Financial Ratio Analysis: Coca-Cola, Dr Pepper, and PepsiCo Comparison

This report presents a detailed financial ratio analysis of Coca-Cola, Dr Pepper, and PepsiCo, aiming to evaluate their financial strengths and determine which company performs better. The analysis includes a review of current and quick ratios, asset turnover, receivable turnover, inventory turnover, and gross profit margin. The report also compares the accounting methods used by the three companies, including allowance and direct write-off methods, depreciation methods (straight-line, double declining, and unit of production), and inventory valuation methods (LIFO and FIFO). The findings indicate that PepsiCo demonstrates stronger financial performance based on liquidity and efficiency ratios, leading to a recommendation for investors to consider PepsiCo for investment. The report concludes with a summary of the financial ratio analysis and its implications for investment decisions.

Running head: FINANCIAL RATIO ANALYSIS
Financial Ratio Analysis
Name of the Student
Name of the University
Author note

1
Financial ratio analysis
Executive summary
The objective of the report is to provide a detail ratio analysis of the three companies coca
cola, Dr pepper and the PepsiCo to evaluate the financial strength of these three companies
and to find out which company is performing better than the other. The report further
contains the details of the various accounting methods used by these three companies and
finally it concludes with giving a recommendation to the investors regarding which company
will be better for an investor from the view point of the liquidity condition of the company.

2
Financial ratio analysis
Table of Contents
Introduction................................................................................................................................3
Discussion..................................................................................................................................3
Overview of the companies........................................................................................................3
Ratio analysis.............................................................................................................................4
Comparison of accounting methods...........................................................................................7
Final recommendation................................................................................................................8
Conclusion..................................................................................................................................9
Appendix..................................................................................................................................12

3
Financial ratio analysis
Introduction
The ratio analysis is a instrument that is utilized by the investors to evaluate the
financial strength of any company. There are several kinds of ratios and each ratio give
different results to the investors. So, it is essential for an investor to select specific ratios that
will give them the best information about a company and based on that the investor can take
decision. The three companies coca cola, Dr pepper and PepsiCo are the chief market players
in the beverages industry and the competition revolve around these three main companies.
The soft Drinks industry has a smaller number of participants for that reason the competition
is restricted among these three major companies. All the three companies are in the soft
Drinks market from long time and that make them more efficient to attract the investors. This
report is useful for the investors to select among the three companies which one will be the
best for them to invest and gets good return. This research report states to find whether the
performance of PepsiCo is better than coca cola and Dr pepper.
Discussion
Overview of the companies
Coca cola is one of the largest soft Drinks company all over the world and it is the
leading company among all the other companies in the soft Drinks industry. The head office
of the company is situated in Atlanta Georgia united states. its operation is speeded overall
over the world. The main products of the company is non alcoholic Drinks it has 350 brands
with different kinds of products. The main competitor of the company is PepsiCo and Dr
PepsiCo (Robinson et al 2015).

4
Financial ratio analysis
Dr pepper
Dr pepper was first marketed in 1904 in the united states and now it has expanded its
operation in Europe Asia, north and south America and Australia as well. Charlles c alderton
was the founder of the company. The company also produce various kind of soft Drinks some
of the brands that are produced by Dr pepper are dietic Dr pepper, pepper free, Dr pepper ten,
caffeine free Dr pepper, Dr pepper red fusion, Dr pepper cherry vanilla and many other
products. Apart from the soft the company also produces bubble gums jelly beans, grape
crush and hires root beers flavour. The company’s main competitor is coca cola.
PepsiCo
PepsiCo is a multinational company that is headquartered in Harrison new York.
PepsiCo is engaged in the production of grained based snacks food beverages and other non
alcoholic soft Drinks products. T5he company was formed in the year 1898 by caleb
bradham. The company produce soft Drinks under various product names. The main
competitor of the company is coca cola and Dr pepper.
Ratio analysis
Current ratio
The current ratio is assessed by dividing the current assets by the current liabilities.
The ideal current ratio is 1. This ratio is important to interpret the liquidity position of any
company. It is assumed that the higher the current ratio the better is the liquidity position of
the company to meet its liability (Sujan et al 2017).
Quick ratio
The formula of quick ratio is current assets minus inventory and prepaid expenses
divided by the current liabilities. The ratio helps to interpret the short-term financial strength

