PepsiCo Inc. (NASDAQ:PEP)

The period under review demonstrates fluctuations in key financial performance indicators. Return on Equity (ROE) initially increased before experiencing a decline, while Return on Assets (ROA) exhibited a more moderate pattern of change. Financial Leverage remained relatively stable throughout the observed timeframe.

Return on Equity (ROE)

ROE increased from 47.48% in 2021 to a peak of 53.09% in 2024. This represents a period of improving profitability from the perspective of shareholders. However, a notable decrease to 40.38% occurred in 2025, suggesting a reduction in the return generated on shareholder investments. The initial increase indicates effective utilization of equity financing, while the subsequent decline warrants further investigation.

Return on Assets (ROA)

ROA showed an initial increase from 8.25% in 2021 to 9.67% in 2022, indicating improved efficiency in utilizing assets to generate earnings. A slight decrease to 9.03% was observed in 2023, followed by a return to 9.63% in 2024. A more substantial decline to 7.67% in 2025 suggests a weakening in the company’s ability to generate profit from its assets. The overall trend is relatively stable, with the final year’s value representing the most significant deviation.

Financial Leverage

Financial Leverage remained consistently above 5.0 throughout the period, ranging from a high of 5.76 in 2021 to a low of 5.26 in 2025. This indicates a consistent reliance on debt financing. The relatively small fluctuations suggest a stable capital structure and a consistent approach to utilizing debt. The slight downward trend in the latter years may indicate a cautious approach to increasing debt levels.

The interplay between ROA and Financial Leverage drives the observed ROE trend. The increase in ROE from 2021 to 2024 was supported by both improving ROA and relatively stable leverage. The decline in ROE in 2025 is attributable to the decrease in ROA, despite a slight reduction in financial leverage. This suggests that the company’s profitability is more sensitive to changes in asset efficiency than to changes in its capital structure.

The period under review demonstrates fluctuating performance across key financial ratios impacting overall Return on Equity (ROE). A general observation indicates an initial increase in ROE followed by a subsequent decline. This analysis will detail the trends in Net Profit Margin, Asset Turnover, and Financial Leverage, and their combined effect on ROE.

Net Profit Margin

Net Profit Margin exhibited an increasing trend from 9.59% in 2021 to a peak of 10.43% in 2024. However, 2025 saw a notable decrease to 8.77%, representing the lowest value within the observed period. This suggests a weakening in profitability towards the end of the period, potentially due to increased costs or pricing pressures.

Asset Turnover

Asset Turnover showed an initial improvement, rising from 0.86 in 2021 to 0.94 in 2022. The ratio then experienced a slight decline to 0.91 in 2023, followed by relative stability at 0.92 in 2024, before decreasing to 0.87 in 2025. This indicates a moderate efficiency in utilizing assets to generate sales, with a slight reduction in efficiency in the most recent year.

Financial Leverage

Financial Leverage remained relatively stable throughout the period, fluctuating between 5.26 and 5.76. A slight decrease was observed in 2022, followed by a modest increase in 2024. The value in 2025 (5.26) represents the lowest point in the observed timeframe, suggesting a reduced reliance on debt financing.

Return on Equity (ROE)

ROE increased from 47.48% in 2021 to a high of 53.09% in 2024. However, a significant decrease to 40.38% was recorded in 2025. This decline in ROE aligns with the observed decrease in Net Profit Margin, despite a relatively stable Financial Leverage and a slight decrease in Asset Turnover. The combined effect of these factors resulted in a substantial reduction in returns to equity holders.

The initial increase in ROE appears to be driven by improvements in both profitability and asset utilization, coupled with consistent financial leverage. The subsequent decline in ROE in 2025 is primarily attributable to the reduced Net Profit Margin, indicating that profitability is a key driver of overall returns. While asset turnover and financial leverage experienced minor changes, the impact of the profit margin decrease was substantial enough to significantly lower ROE.

The five-component DuPont analysis reveals shifts in the drivers of Return on Equity (ROE) over the five-year period. Overall, ROE experienced volatility, peaking in 2024 before declining in 2025. This fluctuation is attributable to combined changes in profitability, asset utilization, and financial leverage.

