We researched Coke and Pepsi as was requested to see which one would be a better
investment over the other. One of the ways to see how a company is doing is to look at
how much (EVA) Economic Value Added that company is producing. EVA is a way of
measuring an operation’s real profitability. EVA is better than conventional ways because
it takes into account the total cost of the operating capital. EVA is simply the after-tax
operating profit minus the total annual cost of capital. Using EVA has advantages as well
as disadvantages.
Advantages
· EVA sends the message than managers should invest only if the increase in
earnings is enough to cover cost of capital
· EVA allows a good way for companies to set a reward system that is not
overly expensive to implement because is not too difficult for top
management to monitor.
· EVA makes the cost of capital visible to operating managers
· Stock prices track EVA more closely than they track other popular measures.
· Ways to improve EVA
o Increase earnings
o Reduce capital employed
o Invest capital in high-return projects
Disadvantages
· EVA does not involve forecasts of future cash flows and does not measure
present value.
· EVA therefore rewards managers who take on projects with quick paybacks
and penalize those who invest in projects with long gestation period.
· Need to make changes in income statements and the balance sheet to measure
economic value.
Looking at the historical trends of Coke and Pepsi in terms of EVA we find Coca-Cola's
EVA has been slowly decreasing while PepsiCo's EVA has been increasing (see Exhibit
1.1). Coca-Cola's NOPAT has decreased in recent years as a result of slowing sales
growth and worsening profit margins. If it were not for Coca-Cola's decreasing WACC,
its EVA would decrease more rapidly. If Coca-Cola used a WACC of 12%, about the
average of the past seven years, its EVA would have been $445,000,000 in 2000.
PepsiCo was able to more than double their EVA in 2000 due to higher NOPAT and
lower WACC. The higher NOPAT, was mainly a result of improved margins which lead
to a higher ROI. The key to EVA is the spread between ROI and WACC. It is important
to invest capital at a higher rate than the capital is obtained at. In theory, as long as there
are enough projects that produce ROI > WACC and enough capital supplied, EVA can
grow indefinitely.
EVA ($MM)
($2,000)
($1,000)
$0
$1,000
$2,000
1994 1995 1996 1997 1998 1999 2000
Year
EVA
Coca-Cola
PepsiCo
WE mentioned above that the (WACC) Weighted Average Cost of Capital is important.
So now lets take a look at what WACC is and why it is important.
...and investors to invest. No shareholder or investor wants to see that the company they are putting their money into is not performing as they had hoped. Furthermore, by having more investors AdCom will be able to expand its product lines and grow their company.
While contenders, for example, PepsiCo offer a scope of items that incorporates refreshments and snacks, Coca-Cola has stayed immovable as a pioneer in drink brands. Coca-Cola's rivals, then again, need to isolate their consideration between an extensive variety of item sorts.0020
Pepsi vs. Coke the epic battle that every American and from the looks of their financial statements possibly everyone in the world must deal with does it have a winner. For the fiscal year 2005 it certainly does through analyzing financial statements with vertical, horizontal, and ratio analysis investors are able to clearly decide who the better choice for their investment is. By careful scruitiny and attention to detail any investor can safely put their money in a buiseness as an investment so long as they are adhering to rules and regulations of the GAAP. Using the tools for financial analysis and the information given I will determine the winner of that battle for 2005 at least from the investors point of view.
Eating regimen drinks flew up as well, making a radical new pop section. Pepsi's effective invasion into the nibble sustenance business with Frito Lay have helped it fundamentally, particularly in the previous decade. Then, Coke has stayed entirely in drinks. Despite the fact that Pepsi's refreshment brands may not be as solid, its nibble sustenance business is gigantic. Coke has a major lead in the cola piece of the overall industry over Pepsi, yet Pepsi's different business lines pull in more money. Each brand has a unit of big names on their side. The two brands have rolled out huge amounts of improvements to their logos all through their histories. Neither looks anything as they made unique. They've both held onto the advanced world as web-based social networking gets greater and greater - yet Coke is by all accounts faring better so
PepsiCo, Inc. and The Coca-Cola Company are both strong companies with billions in sales each year. A creditor, investor or business planner would each evaluate the company in different ways using different ratio and financial analysis. As an investor, I see Pepsi as a larger company with more assets and I would expect them to have a larger market share as a result. Coca-Cola, however, appears to be a stable company capable of growth with investment priorities in their own companies. Slight changes by either company could propel them to the head of the industry, although they are both industry leaders.
