Introduction
In the recent days, consuming a soft drink is part of daily living because people need beverages to deliver the great taste, inspiration and hope. They also want non-alcoholic beverages for stimulation and refreshments. However, soft drinks sectors are flourishing industries since the provide refreshment, soft drinks that are in high demand almost in every nation. This industry started in the 1770s and it captures domestic and global markets. Additionally, firms that are in soft drink industry are under intense competition as they try to emerge as the overall players in the world market. Therefore, the key companies in this sector are the coco cola and Pepsi Companies because they are sharing the biggest market share.
Coca-Cola Company.
It is the largest beverage corporation around the globe. It is refreshing the consumers with over five hundred brands and more than three thousand drinks. The company is led by Coke, the most valuable and recognized product. This brand has made the portfolio of Coca-Cola to feature in 20 billion dollar brands, where eighteen of which are offered in options of a reduced calories. Other products include diet Coke, Zero Coca-Cola, Minute Maid, Fanta, Sprite, Dasani, Gold Peak, Dell Valle and Vitamin Water (The Coca-Cola Company 2015 Annual Report, 2016). The company is most preferred for the provision of sparkling and still beverages due to its largest system of distribution all over the world. In a day, over 1 billion people are enjoying the beverages from Coca-Cola Company in about 300 countries. While building the sustainable society, the company is focusing on some initiatives that can reduce environmental pollution by creating a safe, and inclusive situation for its associates to enhance economic advancement especially in the communities in which the company operates.
Suppliers
The business partners that provide the company's systems with materials such as ingredients, machinery, packaging, as well as goods and services, are the leading suppliers of Coca-Cola. Therefore, the guiding principles of the vendors communicate the company's values and expectations by putting more emphasis on the importance policies and practices in the workplace
Customers
Apart from small and independent businesses, the consumers of the coca cola products are big international chains of retailers, and restaurants. The company is cooperating equally with them to enhance mutual benefit. In conjunction with its bottling partners, the company is serving the consumers through account management workforce to offer services and support designed to fulfill their needs (Supplier and Customer Partnerships, 2016). Consequently, the coca cola is constantly looking for other means of reducing costs, improving sales revenues, and deliver quality and more diverse products to the clients. That is it works to create additional value to its consumers through anticipation of their demands and interests, and by delivering viable solutions for their enterprises
Leadership
The chairman of the Board and CEO, Muhtar Kent is leading the Coca-Cola Company with the commitment to the values and spirit this greatest beverage company. Moreover, the management structure has changed to increase the external focus on the marketplace at a great speed, effectiveness, and productivity.
Pepsi Company.
Pepsi is the prominent food and Beverage Company in the world with a balancing portfolio of enjoyable products such as Gatorade, Pepsi-Cola, Frito-Lay, Tropicana, and Quaker.
Suppliers
Through the operation of Pepsi Cola, the authorized bottlers, contract manufacturers, as well as other third parties, are the main suppliers of the company. Pepsi distributes and sells a variety of both convenient and enjoyable beverages, snacks, and other food stuff to customers in over two hundred countries all over the world. That is the vending business is distributing drinks, and snacks to restaurants, other business entities, schools, and stadiums through third party food service, operators, and vending distributors.
Customers
The key clients of Pepsi are the wholesalers, foodservice customers, drug stores, the authorized independent bottlers, membership and grocery stores, and mass merchandisers. However, the Pepsi usually give its independent bottlers some exclusive deals of selling and manufacturing specific products that have Pepsi's trademark in some selected geographical regions. Therefore, the arrangement provides the company with the authority to charge the independent bottlers for the finished goods, and Aquafina royalties while specifying the process of manufacturing that is needed for the quality product.
Leadership
The organizational culture of Pepsi shows its commitment to the maximization of strengths of its human resources (Kissinger, 2015). That is its leadership defines the traditions, values, and the performance of the workers. Therefore, employees are motivated after focusing on excellence in a collaborative manner. As the second largest food and beverage firm after Coca-cola, it is striving continuously to improve its workforce. Consequently, it is applying its organizational culture as a strategic approach to optimizing the performance by binding the strengths of its employees
The profitability ratios that are influential to the investors of both companies are gross profit margin, net profit margin, and return on assets.