Tax Burden

The Tax Burden remained relatively stable, fluctuating between 0.78 and 0.84. A slight increase was observed from 2021 to 2022, followed by a modest decrease in 2023, and then stabilization around 0.81 for the subsequent two years. This indicates consistent tax efficiency with minimal variation.

Interest Burden

The Interest Burden initially increased from 0.83 in 2021 to 0.90 in 2022, suggesting a higher proportion of operating income allocated to interest expenses. It then decreased slightly to 0.89 in 2023 and 0.88 in 2024, before further declining to 0.85 in 2025. This suggests improved management of interest-bearing liabilities or a benefit from lower interest rates towards the end of the period.

EBIT Margin

The EBIT Margin demonstrated some variability. It decreased from 14.78% in 2021 to 13.61% in 2022, indicating reduced operating profitability. A recovery was seen in 2023 (13.96%) and 2024 (14.70%), returning to the initial level. However, a notable decline occurred in 2025, with the EBIT Margin falling to 12.81%, signaling a potential weakening in core operational performance.

Asset Turnover

Asset Turnover showed an increasing trend from 0.86 in 2021 to 0.94 in 2022, indicating improved efficiency in utilizing assets to generate sales. It decreased slightly to 0.91 in 2023 and remained relatively stable at 0.92 in 2024, before declining to 0.87 in 2025. This suggests a slight reduction in the effectiveness of asset utilization in the most recent year.

Financial Leverage

Financial Leverage, representing the extent to which the company uses debt financing, decreased from 5.76 in 2021 to 5.38 in 2022, indicating a reduction in debt relative to equity. It then experienced a slight increase to 5.43 in 2023 and 5.51 in 2024, before decreasing again to 5.26 in 2025. This suggests a dynamic approach to capital structure management.

The peak in ROE in 2024 was driven by a combination of a strong EBIT Margin and relatively high Financial Leverage. The subsequent decline in ROE in 2025 is primarily attributable to the decrease in both the EBIT Margin and Asset Turnover, partially offset by a reduction in the Interest Burden and Financial Leverage. These factors suggest a potential shift in the company’s operational efficiency and profitability towards the end of the analyzed period.

The period under review demonstrates fluctuating performance in profitability and efficiency. Return on Assets (ROA) exhibited an initial increase followed by a decline, driven by offsetting movements in Net Profit Margin and Asset Turnover. A detailed examination of these components reveals key insights into the underlying business dynamics.

Net Profit Margin

Net Profit Margin increased from 9.59% in 2021 to a peak of 10.43% in 2024. This indicates improving profitability from each dollar of sales. However, a notable decrease to 8.77% is observed in 2025, suggesting a potential erosion of pricing power, increased costs, or a shift in sales mix towards lower-margin products. The overall trend suggests a period of margin expansion followed by a recent contraction.

Asset Turnover

Asset Turnover showed an improvement from 0.86 in 2021 to 0.94 in 2022, indicating greater efficiency in utilizing assets to generate sales. This positive trend was not sustained, with a slight decrease to 0.91 in 2023 and 0.92 in 2024. A more pronounced decline to 0.87 in 2025 is evident, suggesting a potential buildup of assets relative to sales, possibly due to increased investment in working capital or fixed assets without a corresponding increase in revenue.

Return on Assets (ROA)

ROA increased significantly from 8.25% in 2021 to 9.67% in 2022, driven by improvements in both Net Profit Margin and Asset Turnover. Continued growth was observed in 2023, reaching 9.03%, though at a slower pace. ROA peaked at 9.63% in 2024, benefiting from the high Net Profit Margin. The decline to 7.67% in 2025 reflects the combined impact of lower Net Profit Margin and Asset Turnover, highlighting the sensitivity of ROA to changes in these underlying drivers. The 2025 value represents the lowest ROA observed during the analyzed period.

The interplay between Net Profit Margin and Asset Turnover demonstrates that while profitability improvements initially drove ROA gains, the subsequent decline in both metrics in 2025 significantly impacted overall asset efficiency. Further investigation into the factors contributing to the decreased margin and turnover in the latest year is warranted.

The period under review demonstrates fluctuating performance across key financial metrics impacting Return on Assets (ROA). While ROA generally remained strong, a closer examination of its components reveals shifting dynamics in profitability, efficiency, and financial leverage.

