Financial Analysis

The two companies I have chosen for this project are Coca Cola and PepsiCo. Coca Cola was founded in 1886 by chemist John Pemberton. While a significant number of stories exist, most of the records agree that John tried to create the anesthetic syrup in the beginning, but his plan did not work, and Pemberton actually invented a combination of kola nut and coca leaf, which was of no health benefit. While customers had no interest in this combination when John added some water to it to create a soda, they enjoyed the taste, and this is how a soft drink came into being under the brand name Coca Cola. PepsiCo, on the other hand, has always given tough competition to Coca Cola and other food and beverage companies (Brick et al. 2017). The recipe for the soft drink Pepsi was first developed in 1880 when Caleb Bradham, an industrialist, and pharmacist from North Carolina registered a patent for his recipe. He had a specific recipe to prepare syrup, and he was not satisfied with the quality. So, the pharmacist decided to use the company’s laboratories to reformulate it (Friedrichsdorf, 2014). The original formula of Pepsis used a number of flavors and spices, such as caramel, nutmeg, lemon oil, and sugar, but Caleb Bradham wanted to make it healthier and more delicious.

As far as the reputation of the two brands is concerned, Coca Cola and PepsiCo have spent years in the food and beverage industry, and they know how to defeat their rivals and stand out of the crowd. In order to stay competitive, the two food and beverage companies have established production units and selling points in all big and small cities of the world.

Comparative Analysis of PepsiCo and Coca-Cola

Liquidity Ratio

The current ratio is determined using the following formula:

Current Ratio= Current Assets

Current Liabilities

		Coca-Cola
Years		2015	2016	2017		2018
Current Assets		$6,640,100,000	$6,380,100,000	$6,230,100,000		$6,230,100,000
Current		$9,421,100,000	$9,653,100,000	$9,523,100,000		$9,131,100,000
Liabilities
Current
		0.72	0.65	0.69		0.63
Ratio
		PepsiCo
Years		2015	2016	2017		2018
Current Assets		$6,520,100,000	$6,100,200,000	$6,160,100,000		$6,250,100,000
Current		$9,300,100,000	$9,523,100,000	$9,511,100,000		$9,132,100,000
Liabilities
Current
		0.67	0.65	0.64		0.62
Ratio

The current ratio of PepsiCo is decreasing as compared to the current ratio of Coca-Cola. For instance, in 2015, the current ratio of Coca Cola was 0.72 and PepsiCo’s current ratio in the same year was 0.67, which is a matter of great concern for this food and beverage company.

Quick Ratio

The quick ratio of the two companies can be determined using the following formula:

Quick Ratio= Current Assets- Investment

Current Liabilities

		Coca Cola
Years		2015		2016		2017		2018
Current Assets		$6,630,100,000		$6,100,200,000		$6,150,100,000		$6,520,100,000
Investments		$1,063,100,000		$1,036,100,000		$2,033,400,000		$1,035,300,000
Current		$7,100,000,000		$6,323,100,000		$7,211,200,000		$3,116,100,000
Liabilities
Quick Ratio
		0.618		0.523		0.558		0.564

		PepsiCo
Years		2015		2016		2017		2018
Current Assets		$6,240,100,000		$6,580,100,000		$7,281,110,000		$6,440,100,000
Investments		$5,001,000,000		$2,056,100,000		$2,043,100,000		$1,145,200,000
Current		$9,331,100,100		$9,466,100,000		$7,211,100,000		$8,150,100,000
Liabilities
Quick
		0.54		0.57		0.59		0.51
Ratio

Activity Ratio

The formula of account receivable turnover is as follows:

Account Receivable Turnover =   Net Sales

Accounts Receivable

					Coca-Cola
Years					2015					2016				2017					2018
Net Sales					$30,490					$51,144				$48,455					$53,388
Account					$3,755					$3,040				$3,347					$2,687
Receivable
Account
					8.24				10.43					8.53					9.53
Receivable
								PepsiCo
Years					2015					2016				2017					2018
Net Sales					$43,262					$41,251				$36,474					$55,135
Account					$3,624					$7,683				$6,389					$2,725
Receivable
Account
					9.36				9.27					8.97					7.44
Receivable

Profitability Ratio

The gross profit ratio can be determined using the following formula:

		Coca-Cola
Years		2015		2016		2017		2018
Gross Profit		$153,410,500		$213,903,200		$42,443,890		$76,342,815
Net Sales		$2,542,713,000		$2,337,531,000		$2,504,100,000		$2,180,100,000
Gross Profit
		5.95		4.84		3.68		4.64
Ratio
		PepsiCo
Years		2015		2016		20107		2018
Gross Profit		$112,535,415		$93,357,530		$63,447,390		$75,332,516
Net Sales		$2,000,005,000		$3,076,037,100		$3,544,100,000		$2,341,100,000
Gross Profit
		5.51		4.56		3.66		3.91
Ratio

From these values, it is evident that compared to PepsiCo, the overall performance and market value of Coca Cola are better and that more and more customers prefer Coke over Pepsi. However, this does not mean Pepsi is not being liked or sold. The problem with this brand’s soft drinks is that they contain a lot of sugar high calories. On the other hand, Coke has an appropriate quantity of sugar and calories. There is a strong need for both PepsiCo and Coca Cola to improve their marketing or promotional strategies.

In recent years, the global markets, especially the American market, have tended away from sugary drinks. Although the financial performance of the two companies is still satisfactory, they need to have a more diversified network and must introduce sugar-free and calorie-free drinks. For example, they can present fresh juices, bottled water and sports drinks in the markets where their products have never been sold or launched (Lemley, 2016). It looks like Coca Cola has made what we call a “pure play” in drinks, and for this purpose, the company has opted for more powerful and better marketing strategies than PepsiCo. In Asia, for example, Coca Cola has become the most famous and top-notch food and beverage company. This gives Coca Cola two core advantages over PepsiCo. First of all, the rate of its growth is faster, meaning it has high chances of generating revenues. Secondly, Coca Cola is known for its health-friendly drinks, and it does not need to promote its existing products, as they are already famous among the consumers.

References

Lemley, M. (2016). Is Pepsi Really a Substitute for Coke? Market Definition in Antitrust and IP. doi:10.31235/osf.io/fqp9v

Brick, D. J., Fitzsimons, G. M., Chartrand, T. L., & Fitzsimons, G. J. (2017). Coke vs. Pepsi: Brand Compatibility, Relationship Power, and Life Satisfaction. Journal of Consumer Research. doi:10.1093/jcr/ucx079

Friedrichsdorf, S. (2014). From Coke to Pepsi to Mountain Dew? Rotating Opioids in Advanced Pediatric Palliative Care (FR428). Journal of Pain and Symptom Management, 47(2), 434. doi:10.1016/j.jpainsymman.2013.12.101