Coca Cola Company and PepsiCo Inc.

This document provides an analysis of the financial ratios and performance of Coca Cola Company and PepsiCo Inc. It includes liquidity ratios, solvency ratios, profitability ratios, valuation ratios, and efficiency ratios. The analysis shows that PepsiCo Inc. promises better returns to investors compared to Coca Cola.

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Coca Cola Company and PepsiCo Inc.
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Introduction
The Coca-Cola Company was established in 1886 and founded in 1919 with its
headquarters in Atlanta, Georgia, USA. Coca-Cola is an American beverage corporation and
a multinational producer, marketer, and retailer of soft and non-alcoholic drinks. Mostly, the
company operates as a franchise where it produces the syrup and other companies bottle it
and sell it across the world. Some of Coca-Cola Company’s products include Fanta, Coke,
Dasani, Minute Maid, Coca-Cola Life, and Diet Coke among others. Coca-Cola Company is
listed in NYSE with its symbol being KO.
On the other hand, Pepsi which is commonly referred to as PepsiCo Inc. was founded
in 1965 with its headquarters in Purchase, New York, after a merger between Pepsi-Cola and
Frito-Lay Inc. which widened its product portfolio. It is among the leading soft drink and fast
food producer in the world. Some of PepsiCo Inc.’s products include Tropicana, Quaker Oats
and Pepsi. PepsiCo Inc. is Coca-Cola’s largest competitor and is listed on NYSE with its
symbol being PEP.
Ratio Analysis
Liquidity Ratios
Liquidity refers to how easily a company can convert its assets into cash to enable it
pay its bills.1 In other words it determines the ability of a firm for meet its short-term debt
obligations. Mostly, it is expressed as a percentage of liabilities as current or liquidity ratio. It
helps short-term creditors to establish how soon a firm will clear their debts. In general terms,
if a company has a higher current or liquidity ratio, it is in a better position of clearing its
short-term liabilities.
1 Vintilă, Georgeta, and Elena Alexandra Nenu. "Liquidity and profitability analysis on the Romanian
listed companies."

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Current Ratio
It demonstrates the ability of a firm to convert its current assets into cash in order to clear
current liabilities.2
Current ratio = Current Assets/Current Liabilities
2017
Coca-Cola PepsiCo
=36,545/27,194 =31,027/20,502
=1.34 =1.51
2018
=30,634/29,233 =21,893/22,138
=1.05 =0.99
Monster Beverages ratios were 3.72 and 3.0 in 2017 and 2018 respectively.3 The above ratios
demonstrate that both companies have sufficient current assets that will enable them meet
their current liability obligations.
Solvency Ratio
Unlike liquidity ratios that determine the ability of a firm to meet it short-term
liabilities in time, solvency ratios measure the ability of a company to meet its long-term
liabilities. Therefore, solvency ratios are important to shareholders and lenders whose interest
is in the long-term survival of the company. To monitor the health status of the company, the
2 Öztürk, Hakkı, and Tolun A. Karabulut. "The Relationship between Earnings-to-Price, Current Ratio,
Profit Margin and Return:
3 Macrotrends. Monster Beverage Financial Ratios.

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shareholders and long-term lenders should monitor the trend of solvency ratios. The
possibility of a firm getting bankruptcy depends on debt or asset ratio and the higher it gets;
the more likely is the company to get bankrupt.
Asset Ratio = Total Liabilities/Total assets
2017
Coca-Cola PepsiCo
=68,919/87,896 =68,823/79,804
=0.78 =0.86
2018
=64,158/83,216 =63,046/77,648
=0.77 =0.81
Profitability Ratios
These are financial metrics used to assess the ability of a firm to generate earnings
from their relevant costs and incurred expenses in an efficient manner.4 These ratios include
return on capital, return on assets and return on capital.
Return on Capital
This ratio measures how a firm generates profits from its capital employed. It shows
the shareholders the profits generated by each dollar employed.
Return on Capital = Net Operating Profit/ (Total Assets – Current Liabilities)
4 Vintilă, Georgeta, and Elena Alexandra Nenu. "Liquidity and profitability analysis on the Romanian
listed companies."

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2017
Coca-Cola PepsiCo
=7,599/(87,896-27,194) =10,276/(79,804-20,502)
=0.13 =0.17
Return on Assets
This ratio demonstrates the percentage of profits a firm earns from its available
resources. It answers the question “What are you able to do with your available resources?” A
higher ratio demonstrates that the management is better. Coca-Cola had a ratio of 1.34 and
8.08 for 2017 and 2018 respectively while PepsiCo Inc. had a 6.15 and 16.17 for 2017 and
2018 respectively. Monster Beverage had a ratio of 17.13 and 21.94 in the year 2017 and
2018 respectively. Higher ratios imply that the company is effective in managing the invested
capital to generate profits.
Return on Equity
This ratio determines the ability of a firm to generate profits from the resources
invested by the shareholders.5 Investors like investing their resources in a firm with a higher
return on equity ratio since it demonstrates that their resources will be well managed and
utilized in an effective manner. Coca-Cola had a ratio of 6.22 and 35.29 for 2017 and 2018
respectively. On the other hand, PepsiCo Inc. had 44.07 and 86.0 for 2017 and 2018
respectively. Monster Beverage had a ratio of 21.06 and 27.5 in 2017 and 2018 respectively.
5 Robinson, Thomas R., Elaine Henry, Wendy L. Pirie, and Michael A. Broihahn. International financial
statement analysis.

