Financial Analysis Coca-Cola Verses Pepsico. Inc. - Balance sheet Essay Example

There are many different types of soft drink manufactures in the United States and throughout the world - Financial Analysis Coca-Cola Verses Pepsico. Inc. introduction. The two most popular manufactures are Coca-Cola and PepsiCo. They are the two companies that are well known all over the world. These two companies have cornered the soft drink market with their products for many years. Coca-Cola and PepsiCo have kept their prices quite low so they are attractive to all income levels. The marketing of their products (commercials and print) have made their product so attractive that a person just wants to run out and buy the products regardless of their income levels.

Each company has also used celebrities to help market their products. In this paper we will review each company’s financial documents to see how each of the companies is doing financially. We will also perform a vertical and horizontal analysis from each of the company’s financial data. Once the analysis is complete I will give recommendations to each company according to the financial review. The companies Coca-Cola and PepsiCo better known as Coke and Pepsi had been around for a long time. Coke has been around since 1886 (http://www. thecoca-colacompany. com) and PepsiCo has been around since 1898 (http://www. epsico. com). Coke and Pepsi have been the number 1 and 2 for many decades. This is because they are known worldwide. Each company has locations throughout the world and they compete with each other for customers. Each of these companies’s has a similar business plan that is targeted at a particular population. Each company runs their business with high moral and ethical standards and there are many companies out there model their business plans after Coke and Pepsi but not many reach the level that Coke and Pepsi are on. In this financial analysis all of the figures are shown in millions.

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For example if the figure shown is 10 then it would be 10 million and so on. I will start off with the vertical analysis. The vertical analysis comes from the balance sheet for each company. This will show a percentage base figure for each company. The base figure shows the total assets for each company for a certain period of time. Each percentage is found by dividing each line on the balance sheet by the total assets of the company. We will start the analysis by stating the total assets for each company. Coke’s total assets in 2004 were $31,441 and in 2005 the total assets were $29,427.

Pepsi’s total assets for 2004 were $27,987 and in 2005 the total assets were $31,727 (Weygandt, Kimmel and Kieso 2008). The total asset figures for each of the companies come from the balance sheet. Coke’s cost of goods sold in 2004 was $7,674 which yields a ratio percentage of 24. 4% of their total assets. Coke’s cost of goods sold in 2005 was $8,195 which yields a ratio percentage of 27. 8% of their total assets. Pepsi’s cost of goods sold in 2004 was $12,674 which yields a ratio percentage of 45. 3% of their total assets. Pepsi’s cost of sales in 2005 was $14,167 which yields a ratio percentage of 44. % of their total assets. Over the 2 year timeframe Coke had an increase of 3. 4%. During the same timeframe Pepsi had an increase of . 5%. The next thing that we are going to analyze is the net income fir each company. In 2004 Coke showed a net income of $4,847 which is a ratio percentage of 15. 4% of their total assets. In 2005, Coke had a net income of $4,872 which is a ratio percentage of 16. 6%. This is an increase of 1. 2% over the 2004 to 2005 timeframe. In 2004 Pepsi had a net income of $4,212 which is a ratio percentage of 15. 1% of their total assets.

In 2005 Pepsi has a net income of $4,078 which is a ratio percentage of 15. 1% of their total assets. Pepsi had a decrease of 1. 9% during the 2004 to 2005 timeframe. Even though Coke had an increase in the cost of goods sold it does not offset their income because they only had an increase of 1. 2% over the 2004 to 2005 timeframe. We will now look at the balance sheet for each company and compare the current assets and the current liabilities for each company for the 2004 to 2005 timeframe. The vertical analysis yields a percentage of a specific base amount. The base amount will be the total assets for each company.

Cokes 2004 current assets were $12,281 which yields a percentage of 39. 1% of Cokes total assets. In 2005, Coke’s current assets were $10,250 which yields a ratio percentage of 34. 8% of their total assets. This shows a decrease in Coke’s current assets. Pepsi’s current assets in 2004 were $8,639 which yields a ratio percentage of 30. 9% of their current total assets. Pepsi’s current total assets for 2005 were $10,454 which yields a ratio percentage of 32. 9% of their current total assets. For this timeframe Pepsi had a 2% increase on their current total assets.

