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Final Project Pepsico Vs Coca Cola Essay

3246 words - 13 pages

Stephanie Burke
September 19, 2010
Sylvia White Shepherd

The purpose for this analysis is to compare PepsiCo to Coca-Cola; this is done by providing a summary of financial accounting information. The information to compare a company to another comes from financial statements and then those numbers are broken down into analysis and ratios. Once the ratios are calculated then the investor can decipher is the company is worth investing in. The information gathered is from the attached financial statements of both companies for the year 2005. Below is a small description of the two companies before comparing them.
PepsiCo manufactures or use contract manufacturers for their ...view middle of the document...

(To calculate-Current Assets divided by Current Liabilities) |   |   |
Current Ratio-PepsiCo | 2005 | 2004 |
 Means that for every dollar of current liabilities PepsiCo has $1.07 of current assets | 1.07:1 | 1.11:1 |
 (To calculate-Current Assets divided by Current Liabilities) |   |   |
Current Ratio-Coca Cola | 2005 | 2004 |
 Means that for every dollar of current liabilities Coca-Cola has $2.62 of current assets | 2.62:1 | 2.47:1 |

PepsiCo decreased the ratio between 2005 and 2004 that could be the result in paying off a supplier or a bank loan. Coca-Cola ratio increased between 2004 and 2005 that could have resulted in the purchase of additional supplies on credit or a loan, resulting in a short-term debt.
PepsiCo and Coca-Cola have the same base production carbonated and non-carbonated drinks. Here is a list of recommendations that each company could use less or more. Manage internal controls more effectively and more managing of purchases. Internal controls could be as simple as an individual establishing the order, another individual to bill, and another individual to load a truck. Managing purchases would result in lower short-term debts, giving the company more money for assets.
Profitability ratios measure the income or operating success of a company for a given period of time (Navigator).

(To calculate-Net Income divided by Net Sales) |   |   |   |
Profit Margin-PepsiCo | 2005 | 2004 | 2003 |
  | 20.10% | 23.10% | 23.40% |
  |   |   |   |
Profit Margin-Coca-Cola | 2005 | 2004 | 2003 |
  | 21.20% | 22.80% | 21.40% |

PepsiCo in 2003 and 2004 stayed much the same and then decreased in 2005; this could be a result of high inventory turnover. Coca-Cola stayed steady in the percentages; this could be a result in handling sells and inventory steadier. The longer goods, or inventory, stays in storage the more the company pays on liabilities.
Each company uses different ways to lower the percentage such as, up-selling to existing customers, give better terms to existing customers, incentives to employees to sell more, and expand product lines to more consumers or customers.
Solvency ratios measure the ability of the company to survive over a long period of time. Another way to view solvency is the amount of money coming in versus the amount of money going out (Navigator). A solvent company is a company going out of business, as they have more debt and less income.
(To Calculate-Income before Income Taxes and Interest Expense divided by Interest Expense) |   |   |   |
Times Interest Earned-PepsiCo. | 2005 | 2004 | 2003 |
PepsiCo can pay the interest when due 24 times. | 24 times | 32 times | 30 times |
Times Interest Earned-Coca-Cola | 2005 | 2004 | 2003 |
Coca-Cola can to pay the interest when due 29 times. | 29 times | 33 times | 32 times |

Both PepsiCo and Coca-Cola have been fluctuating over the past three years with the times they can pay the interest when due. Neither...

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