ratio analysis, financial analysis based on liquidity, leverage, profitability and turnover ratio

1. Financial Analysis of
PepsiCo and Coca Cola
114-2017

2. Objective and Research Methodology
– OBJECTIVES
• To assess the profitability.
• To assess short and long-term solvency.
• To judge the utilization of its resources.
• To analyze the financial performance of the selected companies.
– RESEARCH METHODOLOGY
In the present study, an attempt has been made to analyse, compare and
interpret the financial performance of The Coca Cola Company and
PepsiCo. The study is based on secondary data that has been collected
from annual reports of the respective company, magazines, journals,
documents, online database and other published information. The study
covers the period of 3 years i.e. 2014, 2015 and 2016. To analyze the data
the tools like ratio analysis and comparative statement analysis are
applied for the study for evaluating the financial performance and better
controlling the activities of the company.

3. Introduction of PepsiCo & Coca Cola
Name The Coca Cola
Company
Industry Beverage
Area served Worldwide
Founders John Pemberton as Coca-
Cola
Asa Griggs Candler as The
Coca-Cola Company
Headquarters Atlanta Georgia United
States
Chairperson Muhtar Kent
Revenue US$41.863 billion (2016)
Employees 123,200 (2016)
Website Coca-ColaCompany.com
Name PepsiCo
Industry Beverages and Food
processing
Area served Worldwide
Founders Caleb Bradham
Headquarters Purchase, New York, U.S.
Chairperson Indra Nooyi
Revenue US$62.799 billion (2016)
Employees 246,000 (2016)
Website PepsiCo.com

4. PepsiCo
Serial no. Type of ratio Year
2014 2015 2016
1. LIQUIDITY RATIOS
1.1 Current Ratio 1.14 1.31 1.28
1.2 Quick Ratio 0.92 1.13 1.18
1.3 Absolute Liquid Ratio 0.48 0.68 0.76
2. LEVERAGE RATIOS
2.1 Debt-equity Ratio 1.36 2.42 2.67
2.2 Equity/Proprietary Ratio 0.25 0.17 0.15
2.3 Financial Leverage Ratio 1.10 1.13 1.16
3. TURNOVER RATIO
3.1 Inventory Turnover Ratio 9.94 10.56 10.36
4. PROFITABILTY RATIO
4.1 Gross Profit Ratio 53.15% 54.43% 55.08%
4.2 Operating Profit Ratio 14.37% 13.25% 15.58%

5. Coca Cola
Serial no. Types of Ratios Year
2014 2015 2016
1. LIQUIDITY RATIOS
1.1 Current Ratio 1.02 1.24 1.28
1.2 Quick Ratio 0.97 1.16 1.15
1.3 Absolute Liquid Ratio 0.67 0.74 0.84
2. LEVERAGE RATIOS
2.1 Debt-equity Ratio 0.63 1.11 1.29
2.2 Equity/Proprietary Ratio 0.33 0.28 0.26
2.3 Financial Leverage Ratio 1.05 1.08 1.09
3. TURNOVER RATIO
3.1 Inventory Turnover Ratio 5.77 6.02 6.16
4. PROFITABILITY RATIO
4.1 Gross Profit Ratio 61.11% 60.53% 60.67%
4.2 Operating Profit Ratio 21.11% 19.70% 20.61%

6. Liquidity Ratio
1.14
1.31 1.28
1.02
1.24 1.28
0
0.5
1
1.5
2014 2015 2016
Figure 1.1
Current Ratio
PEPSICO
COCA COLA
0.92
1.13 1.18
0.97
1.16 1.15
0
0.5
1
1.5
2014 2015 2016
Figure1.3
Quick Ratio
PEPSICO
COCA COLA
0.48
0.68
0.76
0.67
0.74
0.84
0
0.2
0.4
0.6
0.8
1
2014 2015 2016
Figure 1.2
Absolute Liquid Ratio
PEPSICO
COCA COLA
both the companies do not satisfy
the ideal ratio of 2:1.
The ideal quick ratio of 1:1 is satisfied
by both the companies in the year
2015 and 2016
Both the companies do not
satisfy the ideal ratio of 1:2.

