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Investment Analysis of Coca-Cola Co. and PepsiCo Inc

Investment Analysis of Coca-Cola Co. and PepsiCo Inc
1. Company Profiles – A Synopsis

PepsiCo Inc, an American multinational, is a food and beverage organization which has headquarters in New York, United States. The company has interests in the production, marketing and distribution of beverages, snack foods, and other products. This publicly traded company was formed in the year 1965 after Pepsi-Cola Company merged with Frito-Lay, Inc. Coca-Cola Company, also an American multinational, sells carbonated soft drink in every store having a headquarter in Atlanta, Georgia of United States. It was founded in 1886.

Product/Services

Major Customers

Leadership

Liquidity Strength Analysis

Financial Flexibility Analysis

Here, the extent to which these organizations employ debt and equity in their operation is analyzed through debt-to-equity ratio. Additionally, another ratio is also incorporated to measure the capacity of PepsiCo and Coca Cola to repay their fixed interest obligations.
The above table reveals that PepsiCo tends to employ more debt in its business operation than its counterpart, Coca-Cola which uses almost half the debt percentage. One may say that PepsiCo has less financial flexibility than Coca-Cola because of using more debt in capital structure. In this case, PepsiCo will find it difficult to raise capital from the financial markets. Due to using more debt, PepsiCo is exposed to increased interest rate risk which is kept to an optimal level in case of Coca-Cola. PepsiCo’ counterpart, Coca-Cola will find it easy to raise necessary funds from the capital markets because of using optimal capital structure in operations.
Because of using more debt, PepsiCo’s capacity to cover its fixed interest obligations is lesser than that of Coca-Cola in 2012 and 2013. Similarly, as Coca-Cola employed more debt in 2013, its financial flexibility and capacity to repay debtors has declined in the most recent year. Overall, Coca-Cola outperforms its business rival (PepsiCo) in 2012 and 2013 because it uses less debt, exposed to less interest rate risk and its capacity to pay fixed interest payments is really very high than PepsiCo.

Profitability Ratio Analysis

Among many profitability ratios, the return on assets is analyzed which measures the capacity of the concerned two business rivals to net income for every dollar invested in total asset mix.
The above table reveals that Coca-Cola outperforms the PepsiCo only by a slight margin in 2013. PepsiCo was able to generate only $8.86 for every dollar its management invested in acquisition and maintenance of total assets during 2013. In contrast, Coca-Cola generated more dollars (around $0.88 in 2013) for investment of each dollar in current and non-current assets which is considered good by shareholders and potential investors.

Recommendation to Improve Ratios

References