PEP — PepsiCo Inc.

Will it survive?

• Can it pay its interest? 10.3×
  Comfortable
  Operating income $11.5B ÷ interest expense $1.1B

  Operating profit covers interest with the kind of margin Graham wanted for a defensive holding. Necessary, not sufficient — it says solvent, not cheap.

• How heavy is the debt? 4.3×
  Heavy
  Total debt $49.2B ÷ operating income $11.5B

  Years of operating profit it would take to repay all debt. A first read, not a credit rating: it's gross debt (not netted against cash) over EBIT (not EBITDA), and a cyclical year distorts it.

• How long is cash tied up? —
  Not enough data

  The filing data didn't include the inputs for this check.

Is it a good business?

• Return on invested capital 15%
  High
  NOPAT $9.3B ÷ invested capital $60.4B (debt + equity − cash)

  The rate the business earns on the money tied up in it — Buffett's north star, because over time a stock tracks the ROIC beneath it. Above ~15% sustained hints at a moat; below ~8% the company may destroy value as it grows. Asset-light businesses (R&D expensed, little capital) read artificially high — pair this with Owner Earnings.

• Owner Earnings (free cash) margin 8%
  Solid
  Owner Earnings $7.7B = operating cash $12.1B − capex $4.4B

  What an owner could take out without starving the business. That's 8% of revenue. Treating stock comp as the real expense it is (less $288M of SBC) leaves $7.4B. Honest caveat: capex here blends maintenance and growth, so steady-state Owner Earnings may run higher (see capex vs. depreciation).

• Are earnings backed by cash? 1.47×
  Cash-backed
  Cash from ops $12.1B ÷ net income $8.2B

  How much of reported profit showed up as operating cash. Above 1× is reassuring; well below suggests earnings lean on accruals. One year is noisy — growth and working-capital swings distort it, and this is operating cash, not free cash. Watch the multi-year trend.

How is the cash used?

• Where do the earnings go? 113%
  Returns most of it
  Dividends + buybacks $8.6B ÷ Owner Earnings $7.7B

  Of $7.7B Owner Earnings, $8.6B (113%) went back to shareholders — $7.6B dividends, $1.0B buybacks. Net of $288M stock comp, the real buyback was about $712M. Returning most of it signals a mature cash machine; reinvesting most could mean a long runway — or empire-building. The split doesn't say which; the return earned on it (see ROIC) does.

• Investing or harvesting? 1.28×
  Expanding
  Capex $4.4B ÷ depreciation $3.5B

  Descriptive, not a grade. Above ~1× means investing faster than assets wear out (growth — or, sustained for years, today's earnings carrying less depreciation than tomorrow's will). Below means spending less than it's wearing out (efficiency — or a melting asset base). The ratio won't tell you which; the filings will.

Durability & moat — 2016–2025

A moat is a high return that doesn’t fade, reinvested at high returns. Here is what the record says — judgments, not another chart of the numbers.

• Profitable years 10 of 10

  Never lost money over the record — the earnings stability Graham insisted on.

• Return on capital ≥ 15% 9 of 10 yrs

  A moat shows up as a high return on invested capital that holds year after year — not one good vintage.

• Operating margin 16% → 13%

  Margins are slipping — competition or costs are biting in.

• Reinvestment — incremental ROIC 13%

  Reinvested capital earned only a modest return — growth is getting expensive.

• Owner earnings growth +0%/yr

  Free cash to owners grew about 0% a year over the record.

• Worst year 2025 · 12.2% op. margin

  Stayed profitable even in its hardest year — the resilience that survives recessions.

• Share count −0.6%/yr

  The share count is shrinking — buybacks are quietly growing your slice of the business.

• Dividend record rising

  Paid and raised the dividend across the record — the continuity Graham prized.