Pepsi and Coke Finance

Finance Project

Ratio

KO

PEP

Current Ratio

ROA

ROE

Debt Ratio

Fixed Asset Turn

Dividend Payout

P/E* as of today

There is little to choose from, between Coca-Cola and PepsiCo, based on the cash flow indicator and the investment valuation ratios. The cash flow indicator is the dividend payout ratio, and these companies are quite similar. Pepsi's is a tiny bit higher, but not higher in a significant way. Likewise, the P/E for these companies is in the same range. Coca-Cola's is the higher of the two. Both of these companies are in the same mature business, where there is limited growth upside. Thus, investors are likely looking for stability in either one. The both have roughly the same financial and investment characteristics. The primary differentiating factor is that the market has priced Coke a bit higher. Whether this means that Coke is trading high and will regress to the mean, or whether Pepsi is trading low, will make a different in which shareholder group is happier. But overall, there is not much to choose from between these two companies. They both perform fairly well, while operating in the same industry, and it is the industry characteristics that are driving the performance of these companies.

5. As an investor, if I had to choose between the two, I would take Pepsi. The financials do not speak to much difference between the two, but Pepsi is the better-diversified of the two companies. It has a snack business, which gives it the edge to me. Furthermore, Pepsi still has a market or two that it does not yet operate in, and the same cannot be said of Coke. Pepsi probably has the bigger upside in China, where both companies still have room to grow. But more it is the diversification that I like about Pepsi. The diversification also makes Pepsi a better M&A target -- I'm thinking to the rumors of a tie-up with AB InBev. There's value in that, upside, so while I recognize that Coca-Cola is the market leader and a very well-run company, I see the upside in Pepsi as a diversified entity and one that has a little more creativity with respect to corporate strategy. It is much more likely to extract value either in an M&A transaction or by spinning off Frito Lay.