Background:
With a rich history of success, Pepsi was an establishment of the 1898, in Carolinas. The drink was an original invention of Caleb Bradham. Based in New Bern, North Carolina, he was a pharmacist and drugstore owner ("Pepsi History," n.d.).
It was five years after the introduction of Coke that Pepsi came into existence, in the year 1893. This was the time when the inventor Caleb Bradham decided serving customers his soda machine produced ‘Brad’s Drink’. In response to the positive feedback that he received from the drinkers, he began advertising his samples in 1898, after naming the drink Pepsi-Cola. In 1902, he founded the Company, Pepsi-Cola. Pepsi-Cola exists as a big successful enterprise in the United States. The expansion of the Company started with exports to Mexico in the year 1907.
Popularly known as the ‘kitchen Cola’ in the 1960s, the drink was a good choice for customers as it was cheaper and affordable compared to its competing drinks.
In 1965, it was the duo of Pepsi-Cola Company President Frito-Lay Chairperson, who founded the PepsiCo Company. The soft drinks products that the Company supplies are Pepsi, 7-Up, Mountain Dew, Miranda and Gatorade and the wide range of snacks business has products like Lays, Doritos, Hamka’s and Quaker cereals supplied across 192 nations ("Pepsi's history," n.d.).
Coca Cola
Coca-Cola existed as the sole beverage of the Coca Cola Company for almost 70 years and established as a trademark of the Company. Coca Cola was initially invented in Atlanta in the year 1886. The process of expansion for Coca-Cola as a beverage started in 1955. After the introduction of Fanta® Orange in Italy, the expansion decision occurred where the Company added wider variety in all the selections of beverage and variety sizes ("Coca-Cola Products & Coca-Cola Beverages | World of Coca-Cola," n.d.).In over 200 countries and more than 500 beverage brands is the current statistics of the Company. At present, numerous categories of over 3,500+ beverages are produced by the Company, as regular, fruit juices and fruit drinks, bottled water, sports along with energy drinks, ready-to-drink teas and coffee and low- and no-calorie sparkling beverages.
Coke
Pepsi
Interpretation: The figures indicate that there is a decrease in the current ratio in 2010 when compared to the previous years for Pepsi. In 2011, there is a further decrease but the amount has again increased in 2012. The same goes for the Coca-Cola Company which has seen decrease in the year 2011 as compared to 2010 and the ratio again increased in 2012. These ratios can be assessed as lower than required so both the Company can improve this by either reducing the current liabilities or adding up current assets.
- Quick Ratio
Interpretation:
The quick ratio for the companies indicates that for Pepsi, there is an increase in the year quick ratio in 2010 as it has added current assets and investments. However, in 2011, there is a decrease. There is no change in the figures in 2011 and 2012. The quick ratio for Coca Cola Ltd, is higher when compared to Pepsi in 2012 because of lesser liabilities as compared to Pepsi. Because Pepsi has higher current assets than Coca-cola, Pepsi has higher quick ratios in 2010 and 2011.
Profitability Ratios:
- Gross profit Ratio: Coke
Gross Profit ratio: Pepsi
The above analysis indicates continuous decrease in Pepsi Gross profit ratio in the year 2010 in comparison to preceding years. However, in 2011 and 2012, there is a gradual increase in the gross profit ratio. The analysis of Coca Cola Pvt. Ltd. shows that there is a gradual rise in 2012 in comparison to preceding years.
The other ratios that y interest the investors regarding investment options may be:
The assessment of financial condition says that both Companies are in a good position. Other factors that may be of importance to the investors could be that there is a slow and stable rise in the dividend distribution by Coca Cola. On the contrary, there is an aggressive approach followed by Pepsi by increasing dividends appreciably over a few years. It was once a time when the quarterly dividends of Coke stood as a cent while the same for Pepsi was 16 cents (PEP Historical Stock Quotes - PepsiCo Inc. Historical Stock Quotes - MarketWatch. (n.d.).
The recommendation to the management for improving these ratios may be:
- The current ratios and quick ratios can be increased by reducing current liabilities or increasing the current assets. The Companies follow aggressive method of current assets management, which could be a little loosened.
- The gross margin can be increased by reducing the manufacturing costs involved or by increasing the amount of overall sales.
