Coca-Cola vs. Pepsi as a Better Investment
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This paper analyzes Coca-Cola and Pepsi, two leading soft drink companies, in order to determine which of the two will make the better investment. The paper uses the ratio analysis technique and looks at liquidity ratios, profitability indicator ratios and debt ratios of both companies. The paper recommends Pepsi's stock because it is more diversified and has the higher dividend payout ratio, indicating that Pepsi is going to deliver stronger cash flows that Coca-Cola over the long-term.
Profitability Indicator Ratios
Profitability Indicator Ratios
From the Paper:"The debt ratios measure the long-term solvency of the firm. They reflect the ability of the firm to meet its long-term debt obligations, as opposed to the liquidity ratios that are focused on short-term debt obligations. The debt ratio is the key measure of solvency. The debt ratio for Coca-Cola is 57%, and for PepsiCo it is 68.9%. This means that PepsiCo has a higher degree of leverage. While the initial reflection is that Pepsi's financial condition is worse because it has more debt, it should be remembered that the optimal capital structure differs for every company. Thus, it is best to see if a pattern has been established with respect to this variable. That is not the case. PepsiCo has been rapidly growing its debt load in recent years. Coca-Cola has also seen its debt load increase, but not at the same level as the increased at Pepsi.
"The next type of ratio is the operating performance ratio. The ratio used for this type will be the fixed asset turnover ratio. This ratio measures the degree to which fixed assets are converted to revenue. It is not the most applicable ratio for soft drink producers, as they rely far more on their intellectual property. Indeed, PepsiCo does not bottle its own product, which should give it a higher fixed asset turnover relative to Coca-Cola. This is indeed the case."
Sample of Sources Used:
- Investopedia. (2011, 1). Reading the balance sheet. Investopedia. Retrieved June 9, 2011 from http://www.investopedia.com/articles/04/031004.asp
- Investopedia. (2011, 2). Reading the income statement. Investopedia. Retrieved June 9, 2011 from http://www.investopedia.com/articles/04/022504.asp
- Loth, R. (2011). Financial ratio tutorial. Investopedia. Retrieved June 9, 2011 from http://www.investopedia.com/university/ratios/
- MSN Moneycentral: PepsiCo. (2011). Retrieved June 9, 2011 from http://moneycentral.msn.com/investor/invsub/results/statemnt.aspx?lstStatement=Balance&stmtView=Ann&symbol=pep
- MSN Moneycentral: Coca-Cola Company. (2011). Retrieved June 9, 2011 from http://moneycentral.msn.com/investor/invsub/results/statemnt.aspx?lstStatement=Balance&stmtView=Ann&symbol=ko
Cite this Analytical Essay:
Coca-Cola vs. Pepsi as a Better Investment (2013, June 09) Retrieved December 03, 2023, from https://www.academon.com/analytical-essay/coca-cola-vs-pepsi-as-a-better-investment-153528/
"Coca-Cola vs. Pepsi as a Better Investment" 09 June 2013. Web. 03 December. 2023. <https://www.academon.com/analytical-essay/coca-cola-vs-pepsi-as-a-better-investment-153528/>