The Coca-Cola and Pepsi Companies: Small System Project

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The Coca-Cola Company is considered one of the largest companies in the world. Apparently, the company specializes in manufacturing of non-alcoholic drinks. The company has five top soft drinks brands- Coca-Cola, Fanta, and Sprite, Diet Coke, and Minute Maid drinks (Dhar, Chavas, Cotterill & Gould, 2005). Over the years, the Coca-Cola Company has attracted a number of competitors such as the PEPSICO, Inc.

Through analysis, it is possible to identify the production differences between the two companies. Therefore, this analysis reveals the companies’ competitive positions in the market and the differential margin between the two firms. Using the DuPont Analysis, the ROE (Return on Equity) is expressed as the net income as a ratio of the shareholder’s equity. Therefore;

ROE = Net Income / Shareholder’s Equity.
- For Coca-Cola: 232,000,000/34,007,000,000 = 0.006822
- For Pepsi: 5980000000/22910000000= 0.062643

The ROA (Return on Assets) is expressed as the net income of the company divided by the total assets. Thus;

ROA = Net Income / Total Assets
- For Coca-Cola: 41470000000/95490000000= 0.434286
- For Pepsi:598000000 0/80470000000= 0.074313

The profit margin for Coca-Cola is 20.64%. On the other hand, Pepsi’s profit margin is 53.57%.

Total Asset Turnover for Coca-Cola is 0.14%. Pepsi has a total asset turnover of 0.87%

Equity Multiplier is expressed as total assets divided by total equity.

Where: EM= Total Assets/ Total Equity
- For Coca-Cola: 95490000000/34070000000= 2.802759
- For Pepsi: 80470000000/22910000000= 3.512439

Since the establishment of the Coca-Cola and Pepsi in 1886 and 1893 respectively, the rivalry between the two companies has attracted much interest from accountants and industrialists. From the financial analysis, the comparison of the two companies using dividend increment has been a factor of consideration. Since Coca-Cola had an increase of dividends by 11.01% while Pepsi recorded a dividend increase of 9.80%.

In this context, Pepsi has diversified its activities into snacks. On the other hand, Coca-Cola remains retain its original brands. The domination of the Coca-Cola brands in the markets is higher than Pepsi. In fact, Coca-Cola sales volumes are relatively higher than Pepsi’s within the same market.

The comparison of the Coca-Cola and the Pepsi Companies is complete with a presentation of the common size analysis. Drake and Fabozzi (2012) define a common size analysis as a fiscal report that shows each item as a percentage of a base figure within the account. The base figures must always include the company’s total assets, the stakeholder’s equity as well as the liabilities.

In this case, each of the company’s balance sheets is considered. The assets indicated in the balance sheets are expressed as a percentage of the total assets in each case. The figures must include the current liabilities, equities as well as the long-term debts. They are expressed as a percentage of the company’s total liabilities and the shareholder’s equity in each case.

Therefore;

Base% = Amount of Individual Item / Amount of Base x 100%

For the Coca-Cola Company: Individual Items: 9754+14041+2000000 =2023795

2023795/ 34,007,000,000x 100= 0.005951

Amount of Base: 9754+1000000+34,007,000,000= 34,008,009,754

For Pepsi: Individual Items: 150000+1000+1500000 =1516000

1516000/ 22910000000x 100= 0.006617

Amount of Base: 5000+900000+22910000000= 22910905000

The Coca-Cola Company is a large corporation with a huge market share and one of the largest significant consumer bases in the US. Consequently, it has a large income in terms of returns. Therefore, the company is recognized as the most dominant in the beverage market. Comparing the base values of Coca-Cola and Pepsi, the former has a great value as compared to the latter due to the difference a difference in the stakeholder’s equity. Therefore, Coca-Cola is bigger than Pepsi in terms of the market share and the consumer base.

References

Dhar, T., Chavas, J. P., Cotterill, R. W., & Gould, B. W. (2005). An Econometric Analysis of Brand‐Level Strategic Pricing Between Coca‐Cola Company and PepsiCo. Journal of Economics & Management Strategy, 14(4), 905-931.

Drake, P. P., & Fabozzi, ‎. J. (2012). In Analysis of Financial Statements. Hoboken: NJ: John Wiley & Sons, Inc.

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The Coca-Cola and Pepsi Companies: Small System Project

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