5
Financial ratio analysis
of the company as it deducts the inventory from the current assets so it considers more liquid
assets and as such it indicates the strength of the core liquid assets of the company to meet its
short liabilities.
Assets turnover ratio
The assets turn over ratio can be find out by dividing the operating revenues by the
total assets. It is the ratio that indicates the revenue generating capacity of the assets. the
higher the assets turnover the better it is for the company. The lower the assets turnover ratio
the more the company is inefficient to generate from its assets (Rey & Santelli 2017).
Receivable turnover ratio
The receivable turnover ratio is an efficiency ratio that indicates that how many times
a business can turn its accounts receivable in to cash during a financial year. The receivable
turnover indicates how efficient is the company to realize its dues from the customers. The
formula for receivable turnover is receivable divided by the operation revenue (Rakićević, et
al 2016).
Inventory turn over ratio
The inventory turnover ratio indicates how quickly the company can turn its inventory
in to sales. The higher the turnover the better it is for the company as it indicates that how
quickly a company can transfer its inventory in to sales. On the other hand, a low inventory
turnover ratio indicates the inefficiency of the company to convert its inventory into sales
(Qin 2019).
Gross profit ratio
The gross profit ratio is profitability ratio. This ratio is used to interpret the profit
earning capacity of a company before deducting its operating expenses. A company with high

6
Financial ratio analysis
gross profit ratio is an efficient one as it indicates that the company is managing its cost of
production effectively and also it has been able to increase the volume of its operating
revenue (Cole & Goessel 2016).
Factors that erroneously influence the results of ratio
Different companies use different methods of accounting so for that reason the
calculation of the ratios may some time create errors in the results that came out from the
ratio. The ratio analysis also depends on the business condition of different companies so
these factors also create errors in the calculation of ratios.
Comparative analysis of the ratio of coca cola, Dr pepper and PepsiCo
Current ratio
The current ratio of coca cola, Dr pepper and PepsiCo is 1.13, 2.60 and 1.28
respectively this indicates that among the three companies the liquidity position of Dr pepper
is better than the other two companies.
Quick ratio
Coca-Cola’s quick ratio is 0.95 where as the quick ratio of Dr pepper and PepsiCo is
2.31 and 1.08 which indicates that Dr peppers capability to meet the short-term liability by its
liquid assets is more than the other two companies. In this case the quick ratio of coca cola is
less than 1 which is not considered to be a positive sign for the company (Wang 2015).
Inventory turn over
The inventory turnover of PepsiCo is highest among all three companies this reflects
that the company is very efficient to convert its inventory into sales. The inventory ratio of
coca cola and Dr pepper is 7.53 and 3.19 which is less than PepsiCo’s inventory ratio of
15.82.

7
Financial ratio analysis
Receivable turnover ratio
The receivable turnover of coca cola is highest in comparison to the other two
companies from which it can be realized that the company has been able to collect its dues
from the customers more quickly than PepsiCo and Dr pepper. A high receivable turnover
indicates the efficiency of the management of coca cola (Marsha & Murtaqi 2017).
Gross profit margin ratio
Gross profit ratio of coca cola is 62.56 which is more than that of Dr pepper and
PepsiCo. the higher gross profit ratio indicates the strong profitability condition of coca cola.
Comparison of accounting methods
Difference between allowance method and direct write off methods
Under the direct write off method a bad debt is adjusted to any expenditure as soon as
it is deceptive that an bill will not be paid. As per the allowance method a estimation of the
forthcoming sum of bad debt is charged to a separate reserve account as quickly as a sale is
made. All the three companies are using allowance method (Kancharla & Hegde 2016).
Difference between the straight line double declining method and the unit of production
depreciation
The straight-line methods depreciate an asset by an identical amount in each financial
year. The double declining balance method assigns a better sum of depreciation in the
previous years of an asset’s life than in the later years. Units of production depreciates an
asset founded on a precise unit of output. As the straight-line method is more acceptable
among the organization and for this reason Coca-Cola Dr pepper and PepsiCo used the
straight-line method (Serôdio McKee & Stuckler 2018).

