Pepsico And Coca Cola Company Economics Essay

Pepsico And Coca Cola Company Economics EssayI chose these companies because I have an interest in the port that they are serviceable in the global market. PepsiCo was founded in 1932 by the merger of the then known Frito-Lay Company. The founders of PepsiCo are Donald M. Kendall, President and CEO and Herman W. Lay, Chairman and CEO of Frito-Lay. so far Pepsi-Cola was formulated in 1898 by a Caleb Bradham, a pharmacist. Coca-Cola was formulated in 1886 by Dr. John Pemberton. In downtown Atlanta Pemberton sold the syrup with change water for five cents a glass. Both companies grew dramatically since their humble beginnings.Thesis StatementThe purpose of this paper is to compare PepsiCo and Coca-Cola Companys financial standing between the 2 companies using ratios and financial analysis from five ratio categories.LiquidityThe methodology used is the ratios for liquidity. Liquidity is the ability to quickly turn additions in to cash. Liquidity is as well as characterized by high levels of trading activity. Assets that can be easily obtained and sold are known as liquid assets. A business with a suitable amount of liquidity can mean that the business can pay off its expenses. on-line(prenominal) Ratio CalculationCurrent Ratio = Current Assets/ Current LiabilitiesPepsiCo Current RatioPepsiCo current ratio = 0.95Coca-Cola Current RatioCoca-Cola current ratio = 1.05ConclusionWhen comparing PepsiCo and Coca-Cola current ratio in 2011 both are successful at easily converting assets into cash. Coca-Cola has a great ratio than PepsiCo by .10. It can be said that from this ratio that one can invest in either company and they will make a return if dividends are declared.Asset TurnoverAsset upset shows how the amounts of sales that can are generated for every dollar worth of assets. The higher a firms asset turnover the more efficiently its assets have been turned in to cash. Investors went to invest in companies that can turnover assets easily.Asset Turnover Calc ulationAsset Turnover = natural Revenue/ Total AssetsPepsiCos Asset TurnoverPepsiCo asset turnover = 0.9Coca-Colas Asset TurnoverCoca-Cola asset turnover = 0.7ConclusionIn the comparison between PepsiCo and Coca-Cola PepsiCo has a greater turnover than Coca-Cola. PepsiCo turnover is 0.2 higher than Coca-Cola. This means that PepsiCo is more successful in play sales in dollars.Debt RatiosA debt ratio measures how well a firm can pay off its debt. The larger the debt ratio the more likely that a creditor was used to create a profit for the business. The greater the debt the greater the risk for the business to pay off its debt.Debt Ratio CalculationDebt Ratio = Total Liabilities/ Total AssetsPepsiCo Debt RatioPepsiCo = 0.93Coca-Cola Debt RatioCoca-Cola = 0.41ConclusionThe comparison with PepsiCo and Coca-Cola shows that Coca-Cola has a smaller debt ratio than PepsiCo. PepsiCo has a greater risk than Coca-Cola does by 0.52 or 52%. PepsiCo has a greater risk of not being able to pay b ack its debt.ProfitabilityThere are different ways to measure the profitability of a business. employ Profit Margin is just one of the many measurements that can be used. Knowing how profitable a company is allows investors the chance that they will turn a profit from investing in that company. Investors may also want to look at the companys income statement to evaluate a companies profitability along with a companys profit margin.Profit MarginProfit Margin = Operating Profit/ RevenuePepsiCos Profit MarginPepsiCo = 9.69%Coca-Colas Profit MarginCoca-Cola = 18.42%ConclusionIn comparing Coca-Cola and PepsiCo bingle can see that Coca-Cola have more profitability than PepsiCo does by almost double. Investors would most likely invest in Coca-Cola based on these results. marketplaceabilityMarket ratios look at the market value of a firm. The valuation of a firms current share price compared to the firms pre-share earnings. High P/E proposes that investors are expecting a growth in earni ngs in the future. It shows how investors see the firm whether its a risk or reward.Price/Earnings Ratio FormulaP/E Ratio = Market Price per share/ Earnings per sharePepsiCos P/E RatiosCurrent P/E Ratio = 15.7P/E Ratio 1 month Ago = 16.4P/E Ratio 26 Weeks Ago = 16.1P/E Ratio 52 Weeks Ago = 16.3Coca-Cola P/E RatiosCurrent P/E Ratio =18.7P/E Ratio 1 Month Ago = 18.4P/E Ratio 26 Weeks Ago = 12.8P/E Ratio 52 Weeks Ago = 12.7ConclusionIt is clear that Coca-Cola has a higher price/earnings ratio that PepsiCo. Coca-Colas Ratio was a drastic change from a month ago to 26 weeks ago it jumped to 6.5. Investors would see a better turn out from this output of information from Coca-Cola.ConclusionAccording to this information I would advise an investor to invest in Coca-Cola based on the information that was provided. I would however be reluctant to advice investors to invest in PepsiCo based on factors presented such(prenominal) as lower profitability, lower Price/Earnings, and higher debt rat io than Coca-Cola.