Now we will look at the current liabilities for each company. Coke’s current liabilities for 2004 were $11,133 which yields a ratio percentage of 35. 4% of there current liabilities in 2005 Coke’s current liabilities were $9,836 which yields a ratio percentage of 33. 4%. Coke had a decrease in their liabilities between the 3004 to 2005 timeframe. Pepsi’s current liabilities for 2004 were $6,752 which yields a ratio percentage of 24. 1%. In 2005 Pepsi’s current liabilities were $9,406 which yields a ratio percentage of 29. 9%. Coke’s total liability for 2004 was %15,506 which yields a ratio percentage if 49. % and in 2005 Coke’s total liability was $13,072 which yields a percentage of 44. 4%. This is a decrease of 4. 9% in their liabilities. Cokes liabilities decreased and their assets decreased as well. Pepsi’s total liability in 2004 was $14,464 which yields a ratio of 51. 7% and in 2005 Pepsi’s total liability was $17,476 which yields a ratio percentage of 55. 1%. This shows an increase of 3. 4% in their total liabilities over the 2004 to 2005 timeframe. This analysis shows that Coke’s equity shares are worth more than Pepsi’s during the 2004 to 2005 timeframe.

Now we will perform the Horizontal analysis of each company. This analysis is also known as a trend analysis. There are 2 different formulas that can be used to get the information for a specific period of time. One of the formulas divides the current year amount by the base year amount. The end result is a percentage that will show the current year figure as a function of the base year. The other formula uses the current year amount and subtracts from the base year amount, then it is divided by the base year amount. This will shoe the increase or decrease percentage to the base year amount.

The first thing we are going to look at for the horizontal analysis is going to be the current assets of each company. In 2004 Coke had total assets of $12. 281. In 2005 Coke’s total assets $10,250. Using the first formula it yields a total of -0. 1658 for a ratio percentage decrease of 16. 58%. The second formula yields a total of 0. 8346 which is a ratio percentage of 83. 46%. Coke showed a decrease in the total current assets for the 2004 to 2005 timeframe. Next we will look at the current liabilities for each company. We will us the same formulas that we used to calculate the total current assets.

In 2004, Coke’s total current liabilities were $11,133 and in 2005 Coke’s total current liabilities were$9,836. The formula yields a ratio percentage of 88. 35%. During 2004 to 2005 Coke had a decrease in the company’s current liabilities by 11. 65%. Pepsi’s total current liabilities for 2004 were $6,752 and in 2005 their current liabilities were $9,406. This shows an increase in total current liabilities if 139. 3% during the 2004 to 2005 timeframe. After completing the analysis on both Coke and Pepsi it show that each company had lower net profits in 2005 then they did in 2004.

Both Coke and Pepsi had an increase in their operating expenses which in turn gave each company lower net profits. Pepsi showed an increase in total current assets and an increase in total liabilities for the 2004 to 2005 timeframe. They had a 5. 8% increase in their liabilities and a 2% increase in their assets for the same period of time. This increase in liabilities did not help the company. During the 2004 to 2005 timeframe Coke showed a decrease in their total current assets of 4. 3% and during the 2004 to 2005 timeframe they also had a decrease in their current liabilities by 4. 9%.

Some of the recommendations that I would make would be for both Coke and Pepsi to look for ways to change the way they operate so that they can lower their operating expenses which will in turn increase their net profits. Pepsi should look for ways to decrease their current liabilities. Coke should look for ways to increase their profits which will in turn increase their total current assets. So, as you can see both Coca-Cola and PepsiCo are very popular names in the soft drink business. They are both known worldwide, each have location around the globe and have been in business for decades.

The vertical and horizontal analysis of their financial data shows that each of the companies are profitable companies. They both have financial strengths and weaknesses in different areas and both companies financial data shows that they will be around for years to come. You do not become the leaders in the soft drink market for decades without know a thing or to about the business.

References:

Retrieved from: http://www. thecoca-colacompany. com/ on October 17, 2010 Retrieved from: http://www. pepsico. com/ on October 17, 2010 Weygandt, J. J. , Kimmel, P. D. , & Kieso, D. E. (2008). Financial accounting (6th ed. ). Hoboken, NJ: Wiley.

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