Running Head: A COMPARISON BETWEEN PEPSICO.

& COCA COLA

[Accounting comparison between PepsiCo. and Coca Cola]

[Name]

[University]
 A COMPARISON BETWEEN PEPSICO. & COCA COLA 2

Comparison between Pepsi Co. & Coca Cola

Introduction:

The paper seeks the comparison of financial performance of two major leaders in

beverage industry i.e. Pepsi Co. and Coca Cola. These are the participants of most

heralded “Cola Wars” in beverage industry. In the so called Cola War, Coca Cola is the

defending champion and Pepsi Co. is the challenger. . Both of these companies accounts

for almost 75% market share in total beverage industry. Below table represents a brief

snapshot of Coca Cola and Pepsi Co.(Biswas & Sen, 1999).

Features Coca Cola PepsiCo.

History Coca Cola was established in 1886 by Colonel Founded by Mr. Donald M. Kendall and

John Pemberton. It’s headquarter is in Atlanta, Mr. Herman Lay in 1965. It’s headquarter

Georgia. is in New York, USA.

Product /services A beverage company offering wide range of Food and beverage company offering

beverages including coke, diet coke, and non range of grain based snack foods,

alcoholic drinks. It has portfolio of more than beverages and other products.

500 carbonated and non-carbonated beverages.

Major customers Direct customers are outlets such as service Authorized bottlers, independent

stations, leisure centers, cinemas, distributors, food service distributors and

supermarkets, café’s clubs and retailers selling retailers. No direct selling to consumers.

beverages

Major suppliers Major suppliers are companies who provide Major suppliers are Starbucks, Senomyx,

Coca Cola with systems such as machinery, Tropicana, Microsoft, Little Caesars, Intel,

ingredients, packaging and materials. These Siemens, Lenovo etc

include Spotify, Nokia, Facebook, Wateraid,

Genovo, Unilever etc.

Leadership CEO is Mr. Muhtar Kent and Executive Vice CEO is Mr. Indra Nooyi and President is

President is Mr. Ahmet C. Bozer Mr. Shaiq Wani

Business Units Coca Cola America ahs two important Four business units:
 A COMPARISON BETWEEN PEPSICO. & COCA COLA 3

divisions. The Coca Cola North America and PepsiCo. American Foods

Coca Cola Refreshments. PepsiCo. American Beverages

PepsiCo. Europe

PepsiCo. Asia

Profitability Ratios:

The profitability ratios focus on the profitability of the company. The three ratios that can

assess the profit of the company are the gross profit margin, operating profit margin, net

profit margin. These can be applied on quarterly or annually basis to judge about the

financial health of the business. These three profitability ratios are more concerning for

business creditors. Creditors always seek to maximize their investment into business so

they have to look for the profitability and financial health of the business in short as well

as in long run. These three profitability ratio provide a detailed view of the financial

health of the company. Below table shows the calculations of these three ratios for

PepsiCo. & Coca Cola (2014).

Ratio Coca Cola PepsiCo.

Gross Profit Margin 61.34% 59.26%

Operating Profit 21.83% 14.61%

Margin

Net Profit Margin 18.32% 10.15%

The above table indicates about the financial health of both the companies. The gross

profit margin of the Coca Cola is more than one which indicates the company is

expecting increased financial health in the future. Pepsi Co. is lagging behind Coca Cola
 A COMPARISON BETWEEN PEPSICO. & COCA COLA 4

in terms of its gross profit margin. Below graph indicates the comparison of gross profit

margin of Coca Cola and PepsiCo.

The graph indicates a wide difference in gross profit margins of Coca Cola and Pepsi Co.

The both companies are having good financial health in terms of their profitability but

Pepsi Co is lagging behind in terms of Coca Cola.

Operating profit margin of Coca Cola is 21.83% while for Pepsi Co. it is 14.61%. An

operating profit margin of more than 1 indicates the sound business performance in terms

of its financials. Both the companies are having good financial health in terms of their

operating profit margins but Pepsi Co is again lagging behind Coca Cola as described by

graph below;

Net profit margin is also an indicator of profitability calculated by dividing net

income by revenue. Net Profit margin of Coca Cola is slightly higher than Pepsi Co.

which indicates sound business health of Coca Cola as compared to PepsiCo. Pepsi Co. is

also having good net profit margin showing good profitability of the company but Coca

Cola out pass the Pepsi Co. slightly.

