BUS 508 – Business Enterprise
June 11, 2011
Financial Management: Coke vs. Pepsi
The purpose of this paper is to analysis companies Coke and Pepsi and determinate (a) which company is better able to pay current liabilities (debt), (b) explain what profitability ratios can tell about a company’s performance and how that information would influence investing decisions, (c) discuss which financial ratios to utilized while examining the company’s most satisfied stockholders, (d) create a list of financial-based guidelines that individuals should follow when selecting to invest and (e) evaluate the single piece of non-financial data most important when deciding to invest or not in a company.
In the world Coke and Pepsi have towered as the two leading brands of beverages. According to Dickinson 2011, Coke and Pepsi were both created before 1900. Coke was invented in Atlanta by pharmacist John Pemberton in 1886. Pepsi also was created by a pharmacist--Caleb Bradham from New Bern, North Carolina, in 1898. Over the years, both companies have seen worldwide expansion of their markets, which include varying lines of beverages, apparel and paraphernalia with their respective logos. Both have grown into longstanding global and social industry leaders.
Consumers and merchants both struggle to decide which brand to support. Merchants rely solely on marketing data, financial stability and consumer feedback to decide which brand to promote. Selecting one over the other can ultimately make or break a company as some may lose customers and profit selecting one over the other. The brands spend billions on creative advertisement and celebrity endorsement to maintain a strong presents. Some consumers and merchants gamble and support both brands as a decision is too difficult to choose.
Ability to Pay Liabilities
Over the years both companies have been forced to incorporate other avenues to continue growth and expansion. Pepsi has invested more in the snack food and healthier brands while Coke has increased efforts to outdo Pepsi on an international level. When it comes to the essential figures, financial data suggest Pepsi has more advantages whereas Coke is getting superior figures. Wall Street Journal (2010), state Pepsi wins the game when it comes to creating profit margins. Pepsi has updated itself more than Coke. According to Coke and Pepsi, (Financial Statements, 2009) Coca Cola had a current ratio which was less than 1. However in 2009 Coke had a ratio of 1.3, compared to Pepsi 1.4 ratio keeping in mind the average was 1.26. This data shows over time Coke increased financially and became more financially stable recent years. On the other hand, Pepsi shows it’s able to meet current operating needs however longtime debt requires more cash flow and investment to sustain the future. Coke’s financial data suggest current and future debt will and can be paid with revenue and investment.
Return on Asset
In 2009, the Coke Company generated revenues of “$31 billion with $6.8 billion net income” (Wiki Invest, 2011, p.1). In contrast, Pepsi Company generated revenues of “43.3 billion with 3.7 billion net income” (p. 4). Return of Asset (ROA) is ratio that measures the money a company generates from all assets of record. A company uses this ration to determine whether or not to start a new venture. The new venture must yield a return. According to the financial report (2010) on both companies suggest Pepsi using their assets more effectively then Coke and generates more money than Coke. Moreover, both companies are doing better with ROA than the industry average, -6.6%.
Return on Equity
The Return on Equity (ROE) ratio indicates the rate of return shareholders are earning on their shares. ROE provides an idea of how management is balancing profitability, asset management, and leverage. Financial records indicate Coke is generating revenue on each...