to Economic Profit

Economic profit generally increased from 2021 to 2024, moving from US$3,629 million to US$4,402 million. This increase aligns with the margin expansion observed during the same period. The decline in economic profit to US$2,626 million in 2025 directly corresponds with the substantial decrease in the economic profit margin.

Relationship to Net Revenue

Net revenue consistently increased throughout the period, rising from US$79,474 million in 2021 to US$93,925 million in 2025. While revenue growth was consistent, the economic profit margin did not follow the same trajectory, indicating that revenue increases alone did not translate into proportional increases in economic profit. The largest margin decrease in 2025 occurred despite continued revenue growth, suggesting potential increases in costs or a less efficient allocation of capital.

The observed fluctuations in the economic profit margin suggest a dynamic relationship between profitability and revenue generation. Further investigation into the factors influencing economic profit, such as cost of capital and operational efficiency, would be beneficial to understand the underlying causes of these trends.