Coca Cola is very large scale organization and having more than 300 products to its

consumer’s ends (Coca Cola PLC 2011). They have diversified portfolio which is the

best techniques to minimize the risk with the organization. There are many different
 A COMPARISON BETWEEN PEPSICO. & COCA COLA 5

factors through which Coca Cola has entered in to retailed chain store in USA. One of the

most important models that COCA COLA it is kept as a secret and the competitors of the

firms have no idea about it. There for they are successful in hiding their weakness from

their compotators companies. This act as the shield for the Coca Cola

COCA COLA always have to make strategic decision to gain the competitive

edge in international market and also becomes the dominate players at the lock markets

of the country. So that’s why the COCA COLA s is growing and moving to international

levels rapidly. This will also help for COCA COLA to maintain its brand name not only

in the United Kingdom but also in the other corner of the world, by increasing the level of

customers of satisfactions.

The last five years of financial performance were outstanding and in those last

five years the levels of sales are also increase as a result it also managed to increase its

turnover but at the same time the VAT remained the same. The COCA COLA store in

UK is different from all over the world. So that’s is the reason more store are open in UK

as compared to the other markets in the world

Ways to improve the profitability:

Profitability is the measure of sound business performance and financial health of

business. Three ratios described the financial health of the business. These ratios can also

illustrate about the ways to improve the profitability of the company. As indicates by

above analysis, Pepsi Co is lagging behind Coca Cola in terms of profitability. So Pepsi

Co management should try to improve the profitability of the company through;

 A COMPARISON BETWEEN PEPSICO. & COCA COLA 6

 Controlling costs: Costs are the major source for decreasing values of profitability

ratios. The profitability ratios of Pepsi Co. indicate the higher costs. These can be

increased by

 Lowering the costs: Costs can be lowered through outsourcing. Outsourcing is an

advanced method of achieving streamlined business.

 Hard issues of profitability: Pepsi Co. should try to focus towards the

improvement of hard issues of profitability. These issues include securing sales

volumes, waste control, and higher customer services.

 Improve turnover: Pepsi Co. should spend time and energy in improving turnover

of assets and equity. This can be gained through standardization and

simplification of business processes.

Impact of political events on the financial performance:

Mergers and acquisitions are the most important factors that shape the financial

performance of the business. Coca Cola and Pepsi Co. has established strong links

with external markets through mergers, acquisitions with other companies. These

mergers and acquisitions have made strong impact on the financial performance of

both companies.

Mergers and Acquisitions of Coca Cola:

The major step towards achieving high sales volumes was through the acquisitions of

Coconut Water, ZICO in 2013. Coca Cola acquired the ZICO which is the provider of

pure and natural coconut water and serve as replenishment of energy need. Acquiring

ZICO was the major step toward the achievement of high sales out of the territories.
 A COMPARISON BETWEEN PEPSICO. & COCA COLA 7

ZICO added much to the sales volume of Coca Cola. This merger guide Coca Cola

towards achieving new heights.

Another important milestone towards higher financial performance is the European

Operations of CCE named as Coca Cola Enterprise. This company will go for major

bottler for Coca Cola in Western Europe. Although it put the company into the debt of $8

.8 billion, yet it has been estimated that it will bring about $350 billion revenue

opportunities for the business in the next four years.

Merger and Acquisitions of PepsiCo:

PepsiCo-Mondelez Merger: The biggest merger of Pepsi Co. is the merger between

mondelez sweet treat and Pepsi Co. There are some sound grounds for this merger. This

merger will bring about $70 billion revenue to Pepsi Co annually and by using the

effective distribution network of Mondelez, Pepsi can increase its own distribution and

make supply chain efficient.

Another important financial aspect of this merger is beneficial for Pepsi Co as it will help

in achieving the leader market share in beverage markets. It will boost the share value of

the Pepsi Co. in beverage market.

