Pepsi Vs. Coca-Cola Financial Analysis Essay

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Financial Analysis of Pepsi and Coca Cola Synopsis of Companies

Pepsi and Coca-Cola companies boast of having two of the most recognized and preferred or desired beverages in the whole world. These two establishments are very fierce competitors in the beverage industry and incessantly compete with one another with the main objective of becoming the main and top distributor of not just sodas built but other beverages as well. This fierce rivalry that exists between the two companies is referred to as the "Cola Wars" and began in the period leading to the 1980s and has since then continued and become even more intense. In the period leading to the 80's Pepsi boosted and increased its market share, a time which coincided with Coca Cola Company being the top most distributor and supplier of beverages (PepsiCo Annual Report, 2013).. At this point in time, the two companies energetically and dynamically canvassed and advertised in efforts and endeavors to attain and sustain the number one ranking brand globally. These companies undertook this strategy simply by targeting different levels of income all over the globe with appealing and friendly products that are economically and fairly priced.

Profitability Ratio Analysis of the Companies

Profitability ratios indicate just how a company is able to produce its profits. The following is a profitability ratio analysis of Pepsi Company and Coca-Cola Company.

1. Operating Profit Margin

This profitability ratio is attained by dividing the operating income by revenue. This ratio compares the amount of operating income with that of revenue. This ratio considers the expenses of production that are not related to the direct production of products or services and these expenses include administrative expenses

i. Pepsi Company

2012

9,112/65,492 x 100 = 13.91%

2013

9,705/66,415 x 100 = 14.61%

ii. Coca-Cola Company

2012

10,779 / 48,017 x 100 = 22.45%

2013

10,228/46,854 x 100 = 21.83%

To begin with it can be seen that the profitability of PepsiCo using this ratio increased from the year 2012 to 2013. The company had a 0.7% increase on its operating profit margin. The ratios indicate that in the year 2013, Pepsi made a return of 14.61 cents as operating profit for every dollar the company invested. On the other hand, the profitability ratio of Coca-Cola can be seen to decrease between the year 2012 and 2013 with a decline of 0.62%. The ratios indicate that in the year 2013, Coca-Cola made a return of 21.83 cents as operating profit for every dollar the company invested. In general, it can be perceived that in comparing the two companies, the Coca-Cola Company has been more profitable compared to PepsiCo.

2. Net Profit Margin

This net profit margin ratio is attained by dividing the net income by revenue. This ratio is indicative of the profitability levels of the company with regards to the net income in comparison to the revenues of the firm.

i. Pepsi Company

2012

6,178/65,492 x 100 = 9.43%

2013

6,740 / 66,415 x 100 = 10.15%

ii. Coca-Cola Company

2012

9,086 / 48,017 x 100 = 18.92%

2013

8,626 / 46,854 x 100 = 18.41%

To begin with it can be seen that the profitability of PepsiCo using this ratio increased from the year 2012 to 2013. The company had a 0.7% increase on its net profit margin. The ratios indicate that in the year 2013, Pepsi made a return of 10.15 cents as net profit for every dollar the company invested. On the other hand, the profitability ratio of Coca-Cola can be seen to decrease between the year 2012 and 2013 with a decline of 0.51%. The ratios indicate that in the year 2013, Coca-Cola made a return of 18.41 cents as operating profit for every dollar the company invested. In general, it can be perceived that in comparing the two companies, Coca-Cola Company are more profitable compared to PepsiCo.

3. Return on Assets (ROA)

This ratio measures how well a company produces income or profit from its assets. The return on assets ratio is calculated by dividing the net income of the company by its total assets.

i. Pepsi Company

2012

6,178/74,638 x 100 = 8.28%

2013

6,740 / 77,478 x 100 = 8.70%

ii. Coca-Cola Company

2012

9,086 / 30,328 x 100 = 29.96%

2013

8,626 / 31,304 x 100 = 27.56%

To begin with it can be seen that the profitability of PepsiCo using this ratio increased from the year 2012 to 2013. The company...

...

