Question

Final Paper for accounting
3 pages long

Format:             
Typed, double- space, references – MLA or APA format. Font times new roman size 12
 
References to Text, finance book, journal articles

Three references or more
 
Paper has strong message, easy to read, and well-organized.
Financial Ratios
Use of at least 6 different financial ratios, properly formatted
look at PepsiCo and go their website and obtain the most recent annual income statement and balance sheet.  Your paper will explain these two statements in terms of what you have learned so far this semester.  Suggested topics to cover:
Total Revenue, Gross Margin and Net Income

Earnings per share

Total Assets and total equity

Percent of debt to total equity

Current Ratio

Inventory turnover ratio

Receivables turnover ratio

Days Sales Outstanding

Method of Inventory costing and valuation

How does this company’s ratios compare to its peers?

Is this company’s performance improving, staying the same or getting worse?

Also spend some time talking about what this company does…Pick a company that you like their product or service.

Based on your analysis would you invest in this company?

Answer 1

Financial Analysis Of Coca Cola And Pepsi Co.

The report is based on the study of the fiscal competence and presentation of the corporation based on the financial stability. However, the report will structure itself through the brief introduction of each company's detailed view of company's financial health depending upon the annual reports of the companies of 2012, 2013 and 2014. The analysis outlines the basic of company's performance in long-term to yield maximum results. The company's annual report briefs about the company's position in the market as well as with its competitors. The study will not only highlight the dependency on financial ratios but a little more insight into the brief cola war between the two companies.

Coca Cola

Coca Cola was a company initially started with the cure for headache and experimenting as an energizer. Nevertheless, today this pharmacist-invented company is touching skies when it comes to selling brands. On an overview, the recognized brand sells a unit close to 3200 servings. However, coca cola soon transferred its interest of dominant leadership in various brilliant minds to progress further. Today, Coca Cola not only accounts for superior brand value but also emphasizes the nature of huge net worth (Pendergrast 2013).

PepsiCo

Pepsi Co., just like, Coca Cola has a long history, and it started from 1898. The pharmacist oriented brands also started with herbs and spices for developing a new taste to get the patent trademark. However, the business got developed by the Patent Office in US in 1903. Moreover, marketing campaigns not only help Pepsi achieve an important stand but also achieved brand name world over (Hafiz 2015).

Comparison of Brands: Coca Cola and Pepsi Co.

Over the decade, both the companies have developed a strong brand name. Nevertheless, Coca Cola has been growing since the beginning, but the struggle was augmented to the bankruptcy suffered by Pepsi Co during the earlier period of WWII.

Both the companies adopted advertising and marketing campaigns to establish the companies whereas PepsiCo merged with Frito-Lay to get better hands in revenue (Pommer 2013).

The financial analysis of both the companies gives an better idea apart from their comparison in the history. The investor point of view is to maximize their dividend level in long-run and to attain highest dividend yield (Lehner and Brandstetter 2014).

Financial Analysis

The financial statement analysis can be best done with the financial ratios to reflect the accounting principles. However, this is to examine, as the assets are not reported at their present value rather they are analyzed depending on the brand name and unique product lines followed by the company. However, financial analysis is one of the talked terms in the business. Ratio analysis tops the analysis model to assist the functionality of the company (Ung and Luk 2016).

Ratio Analysis

Ratio analysis is one of the most broadly utilized tools to define the financial strength of the financial statements. The financial statements include the balance sheet, income statement and profit and loss account. These ratios provide the in detail consideration of the business to enhance the usability of the financial statements (Healey and Palepu 2012).

Ratio analysis can be divided into its following types depending on the investment done in long-term.

• Liquidity Ratios

Liquidity is defined to be the soul of any business organization that will highlight the structure of the business organization. However, the ratios calculated will study the bankruptcy position because of lack of liquidity. In the case of investment, the two ratios that are well suited to the structure are the "current ratio" and "quick ratio" also known by the name acid-test ratio (Goodhart 2013).