EVA promotes the idea that a company is only truly profitable when it creates wealth for its owners and shareholders, and is a better indicator than net income. EVA also includes balance sheet numbers in its calculations and encourages managers to take assets and liabilities into account as well as revenue and expenses when making decisions on behalf of the company. (EVA, Investopedia). The goal of EVA is to determine whether the company has generated a greater return on a capital investment than it could have received by investing the money elsewhere. Economic Value Added, or Economic
Coca-Cola has an extensive history that began in 1886 when the curiosity of an Atlanta pharmacist, Dr. John S. Pemberton, led him to create a distinctive tasting soft drink that could be sold at soda fountains (WOCC 1). He created a flavored syrup, took it to his neighborhood pharmacy, where it was mixed with carbonated water using the process of effervescence and deemed “excellent” by those who tried the new product (1). Dr. Pemberton’s partner and bookkeeper, Frank M. Robinson, is credited with naming the beverage “Coca‑Cola” as well as designing the trademarked, distinct script, still used today(1).
Useem, M. (2008). New Ideas for This Pepsi Generation. (cover story). U.S. News & World Report, 145(12), 49.
Coke continuously out-stands Pepsi, even though they share a very similar taste and colour, however Coke should not be the drink that receives all the love and attention for what it offers. Despite their similar soda colour, the drinks actually contain some different ingredients, which produce a different taste, and affect the body differently. Furthermore, the way the companies markets their drinks makes a huge contribution to how successful their products will become. The major element for success however stems from their impact on society and how the companies utilize their social power to evolve. The two major soda companies are constantly head to head with one another, yet it is what they do that sets them apart.
Return on owner's equity (ROE) ratio: Net profit after taxes/Total shareholders equity. This ratio is calculated as net profit after tax divided by the total shareholders equity. This ratio measures the shareholders rate of return on their investment in the company. Activity ratios are another group of ratios; it's usually used to measure the ability to optimize the use of the available resources. These ratios are other measures of operational efficiency and performance. Among this group of ratios is the turnover to capital employed or return on investment (ROI)
PepsiCo is one of the most recognized names in the snack and beverage industry, with brands like Frito-lay, Gatorade, Tropicana, and Quaker, however, it is best known for its flagship soft drink brand - Pepsi and its rivalry with Coca-Cola. To begin, PepsiCo first caught my Interest in the way it manages its business and markets its products. PepsiCo being a relatively young company compared to its rival Coke, has proven to be a formidable opponent going “head to head” with one of the biggest companies in the world (Coca-Cola). Now, when I notice PepsiCo’s growth, the first thing that came to my mind was that it is thanks to its great marketing campaigns, that Pepsi has grown to become the globally recognized brand that it is today. I also admire PepsiCo because I think the there is a high level of entrepreneurship in the way they acquired smaller brands like Gatorade thereby eliminating their competition before they become competition.
Pepsi and Coca-Cola are both sodas, but they differ in terms of the satisfying flavors, the color and the graphic design that represents their two products, and then how Coke makes more money than Pepsi. With that said, you should have gotten the ideology of what we will go further in discussing about. Everybody loves these two very well-known sodas which can inject caffeine into you, which makes you all jittery in filling you up with an energetic energy. Alright, enough of this, let's go straight in-depth in talking about the two rivals throughout this paper of how Pepsi beats Coke in sales, but Coke is usually ahead when it comes to annual net income (Feigin) or how Pepsi is a sweeter brand compared to Coke, though Coke brand is more valuable
Control of market share is the key issue in this case study. The situation is both Coke and Pepsi are trying to gain market share in this beverage market, which is valued at over $30 billion a year. Just how is this done in such a competitive market is the underlying issue. The facts are that each company is coming up with new products and ideas in order to increase their market share.
The purpose of this report is to compare financial reports from the two largest soft drink manufacturers in the world. The Pepsi Co. and Coca Cola have been the industry's leaders in their market since the early 1900's. I will use relevant figures to determine profitability, and break down key ratios in profitability, liquidity, and solvency. By breaking down financial statements, and converting them to percentages and ratios, comparisons can be made between competitors regardless of size.
Experimentation with the new market for carbonated beverages on the decline coke has done experiments in new flavors and healthier alternatives to try to stay competitive. As well as investing in “Keurig Green Mountain is a K-Cup maker but has a new Keurig Cold that can deliver Coca-Cola through the new system.” (Cooper, 2014)