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Financial statement analysis

F

Introduction

Two major competitors dominate the beverage industry which is Coca-Cola and PepsiCo.  The competition between PepsiCo and Coca-Cola tend to be intense, and both companies have been avoiding price competition.

P/E

Price earnings ratio is a measure for assessing the market charge per share to the income per share. The ration usually looks for the relationship between the stock price and the earnings of the company. The formula for the ratio is (P/E= Stock price/EPS). P/E compares the stock market estimation of the company to measure the success of the company. In this case, PepsiCo tends to have a lower price to earnings ratio of 0.37 when compared to Coca-Cola 10.6. Thus, investors at PepsiCo will get paid $1for every 0.37 they paid, and those at Coca-cola will receive $1 for every 10.6 they paid. The lower the ratio, the better for investors. The low price-earnings ratio at PepsiCo presents a good buying opportunity for the potential investors because the company demonstrates a better liquidity.

PepsiCo 95/260=0.37

Coca-Cola 42.2/4=10.6

Coca cola stock price

PepsiCo stock price

Times interest earned

TIE is a ratio that helps in determining the creditworthiness of an organization. The formula for calculating the ratio is dividing income before interest and tax by the interest expense. The measure normally helps an organization know if the firm can pay for its interest payments. The larger the ratio is an indication of the better the firm is at covering its interests. Based on the calculation, PepsiCo tends to have a high TIE as compared to Coca-Cola, which means that PepsiCo can easily pay its debt obligation.

PepsiCo 9999/-909=-11

Coca-Cola 10867/-483=-22.5

Quick ratio

The quick ratio shows that ability of the firm to pay its current liabilities. The ratio helps in making sure that the company has enough quick assets that help in paying for its short-term obligations. When a quick ratio is above one, it is an indication that the company has very little problems in terms of liquidity. We calculate the quick ratio as ((Current assets-inventory)/current liabilities). PepsiCo has a ration of 0.97 and Coca Cola’s ratio is 0.92. It means that PepsiCo has 0.97 of liquid assets available to cover every $1 of the current liabilities. Contrary, Coca-Cola has 0.92 liquid assets to cover every $1 of current liabilities. In this case, the higher the ratio, the better; hence, PepsiCo has a higher liquidity position than Coca-cola.

PepsiCo (20 663-3143)/18092=0.97

Coca Cola (32986-3100)/32374=0.92

Return on assets

Return on asset is a profitability measure usually showing how a company is successfully managing to generate earnings on every dollar of its assets. The ratio measures the amount of the earned profit relation to the company’s investment level in total assets. We calculate ROA using (Net income/total assets). When there is a higher ROA ratio, it indicates that the company is earning more money for less investment. PepsiCo has a higher ratio than Coca-Cola, which means that PepsiCo is good in converting its investment into profits.

PepsiCo 6513/70509=0.09 or 9%

Coca Cola 7098/92023=0.08 or 8%

EPS

The earnings per share ratio is an indicator of the profitability of the company. It refers to the portion of the profit allocation of a company to every outstanding share of the common stock. The formula for EPS is (EPS = Net income /outstanding shares). Shareholders normally use this ratio in knowing their profit share. Based on the amounts, each share in PepsiCo earns 260 of net income, and a share of Coca-Cola earns 4 of the net income. Therefore, PepsiCo shareholders tend to have good profits than shareholders in Coca-Cola. 

PepsiCo 6513/25=260

Coca-Cola 7098/1760=4

Conclusion

Both Coca-Cola and PepsiCo tend to be strong industry players in the beverage industry. The P/E ratio of PepsiCo is lower that Coca-Cola, which means that PepsiCo has a preferable earning on its stock market when compared to Coca-Cola. For people who are investing in PepsiCo, they tend to be getting more return on what they paid. Based on the investors’ perspective, the lower the ratio, the better; hence, PepsiCo is more attractive to investors because of the lower P/E ratio. When looking at the EPS ratio for the company, it is clear that both companies normally pay their stockholders for every share that they own. The EPS ratio indicates that PepsiCo investors are happy with the high earning they receive as a result of the high EPS ratio. Because of the great financial performance of PepsiCo, PepsiCo is likely to gain more investors who are looking forward to making high and quick earnings. The times interest earned ratio, and the price of earnings ratio are also more for PepsiCo than for Coca-Cola. Thus, the high ratio of PepsiCo is an indication that the company has a good margin of safety, and it can be able to meet its interest payments.

Income statement (PepsiCo)

Currency in
Millions of US Dollars
As of: Dec 27
2014
Revenues 66,683.0
TOTAL REVENUES 66,683.0
Cost Of Goods Sold 30,884.0
GROSS PROFIT 35,799.0
Selling General & Admin Expenses, Total 25,708.0
Depreciation & Amortization, Total 92.0
OTHER OPERATING EXPENSES, TOTAL 25,800.0
OPERATING INCOME 9,999.0
Interest Expense -909.0
Interest And Investment Income 85.0
NET INTEREST EXPENSE -824.0
EBT, EXCLUDING UNUSUAL ITEMS 9,175.0
Merger & Restructuring Charges -418.0
EBT, INCLUDING UNUSUAL ITEMS 8,757.0
Income Tax Expense 2,199.0
Minority Interest In Earnings -45.0
Earnings From Continuing Operations 6,558.0
NET INCOME 6,513.0
NET INCOME TO COMMON INCLUDING EXTRA ITEMS 6,503.0
NET INCOME TO COMMON EXCLUDING EXTRA ITEMS 6,503.0

Balance statement (PepsiCo)