• Capital Structure Ratios

Leverage ratio or capital structure is to analyze the debt and repaying capacity of the company. However, it mainly revolves around the arrears of the organization. Moreover, there are briefly two sorts of scrutiny that can be examined on this fundamental. They are the bankruptcy condition to judge servicing capability of compensation by matching up to the future liability requirements with resources used for reverencing them. The ratios used in this care would be "debt-equity ratio" or "debt-asset ratio." On the other hand, the analysis can be briefly in the study adopted by the coverage ratios that can be scrutinized on the coverage that they pay yearly to lower the debts. The ratios that can be used in this context would be "fixed charge coverage ratios" and "debt service coverage ratios" (Bodie 2013).

• Efficiency/Turnover Ratios

  The asset supervision is covered in these ratios. Assets are considered to employ so that sales for a firm are generated and these ratios decide the asset that is operated competently to transfer an asset into sales or to engender sales. The ratios underlined this heading are "asset turnover ratio,"receivables turnover ratio," total assets turnover ratio" and "fixed assets turnover ratio" (Mc Neil et al. 2015).

• Profitability Ratios

• Profitability ratios are the key to the analysis of any investment in the company whether it is to examine how well the company is working to achieve its goal or is to analyze its present condition or added net worth value to it. Profit margin ratios briefly include "return on equity", "return on assets" or "return on capital employed" (Banks 2015).

• Growth Ratios

• The growth ratios compute the growth of the firm. The responsible ratios mentioned in this section could be profit margin or fixed asset or retention rate. Growth ratios can be evaluated on the internal and external parameters of sustainability. Therefore, the higher growth can be evidently done by the use of financing that is done externally (Das 2015).

• Valuation Ratios

• Valuation ratios are the mainly operated ratios for the evaluation of the company's growth and sustaining power for investigating the value of supply in share market or to attain the valuation of the business as complete. Valuation ratios chiefly consist of price to earnings ratio, market value to book value, dividend yield, price to sales ratio, price to book ratio, etc. (Mc Neil et al. 2015).

  Financial Ratio Analysis Based On Both The Companies

  The financial ratio is done by analyzing annual reports of Coca Cola and PepsiCo on the brief ratios analyzed using the Excel tool.

  Liquidity Ratios

• Current Ratio
  

• 	Coca Cola			Pepsi Co
  Years	2014	2013	2012	2014	2013	2012
  Current Ratio	1.142107	1.244633	1.095442	1.018904	1.125598	1.090112

  
  “Current Ratio = Current assets / Current Liabilities.”

  The current ratio analyzed on the liquidity position is to evaluate the current working capital situation by obtaining the fraction of current assets to current liabilities. The company's short-term assets should be readily accessible to reimburse off the current liabilities. However, the ratio termed to be better if it is 2:1 (Heikal et al. 2014). However, as analyzed in the case of the recent positioning of Coca Cola and PepsiCo, Coca Cola and PepsiCo show more or less the same results but less than the asserted level of the proportion of current ratio. However, as seen as in 2014, Coca Cola is performing better in meeting its short-term requirements which are 1.14:1 as compared to PepsiCo, which is 1.01:1.

• Quick Ratios
  

• 	Coca Cola			Pepsi Co
  Years	2014	2013	2012	2014	2013	2012
  Quick Ratio	0.828443	0.903995	0.87283	0.8499337	0.932339	0.799345

  
  “Quick Ratio = Current Assets – Inventory – Prepaid Expenses / Current Liabilities.”

  The quick ratio filters the current ratio by measuring the quantity of the fluid assets that are easily converted into cash to cover the current liabilities easily and promptly. However, the nature of quick ratio is more conventional than the current ratio as excludes not only inventory but also prepaid expenses that are unnecessary expenses to the company. As more the quick ratio, the better the short-term positioning would be (Loth 2015). In this case, Coca Cola and PepsiCo has the quick ratio position varying between 0.8:1 – 0.9:1. However, if mentioned by the slightest change, then PepsiCo is performing better than Coca Cola.

  Capital Structure Ratios

• Debt-to-Equity Ratio
  

• 	Coca Cola			Pepsi Co
  Years	2014	2013	2012	2014	2013	2012
  Debt-to-Equity Ratio	2.011125	1.693032	1.598107	3.0180647	2.17676	2.332202

  
  “Debt-to-Equity Ratio = Total Liabilities / Shareholder’s Equity.”