The ratios indicate that in the year 2013, Pepsi made a return of 8.70 cents as a return for every dollar the company invested on its total assets. On the other hand, the profitability ratio of Coca-Cola can be seen to decrease between the year 2012 and 2013 with a decline of 2.4%. The ratios indicate that in the year 2013, Coca-Cola made a return of 27.56 cents as a return for every dollar the company invested on its total assets. In general, it can be perceived that in comparing the two companies, Coca-Cola Company is more profitable compared to PepsiCo. This implies that the former knows how to utilize its total assets to generate proper revenue and income compared to the latter.
In general, when taking into account the three profitability ratios considered above, it can be perceived that Coca-Cola Company is more profitable compared to its closest rival PepsiCo. One of the main ways in which PepsiCo can improve on its profitability ratios is by increasing its revenue and minimizing its costs of goods sold as well as the selling, general and administration expenses that the company incurs. Similarly, the managers of PepsiCo should figure out the manner in which the company utilizes its total assets in order to generate revenues and income.

Events impacting the Companies

A number of the events between the two companies have impacted them in different manners. To begin with, in the past year, the Coca-Cola Company made a partnership with Green Mountain Company which is an establishment that offers coffee. Coca-Cola and Green Mountain have set out this business plan which will be business collaboration for the forthcoming decade so as to produce products of Coca-Cola in plastic pods for a single serving which are also referred to as K-Cups. In relation to this merger, Coca-Cola paid $1.25 billion attaining a shareholding stake of ten percent in the company. On the other hand, Green Mountain will benefit as Coca-Cola will help in marketing or promoting the product (O'Toole, 2014).

On the other hand, Pepsi has also has positive growth and success in its mergers with other establishments. Fresh products as well as optional products which are healthier have also had a positive impact on the company. For instance, Doritos Locos Tacos have been retailed beyond the $300 million mark within the restaurants of Taco Bell in the preceding year. This in turn has offered the company an extended and protracted presence in the networks and distributions of food service. The company has also succeeded with other products such as Quaker Real Medleys and Pepsi NEXT (Goodman, 2013).

Income Statement Analysis

The income statements are financial statements which can be analyzed and evaluated to compare and contrast the financial performance as well as the financial status or position of a company or may be even two. To begin with, the item to be first considered on the income statement is the amount of revenue generated by the companies. For PepsiCo, the company in 2012 generated $65,429 and $66,415 in the year 2013 which shows an increase of $986. On the other hand, for Coca Cola Company, the company generated $48,017 in the year 2012 and $46,854 in the year 2013. This indicated a revenue decrease of $1,163. In comparing the financial performance of the two companies, it indicates that PepsiCo had a better financial performance as it increased its revenue while that for Coca-Cola decreased. It is also imperative to note that the revenue levels of PepsiCo are higher compared to those of Coca-Cola. This can be owed to the fact that the company sells more products which are diversified compared to Coca-Cola.

Another item to consider in the statement of comprehensive income is the net income amounts of the two companies. For PepsiCo, the company in 2012 generated a net income of $6,214 and generated a net income of $6,787 in the year 2013 which shows an increase of $573. On the other hand, for Coca Cola Company, the company generated $9,019 in the year 2012 and $8,584 in the year 2013. This indicated a revenue decrease of $453. While comparing the individual companies and the two of them, it can be perceived that with regards to the net income amount, the financial performance of Coca-Cola dipped. This is largely owing to the fact that the company had a dip on its revenue amounts generated. On the other hand, PepsiCo had a positive financial performance with an increase in its net income owing to its increase in the annual revenues. Comparing the two companies it can be perceived that in as much as PepsiCo had a better financial performance, the net income amounts of Coca-Cola are much higher. In addition, one important aspect to consider is that the revenue amounts…

Sources Used in Documents:

References

Goodman, A. (2013). PepsiCo, Re-Energized. Forbes. Retrieved from: http://www.forbes.com/sites/agoodman/2013/06/14/pepsico-re-energized/

O'Toole, B. (2014). Green Mountain stock soars on Coke partnership. CNN Money. Retrieved from: http://money.cnn.com/2014/02/05/investing/green-mountain-coca-cola/

Passport. (2013). Coca-Cola Co The SWOT Analysis, In Soft Drinks (World). Retrieved from: http://www.euromonitor.com/medialibrary/PDF/Coca-Cola-Co_SWOT_Analysis.pdf

PepsiCo, Inc. And Subsidiaries. (February 19, 2013). Form 10-K.


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