Pepsi vs. Coca Cola

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American university of beirut|
FINANCE 210 CASE|
PEPSI VS. COCA COLA|
Instructor: Leila Atwi|
|
12/12/2010|

Raneem Jaffal
(Ratio Computation)
Jana Haounji
(Ratio Analysis)
Alexandra Aboulhosn
(Recommendations and Comparison)
This is a financial comparison between Pepsi and Coca Cola in terms of company liquidity, solvency, asset management, profitability, and valuation between the years 2008 and 2009 respectively.|

Part One: Pepsi
Ratio Analysis: Pepsi
PEPSI RATIOS| | 2009| 2008| Percent Change (%)|
Liquidity| Current Ratio| 1.436| 1.230| 16.745|
| Cash Ratio| 0.472| 0.259| 82.242|
| NWC to Total Assets| 0.096| 0.056| 70.680|
| | | | |
Solvency| Total Debt Ratio| 0.578| 0.664| -12.863|
| Debt Equity Ratio| 0.440| 0.640| -31.250|
| Equity Multiplier| 2.370| 2.970| -20.202|
| | | | |
Asset Management| Inventory Turnover| 7.670| 8.060| -4.839| | Days in Sales Inventory| 47.580| 45.280| 5.080|
| Receivables Turnover| 9.340| 9.230| 1.192|
| | | | |
Profitability| Profit Margin (PM)| 0.130| 0.110| 18.182| | Return on Assets (ROA)| 0.150| 0.140| 7.143|
| Return on Equity (ROE)| 0.350| 0.420| -16.667|
| | | | |
Valuation| Earnings Per Share (EPS)| 3.770| 3.210| 17.445| | Price-Earnings (PE) Ratio| 16.12| 17.06| -5.510|
| Price-Sales Ratio| 2.350| 2.330| 0.833|

Short Term Liquidity
* The current ratio has rose by 16.745% because current assets have increased. * The NWC to total assets has increased by 70.680% because the current assets increased and the current liabilities decreased. * The cash ratio has increased by 82.242% because the increase in cash was larger than the decrease in liabilities. * Overall, the company has become more liquid due to the increase in the company’s current assets and cash. As a result, the company has no difficulty in borrowing money since creditors prefer lending money to liquid firms.

Long Term Solvency
* The total debt ratio has decreased by 12.863% because total assets have increased more than total debt. * The debt-equity ratio has decreased by 31.25% since the company’s total equity has increased. * The Equity Multiplier has decreased by 20.202% as a result of the increase in total assets. * Overall, the company has become less solvent, and its leverage has decreased as a result of the increase in total assets and equity. In this regard, the company is in a good position and can pay off its long-term debt as it becomes due.

Asset Management
* The inventory turnover has decreased by 4.839% because the inventory increased and the cost of goods sold decreased. * The day’s sales in inventory have increased by 5.080 % since the inventory turnover rate has decreased. This is an indicator that extra inventory is lying around and that more unnecessary expenses may occur. * The receivable turnover ratio has increased by 1.192% because of the decrease in sales and the decrease in account receivable. The company collected more sales in 2009 than in the previous year. * Therefore, in order to further improve Pepsi’s management of assets, the company can increase its sales, thereby increasing its receivables turnover, as well as minimize the cost of goods sold.

Profitability
* The company’s profit margin has increased by 18.182% due to the increase in net income and the decrease in sales. * Return on assets has also increased by 7.143% due to the increase in total assets being larger than the increase in net income. * The 16.667% decrease in the company’s return on equity was caused by the rise of total equity which was larger than the increase in net income. * Overall, the company has increasing in profitability due to increased sales and thus higher revenue. However, equity increased more than net income, resulting in a negative ROE between 2008 and 2009 Valuation

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