Unit V Case Study

Running head: COCA-COLA AND PEPSI COMPANIES 1

COCA-COLA AND PEPSI COMPANIES 6

Coca-Cola and Pepsi Companies

Crystal King

Principles of Accounting II (BBA 2301)

Professor Gordon

20 April 2021

Coca-Cola and Pepsi Companies

COCA-COLA COMPANY OVERVIEW

The Coca-Cola Company is the world's biggest soda pop maker, representing 51% of the buyer business. The red and white Coca-Cola logo is perhaps the most well-known corporate icon in the world. Coca-Cola has been headquartered in Atlanta since its establishment, and it produces two of the top three soft drinks globally: Coca-Cola Classic (number one) and Diet Coke (number three). The firm also has one of the most extensive delivery networks globally, with over 160 soda brands available in over 200 countries (Errandonea and Zabalegui, NY). Outside of North America, nearly two-thirds of sales are made, with revenues broken down as follows: North America received 37% of the vote, followed by Greater Europe (which includes areas of Eurasia, such as Russia), 26%, the Middle and Far East (21%), Latin America (including Mexico), 12%, Africa (3%), and other regions (1%). North America received 37% of the vote, followed by Greater Europe (which includes areas of Eurasia, such as Russia), 26%, the Middle and Far East (21%), Latin America (including Mexico), 12%, Africa (3%), and other regions (1%). The Coca-Cola Corporation (TCCC) is one of the greatest soft drink organizations on the planet. And the fact that the company is based in the United States has plants all around the world. Muhtar Kent, the company's chairman, and CEO is a Turkish-American citizen. Coca-Cola is now eaten more than 600 million times per day worldwide, and this number is steadily increasing.

PEPSICO COMPANY OVERVIEW

PepsiCo is an organization that is continually growing and transforming the market, from its innovative products to its broad global presence. According to Statements& Sheets (NY), it is a significant food and beverage corporation that acts as a production service, producing and distributing its goods. Indra K. Nooyi is PepsiCo's acting Chairman, and the organization's base camp are in Purchase, New York. PepsiCo has around 274,000 staff and is well ranked on numerous Forbes lists, and is immensely famous worldwide. PepsiCo was established in 1965 when Pepsi-Cola and Frito-Lay converged to become PepsiCo.

Pepsi-Cola, the first soda company, was founded in the late 1800s. PepsiCo is known for being primarily a soda manufacturer, although it has a large number of other brands and products synonymous with it and a very diverse range (Errandonea and Zabalegui, NY). Gatorade, Doritos, Quaker, and Lay's are some of their brands. Despite Pepsi and Coke's indefinite dominance of the soda market, it is complicated to compete; PepsiCo is viewed as having monopolistic competition. Generally, there is a lot of competition between these two firms, and product distinction is a big part of their respective strategic strategies.

COMPARISON OF THREE ACCOUNTING METHODS

I. Receivables Accounting method

Pepsi Company:

In 2016, the cash outflow for Accounts and Notes Receivables was $253 million. However, net accounts and notes receivable in the same year were $7,142 million.

Coca-Cola Company:

The business has implemented Accounting Standards Codification 606, Compensation from Contracts with Customers ("ASC 606") for accounts receivables, ensuring income is recognized as output obligations are met. According to the underlying billing terms, accounts receivables are usually obtained in less than six months.

II. Depreciation Accounting

Pepsi Company:

In 2018, non-current properties were depreciated and amortized on a straight-line basis over their approximate useful lives (since many previous years also). Although depreciation has not been paid on the property, the accounting strategy is not to charge depreciation on the building in progress until it is available for use.

Coca-Cola Company:

Depreciation is calculated using the straight-line equation over the predicted valuable lives in the coca-cola company. Although depreciation has not been paid on the property, the accounting strategy is not to charge depreciation on the building in progress until it is ready for operation.

III. Inventory Valuation Accounting

Pepsi Company:

Notably, in Pepsi Company, the lower expense or net realizable value is used to value it. Although costs are calculated using the weighted average cost (general) and FIFO (for cans), last-in, first-out (LIFO) is used in some cases (Approximately 5 percent of the inventory cost).

Coca-cola Company:

For the year 2018, coca-cola company inventories are priced at 3,766 million dollars. 3,766 consist of $312 in progress, $792 in finished goods, and $2,862 in raw materials. It is estimated at the lower cost, or net feasible worth, with the expense, decided utilizing normal expense or first-in, and first-out strategies.