Coca Cola Company
Pepsi Company
Improving gross profit margin, net profit, and ROE
Both companies should increase their selling prices while holding the cost of goods sold constantly. Therefore, when all production factors are equal, any attempt of increasing the selling price that is not accompanied by the increasing cost of goods sold will automatically increase the gross profit margin for Coca-Cola and Pepsi Companies. Concerning the net profit margin, the companies should increase their sales volume while reducing the expenses. In return on assets (ROE), the asset base should be reduced. That is the corporations should review their assets on the balance sheet and make a decision regarding the assets that are contributing to the generation of revenues.
Events (mergers and acquisition)
Coca-Cola purchased ZICO, the account water firm in 2013. Moreover, in 2015, Coca-Cola Company took a minority ownership stake in the Suja Life, a juice manufacturer (ZICO Beverages joins the Coca-Cola family, 2016). In 2014, Coca-Cola swapped some of its products and bought about 17% of shares in Monster Beverages Corp. for a value of $ 2.15billion to boost the bet of the parent company in the burgeoning energy drink market. On the other hand, Pepsi has been under pressure particularly from the pro-life groups for entering into a contract with the Senomyx Inc., the biotech firm based in San Diego that has been accused of developing flavor enhancers through cell lines obtained from kidneys of the aborted fetus.
How mergers and acquisition affects financial statements of each company
Since the transactions of M&A are confined to the statement of financial position (balance sheet), it does not affect the income statement of each company. Some specific assets that were obtained by the companies as part of the acquisition may have depreciated, and amortized. This implies that part of the cost of such assets will make its way to the income statement of each firm. Therefore, all costs incurred by each company to carry out the acquisition are part of the purchase price, and they will be reported on the balance sheet as capitalized costs instead on the income statements as expenses.
Effects of mergers and acquisition to investors
Bargain purchase. That is it may be affordable to acquire another firm than internal investments. Concerning diversification, it may be necessary to smooth out the earnings to achieve consistent long run growth and profitability. Consequently, the transactions of M&A provides an opportunity to the shareholders to cash out at a significant premium in a situation where the transactions are all cash deals.
How lagging company can improve its income statement
The net income for Pepsi Company is 6.5 billion and 5.45 billion in 2014 and 2015 respectively. Coca-Cola recorded a net income of 7.1 billion in 2014 and 7.35 billion in 2015. Therefore, the income statement of Coca-Cola is better than that of Pepsi. Regarding profitability, Pepsi Company should increase its sales revenues particularly those that continue every year while reducing the expenses to record more net profits like the competitor. However, the revenue increases such as those that might lead to short term promotion should be minimized by the company because they are less valuable due to low price-earnings multiple for the firm.
VERTICAL ANALYSIS
How to improve a balance sheet to attract investors
Increasing cash. Investors are always attracted to enterprises with a lot of cash on their statements of financial position. This is because cash offers protection against tough economic times. Moreover, it gives companies more choices for future growth. Since the balance sheet tells a lot concerning the fundamentals of the companies regarding debts, and collection from the customers both beverage firms Pepsi and Coca-Cola need to improve their cash flows.
References
Kissinger, D. (2015). PepsiCo’s Organizational Culture Characteristics: An Analysis - Panmore Institute. Panmore Institute. Retrieved 15 June 2016, from http://panmore.com/pepsico-organizational-culture-characteristics-analysis
Supplier and Customer Partnerships. (2016). The Coca-Cola Company. Retrieved 15 June 2016, from http://www.coca-colacompany.com/our-company/suppliers/supplier-and-customer-partnerships
The Coca-Cola Company 2015 Annual Report. (2016). The Coca-Cola Company. Retrieved 15 June 2016, from http://www.coca-colacompany.com/packages/2015-year-in-review
ZICO™ Beverages Joins The Coca-Cola Family. (2016). The Coca-Cola Company. Retrieved 15 June 2016, from http://www.coca-colacompany.com/press-center/press-releases/zico-8482-beverages-joins-the-coca-cola-family
