Coca-Cola is an American multination beverage corporation incorporated under Delaware's General Corporation law. The company is headquartered in Atlanta, Georgia, in the United States. The company deals in manufacturing, retailing, marketing, and selling nonalcoholic drinks and syrups ( Brick et al., 2018) . Coca-Cola's leading brands include Coca-Cola, Sprite, Fanta, Schweppes, Appletiser, Barq's, and Frasca.
Background
Coca-Cola Company operates in the beverage industry with over 87,000 employees as of 2019. The company was founded by Dr. John Pemberton and went on sale for the first time at Jacob's Pharmacy in Atlanta, Georgia, in the United States with one iconic drink. The company evolved progressively to a fully Beverage Company with multiple brands selling in local and international markets. In 1960, the company acquired Minute Maid to increase its market share in the industry. Coca-Cola currently has over 200 brands highly selling in local and foreign markets compared to those of its competitors ( Brick et al., 2018) . Coca-Cola is the top-performing company in the industry with an average operating income of over $ 11 billion and net income of over $ 9 billion, both as of 2020. Its main competitors include PepsiCo, Red Bull, Keurig Dr. Pepper, and Britvic. These companies manufacture and sell different brands.
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PepsiCo
PepsiCo Inc. is an American Corporation headquartered in Harrison, New York, in the United States. The company manufactures, markets, and sells food, snack, and beverages. The company's leading portfolio is made of soft drinks, juices, dairy, and grains ( Brick et al., 2018) . This portfolio comprises brands such as Tropicana, Doritos, Quakers Oats, and Lay's.
Background
PepsiCo Company operates in the beverages and food processing industry with approximately 291,000 employees globally. The company was founded in 1866 by Caleb D. Bradham in New Berlin, North Carolina, in the United States. Since then, Pepsi has progressively grown its business operations to increase its market share in the industry. When the company was created, it operated under the name Pepsi-Cola Company. In 1965, the company merged with Frito-Lay, Inc. and formed PepsiCo, Inc., which remains its name till now. After the merger, PepsiCo relocated its headquarters to New York in 1970 ( Brick et al., 2018) . Subsequently, the company was reincorporated under North Carolina State laws. In the 1990s, PepsiCo expanded its business operation through acquisitions and mergers to increase its market share in the industry.
PepsiCo has a historical competition record in the beverage industry. Its significant competitors includes Coca-Cola, Red Bull, