Financial Statement Analysis of Coca-Cola and Pepsi Companies

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Financial Statement Analysis

The financial statement analysis is a critical aspect of exploring organizations financial issues and position, its projects’ progress and goodwill. Big ventures like the Coca-Cola and Pepsi Companies has internal and external factors that give them anadvantage, push them through their performance, and profit (Coins, 2009). Financial information and analysis help in obtaining critical information for company creditors. Financial information exhibits the financial situation a company corporation and is an asset to an organization and should be prepared and disseminated to the relevant persons as necessary. Coca-Cola has an enduring purpose, which acts as a gauge for their action and decisions, to refresh the world, inspire moments of optimism, happiness, and value creation for difference (Kepos, 2007). Working to shape the future, build collaborations, and ensure integrity and accountability is an ultimate goal of any firm. Coca Cola and Pepsi Co have existed for years making a century and have a variety of brands worldwide. They both operate in the soft drink industry with presence in multiple countries all over the world with one of the best performances in global stock markets (Kepos, 2007).

The companies’ longer presence in the market and wider penetration and expanded quality brands adjusts their financial muscles. They can pay relatively high rates dividends, and their establishment extends as they penetrate the market segments with their relatively non-volatile products. The firms are both established both in fast and slow growth markets hence their activities are split between the incomparable markets (Kepos, 2007). The financial analysis of the companies is based on the compiled data within a period of one year in comparison with the data of another financial year. Each statement is customized to fit the required needs of the stakeholders and for easier comparison of the past and future economic performance. It is easier to compare businesses of a firm and the market segments performance through analysis.

The Coca-Cola Company

Coca-Cola Company presents soft drink products of wide varieties to different markets all over the world (Kepos, 2007). People’s thought that their products potentially affect health negatively due to its sugar content may make them shift from their products to perceiving healthier products. The company has responded to this by placing sugar-free products and even flavored drinking water. As much as it owns many brands in the market, Coca Cola does not have anenormous amount of sub-industries in the market it does not operate. The company acquires brands and sub-industries costing billions with a capacity to increase its turnover. Its innovations keep attracting its customers as per their markets with stores almost everywhere in the world up to retail level. Its extensive distribution network allows it to take its products near the consumers.

Other companies continually battle with Coca-Cola for the market offering more products and better prices. Some countries impose higher taxes on the sale of some selected soft drinks and further ban the sale of others within their territories then shaking the market. Rise in price of raw commodities for their products may squeeze the company margins. Coca-Cola Company has existed for over 125 years with over 500 variety products for its consumers (Kepos, 2007). It has a presence in over 200 countries even though it does not have major sublets. The firm serves its customers with close to two billion sales daily. The major suppliers of the company provide it with raw materials, ingredients, packaging and machinery and provide other goods and services. The collaborations between the business and its suppliers make it possible for the suppliers to tailor to the corporation needs (Coins, 2009). The major clients of the company are wholesalers, retailers and small business chains that stock the products for the consumers. The company is led by a duly established management structure with a CEO at the top (Kepos, 2007). It has presidents presiding over different regions of operation and executive.

Pepsi Company (PepsiCo)

            The company was founded over 120 years ago in the 1890’s and has so far formed mergers with other firms such as Frito-Lay in 1961 (Kepos, 2007). As a new business, the reported sales hit $510 on an annual basis with the company launching new products and services. The original product of the enterprise, Pepsi-Cola was formulated in 1898 with other products following in the later years. The company does not only focus on soft drinks alone, but also fries that are blended and with different flavors (Kepos, 2007). The company has made efforts to introduce traditional snack fries that are preferred in various markets globally with its code of global business conduct making it thrive.

            The company has had astrategy of collaborating with other firms to introduce new products in the market. Their food and beverage portfolio enable them avail a variety of choices to their customers at minimal costs. Their annual retail sales add up to $22 billion with their 22 brands (Kepos, 2007). The company takes pride in nourishment of their products provided to the esteemed customers and the diversification of their products for the markets. The diversification is focused on the corporation market divisions and their continuous innovation to meet the market needs (Coins, 2009). The products of the enterprise are varied to meet consumer preference and it is keeping track on availing all possible refreshments to the consumers.

            The company takes pride in the people as its success, and has a proper management structure. At the top is the chief executive officer who is also the chairperson of the board (Kepos, 2007). Like other top companies, it has presidents presiding over their global divisions as well as their product segments. The company is guided by a formulated policy that is applicable to the top management and staffs. It focuses on partnership and talent development for its performance, with its major clients being retail stores and outlets together with the wholesaler.

Profitability Ratios

            The metrics used as a measure of a business ability to generate earnings over the expenditures and costs over time is referred to as a profitability ratio. Such rates compare the total costs incurred and the expenses from the revenue that the business generates. These ratios are indicators of a company performance and having a higher value against the previous or the competitor values is indicative of good performance. Such ratios are of importance to business stakeholders and investors as they depend on them to identify the possibility of investing in a firm based on the extent of its profitability (McGowan, Gardner, & Moeller, 2014). There are tens of profitability ratios for a company some being, return on assets, return on equity, investment income ratio, return on investment, gross profit margin and operating margin.

            Return on investment is a ratio used to determine the efficiency of an investment and compare different investments. In this case, the return on investment is divided by the cost of such investment. It is expressed as [(Gains from Investment – Cost of Investment)/ Cost of investment]. The results are expressed as a ratio or a percentage. This formula can be adjusted depending on the circumstances of the company.