Return on Assets (ROA)

ROA increased from 8.25% in 2021 to a peak of 9.67% in 2022, before modestly declining to 9.03% in 2023 and recovering to 9.63% in 2024. A notable decrease to 7.67% is observed in the most recent year, 2025. This suggests a weakening in the company’s ability to generate profit from its assets in the latest period.

EBIT Margin

The EBIT Margin experienced a decrease from 14.78% in 2021 to 13.61% in 2022, indicating reduced operational profitability. A subsequent recovery to 13.96% in 2023 and further improvement to 14.70% in 2024 is evident. However, a significant decline to 12.81% is recorded in 2025, contributing to the overall ROA decrease observed in that year. This suggests increasing cost pressures or pricing challenges in the most recent period.

Asset Turnover

Asset Turnover showed an increasing trend from 0.86 in 2021 to 0.94 in 2022, indicating improved efficiency in utilizing assets to generate sales. This trend stabilized around 0.91-0.92 in 2023 and 2024, before decreasing to 0.87 in 2025. The decline in asset turnover in the latest year suggests a potential slowdown in sales generation relative to the asset base.

Tax Burden

The Tax Burden remained relatively stable throughout the period, fluctuating between 0.78 and 0.84. A slight increase from 0.78 in 2021 to 0.84 in 2022 was followed by a decrease to 0.80 in 2023, and then stabilization around 0.81 for 2024 and 2025. This indicates consistent tax management practices with minimal impact on overall profitability trends.

Interest Burden

The Interest Burden increased from 0.83 in 2021 to 0.90 in 2022, suggesting a higher proportion of earnings allocated to interest expense. It remained elevated at 0.89 in 2023, before decreasing slightly to 0.88 in 2024 and further to 0.85 in 2025. While the decrease in 2025 is positive, the consistently high interest burden indicates a significant level of financial leverage.

The decline in ROA in 2025 appears to be driven by a combination of factors: a substantial decrease in EBIT Margin and a concurrent reduction in Asset Turnover. While the Interest Burden decreased slightly, its continued high level suggests that financial leverage remains a key consideration. The stable Tax Burden indicates it was not a primary driver of the ROA decline.

The period under review demonstrates fluctuations in profitability metrics, influenced by both operational performance and financial leverage. A consistent examination of the tax and interest burdens, alongside the earnings before interest and taxes (EBIT) margin and net profit margin, reveals key trends impacting overall financial results.

Tax Burden

The tax burden remained relatively stable throughout the period, ranging from 0.78 to 0.84. A slight increase was observed from 2021 to 2022, followed by a return towards the initial value and stabilization around 0.81 in the latter years. This suggests consistent tax rate application with minimal impact from changes in tax legislation or jurisdictional shifts.

Interest Burden

The interest burden exhibited an increasing trend from 0.83 in 2021, peaking at 0.90 in 2022, before declining to 0.85 in 2025. This indicates a potential increase in debt financing costs during 2022, followed by a subsequent reduction, possibly due to debt repayment or refinancing activities. The decrease in the most recent year suggests improved management of interest-bearing liabilities.

EBIT Margin

The EBIT margin experienced volatility. It decreased from 14.78% in 2021 to 13.61% in 2022, then showed a recovery to 14.70% in 2024. However, a notable decline to 12.81% was recorded in 2025. This suggests operational performance is subject to external factors or internal inefficiencies, with periods of improvement followed by setbacks. The 2025 decrease warrants further investigation.

Net Profit Margin

The net profit margin mirrored the trends observed in the EBIT margin, though with a dampened effect. It increased from 9.59% in 2021 to 10.43% in 2024, indicating improved overall profitability. However, a significant decrease to 8.77% occurred in 2025. This decline, coupled with the decreasing EBIT margin, suggests that the increased interest burden and/or tax burden may be contributing factors to the reduced net income. The correlation between EBIT margin and net profit margin is evident, but the impact of financial burdens is also apparent.

In summary, while operational profitability, as indicated by the EBIT margin, showed periods of improvement, the net profit margin’s performance was influenced by fluctuations in interest and tax expenses. The decline in both EBIT and net profit margins in 2025 is a key area for further scrutiny, potentially indicating increased financial costs or operational challenges.