  Debt to equity ratio is to calculate the solvency position for the long term investment such that it highlights that whether the company can mean its long-term obligations or not. As defined, the debt-equity ratio should be 1:1 to define the nature of good solvency position to the firm. As shown in the table, the debt to equity ratio is quite high in both the companies (Said 2013). If compared, between the two, Coca Cola is still performing better in meeting its long-term obligations. However, in 2014 the ratio came out to be 2.01:1 against 1.59:1 in 2012, which is high in Coca Cola but better than PepsiCo, which came out to be 3.01:1 in 2014 against 2.33:1 in 2012.

• Interest Coverage Ratio
  

• 	Coca Cola			Pepsi Co
  Years	2014	2013	2012	2014	2013	2012
  Interest Coverage Ratio	19.30642	24.78834	29.74559	7.2145215	7.450055	6.912125

  
  “Interest Coverage Ratio = Net Income before Interest and Tax / Interest Expenses.”

  The interest coverage ratio major objective is to examine whether the company can meet its interest payments. The interest coverage ratio is an evaluation that defines the amount of time a corporation could make the interest payments with its EBIT on the debt accumulated. It establishes how effortlessly a business can pay interest expenses on debt that stand to be outstanding. However if an interest coverage ratio is less than 1or 1.5, then the company is questionable as it is not producing enough capital to hand out its interest obligations (Duchin and Sosyura 2014). However, in this case, Coca Cola is the company with a maximum value that means that it is not only meeting its interest obligations but also is too safe to be doubted. Nonetheless, PepsiCo is even meeting its interest obligations but not as efficiently as Coca Cola.

  Efficiency/Turnover Ratios

• Asset Turnover Ratio
  

• 	Coca Cola			Pepsi Co
  Years	2014	2013	2012	2014	2013	2012
  Asset Turnover Ratio	0.505256	0.53174	1.11442	0.9012008	0.873215	1.754924

  
  “Asset Turnover Ratio = Sales / Average Total Assets.”

  The ratio is generated to examine the strength of the company's sales that has been deploying to meet the value of its assets. However, higher the ratio, higher would be the organization's generation of revenue to assemble per dollar assets (Grant 2015). However, as seen in the companies of Coca Cola and PepsiCo, it has been stated that PepsiCo is generating more revenue than Coca Cola as the assets of the organization are not generated to meet the assets. However, in 2014, the asset turnover ratio recorded for Pepsico is 0.9 which is higher than Coca Cola, which was 0.5.

• Inventory Turnover Ratio
  

• 	Coca Cola			Pepsi Co
  Years	2014	2013	2012	2014	2013	2012
  Inventory Turnover Ratio	5.610475	5.632472	5.99528	9.4273504	8.939342	8.447894

  
  “Inventory Turnover Ratio = Costs of Goods Sold / Average Inventory.”

  Inventory Turnover ratio is to meet the inventory into sales. On the other hand, as projected according to both companies more inventory turnover ratios across the years which are not good for the business. However, Coca Cola is better when viewed from investment point of view. This means that the company neither has excessive inventory nor low liquidity. Nonetheless, PepsiCo has higher stock levels which are usually harmful because they symbolize an speculation with a ‘rate of return of zero' (Hoskin et al. 2014).

  Profitability Ratios

  All profitability ratios are generated in percentage.

• Return on Assets
  

• 	Coca Cola			Pepsi Co
  Years	2014	2013	2012	2014	2013	2012
  Return on Assets (%)	10.2429	13.0251	27.4073	8.86294	8.9235	0.16.651

  
  “Return on Assets = (Net Income / Total Assets) * 100”

  ROA gives a thought as to the efficient supervision of using its property to generate income. Therefore, ROA is often submitted as ROI (Return on Investment) (Davis 2013). The higher the ROI more will be the net income generated from the investment. In this case, the income generated is more from Coca Cola over the years as in contrast to PepsiCo. The percentage on ROA in 2014 for Coca Cola is 1.24% as compared to PepsiCo. which is 8.86%. Although the ROA is decreasing over years but still, it remains to be higher than PepsiCo.

• Return on Equity
  

• 	Coca Cola			Pepsi Co
  Years	2014	2013	2012	2014	2013	2012
  Return on Equity (%)	29.1402	34.4613	71.2072	31.27548	29.0117	55.4846

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