Comparative Analysis of Financial Statement of Coca-Cola and Pepsi - Assignment Example

Comparative analysis between Coca-Cola and Pepsi My Name Course Instructor Institution City/State Date : Introduction Presently, Coca-Cola Company is the largest beverage company in the world, which refreshes its customers with almost 500 still and sparkling brands. In addition to Coca Cola most valuable brand, its portfolio consists of 12 other brands worth billion-dollars, which includes Sprite, Fanta, Diet Coke, and Coca-Cola Zero. Undoubtedly, Coca Cola Company is internationally leading supplier of juices, ready-to-drink coffees and teas, and sparkling beverages. UAE consumers and others in over 200 countries benefit from the Company's soft drinks. The company’s long-term dedication to develop sustainable communities has proved the company’s commitment to conserve resources, protect the environment, and improve the community’s economic development of UAE citizens. Pepsi on its part is produced and distributed by Dubai Refreshments (DRC), which is strategically positioned on the busy Sheikh Zayed Highway. For visitors entering Dubai, Pepsi is the first sight sights they come across. DRC successfully introduced various brands of Pepsi to the UAE five decades ago, when the company begun b as a limited liability company. In 1962 Dubai Refreshments Company was selected as the only distributor and franchisee for Peps in the lower Gulf, steered by top talented individuals, outfitted with the correct paraphernalia as well as solid systems. An extensive distribution network makes sure Pepsi products are readily obtainable to consumers across the UAE. Financial Ratios According to Modu . E and Walker A (2008), financial ratios are used to compare to compare the strengths and weakness in various companies in their relation to their financial performance for an accounting period. The illustration below shows financial ratios of Coca Cola Company In Comparison To PepsiCo. Cola Company. Liquidity Ratio Current Ratios = Year 2012= =1.05 Year 2011= =0.98 Quick Ratio = Year 2012= =0.87 Year 2011= =0.92 Asset Management Ratios Inventory Turnover Ratio = Year 2012= =5.84 Year 2011= =5.89 Days sales outstanding = Year 2012= =36.18 Year 2011= =38.58 Fixed Assets Turnover Ratio = Year 2012= =0.82 Year 2011= =0.88 Total Assets Turnover Ratio = Year 2012= =0.56 Year 2011= =0.60 Profitability Ratios 1. Profit Margin on Sales Net Profit Margin Ratio (After Tax Margin Ratio) = Year 2012= =0.19 Year 2011= =0.19 Pretax Margin Ratio = Year 2012= =0.25  Year 2011= =0.25 Operating Profit Margin (Operating Margin) = Year 2012= =0.224 Year 2011= =0.218 2.    Return on Assets =   Year 2012= =0.137   Year 2011= =0.143 3. Return on Equity = Year 2012= =20.08% Year 2011= =21.03% 4. Basic Earning Power Ratio= Year 2012= =0.183 Year 2011= =0.187 Financial Ratios for Pepsico Company. Liquidity Ratio Current Ratios = Year 2011= =0.96 Year 2012= =1.10 Quick Ratio = Year 2012= =0.89 Year 2011= =0.79 Asset Management Ratios Inventory Turnover Ratio = Year 2012= =9.59 Year 2011= =8.26 Days sales outstanding = Year 2012= =39.24 Year 2011= =37.93 Fixed Assets Turnover Ratio = Year 2012= =1.17 Year 2011= =1.20 Total Assets Turnover Ratio = Year 2012= =0.88 Year 2011= =0.91 Profitability Ratios Profit Margin on Sales Net Profit Margin Ratio (After Tax Margin Ratio) = Year 2012= =0.095 Year 2011= =0.097 Pretax Margin Ratio = Year 2012= =0.127  Year 2011= =0.133 Operating Profit Margin (Operating Margin) = Year 2012= =0.139 Year 2011= =0.145    Return on Assets =  Year 2012= =0.111  Year 2011= =0.121 Return on Equity = Year 2012= =14.85% Year 2011= =15.93% Basic Earning Power Ratio= Year 2012= =0.122 Year 2011= =0.132 Analysis of the Coca Cola and PepsiCo company ratio Liquidity ratios Current ratio: this is a liquidity ratio that measures a company’s ability to pay its short-term liabilities using its short term assets. The higher the ratio, the more capable the firm will be able to pay its short term obligations. For a ratio above 1 show that a company can be able to pay off its obligations if they come due at that particular time while below 1, it may suggest that the company cannot meet its current obligations For coca cola company current ratio for 2011 is 0.98 and that of 2012 is 1.05 For PepsiCo current ratio for 2011 is 0.96 and that of 2012 is 1.10 This means for the year 2012 both companies performed better than year 2011 as their ratios is above 1, PepsiCo though had a higher ratio than Coca Cola company meaning it has a higher efficiency of turning its product into cash. Quick Ratio: it’s a measure of company’s ability to meet its short-term liabilities using its most liquid assets. That’s why inventories are excluded from the current assets. It provides a measure of amount of liquid asset available for each dollar of current assets. The higher the quick ratiothe better the company’s liquidity position for that financial period. For coca cola company Quick ratio for 2011 is 0.92 and that of 2012 is 0.87 For PepsiCo Quick ratio for 2011 is 0.79 and that of 2012 is 0.89 Coca cola company ratio for year 2011 is higher than that of PepsiCo in the same year but it decreased in year 2012. For PepsiCo there was an improvement in the ratio from 0.79 in year 2011 to 0.89 in 2012. But for both companies the ratio is than 1 meaning there are not in a good liquidity positions. Asset Management Ratios Inventory Turnover Ratio: this is the ratio of cost of goods sold to its average inventory for a given financial period. It measures the number of times a business sells and able to replace its entire batch of inventory