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A ratio above 10% implies that a firm is effective in managing its resources to generate
profits.
Valuation Ratios
These financial metrics determines how worth a firm is. They are important tools in
helping investors evaluate the investment potentials of a firm.
Price-to-earnings
It determines the relationship between the stock price of a company and its earnings.
It helps the investors know the market value of a company.
P/E = current share price/earnings per share
Price-to-book value
This metric determines the value of a firm’s book value in the market.
P/B = Current Price per share/book value per share
Coca-Cola had a P/B of 4.46 and 4.47 for 2017 and 2018 respectively. On the other hand,
PepsiCo Inc. had 7.73 and 10.36 for 2017 and 2018 respectively. Monster Beverage had a
ratio of 6.88 and 6.64 in 2017 and 2018 respectively. Traditionally a P/B under 1 was
considered to be a good one by investor but currently they consider a value under 3 to be their
benchmark.
Efficiency Ratios
These metrics evaluates the ability of a company to use both of its assets and
liabilities to create sales.6
6 Kim, Jeongho, and Chaechang Im. "Study on corporate social responsibility (CSR): Focus on tax
avoidance and financial ratio analysis."

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Accounts receivable turnover = Credit sales/average accounts receivable
The receivable ratios for Coca Cola for years 2017 and 2018 were 9.67 and 9.38
respectively. On the other hand PepsiCo Inc. had turnover ratios of 9.04 and 9.05 for years
2017 and 2018 respectively. Monster Beverage had a ratio of 6.88 and 6.64 in 2017 and 2018
respectively. The higher receivable turnover ratios imply that a firm is efficient in collecting
its accounts receivables and its customers pay their debts in time.
Inventory turnover = costs of goods sold/average inventory
Coca-Cola’s inventory for 2017 and 2018 was 4.99 and 4.26 respectively. On the
other hand, PepsiCo Inc. had a turnover ratio of 9.77 and 9.39 for 2017 and 2018
respectively. Monster Beverage had a ratio 4.81 and 5.44 in 2017 and 2018 respectively. A
higher inventory turnover implies that the demand for the firm’s products and services is
higher and is selling them quickly.
Fixed asset turnover = Sales/average fixed assets
The asset turnover ratio for Coca-Cola was 0.4 and 0.38 for years 2017 and 2018
respectively. On the other hand, PepsiCo Inc. had a turnover ratio of 0.78 and 0.83 for 2017
and 2018 respectively. Monster Beverage had a ratio of 0.7 and 0.8 in 2017 and 2018
respectively. An increasing turnover ratio implies that a firm is effective in managing its
assets to generate sales.
Conclusions and Recommendations
The Coca Cola Company has been the market leader in the industry for quite some
time, enjoying little competition. However, the emergent of PepsiCo Inc. has posed enough
competition for Coca Cola. From the above analysis, it is evident that PepsiCo Inc. promises
better returns to investors as compared to Coca Cola.

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I would recommend for PepsiCo Inc. to investors since it demonstrates the abilities of
out-performing Coca-Cola in the future. Therefore, I would advise Coca-Cola to focus on
product modification rather than advertisement.
Bibliography
Kim, Jeongho, and Chaechang Im. "Study on corporate social responsibility (CSR): Focus on
tax avoidance and financial ratio analysis." Sustainability 9, no. 10 (2017): 1710.
Macrotrends: Monster Beverage Financial Ratios for Analysis 2005-2019. Retrieved from
https://www.macrotrends.net/stocks/charts/MNST/monster-beverage/financial-ratios
Öztürk, Hakkı, and Tolun A. Karabulut. "The Relationship between Earnings-to-Price,
Current Ratio, Profit Margin and Return: An Empirical Analysis on Istanbul Stock
Exchange." Accounting and Finance Research 7, no. 1 (2018): 109-115.
Robinson, Thomas R., Elaine Henry, Wendy L. Pirie, and Michael A. Broihahn. International
financial statement analysis. John Wiley & Sons, 2015.
Vintilă, Georgeta, and Elena Alexandra Nenu. "Liquidity and profitability analysis on the
Romanian listed companies." Journal of Eastern Europe Research in Business &
Economics2016 (2016): 1-8.