Financial Statement Analysis of PepsiCo Inc, Coca Cola Company and Keurig Dr Pepper Inc for the Year Ended December 2017
Coca-cola company is an American based company having its headquarters in Atlanta, Georgia, US. It was incorporated in the year 1919.It operates in the beverage industry. Coca Cola is the leading global beverage company with about 500 non-alcoholic brands(US SEC, 2017). The popular nonalcoholic beverages are categorized intosports, sparkling soft, water, dairy, juice, and plant-based drinks. Some of them includeFanta, coca cola, and Sprite. The corporation packages and distributes its products to over 200 countries in the world.
The prosperity of a firm is dependent on its competitiveness. PepsiCo is one of the leading competitors of Coca Cola(US SEC, 2017). Other rivals include Nestle, Unilever, Dr Pepper Snapple, GroupeDanone,consolidated local companies and retailers owning private brands. The firm uses competitive strategies such as pricing, sales promotions, adverts, new packaging systems, the point of sale marketing, and innovation of ingredients and products to put up with stiff competition. Other competitive strengths encompass highly acceptable brands, a complex global chain of bottlers and distributors, and a talented, determined and dedicated team of associates. The corporation also has a classy marketingprowess, which helps it tostay in the market.
PepsiCo was incorporated in the year 1919 in Delaware and later reincorporated in 1986 in North Carolina, US. It isthe leading beverage and food company worldwide(PepsiCo Inc, 2017). Its current market scope is of over 200 countries globally. PepsiCo products include zero calorie beverages such as Black Can Pepsi, aqua mineral water, Life Water, Master Brew Kombucha, Gold Brew and Quaker 3 Minutos. Nutritious and delicious foods produced by PepsiCo consist of sunbites GrainWaves, Doritos blaze, Off the Eaten Path, Overnight Oats, andLay’s. The powerful brands support PepsiCo’s profitability and sustainability.
PepsiCo has Coca Cola company as its primary competitor in the beverage sector(PepsiCo Inc, 2017). Other opponents in the beverage, food and snack industry that pose a challenge to the firm include Nestle S. A., Monster Beverage Corporation, Red Bull and The Kraft Heinz company. PepsiCo relies on brand loyalty and recognition as the chief strategy for competition. Other techniques include differentiated and quality products, competitive pricing, the satisfaction of customers’ tastes and preferences and express service delivery. Appropriate marketing media, proper launching of new products in the market and advancement of existing productsare also techniques, which the company uses to stay in the market.
Keurig Dr Pepper is a leading nonalcoholic beverage and coffee corporationin the beverage sector situated in North America(KDP Inc, 2018). It was formed after a unionbetweenDr Pepper Snapple Group and Keurig Green Mountain in 2018. The organization is the major firm in hot and cold soft drinks in North America. It specializes in water, coffee, juice, tea, and juice drinks. Keurig Dr Pepper’s major brands include Canada Dry, Green Mountain Coffee Roasters, Keurig, Dr Pepper, and Snapple. Others comprise of Realemon, The Original Donut Shop and Mott’s.The firm has a complementary product portfolio with access to profitable areas of the beverage sector.
The beverage industry involves players such as Coca Cola, PepsiCo, Nestle S. A. and other players who are competitors of KDP. The firm supplies beverage concentrates to some of the companies, which makes it vital in the beverage sector. Among the approaches, KDP uses to promote its brand include attending to customers’ ever-shifting needs and preferences, advertising, merchandising, promotions and provision of novel products. Opportunities for brand consolidation, innovation, unparalleled distribution capacity, and excellent household penetration also augments its competitiveness(KDP Inc, 2018). This capability ensures that customer satisfaction, which is a significant component of business success, is attained.
Companies employ various financial ratios to evaluate their performance in the market. For this assignment; thequick ratio, current ratio, asset turnover, inventory turnover, accounts receivable turnover, and gross profit percentage ratios will be explored. The ratios will generate information about the financial health of the companies mentioned above within the beverage industry. The financial statements for the year ended 31st December 2017will be used.
The current ratio is determined by a company’s current assets/current liabilities. It is a liquidity ratio that determines a company’s capability to meet immediate financial obligations. A higher rate greater than one is preferred. KDP’s current ratio is 0.9. The current ratio of Coca Cola is 1.34. The current ratio of PepsiCo is 1.51. PepsiCo and Coca Cola have rates above the industry average, unlike Keurig Dr Pepper. This state implies that they have a strong financial performance. Contrariwise, KDP has a poor performance.