7. Leverage Ratio
1.36
2.42
2.67
0.63
1.11
1.29
0
0.5
1
1.5
2
2.5
3
2014 2015 2016
Figure 2.1
Debt Equity Ratio
PEPSICO
COCA COLA
0.25
0.17
0.15
0.33
0.28
0.26
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
2014 2015 2016
Figure 2.2
Proprietary Ratio
PEPSICO
COCA COLA
1.1
1.13
1.16
1.05
1.08 1.09
0.95
1
1.05
1.1
1.15
1.2
2014 2015 2016
Figure 2.3
Financial Leverage Ratio
PEPSICO
COCA COLA
PepsiCo has higher debt
equity ratio compared to
coca cola.
coca cola has high proprietary ratio compared to
PepsiCo which indicates sound financial position and
lesser dependence on external sources of finance.
PepsiCo has high financial leverage
ratio compared to coca cola. This
indicates more use of earnings in
making payments for fixed interest on
debt funds which is risky and
constitutes a strain on profits.

8. Turnover Ratio
9.94
10.56 10.36
5.77 6.02 6.16
0
2
4
6
8
10
12
2014 2015 2016
Figure 3.1
Inventory Turnover Ratio
PEPSICO
COCA COLA
PepsiCo has higher inventory turnover ratio compared to coca cola
which indicates that the stock is selling quickly. It also indicates
effective utilization of capital or resources.

9. Profitability Ratio
53.15%
54.43%
55.08%
61.11%
60.53% 60.67%
48.00%
50.00%
52.00%
54.00%
56.00%
58.00%
60.00%
62.00%
2014 2015 2016
Figure 4.1
Gross Profit Ratio
PEPSICO
COCA COLA
14.37% 13.25%
15.58%
21.11%
19.70% 20.61%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
2014 2015 2016
Figure 4.2
Operating Profit Ratio
PEPSICO
COCA COLA
GP ratio of Coca cola is higher
which indicates that the product
pricing and cost control is better
compared to PepsiCo.
The operating profit of coca
cola is higher in the three
consecutive years compared
to PepsiCo. Higher the ratio
better it is.

10. Findings and Conclusion
• Both the companies i.e. PepsiCo and Coca cola do not satisfy the ideal current ratio of 2:1
indicating lack of liquidity and shortage of working capital. The companies need to improve
their current ratio in order to meet their current liabilities.
• The ideal quick ratio of 1:1 is not satisfied by both the companies in the year 2014. But in the
year 2015 and 2016 both the companies have quick ratio greater than 1 which means they
have sufficient quick assets to meet their current liabilities.
• Both the companies do not satisfy the ideal absolute liquid ratio of 1:2. Hence both the
company’s liquidity position is not good. The overall liquidity position of both the companies
is quite satisfactory but the companies still need to work on improving their current ratio and
absolute liquid ratio as liquidity is a prerequisite for the survival of any company.
• PepsiCo has higher debt equity ratio compared to coca cola. This indicates that PepsiCo is
being financed by creditors rather than from its own financial sources and also the company
is said to be high geared and vice versa. The debt equity ratio of PepsiCo is twice the ratio of
coca cola for the year 2015 and 2016. Debt equity ratio of both the companies shows an
increasing trend. PepsiCo should aim at lowering this ratio as Lenders usually prefer low debt-
to-equity ratios because their interests are better protected against possible losses in the
events of liquidation. Thus, companies with high debt-to-equity ratios may not be able to
attract additional lending capital.

11. Cont..
• Coca cola has high proprietary ratio compared to PepsiCo indicating a
strong financial position of the business. The higher the ratio, the better it
is.
• PepsiCo has high financial leverage ratio compared to coca cola because
the debt equity ratio of PepsiCo is also high. This indicates more use of
earnings in making payments for fixed interest on debt funds which is risky
and constitutes a strain on profits.
• PepsiCo has higher inventory turnover ratio compared to coca cola which
indicates that the stock is selling quickly. It also indicates effective
utilization of capital or resources. The low inventory turnover ratio of the
coca cola compared to PepsiCo indicates that it will impact the liquidity of
the coca cola’s business.
• GP ratio of Coca cola is higher which indicates that the product pricing and
cost control is better compared to PepsiCo. Also the operating profit ratio
of coca cola is higher in the three consecutive years compared to PepsiCo.
Higher the ratio better it is.

12. Thank you