again per trading period. The higher the inventory turnover ratio, indicates better efficiency in controlling inventory level. For coca cola company current ratio for 2011 is 5.89 and that of 2012 is 5.84 For PepsiCo current ratio for 2011 is 8.26 and that of 2012 is 9.59 From the analysis of the both companies PepsiCo has a better efficiency in controlling its inventory than Coca Cola Company. Also the performance coca cola company in year 2011 is better than 2012. Days Sale Outstanding: This is a financial ratio that indicates how well a company’s accounts receivables are being managed. It illustrates relationship between outstanding receivables and credit sales achieved over a given period. The higher the value is an indication of inadequate analysis and it can result in a cash flow problems. For Coca Cola Company Days sale outstanding ratio for 2011 is 38.58 and that of 2012 is 36.18 For PepsiCo Days sale outstanding ratio for 2011 is 37.93 and that of 2012 is 39.24 In Coco Cola Company ratio there is a decrease of 2.40 from year 2011 to year 2012 while in PepsiCo there is an increase of 1.31 indicating a deficient in its debt collections activity for PepsiCo. Fixed Assets Turnover Ratio: the ratio illustrates how much finances are tied up in fixed assets for each unit of currency of sale revenue. The higher the ratio indicates less finances tied up in fixed assets. For Coca Cola Company fixed assets turnover ratio for 2011 is 0.88 and that of 2012 is 0.82 For PepsiCo fixed assets turnover ratio for 2011 is 1.20 and that of 2012 is 1.17 The analysis shows indicates that Coca Cola Company has more money tired in fixed assets than PepsiCo though there is reduction in the ratio in year 2012 for both companies. Total Assets Turnover Ratio: It illustrates how much finances are tied up in total assets for each unit of currency of sale revenue. The higher the ratio indicates less finances tied up in total assets. For Coca Cola Company Total assets turnover ratio for 2011 is 0.56 and that of 2012 is 0.60 For PepsiCo Total assets turnover ratio for 2011 is 0.88 and that of 2012 is 0.91 The analysis still indicates that Coca Cola Company has more money tired in total assets than PepsiCo though there is reduction in the ratio in year 2012 for both companies. Profitability Ratios Profit Margin on Sales: This ratio indicates how much profit the company makes for every sales made in a given trading period. A high profit margin ratio shows that high amount of earnings required to pay fixed costs and profits are generated from revenues. It also indicates that the business is able to control its production cost. For coca cola company net profit margin for 2011 is 0.19 and that of 2012 is 0.19 For PepsiCo Net profit margin for 2011 is 0.095 and that of 2012 is 0.095 From the ratio coca cola company has a higher profit margin than PepsiCo company therefore it indicates that it has better ability to control its production cost than its competitor PepsiCo. Return on Equity: this ratio is an indicator of how much company is making compared to how much it has invested or how much is investors is gaining from their investment. For coca cola company return on equity for 2011 is 21.03% and that of 2012 is 20.08% For PepsiCo Return on Equity for 2011 is 15.93% and that of 2012 is 14.85% From the analysis Coca Cola Company Investors are gaining more from their investment than PepsiCo investors because it has a higher percentage. Return on Assets: the ratio provides the standard for evaluating how the management has efficiently utilized the invested capital in the firm’s assets whether from investors or from the creditors. A low ration indicates that the earnings are low for the amount of assets. For coca cola company return on assets ratio for 2011 is 0.143 and that of 2012 is 0.137 For PepsiCo return on assets ratio for 2011 is 0.121 and that of 2012 is 0.111 From the above analysis PepsiCo Return on assets is less than that of Coca Cola company and also there is reduction from year 2011 compared to 2012 by 0.010. This indicates that’s its earning is low compared to amount of assets invested. Basic Earning Power Ratio: The ratios indicate how effective a company is in generating its income from the assets. The higher the ratio the more effective the company is at generating income from its assets. For coca cola company basic earning power ratio for 2011 is 0.187 and that of 2012 is 0.183 For PepsiCo basic earning power ratio for 2011 is 0.132 and that of 2012 is 0.122 For coca cola company ratio is higher than that of PepsiCo over the two years indicating it is more effective at generating its income from its assets. Conclusion Basically, financial ratios are used to compare to compare the strengths and weakness in various companies in their relation to their financial performance for an accounting period. Based on the liquidity ration, when the ratio is high, it exhibits the capability of the firm to pay its short term obligations. For coca cola company current ratio for 2011 and that of is 0.98 and 1.05 respectively, while that for PepsiCo is 0.96 and 1.10 in that order. PepsiCo had a higher ratio than Coca Cola Company: this indicates PepsiCo has higher efficiency of turning its product into cash. From the analysis of the both companies PepsiCo has a better efficiency in controlling its inventory than Coca Cola Company. From the analysis PepsiCo Return on assets is less than that of Coca Cola Company, which proves that its earning is low compared to amount of assets invested References Modu .E and Walker A (2008).How to understand financial ratios.Teenvestors Read More