Pepsi Cola Company - Finance and Accounting - Coursework Example

FINANCE AND ACCOUNTING WORK Introduction In modern times, the business world has become verydynamic. Different business organisations are emerging to offer competition to the once lucrative and large multinationals, prompting for change of business strategies among these businesses. The liberalization of business activities means that many businesses are emerging to create and consolidate their market shares. In this regard, the large multinationals have had to do with reducing fortunes, with others maintaining their market share, especially those that have effective and efficient marketing and business operation strategies. One of the companies that has maintained its success and competitive advantage is Coca cola, which is a business giant in the world’s beverage industry. One of the business strategies that enable businesses to create and maintain their competitive edge is having an effective financial management plan. In this regard, it is the responsibility of companies to consistently examine their financial records in order to address any emerging inefficiencies. Additionally, a thorough examination of financial records is important for companies to know some of the effective ways of financial allocation, especially in enhancing the success of its resources and workforce. This paper examines the growth prospects of Coca colaCompany; focusing on its financial performance in 2013 and 2014 and Pepsi Cola Cola Company, one of its competitor companies in the global beverage industry. Company history Coca colahas been one of the most successful in the world’s beverage industry, selling carbonated soft drinks in restaurants, wholesale and retail stores as well as in vending machines across the world, according to Fortune Editors (2015). The company is headquartered in Atlanta, Georgia in US, where it is commonly referred to as Coke, which is a trademark dully registered for the company. In its business operation, Coca colaCompany produces a concentrate that is later sold to other licensed bottlers in the name of the company across the world. These bottlers have territorial and exclusive contracts with the company so that they only produce finished products and sell them in cans (Fortune Editors 2015, para 8). After this process, the bottlers sell the products through distributors, wholesale and retail stores as well as in vending machines. The company’s marketing strategies have been successful, enabling it to spread in many countries across the world. Pepsi Cola Company Pepsi Cola Cola Company is one of America’s fastest growing multinational that specializes in selling foods and beverages, headquartered in New York City. Besides selling foods and beverages, the company has also expressed interest in the processing, marketing as well as distribution of various grain-based beverages, foods and many other products. The company’s effective management has enabled it to expand and reach many countries of the world. The company’s involvement in selling foods and beverages has made it one of the greatest competitors of Coca colaCompany, not only in the United States, but also in other countries that it has expanded to. According to net revenues, the company has been ranked as the second largest in terms of size among companies in the foods and beverage industry. In fact, in Northern America, Pepsi Cola has been described as the largest company in this same industry according to net revenues. Comparison of financial records of the company in 2012/2013 According to the published reports of Coca colaCompany in 2012, it managed to have a consolidated operating income of approximately $9,086, which later dropped to $8,626 in the following year in 2013 (Fortune Editors 2015, p. para 12). This means that the company faced a dip in its financial performance in 2013, prompting the need for a realignment of its marketing strategies in order to counter those used by its competitors including Pepsi Cola, which is the company’s biggest rival in the industry. In the same year 2012, the company’s net income per share was standing at $1.97 but dropped by 0.03 in the year that followed, standing at $1.94 in 2013. According to the company’s financial records, it recorded an increase in its comprehensive income that is attributed to its shareholders; with 2012 have an approximate value of $ 8,408, compared to 2013, which had $ 8,537. This means that inasmuch as 2012 seems to have been the company’s successful year, 2013 also had its fair share of good luck in terms of financial performance (Clyde, Paul, & James 2014, p. 98). However, it is important to realize that the company is facing huge competition in an industry that is welcoming new companies like Pepsi Cola among many others. An examination of the company’s financial ratios indicates that the company had a gross margin of about 60.7% in 2013, which was an increase of 0.4 percent, up from 60.3 percent from the previous year in 2012. In terms of capital, the company had an investment capital of 13.17 percent in 2013, which was an increase from the previous year, which had 14.85 percent. However, the company’s return on equity ratio stood at 26.03 percent which was a reduction from 2012 when the company posted a return on equity ratio of 28.00 percent. In terms of the company’s asset turnover ratio, 2012 was much profitable as compared to 2013, in that it managed to get an asset turnover of about 0.53% as compared to 0.58% in 2012 (Clyde, Paul, & James 2014, p. 99). Pepsi Cola, Coca colaCompany’s biggest competitor also posted varying results between the same years, something that indicates the company’s competitive strength in the industry. The company posted an increase in its gross income, which saw 2012 having a gross income of 34.15 billion dollars with 2013 having an increase of 35.23 billion dollars. This was prompted by an increase in its business and marketing strategies; its pretax income increased by 0.59 % with 2012 having 8.3% and the following year posting 8.89%. Performance and financial position of the company The current soft drink and beverage industry has been largely dominated by two major companies in the world in the name of Coca colaand Pepsi Cola. It is important to note that the industry itself is very profitable as shown by the profits that these two companies have posted in the past in their financial statements. The years between 2012 and 2015 have seen the industry record The soft drink/beverage industry is dominated by two major competitors, Pepsi Cola and Coca-Cola companies. Yoffie & Wang (2006) explains that for a long time, Pepsi Cola and Coca colahave engaged in a fierce competition in order to control the global market share. Coca colaseems to be having a competitive advantage over Pepsi Cola, perhaps by virtue of having been the pioneer of the industry. Being the oldest company, the company has managed to expand in many countries because of its vibrant marketing strategies that have seen it become a household brand name in many of the markets that it has reached across the world. It is important to appreciate the fact that inasmuch as market saturation and maturity in the recent past has been evident especially in the US, growth and profitability in the global food and beverage industry is very promising and strong (Haig & Haig2011, p. 67). Both Coca cola and Pepsi Cola have managed to create extremely large market shares, established effective consumer loyalties, brand names as well as dominated distribution channels. Additionally, these two companies have managed to create and posses secrete formulas that they use in the development of their soft drinks. All these features have become effective market barriers, which have played a key role in making it quite difficult for new companies to join the industry. Inasmuch as other emerging companies find it difficult to enter this industry, the barriers have also acted in a manner that protects their profitability status. Therefore, it is important to point out one of the strengths these companies are relying on in their growth is the establishment of a market that has become difficult to penetrate for other competitors. One of the threats that these companies are facing in their business activities include health concerns, which are becoming very common among government and other public health officials. Many issues that have so far been raised include the threat of obesity increase, which is said to be common among young adults that are active and frequent consumers of the soft drinks. This could be the reason for the fluctuating profitability status and financial performance of the company. Conclusion In conclusion, it is important to point out that business operations are never dynamic; they keep changing from one generation to another. This is because, people have needs and tastes and preferences that are ever changing. Pepsi Cola and Coca cola have had to keep changing their business strategies in order to create and consolidate their respective market share. The financial reports presented by these two companies indicate how intense the competition between them has developed in the past. Though one may not clearly determine the most profitable company in overall, only the future stands good for that which will develop effective management and marketing strategies. Bibliography Clyde P. S, Paul B James M. W. 2014. Financial Reporting, Financial Statement Analysis and Valuation. South-Western, New York. Darroch, J. 2009. Marketing through turbulent times. Palgrave Macmillan, Basingstoke. Fortune Editors. 2015. Coca-Cola’s quarterly profit fizzles, dropping 55%. Accessed 21 April 2015. Haig, M., & Haig, M. 2011. Brand success: How the worlds top 100 brands thrive and survive (2nd ed.). Kogan Page, London. Yoffie, D., & Wang, Y. 2006. Cola Wars continue: Coke and Pepsi Cola in 2006. Harvard Business School Pub, Boston, MA. Read More