Pepsico And Coca Cola Company Economics Essay

924 words (4 pages) essay in Economics

5/12/16 Economics Reference this

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I chose these companies because I have an interest in the way that they are profitable 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. However 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 carbonated water for five cents a glass. Both companies grew dramatically since their humble beginnings.

Thesis Statement

The purpose of this paper is to compare PepsiCo and Coca-Cola Company’s financial standing between the two companies using ratios and financial analysis from five ratio categories.


The methodology used is the ratios for liquidity. Liquidity is the ability to quickly turn assets in to cash. Liquidity is also characterized by high levels of trading activity. Assets that can be easily obtained and sold are known as liquid assets. A business with a decent amount of liquidity can mean that the business can pay off its expenses.

Current Ratio Calculation:

Current Ratio = Current Assets/ Current Liabilities

PepsiCo Current Ratio

PepsiCo current ratio = 0.95

Coca-Cola Current Ratio

Coca-Cola current ratio = 1.05


When comparing PepsiCo and Coca-Cola current ratio in 2011 both are successful at easily converting assets into cash. Coca-Cola has a greater 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 Turnover:

Asset turnover shows how the amounts of sales that can are generated for every dollar worth of assets. The higher a firm’s 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 Calculation:

Asset Turnover = Total Revenue/ Total Assets

PepsiCo’s Asset Turnover

PepsiCo asset turnover = 0.9

Coca-Cola’s Asset Turnover

Coca-Cola asset turnover = 0.7


In 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 turning sales in dollars.

Debt Ratios

A 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 Calculation:

Debt Ratio = Total Liabilities/ Total Assets

PepsiCo Debt Ratio

PepsiCo = 0.93

Coca-Cola Debt Ratio

Coca-Cola = 0.41


The 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 back its debt.


There are different ways to measure the profitability of a business. Using 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 company’s income statement to evaluate a companies profitability along with a company’s profit margin.

Profit Margin

Profit Margin = Operating Profit/ Revenue

PepsiCo’s Profit Margin:

PepsiCo = 9.69%

Coca-Cola’s Profit Margin:

Coca-Cola = 18.42%


In comparing Coca-Cola and PepsiCo One 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.


Market ratios convey the market value of a firm. The valuation of a firm’s current share price compared to the firm’s pre-share earnings. High P/E proposes that investors are expecting a growth in earnings in the future. It shows how investors see the firm whether it’s a risk or reward.

Price/Earnings Ratio Formula:

P/E Ratio = Market Price per share/ Earnings per share

PepsiCo’s P/E Ratios:

Current P/E Ratio = 15.7

P/E Ratio 1 Month Ago = 16.4

P/E Ratio 26 Weeks Ago = 16.1

P/E Ratio 52 Weeks Ago = 16.3

Coca-Cola P/E Ratios:

Current P/E Ratio =18.7

P/E Ratio 1 Month Ago = 18.4

P/E Ratio 26 Weeks Ago = 12.8

P/E Ratio 52 Weeks Ago = 12.7


It is clear that Coca-Cola has a higher price/earnings ratio that PepsiCo. Coca-Cola’s 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.


According 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 as; lower profitability, lower Price/Earnings, and higher debt ratio than Coca-Cola.

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