8
Financial ratio analysis
Difference between LIFO and FIFO method In LIFO method the inventory is kept
based on last in first out basis while on the FIFO method the inventory is maintained in first
in and first out basis. As the FIFO method gives more realistic valuation of the inventory
rather than the LIFO method so it has been adopted by all the three companies.
Different categories of intangible assets
The different types of intangible assets are
 Goodwill
 Licenses
 Trademark
 Patents
 Copyright
 Rights
 Customer lists
 Brand equity
Among all the categories all the companies used the brand equity method of intangible assets.
Final recommendation
PepsiCo has an efficient financial performance than all the three companies based on
the liquidity ratios. Further it can be said that the company also recorded better productivity
based on the efficiency ratio. the revenue earning capacity of the company is higher than the
other two countries and the company is more efficiently collect its debt from the customers.
For all these reasons it will be better for the investors to invest in PepsiCo rather than the
other two companies.

9
Financial ratio analysis
Conclusion
In conclusion it can be said that the financial ratios help in the interpretation of the
financial position of the companies and help the investors to take decisions based on the
results of the ratios. All the three companies coca cola Dr pepper and PepsiCo are pioneer in
the soft Drinks market and it is very essential to take decisions among these three which will
be a better option for the investors but a proper analysis has made it possible to select
PepsiCo as the best option out of the three companies.

10
Financial ratio analysis
Refernece
Cole, E. T., & Goessel, R. E. (2016). Hands on XBRL and Industry Analysis. International
Journal of Business and Applied Social Science, 2(5), 21-33.
Kancharla, S. P., & Hegde, V. G. (2016). Inferences about Supply Chain Practices using
Financial Ratios. Journal of Supply Chain and Operations Management, 14(1), 144.
Marsha, N., & Murtaqi, I. (2017). The effect of financial ratios on firm value in the food and
beverage sector of the idx. Journal of Business and Management, 6(2), 214-226.
Qin, J. (2019, July). Value Investment Based on Data Analysis with Comparison of Three
Food Corporations in the US. In 4th International Conference on Humanities Science,
Management and Education Technology (HSMET 2019). Atlantis Press.
Rakićević, A., Milošević, P., Petrović, B., & Radojević, D. G. (2016). DuPont financial ratio
analysis using logical aggregation. In Soft computing applications (pp. 727-739).
Springer, Cham.
Rey, A., & Santelli, F. (2017). The relationship between financial ratios and sporting
performance in Italy‟ s Serie A. International Journal of Business and
Management, 12(12), 53-63.
Robinson, T. R., Henry, E., Pirie, W. L., & Broihahn, M. A. (2015). International financial
statement analysis. John Wiley & Sons.
Serôdio, P. M., McKee, M., & Stuckler, D. (2018). Coca-Cola–a model of transparency in
research partnerships? A network analysis of Coca-Cola’s research funding (2008–
2016). Public health nutrition, 21(9), 1594-1607.

11
Financial ratio analysis
Sujan, M. H. K., Islam, F., Azad, M. J., & Rayhan, S. J. (2017). Financial profitability and
resource use efficiency of boro rice cultivation in some selected area of
Bangladesh. African Journal of Agricultural Research, 12(29), 2404-2411.
Wang, M. (2015). Fundamental Analysis of Coca-Cola, Inc