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Coca Cola Financial Analysis

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Coca Cola Financial Analysis

Introduction

PepsiCo and Coca Cola have been competing in this particular market of manufacturing

non-alcoholic beverages and soft drinks as well as their distribution across the world. Coca Cola

Company constituted of more than 500 brands of soft drinks worldwide which contribute to its

vast revenue sources. On the other hand, PepsiCo specifically specialized itself in the

manufacturing of soft drinks and selling and distribution of packed food stuffs. The drink

industry's nonalcoholic refreshment segment is principally robust, with diverse affiliations

ranging from small scale to medium scale to emerging, expanding, and established. The

development of this particular industry has been fueled by the expansion of vigorous living and

healthier choices amongst individuals irrespective of their age. This aspect of health will

continue to have an impact on business habits. Despite stiff competition from PepsiCo, Coca

Cola Company remains the world’s leading beverage company. The company boosts having the

capacity to operate in more than 200 countries and approximately 1.5 billion people worldwide

are served with a beverage manufactured from Coca Cola Company. While PepsiCo boasts being

the most successful beverage and snack food industry globally. As evident in the financial

statement of the two corporations, it is clear that they have gone on to make use of diverse

competitive approaches that make them exception and distinctive to each other. Therefore, this

paper will provide a clear financial analysis of both PepsiCo and Coca Cola Company.

A Comparison of the Two Companies by Use of the Three Accounting Methods

Market value ratios

PepsiCo

Price earnings ratio = ____ price per share

Earnings per share

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Price to earnings ratio = 104.15__

8.78
Price to earnings ratio = 11.86

Coca Cola
Price to earnings ratio = 44.24___
1.15
Price to earnings ratio = 29.30

Coca Cola PepsiCo

29.30 11.86__

Price to earnings ratio assists stakeholders and stockholders to analyze the amount of

money have to spend on purchasing a stock based on its current earnings. In addition, it provides

indications of whether the market is overvaluing or undervaluing the company. A stock price

showing a high P/E ratio implies that stakeholders anticipates increased earnings growth in the

near future in relation to the overall market where stakeholders are spending more for current

earnings with the expectations of future growth of the earnings. Stakeholder’s sees high P/E

stocks as enticing buys and low P/E stocks as unappealing one.

Profitability Ratios

PepsiCo

Gross profit margin ratio = Gross profit/ Revenue * 100

Gross profit margin ratio = 35,280/64,661*100

Gross profit margin ratio = 54.56%

Coca Cola Company

Gross profit margin ratio = 20,086/31,856 * 100

Gross profit margin ratio = 63.05%

Coca cola________________________PepsiCo

63.05%_________________________54.56%__
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Probability ratios are financial metrics which are essential in the measuring and

evaluating the capacity of business to make profit. The ratio is more preferred when it’s high

since it indicate that the company is making good use of its assets to generate profits. Businesses

have the capacity to go on well with its operations for a several years without making any

considerable profits; however, in order to survive well in the long run, the corporation should

ultimately achieve and maintain a profit making culture. Based on the above ratios, Coca Cola

tends to have a higher profitability ration as compared to Pepsi Co. an indication that the

company is successfully making good use of its assets to make profits (PepsiCo. 2019). 

Solvency Ratio

Debt to Equity Ratio = __Total Liabilities___

Stockholders’ Equity

PepsiCo

Debt to Equity Ratio = 64,158/14,602

Debit to Equity Ratio = 4.32

Coca-Cola Co.

Debt to Equity Ratio = 64,158/19,058

Debt to Equity Ratio = 3.37

PepsiCo_______________________Coca-Cola

4.32 3.37____

Debt to equity ratio is normally regarded as solvency ratio since it shows a whether

business cash flow is adequate to cater for its long and short term debt commitment. These ratios

reflect a company’s financial well-being. Solvency ratio evaluates a company’s capacity to meet

its long term commitments while the liquidity ratio only measures the short term financial well-

being of a company. The ideal debt to equity ratio should not go beyond the level of 2. Though it
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tends to vary by industries. As for the case of Pepsi and coca cola corporations, their debts to

equity ratio are above the level of 2. The figures imply that the two corporations are financing

their growth by means of borrowings. A business that has a higher debt to equity ratio is

regarded a higher risk to lenders, stake and stockholders (U.S. Securities and Exchange

Commission., 2019). . Likewise, PepsiCo is considered more risky compared to coca Cola. It is

so since it has a higher debt to equity ratio compared to Coca-Cola Company (PepsiCo, 2019). 

