Pepsi Co. and Coca Cola

Pepsi Co. and Coca Cola, both are very well known multinational companies. They are so famous that they perhaps don’t need any introduction since almost everyone knows basic info about these companies and their widely used products. Both of these companies have been dealing in the production of flavored waters, plain drinking water and soft drinks for decades now and have always been each other’s competitors in almost all the mainstream products they have been producing.

There are great many players in the same industry; some of them are locally based and the other ones operate internationally, but for years, Coca-Cola has been the fiercest rival of Pepsi Co and vice versa. Being one of the most dynamic transnational organizations, both the companies have their business and manufacturing sites established in overseas countries. Products of PepsiCo and Coca Cola are overwhelmingly loved by people from all of the countries in which they operate.

In fact people from all living classes and income groups find their products highly attractive and addictive. The products and services of the companies overlap since they are direct competitors of each other and each company doesn’t lose any opportunity of earning more than the other one.

The two things of main concern for every business whose operations are shifted and carried out in a land other tan its own homeland are the production management and eventual distribution of its products and services. To ease this up both of the companies have and manage full fledge manufacturing sites in the respective countries for carrying out the day-to-day operations of the two multinationals.

Since they try to compete with each other in every single thing, they use follow up strategies in response to other’s plans and strategies. This means that if PepsiCo devises and carries out a new marketing strategy for its product or products, then Coca Cola follows it with its own customized strategy in retaliation to that of its rival company and vice versa. Apparently, distribution systems of the two companies are organized in three stages and they don’t have any franchise system implemented currently.

Since these companies had to leave the market in the past due to their negative and destructive strategies against each other, now both of them try to assess the business risks, political risks, social risks and legal risks before carrying out any negative destructive or strategy against each other.

Since till yet we have been counting the similarities between the two companies, it would be right to mention here that both of them are super-conscious as to the taste preferences of their customers and they have moral and ethics values built-in as the basic control among their human resource for effective running of their organization. Both companies have established highly active public relations departments which actively contribute socially and in the welfare of the communities in which the company operates and where customer is located.

Objective of the Paper:

Since a good research is based on some premise and is written to prove or deliver something beneficial to its readers, so the main purpose of this paper is to portray the financial comparison between PepsiCo and Coca Cola. The horizontal and the vertical analyses have also been done on the financial statements of both the companies. The central objective of the whole paper is to highlight the hidden differences between the companies despite their apparent similarities.

HORIZONTAL ANALYSIS

Consolidated Income Statements:

Total revenues earned by the PepsiCo in the years 2004 and 2005 were $29261 and $32562 respectively. PepsiCo made a significant amount of increase in the net revenue as well in the year 2005 as compared to that in the year 2004. This analysis has been done by taking the year 2004 as the base year. In 2005, the company made a net profit of 111.11% and was able to have an increase of 11.11% in its revenue as compared to the revenue in 2004. When we see the total revenues of Coca Cola, they were $21742 and $23104 in the years 2004 and 2005 respectively. Revenues in both the years for Coca Cola were lesser than those of Pepsi Co. The net sales of the Coca Cola in the year 2005 were 6.25% more than in the year 2004. This also means that the net revenues in 2005 were 106.25% of the net revenues in 2004.

The rate of growth for PepsiCo has been pretty much more as compared to that of Coca Cola. The rate of increase in revenue of both the Coca Cola and PepsiCo was 6.26% and 11.11% respectively. In 2004, the cost of goods sold was $11031 while it was $12314 in the year 2005. The increased in sales lead to an increase in the cost of goods sold. In comparison to 2004’s data, the cost of goods sold stood at 111.63%. On the other hand Coca Cola had the cost of goods sold in 2004 at $7674 and in 2005 at $8195; and if seen in terms of percentages, for Coca Cola, the total cost of goods sold was $ 106.79%, which shows that an increment of 6.79% was seen in the year 2005 as compared to that of 2004.

The administration and selling expenses of PepsiCo were $14176 and $ 12674 in the years 2005 and 2004 respectively, while the operating expenses in 2005 stood at 111.85% of those in the year 2004. Similarly, the total operating expenses of Coca Cola surged by 10.75% in year 2005 as compared to the operating expenses in year 2004. That is the reason why operating expenses of Coca Cola were lower than those of PepsiCo.

In 2004 and 2005 the operating income of PepsiCo was $ 52599 and $ 5922 respectively, while Coca Cola had an operating income of $6085 and $5698 in the years 2005 and 2004. After doing horizontal analysis the facts and figures are such that the total operating profit of PepsiCo was 22.61 % more than the operating income of the last year, while the total operating profit of Coca Cola stood at 6.79% more than the operating income of the previous year.

