Financial Management: Pepsi vs Coca Cola 2009
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Compare Pepsi & Coca-Cola. I need the financial ratios computed and interpreted.
Long time competitors in the soft drink industry, PepsiCo and Coca-Cola continue efforts to gain additional market share. Which do you prefer, Coke or Pepsi? Letâ??s take a look at these two companies from a financial perspective rather than our drink preference.
To learn more about PepsiCo and Coca-Cola Enterprises, download the PepsiCo 2009 Annual Report at: http://www.pepsico.com/annual09/ and the Coca-Cola 2009 Annual Report at: http://www.cce2009annualreport.com/. Review the annual reports for general information.
Required:
1. Read Understanding the Income Statement at: http://www.investopedia.com/articles/04/022504.asp
2. Read Reading the Balance Sheet at: http://www.investopedia.com/articles/04/031004.asp
3. Compute the following financial ratios for both companies and provide as an APPENDIX. If you need help understanding the meaning of the ratios or how to they are computed, go to:
http://www.investopedia.com/university/ratios/
Liquidity measurement ratio:
· Current ratio
Profitability indicator ratios:
· Return on assets
· Return on equity
Debt ratio:
· Debt ratio
Operating performance ratio:
· Fixed asset turnover ratio
Cash flow indicator ratio:
· Dividend payout ratio
Investment valuation ratio:
· Price / Earnings ratio
You are to write a five to six (5-6) page report that answers the following:
1. Using the current ratio, discuss what conclusions you can make about each company's ability to pay current liabilities (debt).
2. Using the profitability ratios, discuss what conclusions you can make about each company's profits over the past three years.
3. Using the cash flow indicator and investment valuation ratios, discuss which company is more likely to have satisfied stockholders.
4. As an investor, discuss which company you would choose to invest in and provide a rationale for your decision.
5. Discuss what non-financial criteria you would consider when choosing between these two investment options?
889 words plus ratios
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Solution Summary
The financial management for Pepsi versus Coca Cola in 2009 is examined.
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COCA COLA VS.PEPSICO
1. Current Ratio
Liquidity Measurement Ratio Coca Cola PepsiCo
Current Ratio 1.13 1.44
The current ratio measures the company's ability to pay its short term obligations with its short term assets. Between Coca Cola and PepsiCo, PepsiCo has a higher current ratio implying that the latter is more capable of paying its obligations. The debt management policies of Coca Cola in conjunction with share repurchase program and investment activity resulted in current liabilities exceeding current assets. From the ratio we can say that is PepsiCo suddenly had to pay all its short-term creditors, it would be able to do so and have a surplus of 44% of current assets. On the other hand if Coca Cola had to pay all its short-term obligations, it would have only 13% surplus of current assets after fully repaying all short term obligations. Therefore, it can be said that PepsiCo is more liquid than Coca Cola based on its current ratio.
2. Profitability Ratios
Profitability Indicator Ratios Coca Cola PepsiCo
Return on Assets 4.45% 14.92%
Return on Equity 85.1% 35.17%
The return on assets ratio is an indicator of how profitable a company is relative to its total assets. PepsiCo's return on assets ratio is 14.92, slightly higher than the industry's 14.70%. Coca Cola's return on assets ratio is much below the industry average. This ...
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