Accounting Report on PepsiCo and Coca Cola

Introduction

Based on liquidity, the current ratios of Pepsi from 2016, 2017, and are 1.28 and 1.51. The quick ratios were 1.08 and 1.29 from 2016 and 2017 respectively (PepsiCo Inc 81). Also, the company's cash ratios were 0.76 and 0.95 from 2016 and 2017respectively. Consequently, based on liquidity, the current ratios of Coca Cola from 2016 and 2017 were 1.28 and 1.34. The quick ratios were 0.98 and 0.90 between 2016 and 2017 respectively. Also, the company's cash ratios were 0.84 and 0.76 between 2016 and 2017 respectively. The above liquidity ratios confirm that both Pepsi and Coca Cola have enough current assets in meeting their current liabilities payments. For solvency ratios, the debt to equity of Pepsi in 2016 and 2017 were 3.33 and 3.61 respectively (PepsiCo Inc 82). On the other hand, for solvency ratios, the debt to equity of Coca Cola in 2016 and 2017were 1.16 and 1.48 respectively (The Coca Cola Company 68). Generally, Coca Cola has been able to maintain a healthy debt to equity ratio, and it has a high share capital meaning it can pay its debt.

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In terms of profitability, the gross profit margin for Pepsi was 55.08% and 54.69%; the operating profit margin was 15.58% and 16.54% while the net profit margins were 10.08% and 7.65% from 2016 to 2017 respectively. For return on investment, the Return on equity was 57.04% and 44.60% while the return on sales was 8.54% and 6.09% respectively from 2016 to 2017 respectively. Consequently, in terms of profitability, the gross profit margin for Coca Cola was 60.67% and 62.56%, the operating profit margin was 20.61% and 21.18% while the net profit margin was 15.59% and 3.52% from 2016 to 2017 respectively. For return on investment, the Return on equity was 28.30% and 7.31%while the return on sales was 7.48% and 1.42% respectively from 2016 to 2017 respectively

In comparing the two firms that major in soft drink beverages, PepsiCo seems to look more attractive as compared to Coca Cola. Even though the relative valuations show that Coca Cola Company trade in high multiples as compared to the other company, Pepsi has reliable history of revenue generation and more room of increasing the dividends it has in midterm and long-term horizon (Zakaryan 1). Price to earnings ratio is regarded as a firm's relative valuation popular measure as it compares the current stock price of a company to the past year's EPS. Pepsi and Coca -Cola have traded in similar P/E ratio in the past decade. Also, their P/E ratios are almost identical since, in 2017, Coca Cola had 20.13 while Pepsi had 18.91 (Zakaryan 1).

In terms of revenue, Pepsi is larger as it has twice revenue as Coca Cola (Tenebruso 1). However, Coca Cola is a more profitable business as it has a high operating margin of 27% as compared to that of Pepsi which is 16.4%. the area which makes Pepsi stand out as the business which one should invest in is its dividends coverage. In 2017, the shareholder's dividend payments were covered with the free cash flow that it had generated while Coca Cola paid about $800 more of the dividends it had generated for free cash flow. The people consuming soda may decline in the coming years meaning that revenue growth will be challenging for both Coca Cola and Pepsi. Thus, one should invest in Pepsi as it has broader product diversification since it sells other products apart from soda, great dividend coverage, and attractive price stock (Tenebruso 1).

Works Cited

PepsiCo Inc. Pepsico Inc, 2017 Annual Report. 2017, http://file:///C:/Users/User/Downloads/pepsico-inc-2017-annual-report%20(1).pdf. Accessed 10 Apr 2019.

Tenebruso, Joe. "Better Buy: Coca-Cola Vs. Pepsi -- The Motley Fool". The Motley Fool, 2018, https://www.fool.com/investing/2018/07/20/better-buy-coca-cola-vs-pepsi.aspx.

The Coca Cola Company. ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 for The Fiscal Year Ended December 31, 2017. 2018, http://file:///C:/Users/User/Downloads/coca%20cola%202017-10K%20(1).pdf. Accessed 10 Apr 2019.

Zakaryan, Narek. "Consumer Staples: Coke or Pepsi?". Investing.Com, 2019, https://www.investing.com/analysis/pepsico-vs-cocacola-200372418https://www.investing.com/analysis/pepsico-vs-cocacola-200372418.