The finance costs for both the companies were pretty significant as regards to their amounts in the income statement. PepsiCo and Coca Cola have interest expenses of $256 and $240 respectively for the year 2005. As evident interest expenses in Coca Cola were lesser than those of PepsiCo. Net income for PepsiCo $4212 and $4078 in the years 2004 and 2005 respectively. Unfortunately for PepsiCo the net income of 2005 turned out to be 96.82% of the net income in the year 2004, which means that the company suffered a loss in the year 2005 when the net earnings are compared with those of the last year.

On the other hand the net income for Coca Cola was $4872 and $4847 in the years 2004 and 2005. The net total income for the year 2005 was 100.52% of that in the year 2004, which means that in the year 2004 the earning for the company was lesser than the earning in the year 2005.

Consolidated Balance Sheet:

When we come to assets of PepsiCo, the total current assets were $10454 and $8639 in the year 2005 2004 respectively. As per the horizontal analysis, the total current assets of PepsiCo in 2005 were 121% of the amount of total current assets in the year 2004. This denotes to the increase in the level of assets of the company in the year 2005. Coca Cola’s current assets, on the other hand, were $ 12281 and $10250 in the years 2005 and 2004. The above figures mean that the current assets of PepsiCo were 21% more than the current assets of the last year. Similarly, in the current year, Coca Cola’s current assets turned out to be 16.6% lesser than the last year’s assets.

The quick assets of Coca Cola were also lesser than the quick assets of the PepsiCo, which depicts that the Coca Cola’s liquidity position was better than that of PepsiCo. In 2004 and 2005 the total assets for PepsiCo were $31727 and $7987, respectively. Conversely, the total assets of Coca Cola were $29427 and $ 31441 in the years 2004 and 2005 respectively. PepsiCo witnessed an increase of 13.36% in the assets while Coca Cola’s assets plunged by 6.4%. This manifests that PepsiCo achieved an asset wise growth as well in the year 2005 as compared to Coca Cola.

In the years 2004 and 2005, the current liabilities for PepsiCo were $ 6752 and $ 9406. PepsiCo had current liabilities in 2005 which were 139% of the current liabilities in the year 2004. On the other hand the Coca Cola’s current liabilities were $ 9836 and $ 11133 in the years 2005 and 2004 respectively. For Coca Cola, the current liabilities for the year 2005 were 88.35% of the current liabilities of the year 2004. In 2005, the liabilities of both the current liabilities and the current assets of Coca Cola step down in the year 2005. The year 2005 witnessed the total liabilities to be 121% as compared to those of the last year. Coca Cola, in 2005 and 2004, were $13072 and $15506 respectively; also the 2005’s liabilities for the company were 16% lower than those of 2004.

The shareholder’s equity fortunately surged for both the companies. Equity increased by 2.64% and 11.9% in Coca Cola and PepsiCo.

VERTICAL ANALYSIS

Consolidated Income Statement:

Since the cost of goods sold, as told above, in the year 2005 and 2004 was $12314 and $11031 respectively. In 2004, the Cost of goods sold was 38% of the net sales whereas in 2005 it was 37.82% of the net sales. In 2005, the cost of goods sold plunged down for PepsiCo. For Coca Cola, the cost of goods sold was $ 8195 and $ 7674 in the years 2005 and 2004 respectively. In 2005, it was 35.47% of the net sales and in the year 2004, it was 35% of the net sales. Overall the cost of goods sold decreased for PepsiCo while it increased for Coca Cola.

Operating expenses for example administration and general expenses for PepsiCo were 43% of the net sales in the year 2004 while they were 43.54% in the year 2005. Similarly, the operating expenses for Coca Cola were 37.82% of the net sales in the year 2005 while they were 36% in the year 2004. So, overall the operating expenses rose in the year 2005 for both the companies.

“Profit before interest and taxes” for the PepsiCo was 18.9% of the sale in 2005 while they were 18% of the net sales in the year 2004. Similarly the “profit before interest and taxes” for the Coca Cola was 26.34% in the year 2005 while it was 26% in the year 2004. Overall the operating income surged upwards for both the companies i.e. Coca Cola and PepsiCo.

The net incomes for PepsiCo and Coca Cola in the year 2005 were 21.09% and 12.52%. For PepsiCo the ratio of net income was more than that of Coca Cola.

References

Coca Cola Company (2009). Retrieved from

Nikolai, L.A., Bazley, J.D & Jones, J.P (2009). Intermediate Accounting. Cengage Learning.

PepsiCo Inc (2009). Retrieved from http://www.pepsico.com/index.html

Shim, J.K. & Siegel, J.E. (2008). Financial Management. Barron’s Educational Series. Retrieved from