- The net margin can be increased and improved by reducing the operating costs. The interest part and tax parts also pay a significant role.
News Updates
Coca Cola:
- There was an announcement from Companies, Coca-Cola and PepsiCo about the removal of a controversial ingredient that was used in their drinks, like Mountain Dew, PowerAde and Fanta.
- In November 2013, there was an announcement of acquisition made by Coca-Cola on ZICO Beverages LLC. ("Coca-Cola Company News - The New York Times," n.d.).
Pepsi Co.
- There was an announcement from Companies, Coca-Cola and PepsiCo about the removal of a controversial ingredient that was used in their drinks, like Mountain Dew, PowerAde and Fanta.
- There was an announcement by Pepsi Co to cut over 8,700 jobs in 2012 up to 2014. Given the internal organization and overall productivity and efficiency of the Company, this was a nig decision for the parties involved.
Influence on Investment Decisions
- There stock positions of both the Companies have been positively influenced, post the announcement of these events.
- The good will of the Companies has risen because of the raw material being removed and the profits and sales have been positively influenced.
- There were some favorable markets created by the mergers and acquisitions during these periods or even the speculations of the same acted a positive catalyst at the stock market.
Thus, the share prices of Companies are easily affected by small or big news that may relate to external or internal factors of the Company, while the extent may vary. This implies that they are very price sensitive.
Income Statement and Balance Sheet Analysis
The Income statement of the Coca-Cola Company is a reflection of the huge revenues that the Company earns in the form of large sale volumes. The operating costs can further be reduced. There is high investment in advertisements which has been a favorable investment for the Company. The Income statement of the Pepsi Company is not very different than that of Coca-Cola, with huge revenues that the Company earns in the form of large sale volumes. The operating costs can further be reduced. There is high investment in advertisements which has been a favorable investment for the Company.
The Balance sheets of the Companies too show similar situations, other than the dividend policies. The current asset policy followed by both the Companies is of aggressive nature, which could be further improved as it affects the liquidity position of the firm. However, the dividend payout ratio of Pepsi is higher than that of Coca-Cola so Investments in Coke is higher than as compared to Pepsi. With these assessments, we could say that the Income Statements and Balance Sheet reflect the excellent financial positions of the Company. But Coca Cola appears to be standing at a better arrangement in terms of financial positions. The recommendation for Pepsi to catch up with Coke would be to decrease the dividend payout ratio and increase the investments so that returns from such investments can be further utilized in other areas.
Conclusion
The financial analysis of both Companies gives an overall idea to the prospective investors on the financial position and investor analysis of the Companies. The companies in our study, Coke and Pepsi, have both been well established Companies since generations and the current assessment suggest that they continue to be the leaders when it comes to organizational going concern excellence.
References
Coca-Cola Company News - The New York Times. (n.d.). Retrieved from http://topics.nytimes.com/top/news/business/companies/coca_cola_company/index.html?inline=nyt-org
Coca-Cola Products & Coca-Cola Beverages | World of Coca-Cola. (n.d.). Retrieved from http://www.worldofcoca-cola.com/coca-cola-facts/coca-cola-beverages-and-products/
Discovery Channel (Firm), France 5.,& Sunset Presse. (2003). Coke vs. Pepsi: A duel between giants.
Financial Analysis (Comparative Analysis Of Coca-Cola And Pepsi). (n.d.). Retrieved from http://www.scribd.com/doc/167352637/Financial-Analysis-Comparative-Analysis-Of-Coca-Cola-And-Pepsi
Investors Info: Year-End Market Values: The Coca-Cola Company. (n.d.). Retrieved from http://www.coca-colacompany.com/investors/stock-history/investors-info-year-end-market-values
Kossovsky, Dr. Nir. (2012). Reputation, Stock Price, and You: Why the Market Rewards Some Companies and Punishes Others. Dordrecht: Springer.
PEP Historical Stock Quotes - PepsiCo Inc. Historical Stock Quotes - MarketWatch. (n.d.). Retrieved from http://www.marketwatch.com/investing/stock/pep/historical
Pepsi History. (n.d.). Retrieved from http://www.sirpepsi.com/pepsi11.htm