Another event that shape up the financial performance of the Pepsi Co in last two

three years is the rumor of breaking up if Pepsi Co into subsequent units. This rumor cast

a negative impact on the minds of investors and them thinking of withdrawing their

money from the company. Another important event is the prodding. This is trimming of

billion dollars from the company in order to enhance the corporate culture in the

organization. Moreover it seeks to maximize the revenue by cutting costs.

Analyzing Income Statements:

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Coca Cola Income Statement

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The above income and balance sheet of Coca Cola Presents the major findings as

given below;

Operating loss:

There was a total 25 % reduction in total operating loss before tax. In the year 2013 the
operating loss fell by $4,427 million from $3,322 million from in 2012. The reason for
the reduction in operating loss was due to increase in trading activities and in turn
increase in income from these trading activities. These impair the losses of higher
operating expenses and lower costs of the staff.
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Total income:

2013 was the year when the Coca Cola once again experienced 5% increases in total
income. Total income increased from $6,091 million to $6,426 million in 2013. The
major reasons for this increase were again the higher trading activities. These activities
provide the rationale for lower interest income and commission. There were also the non-
repeat of gains on redemption of own debt in 2012.

Net interest income

Net interest income also lowered to 4% to $2,873 million. There were many rationales or
this decrease. The major reason for this decrease is the lower net income of retail and
commercial business. This indicates the impacts of competitive saving market and non-
core following run off and disposals.

Non-interest income

Non-interest income increased by 15% to $3,553 million compared with $3,084 million
in 2012 primarily due to higher trading income. This was partially offset by lower net
fees and commissions as a result of weaker consumer spending volumes. There was also
a gain on the redemption of own debt of $251 million in 2012.

Operating expenses

An overall increase in the operating expenses was seen in 2013. IN 2012 operating
expenses were $5,726 million that increased to 15% to $6,565 million in 2013. The
rational for this increase was the provision of $425 million that was given to small and
medium enterprises to redress their losses. This was enlisted as FSA rules under retail
banking services. Another reason for this that higher management recharges from the
holding companies owing to the costs of $120 million relating to the technology incident
 A COMPARISON BETWEEN PEPSICO. & COCA COLA 11

that affected the Group’s systems, and the write-down of goodwill of $117 million.

Impairment losses

An overall decrease of the impairment losses was seen $4,792 million to $3,183 million.
A 59 % decrease in non-core impairments was the reason for this decrease.

Capital ratios

Capital ratios at 31 December 2013 were

 13.8% (Core Tier 1)

 14.9% (Tier 1)

 18.2% (Total)

Financial Statements of PepsiCo:

Income Statement of Pepsi Co:

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Balance Sheet of Pepsi Co.:

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Major findings of the income statement and balance sheet are;

Total revenue:

Total revenue of the Pepsi Co. has increased from the year 2012 in 2013. This shows

good financial performance of the Pepsi Co in beverage industry.

An overall increase in the total costs and total gross profit has been shown in the income

statement. This indicates the one of the major reasons for lagging behind coca cola in

terms of costs of productions and profitability.

The income statement indicates overall increase in the net income of Pepsi Co from the

year 2012 to 2013. Total assets have been increased from $74 billion to $77 billion in
 A COMPARISON BETWEEN PEPSICO. & COCA COLA 14

year 2013. This also indicates good financial health of the business. Increase in assets has

been marked with increase in liabilities. Liabilities of the company have been increased

from $54 billion to $55 billion in year 2013. This increase in liabilities indicates the

increase in taxes and other business debts.

Conclusion:

From the above analysis we can conclude that Coca Cola is again leading the beverage

industry in terms of its financial performance. Pepsi Co. is lagging behind the Coca Cola.

Although Pepsi Co is financially strong and healthy, its financial strength is next to Coca

Cola Company. In order to beat the Coca Cola, Pepsi Co. need to increase its market

share through boosting sale volumes. It can do this by reducing costs and improving the

corporate culture of the business. Leadership should try to establish the culture of

continuous improvement through which they can achieve the leading position in beverage

market.
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