The quick ratio indicates a company’s capacity to eliminate its short-range liabilities when they fall due with its quick assets. Liquid assets/ current liabilities give it. A ratio of 1 or more indicates the ability to pay off debts. KDP’s quick ratio is 0.62.The quick ratio of Coca Cola is 0.9. The Quick ratio of PepsiCo is 1.29. PepsiCo, unlike Coca Cola, has a stronger financial strength. Its capacity to pay off debts is excellent. KDP is at risk of being unable to settle its immediate obligations.
Inventory turnover indicates the number of times a firm has sold and restored inventory for a given duration. Its calculated by sales/average inventory or COGS/average inventory. KDP’s inventory turnover is 11.77 times a year with an inventory period of 31 days. Coca Cola’s Inventory turnover is 4.99 times per year with an average inventory period of 73 days. PepsiCo’s inventory turnover is 9.77 times annually with an average inventory interval of 37 days. These ratios infer that KDP replenishes its stock faster than Coca Cola and PepsiCo. Hence, it has strong sales or might be faced with the challenge of insufficient inventory. Conversely, PepsiCo and Coca cola’s ratios indicate a company that is highly efficient.
The accounts receivable turnover ratio determines the efficiency of a company in collecting its average receivable accounts. Its given by dividing Net Credit Sales by Average Accounts Receivable or Net Revenue/(Trade Accounts Receivable – Allowances). A high ratio is desirable. KDP’s accounts receivable turnover is 9.42. Receivable turnover of Coca Cola is 9.66 with an average collection period of 38 days. PepsiCo’s receivable turnover is 9.04 with an average collection period of 40 days.All of them are efficient in collecting their receivable accounts.
Asset turnover ratio indicates the efficiency of a firm in using assets to create revenue. Calculated by: Total sales/ Average Total Assets. KDP’s asset turnover ratio is 0.67. Coca Cola’s ATR is 0.40. The asset turnover ratio of PepsiCo is 0.80. PepsiCo efficiently generates revenue from its assets compared to KDP and Coke.
Gross profit percentage equals to (Gross profit/ Total Revenue) x 100. KDP’s GPP is 59.71%. Coca Cola’s Gross Profit percentage ratio is 62.56%. PepsiCo has a gross profit margin of 54.69%. Coca Cola has more profitability.
The liquidity ratios of the three companies reveal that both PepsiCo and Coca Cola have significant financial strengths and so can meet their current liabilities. Conversely, KDP can encounter a liquidity crisis due to a weaker financial power.
Intangible assets comprise goodwill, trademarks, franchises, patents and copyrights(LumenCandela, 2018). Goodwill refers to a firm’s acquisition price less net assets. The others provide a legal provision for a company’s operations and ownership. Coca Cola uses trademarks, goodwill, and franchise. The others mainly usegoodwill. FIFO refers to a stock costing and control method where old inventory is removed first whereas LIFO is where the newer stock is removedfirst. PepsiCo uses LIFO and FIFO. Coke uses FIFO. KDP uses both.
The direct write-off method offsets uncollectable debts upon a determination that the client cannot pay(Mattison, 2018). Allowance method uses an estimated bad debts reserve. All of them use the allowance method.
Unity of production depreciation is a method of devaluation where the degree of activity experienced by an asset is considered per unity of activity(Mattison, 2018). Straight line depreciation entails uniform charge of reduction over the whole useful life. Double declining balance pertains a constant decrease of depreciation against an asset’s progressive life. All of them use straight line depreciation method.
PepsiCo has a strong financial performance based on liquidity ratios. Moreover, it also recorded better productivity based on the efficiency rations. The company has an excellent capability to generate revenue from its assets. It can also collect its receivable accounts well. Therefore, I would recommend PepsiCo to an investor. Coca Cola would be an alternative as well.
KDP Inc. (2018). FORM 10-K: Annual Report with a Comprehensive Overview of the Company. Morningstar Document Research.
LumenCandela. (2018). Types of Intangible Assets. Retrieved from Lumen Learning: https://courses.lumenlearning.com/boundless-accounting/chapter/types-of-intangible-assets/
Mattison, B.L., Miller-Nobles, T.L. & Matsumura, E.M. (2018). Horngren’s Accounting,12 ed.
PepsiCo Inc. (2017). 2017 Annual Report: Performance with Purpose.
US SEC. (2017). FORM 10-K: Annual Report of the Coca Cola Company. Washington, D.C: The United States Security and Exchange Commission.
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