Coca-Cola and PepsiCo are rivals in the carbonated soft drink market. The below analysis indicate the different ratios are discussing the financial year of the two companies. The ratios are the price/earnings ratio, times interest earned ratio, quick ratio, asset ratio, and the earnings per share ratio. These ratios can provide and also show the stability and the profit of the company. The analysis focuses on the financial statements of the companies issued in the year 2015.
Coca-Cola and PepsiCo
Coca-cola Company is home to 20 billion dollar brands that include four top five soft drinks, Coca-Cola, Fanta, Sprite, and Diet Coke. The company markets over 500 beverage brands and is in over 200 countries. As of today, the company has been in business for 125 years and employed 139,600 people. PepsiCo is a world leader in providing food and beverage products and serves 200 countries. The focus of the company is being the premier producer in supplying the world with convenient foods.
The formula for calculating the P/E ratio is dividing the current market price by the Earnings per Share. The ratio tends to compare the stock market estimation of the company performance in measuring the success of the company (Norton & Porter 2014). The ratio helps in making the investors decide how much they will pay for the stocks. A higher ratio means the investors are expecting lower earnings for the company in the future and vice versa. The results indicate that investors at PepsiCo will get paid $1 for every $0.44 they paid and Coca Cola $1 for every $10. The lower the ratio, the better indicating that PepsiCo investors are in a good position.
Times Interest Earned Ratio
The Times Interest Earned ratio is a measure of determining the credit worth of the company. The formula for calculation TIE is adding the net income, interest expense, and the income tax expense and then dividing it by the interest expense (Norton & Porter 2014). It is a ratio that helps know if the company can pay its interest payment. When the ratio is larger, it means that the company can be able to cover its interest. Based on the ratio, Coca-Cola tends to have a higher ratio which means that the company can be able to cover their interest as compared to PepsiCo.
The third ratio is the quick ratio. The ratio normally indicates the ability of the company to pay off its current liabilities. It is a ratio that helps in ensuring the firm has enough quick assets that can help in paying its short-term obligation. The formula for calculating the ratio is ((Current assets-inventory)/current liabilities). A ratio that is above one means that the firm has little problems in regards to its liquidity. The quick ratio for Coca-Cola and PepsiCo are 1.13 and 1.12 respectively. The ratio indicates that PepsiCo has 1.12 of liquid assets available to cover every $1 of the current liabilities and Coca-Cola has 1.13 of liquid assets to cover every $1 of current liabilities. The higher the ratio, the better for the company, and in this case, both companies are in a good position of higher liquidity.
Return on Assets
The formula for calculating this ratio is by dividing the net income with total assets. It is a measure of profitability indicating how the company is successfully generating earnings for every dollar of assets. A higher ratio indicates the firm is earning more money for less investment (Gilbertson et al. 2013). Both Coca-Cola and PepsiCo have the same ratio of 8% meaning that both Coca-Cola and PepsiCo are good in converting an investment into profits.
The formula for the earnings per share is Net income /outstanding shares. The ratio is what the stakeholders usually want to see so as to know their share of profit (Fields, 2016). It is a ratio referring to the portion of profit allocation of a firm for every outstanding share of the common stock. Based on the calculation PepsiCo earning per share is $227 which is what PepsiCo will give its investors for every share they have and Coca-Cola earning per share is $4.12 which is what it will give its investors for every share.
Based on the analysis, PepsiCo tends to have preferable earning on their stock market as compared to Coca-Cola. If one is investing in PepsiCo, they are getting more return for what they paid. From the investors point of view, the lower the ratio, the better. PepsiCo is more attracting for investors because they have a lower P/E ratio. The company’s EPS ratio indicates that they both pay their stockholders for their shares. The EPS show that investors at PepsiCo are happy with the greater earning as they have a high ratio. As a result of the high return, PepsiCo is more likely to get more investors who want to make quick and high earnings.
Fields, E (2016). The essentials of finance and accounting for nonfinancial managers AMACOM
Lehman, M Gentene, D & Gilbertson, C (2013). Century 21 accounting. Cengage Learning
Norton, C & Porter, G (2014). Financial accounting. Cengage Learning
Income statement (PepsiCo)
Balance statement (PepsiCo)
Income statement (Coca Cola)
Balance sheet (Coca Cola)
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