Ratio Calculations

For COCA-COLA, all information from the 2018 annual report

Liquidity ratio;

Current ratio= current assets/current liabilities= 30634/29223 = 1.05

Solvency ratio

Debt ratio= total liabilities/total assets= 64158/83216 = 77.09%

Profitability ratio;

Net profit margin= net profit/sales= 6727/31856= 21.12%

Market ratio;

Price to earnings ratio= market price/ esp. = 42.81/0.54= 79.27 times

For PEPSI company, all information from the 2018 annual report

Liquidity ratio;

Current ratio= current assets/current liabilities= 11030/18112= 0.61

Solvency ratio;

Debt ratio= total liabilities/total assets= 46407/77648 = 59.77%

Profitability ratio;

Net profit margin= net profit/sales= 12515/64661= 19.35%

Market ratio;

Price to earnings ratio= market price/ eps= 107.14/3.21= 33.38 times

The above ratios play a significant role in the two firms. Firstly, the ratios help in forecasting future financial planning. Secondly, ratios calculated over a given period aids in coordination which a very vital activity in any is given business. If computed correctly, the weakness and efficiency of a business are always in a position to establish perfect coordination in the areas worth control and appreciation. Still, it is agreeable that the most crucial aspect of ratio calculation and analysis is helping in the area controlling of weaknesses and efficiencies (Libby, 1975). The management of the two firms can use it as a correction technique. Additionally, the ratio analysis can always be helpful to both Pepsi and coca-cola in evaluating their financial position.

They help disclose issues relating to working capital and the available money to settle off its short-term commitments. The ratios can as well help the two firms to evaluate their financial weakness or soundness. Lastly, the ratios can act as a great boost to the two companies in helping the potential and current investors, employees, and financial institutions. The ratios achieve this merit by facilitating the mentioned group of individuals in knowing the bad and good financial position via making a comparison of the companies' financial statements over different financial years.

To summarize, by comparing the aforementioned ratios for both firms, we can conclude that Coca-liquidity Cola's ratio is more efficient than PepsiCo’s, with a ratio of 1.05 versus 0.61, indicating that Coca-Cola has a greater liquidity role. Furthermore, coca-profitability cola's ratio is 21.12 percent, while PepsiCo’s is 19.35 percent, indicating that Coca-profitability Cola's is higher than PepsiCo’s. Furthermore, the Coca-Cola Corporation has a higher price ratio than PepsiCo, indicating that the Coca-Cola Company is overvalued. As a result, the Coca-Cola Corporation is far more profitable than PepsiCo.

Conclusion

From the above-discussed ratios, Coca-Cola is the world's most popular soda beverage, with a strong financial position and a well-known brand name that is widely recognized almost everywhere. As a result, Coca-approach Cola's relies on covering the whole industry segmentation everywhere. However, as the beverage industry has grown, many rivals have emerged, ranging from domestic products to global producers, decreasing Coca-market Cola's share in each region. As a result, Coca-marketing Cola's tactics must be innovative. Coca-Cola must change its approach to enter the market more complex and in-depth with their bottling partners and the ability to 'think global, act local' in order to continue to expand market share in all markets, armed with their bottling partners and the ability to 'think global, act locally.' Additionally, in comparison to Pepsi Coca Cola Company takes the lead in terms of sales and market share. Still, from the view perspective of their three ratios discussed above, Pepsi is less likely to attract significant investors, unlike Coca-Cola Company.

Recommendation

Coca-Cola and Pepsi's packaging were unaffected by PET and cans, but there's no reason to be concerned as businesses want to reduce costs by transforming packaging materials. Simply recall that it doesn't make any difference what sort of bundling material you pick as long as the style and structure are engaging. Even if consumers want the most amounts available, both firms must accept declining marginal utility, which would lead to lower customer loyalty if the portion offered is too large (Libby, R. (1975). For shoppers, bulk is the most significant factor, and they want to seek out large sizes to share. This can be used to emphasize a variety of points. The marketing campaign is still successful in terms of achieving maximum consumer penetration, but more attention should be paid to Coca-Cola with big or significant share sizes.

References

Errandonea Ochoa de Zabalegui, J. Financial Analysis of the Financial Statements and Industry Comparison: THE COCA-COLA COMPANY and PEPSICO.

Libby, R. (1975). Accounting ratios and the prediction of failure: Some behavioral evidence. Journal of Accounting Research, 150-161.

Statements, F. L., & Sheets, C. C. B. THE COCA-COLA COMPANY AND SUBSIDIARIES.