            Operating margin is a measure of the much a company makes from the primary business sales. This ratio is known to be an actual measure of a corporation performance than other ratios as it takes into account the cost of sales and other components of operation such as overhead and marketing expenses. It can be expressed as (Operating income or loss/ Sales).

            Gross profit margin is a profitability ratio that measures the difference between the company sales of goods and services less the cost of providing the products to revenue generated. This ratio reveals the company earnings considering the cost it incurs in production expressed as (Gross profit/Sales).

Return on Investment

Coca Cola Company 2014(in millions) - (7098/59649) x 100 = 11.90%

PepsiCo Company 2014 (In Millions) – (6513/70509) x 100 = 9.24%

Operating Margin

            Coca Cola Company (2014) – (9708/45998) x 100 = 21.11%

            PepsiCo Company (2014) – (9581/66683) x 100 = 14.37%

Profit Margin

            Coca Cola Company (2014) – (28109/45998) x 100 = 61.11%

            PepsiCo Company (2014) – (35799/66683) x 100 = 53.69%

Improving Profitability Ratios

            To improve profitability ratios, there is need to consider ventures and ensure feasibility and sustainability. The ratios help businesess to know how well it is progressing in terms of sales and investment. For instance, the profit margin portrays how best company products are priced basing on the revenue from sales and the cost of producing such products (McGowan, Gardner, & Moeller, 2014). To improve the profit margin, a company can raise the pricing of its products considering the market and competitors. The company can also opt for the raw products and processes that will ensure higher returns. Focusing on higher returns and diversifying product lines can also be an option of improving company profit margin. For operating margin, refining efficiency of operations in the industry and the market is an option. Having efficient operations and reducing waste is a sure way of realizing proper returns. On return on investment, making efforts by the enterprise to improve all other profitability ratios will ensure higher returns on investment (McGowan, Gardner, & Moeller, 2014). Improved research and identifying other profitable ventures for a corporation both for long and short term can be of importance too.

Mergers and Acquisitions

            In 2013, while trying to expand its water and tonic drinks segment, Coca-Cola acquired ZICO pure premium coconut water. As much as it can be seen that by acquiring the outstanding ownership stake in ZICO, the Coca-Cola also stands to benefit in penetrating the market. The production of the ZICO is a fastest growing category globally that the Coca-Cola will stand to gain a leading position in. Since the launch in 2004 to the time the Coca-Cola was acquiring the stake, the brand had seen expanded sales and doubled revenue. The sales of the company and the expanded growth would go hand in hand to expanding the presence of Coca-Cola Company in the market (Bertrand, Mucchielli & Zitouna, 2007).

            In the year 2014, Coca-Cola once again acquired a stake in Monster Beverage Corporation, a company that leads in energy drinks globally. The Coca-Cola transferred its worldwide ownership of the energy drinks business to Monster in an effort of diversification of its portfolio (McGowan, Gardner, & Moeller, 2014). The Monster, on the other hand,  moved all its non-energy drinks business to Coca-Cola. The company will benefit from diversified products from the agreement and ensure the consumer preference for its products expanded.

            Pepsi acquired two of its largest bottling companies making it become world’s second largest food and beverage business and savory snacks. By merging the three companies, the systems of the firm and its operations are improved, and its general size expanded in terms of revenue and resources (Thiracharoenpanya, 2010). The growth and expansion opportunities are presented to PepsiCo from such mergers, and the company can achieve improved growth level. The company will be able to pair its beverage, snacks, and consolidate sales and distributions.

            In 2012, PepsiCo entered into a joint venture with Theo Muller Company, a business that concentrates on dairy products. This, for PepsiCo, was the first entry to the dairy investment and the company would explore the gains that come with a new venture. Such mergers and acquisitions must be in a manner that the interest of the investors is protected. They should be such investments that would give returns on the company stock and propel the performance to improve performance and gains (Maria & Robert 2007). The mergers and acquisition of both the Coca-Cola and PepsiCo will influence the investors’ perception of the performance of the firms and attract more investors and creditors to the company that will in turn improve its capital and ultimately the revenue base. The positive influence is by the mergers and acquisitions proving to be more beneficial to the company and increasing their profit base (Maria & Robert 2007).

Income Statements

            The revenues of the PepsiCo seem higher than the Coca-Cola Company together with its gross profits. However, the operating income of the Coca-Cola Company is slightly higher, and the same trend is reflected in the net income attributable to investors. Basing on the company net income, Coca-Cola will be performing much better than PepsiCo. To improve net revenues, PepsiCo need to improve the efficiencies of its operations to achieve better performance that in the end may make it outdo Coca-Cola (Duke, Franz, & Hsieh, 2012).

Balance Sheet

            The summary above presents a balance sheet for the two companies, Coca-Cola, and PepsiCo. Coca-Cola leads in both current and total assets, as well as on liabilities. A balance check on the liabilities and assets of the company both makes it lead over PepsiCo that still lags on total stockholder equity. This analysis is indicative that PepsiCo is still not much performing well financially, and a greater focus should be placed on its performance and profitability of its ventures. The financial position of Pepsi is not better compared to that of Coca-Cola, and the company needs to make a critical balance on revenues and assets to those of operation expenses and liabilities (Coins, 2009). Pepsi must adjust its working capital while at the same time ensuring strategies that will enable the increase in the owners’ equity and company assets.

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