Part A – Company’s Background 3
Part B – Comparative Financial Data of Last Three Years 3
Part C- Comparative Financial Performance Analysis from 2013 to 2015 5
Current Ratio 5
Inventory Turnover and Receivable Turnover 6
Total Debt Ratio 7
Net Profit Margin 8
Key Findings and Investment Decision – Conclusion 9
References 10
Comparison of Financial Performance between PepsiCo and Coca-Cola from 2013 to 2015
Part A – Company’s Background
This research aims to compare financial performance of PepsiCo and Coca-Cola Company from 2013 to 2015. These two companies are actually market leaders as well as largest competitors to one another in the global beverage industry. Both of these companies have their origin in the United States.
Part B – Comparative Financial Data of Last Three Years
The following table contains comparative financial figures for PepsiCo and Coca-Cola from 2012 to 2015 which makes it apparent that the former has been outperforming its business rival in the beverage industry in all years.
The above mentioned comparative figures reveal that PepsiCo has been able to generate more revenue than Coca-Cola due to which its net income after taxes is more than the latter. It reveals that due to more focused and extensive advertising and selling activities, PepsiCo’s ability to generate sales revenue is much stronger than that of its counterpart, the Coca-Cola. Because of this, PepsiCo is in better position to cover its costs of generating sales, pay for operating expenses and make more earnings available to common shareholders in the form of net income after taxes in comparison to the financial figures posted by the Coca-Cola Company.
Despite stronger revenue generating capacity than Coca-Cola, PepsiCo has been paying fewer portions of its earnings in the form of dividend payments to its shareholders. This is because PepsiCo seems more focused to retain earnings and reinvest them into business development. Compared to Coca-Cola that pays major portion of its earnings as dividend, PepsiCo seems to believe in providing it common equity holders with real investment returns in the form of capital gains.
This could be confirmed by the price per share reflected by the above table. Every common equity share of PepsiCo tends to be traded at higher market price than Coca-Cola. It also reveals that the market forces are willing to invest heavily in PepsiCo for capital gains and confidence into PepsiCo’s business performance. Comparatively, the market has less confidence in Coca-Cola due to which the forces of supply and demand have kept its share price lower than that for PepsiCo since 2012. Therefore, the financial data compared in this section confirms that PepsiCo is has been posting better financial performance than Coca-Cola in all years.
Part C- Comparative Financial Performance Analysis from 2013 to 2015
This section aims to compare financial performance of PepsiCo and Coca-Cola over a given three year period, from 2013 to 2015 with the help of different financial ratios in the following manner:
Current Ratio
This ratio assesses the ability of both the PepsiCo and Coca-Cola to repay their obligations of up to one year or less by examining the strength and weaknesses of their liquidity management practices by considering the following financial figures and calculated ratios :
The above financial information makes it apparent that Coca-Cola tends to own more current assets and current liabilities compared to PepsiCo in all years. Despite this, PepsiCo seems to outperform Coca-Cola from 2013 to 2015 when it comes to liquidity management practices. For both the companies, the liquidity management weakened in 2014 for certain reasons. For PepsiCo, current assets declined from 2013 to 2014 whereas current obligations/liabilities increased by a slight margin during the same period. For Coca-Cola, the increase in current liabilities was much more than witnessed in its current assets from 2013 to 2014. Overall, PepsiCo seems to have strong liquidity management practices compared to Coca-Cola over a three year period from 2013 to 2015.
Inventory Turnover and Receivable Turnover
This ratio will examine the ability of PepsiCo and Coca-Cola to turn their inventories to sales. In other words, this ratio suggests the frequency with which both of these business rivals generate sales revenue by selling inventories or finished products. In contrast, receivable turnover assesses the time period within which PepsiCo and Coca-Cola makes cash collections from their clients against credit sales. Such an analysis is performed using the following tabular representations:
The above tables clarify that in 2013 and 2014, PepsiCo held more ending inventories in its warehouses compared to Coca-Cola. Despite this, PepsiCo is more efficient in selling its inventories in less time compared to Coca-Cola which takes more time in generating sales revenue. This is so because Coca-Cola has been losing sponsorships of various sports events and teams while PepsiCo has been gaining more access to its target audience which results in quick sales generation. From 2013 to 2015, PepsiCo has been generating sales more rapidly than Coca-Cola. For instance, PepsiCo took thirty seven business days to turn its inventories to sales while Coca-Cola consumes around sixty three days to generate sales. Due to this, liquidity management practice is stronger for PepsiCo than for Coca-Cola.
Receivable turnover also reflects that PepsiCo is efficient enough to collect cash from its customers against credit sales more quickly than Coca-Cola. For example, PepsiCo around thirty three days in making cash collections resulting from credit sales but Coca-Cola is two days short as it collects cash in approximately thirty five days. Due to this second reason, PepsiCo seems to manage its liquidity wisely compared to Coca-Cola.
Total Debt Ratio
The above table reveal that Coca-Cola tends to be less leveraged compared to its counterpart, PepsiCo since 2013. In other words, Coca-Cola possesses more assets and liabilities than PepsiCo from 2013 to 2015 yet the latter seems to have more stable cash flow stream. Compared to PepsiCo, the cash flow stream for Coca-Cola tends to be very risky due to increased reliance on liabilities or debt based leverage. Coca-Cola may find it difficult as well as expensive to borrow in the debt market in time of credit crunch. Therefore, PepsiCo is in better debt management condition than Coca-Cola.
Net Profit Margin
For analysis in this sub-section, the following financial figures and ratios are considered:
It is found here that despite PepsiCo has been generating more sales revenue than Coca-Cola since2013, yet its net income tends to be lower than that of its global counterpart in the worldwide beverage industry. Due to this, the net profit margin is also lower for PepsiCo than for Coca-Cola. It reveals that PepsiCo tends to have more costs and operating expenses to deal with because of which its net income is lower than that of Coca-Cola. PepsiCo is investing heavily in its marketing campaigns to maintain its social media presence and access more consumers in the target market. Therefore, it is justified if PepsiCo’s major portion of net income is consumed by cost of generating revenue and operating expenses to make the business grow.
Key Findings and Investment Decision – Conclusion
For any investor whose investment goal is to make dividend gain, Coca-Cola is best option. This is because, at end of the financial accounting year, Coca-Cola tends to payout more earnings as dividends to common stockholders compared to PepsiCo. However, an investor looking for capital gains should invest heavily in PepsiCo because the share price has been increasing dramatically since 2012. In all years, per share price for PepsiCo is also higher than that of Coca-Cola. Therefore, PepsiCo is the best option for market investors when it comes to benefit from capital gains (or increase in per share price) whereas investment in Coca-Cola is recommended at end of the year to benefit from Dividend gains.
References
Zack, G. M. (2012). Financial Statement Fraud: Strategies for Detection and Investigation. John Wiley & Sons.
