Financial Analysis of Coca-Cola and Pepsi Co.

PepsiCo and Coca-Cola are fierce competitors and according to their financial statements they are both healthy companies. Therefore I would invest in Coca-Cola if I had to make the decision because it has higher income, a stronger long-term debt to networking capital ratio, steadily rising net income per common share, and a climbing and high solvency ratio. PepsiCo still shows healthy growth and outperforms Coca-Cola in many areas. I will conduct a financial analysis of Coca-Cola and PepsiCo to identify their strengths and weaknesses, ultimately deciding which one is worth the investment.

With any financial statement it is important to note, when comparing and contrasting differences between the financial highlights page which is usually located among the first few pages. This statement when juxtaposed with the competitor will usually highlight areas in which both are strong which leaves plenty of leg work to be done with the rest of the un-flaunted information. In this case they are both quite healthy but the highlights are still indicative of certain information if one chooses to investigate further. When one wants only to highlight their strengths, it is obvious that certain information is omitted and other exaggerated. This is true with any company that wishes to gain shareholders and is common practice with organizations that after completing their financial calculations, turn the project over to human resources to enhance the beauty of the package.

Coca-Cola’s current ratio, which “is a widely used measure for evaluating a company’s liquidity and short-term debt-paying ability”, dropped from 1.1:1 in 2004 to 1.04:1 in 2005. (Wegandt, Kimmel, & Kieso, 2008 p 707) This indicates a slight drop in Coca-Cola’s liquidity...

... middle of paper ...

...ng the numbers one concludes that both companies are healthy although Coca-Cola outperforms its competitor in countless areas. Access to ten years of financial statements from both companies would give a more comprehensive analysis of the current status of Coca-Cola and PepsiCo. PepsiCo and Coca-Cola seem to use different methodology for determining the source of funds for investment, pay outs to shareholders, and debt obligations. This difference reflects the different styles that each accounting and financial department prefers and does not make one method better than the other. If I had to choose between investing in Coca-Cola or PepsiCo based on the financial analyses from 2004 and 2005 I would choose Coca-Cola without a doubt.

References

Weygandt, Kimmel, and Kieso (2008). Financial Accounting: A Focus on Fundamentals. John Wiley and Sons Inc.