Liquidity Ratio

Current Ratio = Current assets____

Current liabilities

PepsiCo.

Current Ratio = 21,893/22,138

= 0.99

CocaCola Co.

Current Ratio= 30,634/29,223

= 1.05

PepsiCo _________________Coca-Cola______

0.99 1.05_________

Current ratio is a ratio between current assets and current liabilities. The ratio shows

whether a corporation has sufficient cash flow to cater for both its short and long term expenses

and debts. It is acceptable when this ratio is high since it implies that a business is liquid enough

to funds its daily operations. The current ratio exceeding 1 is the optimum ratio for a company.

Therefore, on the basis of this assessment the Coca-Cola Company is more liquid in comparison

to PepsiCo. That is, it has the capacity to finance it current liabilities. The ratio further implies

that for every $1 of debt, the Coca-Cola Company has $1.05 existing asset to cater for its debts.
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On the other hand, PepsiCo have insufficient assets to cover for its current liabilities since its

current ratio is below the ideal 1.

Cash Flow Turnovers

Both companies have made excellent use of their assets, allowing them to earn profits.

PepsiCo's average cash turnover ratio was 26.08 percent greater than Coca-turnover Cola's rate

of 6.24 percent. Coca-Cola has a high accounts receivable turnover rate when compared to

PepsiCo, which has a turnover rate of 9.98 percent. Another financial metric is PPE turnover,

which shows how effectively a company uses its property, such as plant and equipment, to

achieve growth. Both PPE in the two companies show that Pepsi had a performance of 3.78,

which is somewhat better than Coca Cola's piece of 3.75 (U.S. Securities and Exchange

Commission, 2019). .

Conclusion and Recommendations

Coca-Cola is a blue-chip stock that is a fantastic investment for profit investors looking to

diversify their portfolio with the potential for further profit growth well into the future. It pays

out a healthy dividend. It has a steady rate of growth. Since 1920, the organization has paid a

consistent profit, has an excellent plan of action that works through every monetary cycle, and

generates predictable free revenue. In any case, investors looking for double-digit profit growth

for the foreseeable future should go elsewhere. Investors can now reap the rewards of this

illustrious company through a steadily rising natural esteem and a burgeoning profit margin.

Coca-upper Cola's management has identified six significant problems and dangers,

according to its discussion and analysis. The first is that, as the global rate of obesity rises,

consumers, health experts, and government organizations are becoming increasingly concerned.

Despite the fact that many people have tried to cut soda out of their diets, Coca-Cola has

responded by producing low-calorie drinks, presenting nutrition information up front, and not
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marketing to children under the age of 12. Water quality and risk are the second issue. Water is

the most important ingredient in all of the products, despite the fact that it is a finite natural

resource that is facing enormous worldwide challenges. Coca-Cola has a strong water

management program and is always looking for ways to improve water efficiency. The third risk

that upper management has identified is changing consumer tastes. Coca-Cola is satisfying needs

by offering 500 brands and over 3,800 beverages, since customers have more information than

ever before. To mitigate this risk, Coca-Cola offers 500 brands and over 3,800 beverages.

To summarize, both PepsiCo and Coca-Cola are outperforming their competitors when it

comes to profit margins. The biggest source of concern for Coca-Cola is the company's declining

revenue trajectory, despite increasing profit margins. Coca-Cola Company management should

look into measures to help the company generate more income. Coca-Cola should also lower its

debts and grow its capital in order to raise further funds. Pepsi, on the other hand, has seen good

developments in its liabilities. This is due to the fact that they have decreased dramatically in

recent years. Pepsi should concentrate on ventures that would generate money. Overall, both

organizations are outperforming one other in terms of expanding profit margins. This is

beneficial in ensuring that the companies perform well in the market.

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References

PepsiCo. (2019). 2018 PepsiCo annual report. https://www.pepsico.com/docs/album/annual-

reports/2018-annual-report.pdf?sfvrsn=35d1d2bc_2

U.S. Securities and Exchange Commission. (2019). Form 10-K: The Coca-ColaCompany

(Commission File No. 001-02217). https://www.coca-

colacompany.com/content/dam/journey/us/en/policies/pdf/shareowner-services/2018-

annual-report-on-form-10-K.pdf