Report Sample on Financial Analysis for Coca Cola Company

Introduction

With the arrival of modern technologies and increased globalization, firms can manufacture many products and reach additional markets both in their host countries and internationally. Coca-Cola and Pepsi Co. are some of the companies that significantly enjoyed this impact. Coca-Cola Company is one of the largest non-alcoholic beverage firms globally, producing some of the most recognized brands in the whole world. Its headquarter are situated in Atlanta, Georgia. It produces over 500 brands of beverages, including its top four soft drinks such as Coca-Cola, Fanta, Sprite, and Diet Coke.

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It also produces enhanced water, energy drinks, sports drinks, plant-based beverages, and coffees. Some of its other brands comprise Vitamin water, Honest Tea, Dasani, Powerade, and Minute Maid. Equipped with the biggest beverage distribution system globally, it reaches most of its thirsty target customers in over 210 countries. Remarkably, approximately 70% of its sales are made outside the United States. Its stocks are listed on the New York Stock Exchange, abbreviated as NYSE (U.S. Securities and Exchange Commission, 2019). Its net operating revenue in 2019 amounted to approximately $37.27 billion. Besides, in the same year, it directly employed over 86,200 individuals.

Similarly, Pepsi Co. is also an American-multinational food and beverage firm. Its headquarters are based in Harrison, New York. Both hungry and thirsty consumers enjoy their products in over 200 nations and territories globally. The end of the 2019 financial year yielded a net income of approximately $67 million. Such achievement was propelled by complimentary meals and beverage portfolios in Tropicana, Pepsi Cola, Quaker, Gatorade, and Frito-Lay. It has 23 brands that yield over $1 billion per annum (PepsiCo., 2019). Besides, in the 2018 Forbes' list, it was ranked third among the largest food and beverage firm globally. Forbes ranking was centered on the composite score of market value, assets, profit, and revenue. Since 2012, its organic income has increased by a mean of 3.8%. Both Coca-Cola and Pepsi Co. are, however, chief rivals in terms of their products and stock. Therefore, for an investor who wants to invest in any of them, undertaking comprehensive financial analysis would be significant.

Comparison of Three Accounting Methods

In 2018, Coca-Cola reported a decrease of 5.62% in their total assets when they reduced from $87,896 million to $83,216 million. Index number trend analysis or trend percent analysis is a horizontal analysis that shows the patterns in data across different successive periods. Remarkably, by subtracting the total assets for 2018 from the base year 2017, dividing the results by total assets for 2017, multiplying by 100, the final product is -5.62%. The negative sign denotes a decrease in total assets (U.S. Securities and Exchange Commission, 2019). Similarly, Pepsi Co. experienced a decline of 2.70% of total assets in 2018 compared to 2017. This means that the total assets were 97.3% in 2018 (PepsiCo., 2019). While comparing the two companies, it may be concluded that Pepsi Co. reduced its total assets by 2.70% compared to those of Coca-Cola Company of 5.62%.

Another significant accounting method essential in comparing the two companies is through analyzing their depreciation. Notably, Coca-Cola tends to depreciate primarily through straight-line technique over the useful life. It also reveals that the intangible assets subjected to amortization normally have a definite life, while those with an indefinite life span are not amortized. Therefore, in 2018, depreciation and amortization allocation for Coca-Cola Company was estimated to be approximately $1,086 million (U.S. Securities and Exchange Commission, 2019). Likewise, Pepsi Co depreciates through a straight-line technique throughout the useful life of an asset. Land and construction in progress till it is ready for use (PepsiCo., 2019). Thus, the total depreciation and amortization in 2018 were $2,399 million, which was considerably higher than the Coca-Cola Company.

Coca- Cola experienced a decrease in total liabilities of 6.91% when they fell from $ 68,919 million to $ 64,158 million. Pepsi also experienced a decrease in total liabilities of 8.39% (PepsiCo., 2019). These results were obtained when total liability fell from $ 68,919 million in 2017 to $ 64,158 in 2018. Therefore, it may be observed that Pepsi can repay the amount of credit incurred at a higher rate than Coca-Cola.

Current Ratio

The current ratio is essential in assessing a firm's ability to meet its short-term obligations, for example, those due within one year. Coca- Cola in 2018 and 2017 has a current ratio of 1.05 and 1.34 (U.S. Securities and Exchange Commission, 2019). This denotes that it may easily pay each dollar on accounts payable or loan in 1.05 and 1.34, respectively. On the other hand, PepsiCo would not be able to meet its obligations since its current ratio is below 1. While in 2017, it was able to pay them since short terms liabilities (PepsiCo., 2019). This ratio, however, fails to consider the current assets that may be moving stock. Thus, this issue is eliminated by using the acid-test ratio. It provided the firms' immediate liquidity by assessing the receivable, short-term investments, and cash divided by the current liabilities, which provides the concept of immediate liquidity.

Remarkably, to calculate the acid-test ratio, add cash, short-term investment, and receivables and then divide them by current liabilities. While analyzing the acid-test ratio, it reveals a reduction in both Coca-Cola and PepsiCo. Thus, to identify if the numbers are enough, one should recognize the industry mean to change it to the economy. For example, the industry mean maybe 0,33 to 1. Any figure falling within this margin would be desirable. Therefore, PepsiCo shows better results than Coca-Cola in this case.

Besides, a crucial profitability ration that may be utilized to analyze both companies would be profit margin. It examines and identifies the percentage of sales leading to net income. It involves dividing the net income with net sales.

Conclusion

Both Coca-Cola and PepsiCo show promising returns for investments. After conducting an extensive financial analysis, it is possible to provide suggestions on which company an investor to choose for making an investment decision. Based on the market share, Coca-Cola would be the most suitable company to invest in. This is because it produces over 500 brands and sells them in over 210 countries, unlike PepsiCo, which has 23 brands. Besides, Coca-Cola's total liabilities decreased from 2017 to 2018 with a high rate compared to PepsiCo. However, from 2017 to 2018, Coca-Cola experienced a decrease in assets of 5.62%, while PepsiCo declined by 2.70%. Besides, its depreciation was significantly lower at $1,086 million than that of PepsiCo of 2,399 million. Coca-Cola also has a lower total liability than PepsiCo. While the former had a depreciation of 6.91%, the latter had of 8.39%. Its current ratio was additional higher than those of PepsiCo. This denotes that it was in a better position to pay for short-term liabilities. The acid-test ratio further confirmed that Coca-Cola could pay its immediate liabilities despite a slight difference from PepsiCo. Although in 2017, PepsiCo earned a higher profit, in 2018, Coca-Cola earned more profit than the former with a significant margin between them. Though Coca-Cola has fewer assets while compared to its liabilities than PepsiCo, the majority of the financial ratios illustrate that it is the best company for investments. Therefore, I would recommend to investors who like to enjoy high returns to consider investing in the Coca-Cola Company since it has shown high potential in generating high returns.

References

PepsiCo. (2019). 2018 PepsiCo annual report.
https://www.pepsico.com/docs/album/annual-reports/2018-annual-report.pdf?sfvrsn=35d1d2bc_2

U.S. Securities and Exchange Commission. (2019). Form 10-K: The Coca-ColaCompany (Commission File No. 001-02217).
https://www.coca-colacompany.com/content/dam/journey/us/en/policies/pdf/shareowner-services/2018-annual-report-on-form-10-K.pdf.