Currency in
Millions of US Dollars
As of: Dec 27
2014
Assets  
Cash And Equivalents 6,134.0
Short-Term Investments 2,592.0
TOTAL CASH AND SHORT TERM INVESTMENTS 8,726.0
Accounts Receivable 5,680.0
Other Receivables 971.0
TOTAL RECEIVABLES 6,651.0
Inventory 3,143.0
Prepaid Expenses 871.0
Deferred Tax Assets, Current 875.0
Other Current Assets 397.0
TOTAL CURRENT ASSETS 20,663.0
Gross Property Plant And Equipment 36,300.0
Accumulated Depreciation -19,056.0
NET PROPERTY PLANT AND EQUIPMENT 17,244.0
Goodwill 14,965.0
Long-Term Investments 2,689.0
Loans Receivable, Long Term 93.0
Deferred Charges, Long Term 179.0
Other Intangibles 14,088.0
Other Long-Term Assets 588.0
TOTAL ASSETS 70,509.0
 
LIABILITIES & EQUITY  
Accounts Payable 5,127.0
Accrued Expenses 3,968.0
Short-Term Borrowings 980.0
Current Portion Of Long-Term Debt/Capital Lease 4,096.0
Current Income Taxes Payable
Other Current Liabilities, Total 3,921.0
TOTAL CURRENT LIABILITIES 18,092.0
Long-Term Debt 23,821.0
Minority Interest 110.0
Pension & Other Post-Retirement Benefits 2,488.0
Deferred Tax Liability Non-Current 5,304.0
Other Non-Current Liabilities 3,256.0
TOTAL LIABILITIES 52,961.0
Preferred Stock Convertible 41.0
TOTAL PREFERRED EQUITY -140.0
Common Stock 25.0
Additional Paid In Capital 4,115.0
Retained Earnings 49,092.0
Treasury Stock -24,985.0
Comprehensive Income And Other -10,669.0
TOTAL COMMON EQUITY 17,578.0
TOTAL EQUITY 17,548.0
TOTAL LIABILITIES AND EQUITY 70,509.0

Income statement (Coca Cola)

Currency in
Millions of US Dollars
As of: Dec 31
2014
Revenues 45,998.0
TOTAL REVENUES 45,998.0
Cost Of Goods Sold 17,889.0
GROSS PROFIT 28,109.0
Selling General & Admin Expenses, Total 17,218.0
Other Operating Expenses 24.0
OTHER OPERATING EXPENSES, TOTAL 17,242.0
OPERATING INCOME 10,867.0
Interest Expense -483.0
Interest And Investment Income 645.0
NET INTEREST EXPENSE 162.0
Income (Loss) On Equity Investments 769.0
Currency Exchange Gains (Loss) -197.0
Other Non-Operating Income (Expenses) 9.0
EBT, EXCLUDING UNUSUAL ITEMS 11,610.0
Merger & Restructuring Charges -845.0
Impairment Of Goodwill
Gain (Loss) On Sale Of Investments 45.0
Gain (Loss) On Sale Of Assets -305.0
Other Unusual Items, Total -1,180.0
Other Unusual Items -686.0
EBT, INCLUDING UNUSUAL ITEMS 9,325.0
Income Tax Expense 2,201.0
Minority Interest In Earnings -26.0
Earnings From Continuing Operations 7,124.0
NET INCOME 7,098.0
NET INCOME TO COMMON INCLUDING EXTRA ITEMS 7,098.0
NET INCOME TO COMMON EXCLUDING EXTRA ITEMS 7,098.0

Balance sheet (Coca Cola)

Currency in
Millions of US Dollars
As of: Dec 31
2014
Assets  
Cash And Equivalents 8,958.0
Short-Term Investments 12,717.0
Trading Asset Securities 14.0
TOTAL CASH AND SHORT TERM INVESTMENTS 21,689.0
Accounts Receivable 4,466.0
TOTAL RECEIVABLES 4,466.0
Inventory 3,100.0
Prepaid Expenses 1,674.0
Deferred Tax Assets, Current 160.0
Other Current Assets 1,897.0
TOTAL CURRENT ASSETS 32,986.0
Gross Property Plant And Equipment 25,258.0
Accumulated Depreciation -10,625.0
NET PROPERTY PLANT AND EQUIPMENT 14,633.0
Goodwill 12,100.0
Long-Term Investments 14,839.0
Deferred Tax Assets, Long Term 319.0
Other Intangibles 14,272.0
Other Long-Term Assets 2,874.0
TOTAL ASSETS 92,023.0
 
LIABILITIES & EQUITY  
Accounts Payable 2,089.0
Accrued Expenses 6,793.0
Short-Term Borrowings 19,130.0
Current Portion Of Long-Term Debt/Capital Lease 3,552.0
Current Income Taxes Payable 400.0
Other Current Liabilities, Total 410.0
TOTAL CURRENT LIABILITIES 32,374.0
Long-Term Debt 19,100.0
Minority Interest 241.0
Deferred Tax Liability Non-Current 5,636.0
Other Non-Current Liabilities 4,352.0
TOTAL LIABILITIES 61,462.0
Common Stock 1,760.0
Additional Paid In Capital 13,154.0
Retained Earnings 63,408.0
Treasury Stock -42,225.0
Comprehensive Income And Other -5,777.0
TOTAL COMMON EQUITY 30,320.0
TOTAL EQUITY 30,561.0
TOTAL LIABILITIES AND EQUITY 92,023.0

Carolyn Morgan is the author of this paper. A senior editor at MeldaResearch.Com in college research paper services. If you need a similar paper you can place your order from best medical essay service.

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