GCU ACC 502 Topic 8 Investment Recommendations

COCA COLA ANALYSIS

Name:

Date:

In Relation to Pepsi, I believe from the analysis that I have conducted on the Coca Cola company (Coke) the company has a highly competitive advantage with its well-known brand name and brand image, which should drive the growth of revenue. The current ratio of Coca Cola in the financial year 2020 was 1.32, which is relatively higher than that of Pepsi, which was 1.09.

When we look at the quick ratio or acid test ratio, its value 0.85 for Pepsi against 1.09 for Coca Cola. Another ratio to consider is the cash ratio which is equal to 0.7 for Coca Cola against 0.35 for Pepsi. In order to evaluate the liquidity of both companies, I will consider the Debt to Equity Ratio which has value 3.08 for Pepsi and 3.10 for Coca Cola respectively, while equity ratio has a value of 0.24 for Pepsi and 0.25 for Coca Cola.

Taking the above ratios into consideration, I have concluded that even though Coca-Cola has a higher quick ratio and cash ratio, it has a lower Debt to equity ratio and equity ratio, which are beneficial for investors in the long run. The income statement for Coca-Cola shows that its revenues increased at an annual growth rate of 5.4% from FY 2020 to FY 2019 (subject to change). The expenses for the same year increased by 7.6% and Net income increased by 5.4%, (Kasasbeh 2021). For comparison, the income statement for Pepsi shows that its revenues decreased by 11.1% from FY 2020 to FY 2019 (subject to change). The expenses for the same year increased by 8.4% and Net income increased by 5.3%. The overall performance of coca cola is looking relatively strong, and the shareholder value is increasing at a rate that is far higher than that of Pepsi Company. I believe investing in Coca-Cola is a wise investment choice for the future, especially considering the fact that it has been named by Forbes as one of the most admired brands in the world.

I conducted my analysis by using the ratios for Coca Cola and Pepsi. I have found that in most cases, Coca-Cola performed better than Pepsi. In the current financial year, it had a Quick ratio of 0.85, which is lower than its competitor. Its cash ratio of 0.35, is also a factor that contributes to this result being at a positive margin for Coca Cola, (Geng et al ., 2021). The Debt-to-equity ratio was 3.10 for Coca Cola while it was only 0.25 for Pepsi Company, which provides an important contribution towards Coca-Cola’s higher performance in relation to the industry average. Its equity ratio was 0.25 which was higher than its competitor whose value was 0.24.

Coca-Cola’s assets have managed to be utilized at a high efficiency ratio of 1.45 while Pepsi has used its assets at a lower efficiency ratio of 1.40, but their profitability figures are quite similar with both companies having 41% and 61% respectively as shown in the bottom right-hand side of the company’s income statements.

As I have discussed, I believe Coca-Cola Company has a number of factors that are contributing to its positive performance. The company made cash contributions to its balance sheet at an annual rate of 5.4% from the financial year 2020 to the financial year 2019, which is more than the industry average of 4.7%. Through this financial year, it also has a higher Debt to equity ratio and equity ratio which are an essential part of making profit for investors. Its equity ratio being higher than its competitor primarily contributes to the prediction that Coca-Cola company has a higher performance in relation to the industry average.

Based on all the above factors, I believe that investing in Coca Cola Company is a wise investment choice for the future. Thanks for reading my analysis and I hope it was insightful for you.

I look forward to hearing from you soon.

References

Errandonea Ochoa de Zabalegui, J. Financial Analysis of the Financial Statements and Industry Comparison: THE COCA-COLA COMPANY and PEPSICO.

Geng, H., Jiang, N., & Liang, Q. (2021, December). Strategic Management and Financial Analysis in the Context of Epidemic–A Case Study of Coca-Cola Company. In 2021 3rd International Conference on Economic Management and Cultural Industry (ICEMCI 2021) (pp. 2396-2404). Atlantis Press.

Kasasbeh, F. I. (2021). Impact of financing decisions ratios on firm accounting-based performance: evidence from Jordan listed companies. Future Business Journal, 7(1), 1-10.

Appendix

Company Ratios

Liquidity Ratios

FY 2020
FY 2019
Current Ratio = Current Assets/ Current Liabilities

Current Ratio =

1.317718

0.75672

Quick Ratio = (CA – Inventories)/ CL

Quick Rtaio

1.094035

0.631446

Cash Ratio = (Cash + Markatable Securities) CL

Cash Ratio 

0.7072

0.3599

Solvency Ratios

FY2020
FY2019
Debt To Equity Ratio = Total Liabilities / Total Equity

Debt to equity Ratio

3.101485

3.094274

Equity Ratio

0.243814

0.244244

Debt Ratio

0.756186

0.755756

Profitability Ratios

FY2020
FY2019
ROCE

38%

41%

Asset Utilization Ratio

1.30243

1.42924

Profit Margin

59%

61%