Executive Summary Presentation
Name: Loren Domingo-Tangco
Course: BUS-317
Date: December 14, 2019
Instructor: Brent Beyer
Coca-Cola and PepsiCo Financial Comparison Report
Coca-Cola is an American company which leads in the beverage industry in the United States as well as many other nations globally. Pepsi Company is also in the beverage industry based in the United States. Pepsi Company is also a parent company to Frito-Lay as well as Quaker Oats, hence making it to lead in beverage, snack as well as cereal industries. In this report, I will analyze the liquidity, solvency, as well as profitability of each company in relation to the other and the beverage industry (Li, 2019).
Financial Ratios
The Coca-Cola versus PepsiCo liquidity ratios are usually used in measuring the short-term potentiality of a company in paying its responsibilities as well as meeting their needs for their cash maintenance. Per Cagle, Compbell & Jones (2013), “an assessment of any firm’s liquidity is of great importance since, a decline in liquidity will reflect a greater risk of bankruptcy.” The liquidity can be considered as the depth of any firm which will highlight the standing of the company. The major ratios indicating the liquidity of the company are the current ratio as well as the quick ratio. Also, the profitability of the company is measured via the profitability ratios. These are the ratios which are key in the analysis of the investment levels of the company. The profit margin ratios are the most applicable ratios in profitability analysis (Carroll, 2016). Finally, solvency refers to the potentiality of the firm to meet its long-term debts as well as financial responsibilities. Solvency determines whether the company will continue staying in business since it indicates the firm’s ability to continue with its operations in its foreseeable future. Debt to Equity ratio will be used in measuring the company’s solvency.
Financial Ratio Analysis Based on Both Companies
Liquidity
From the financial statements of Coca-Cola Company and PepsiCo, the two ratios measuring the two companies’ liquidity are tabulates as below;
Current Ratios
|
Company |
Coca-Cola |
PepsiCo |
Industry |
|
Current Ratio |
0.92 |
0.95 |
1.14 |
The current ratio is calculated as;
The current ratio to analysis is usually meant to investigate on the current working capital situation by getting the fraction of current assets to the current liability of the company. In repaying the current liabilities, the company’s short-term assets must be readily dispensable. From the above current ratios, it’s clear that both companies are in a dangerous state since their current ratios are below that of the industry, with PepsiCo being better. The fact that the ratios of the companies are below 1, it indicates that they aren’t in a position of fully settling their short-term obligations (Torkornoo, & Dzigbede, 2017).
Quick Ratios
The quick ratio usually screens the current ratio by computing the total of the liquid assets which are simply exchangeable into cash to cover the current debts easily and promptly. From the above quick ratios, PepsiCo is in a better position of catering for its short-term requirements as compared to Coca-Cola. It can be noted that, PepsiCo’s Quick ratio is above that of the industry, while Coca-Cola’s is below that of the industry, hence PepsiCo is in a better position in the market to escape bankruptcy (Renz, & Vogel, 2016).
Profitability
Gross Margin
|
Company |
Coca-Cola |
PepsiCo |
Industry |
|
Net Profit Margin Ratio |
21.14% |
19.38% |
12.28% |
The Net Profit Margin Ratio is calculated as;
This ratio tells more on how profitable the products and services of the two companies are. It specifically indicates how much it costs in producing a product. Both of the companies’ net profit margins are above that of the industry with Coca-Cola being at a better position in profitability than PepsiCo (Qin, 2019, July).
Solvency
Debt to Equity Ratio
|
Company |
Coca-Cola |
PepsiCo |
Industry |
|
Debt to Equity Ratio |
1.66 |
2.10 |
0.90 |
The solvency ratio is calculated as;
References:
Carroll, C. (2016). The Dasani Controversy: A Case Study of How the Launch of a New Brand
Jeopardized the Entire Reputation of Coca-Cola. In The Crisis of Food Brands (pp. 33-44). Routledge.
Li, X. (2019). Financial Analysis of Coca-Cola Company.
Purkayastha, D., & Rao, A. S. (2017). Sustainable development at PepsiCo. In Case Studies in
Sustainability Management (pp. 77-98). Routledge.
Qin, J. (2019, July). Value Investment Based on Data Analysis with Comparison of Three Food
Corporations in the US. In 4th International Conference on Humanities Science, Management and Education Technology (HSMET 2019). Atlantis Press.
Renz, F., & Vogel, J. (2016). Analysis of The Coca-Cola Company.
Torkornoo, H. K., & Dzigbede, K. D. (2017). Sustainability Practices of Multinational
Enterprises in Developing Countries: A Comparative Analysis of Coca-Cola Company and PepsiCo Inc. Journal of Global Initiatives: Policy, Pedagogy, Perspective, 11(2), 3.
Company Coca-Cola PepsiCo Industry
Quick Ratio 0.76 0.85 0.83
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