Financial analysis of Coca Cola Company & Pepsico Incorporation

Résumé du document

In that report, we will analyze two major American companies principally functioning in the beverage market: Coca Cola and PepsiCo Incorporation. Even if sodas are now considerate as non healthy products, people do consume them. As Coca Cola's activity shows, more than 35% of their revenues arise from the United States market. The situation of PepsiCo is quite different because even if Coca Cola is the leader on the beverage market, PepsiCo decided to diversify its activity to food and especially, the snacks market. So even if these two companies are quite similar, this difference makes the analysis quite skewed.
In this document, we will analyze these two companies acting on the beverage and snacks markets. In order to cover this analysis, we will describe each company, their market their establishments and their background. Then we will try to evaluate their performances and analyze the evolution on the past five years. As a conclusion of this analysis on the two companies' results, we will try to give recommendations to improve these results for each company. Regarding their performances, we will position these companies on their market; and analyze their strengths and weaknesses. To conclude, we will give recommendations to potential investors and potential financial establishments to allow a bank loan for them.

Extraits

[...] Pepsico employs more people than Coca Cola; around 185,000 people in many countries, and its capitalization is about $ 107 billion. Financial ratios & evolution LIQUIDITY & EFFICIENCY As we have seen before, working capital measures the efficiency, and the short term financial health. Pepsico Incorporation results reveal that this ratio is very well oriented: it increased by 365%, which is almost 4 times, between 2003 and 2007. This result is very favorable and shows that Pepsico is very healthy on a short term. [...]

[...] I would also suggest that Pepsico try to cut costs. Indeed, if the net sales increased by about the cost of goods sold increased by more than 54%. Thus, to be profitable the company must reach the most effective point of production, and the key for Pepsico would be to reduce its production costs and the costs of goods sold. Comparative strategic analysis Strengths & weaknesses In order to analyze the strengths and weaknesses of these two companies, we will build a table comparing the two companies Position of these two companies Coca cola is the undeniable leader on the beverage market, with brand names as Sprite, and Coca Cola, but also Orangina. [...]

[...] This means that Coca Cola was able to reimburse its short term liabilities. However, for the financial years 2006 and 2007, the working capital was negative, which means that the current assets (accounts receivable, cash and inventories) of these years could not cover the short-term liabilities. This situation is quite embarrassing because if (unbelievable hypothesis) Coca Cola declares bankruptcy in 2008, they will not be able to pay their suppliers without selling a part of their fixed assets. The Acid test Ratio is interesting, because it measures the company's ability to reimburse its current liabilities in a very short time week or less). [...]

[...] The analysis is very complicated as it is based on confidence and reputation. Discussing a Price Earnings Ratio (PER) of a company is not very useful. It needs to be compared to the PER of another company of the same sector or the market. This is what we will do in the fourth and fifth part of this report. On the other hand, a ratio which could explain quite rapidly the position of Coca Cola on the stock exchange and towards investor is the dividend yield. [...]

[...] PROFITABILITY From the ratios, we could immediately establish that Coca Cola is profitable. Many companies all other the world would be pleased with such a profit margin ratio. From 2003 to 2007, the profit margin of Coca Cola has always been around 20%. This means that the net income represents 20% of the net sales. With respect to Return On Asset we were able to analyze what earnings were generated from invested capital. This ratio is very important for potential investors, because it tells them how they may hope to earn if they invest in the company. [...]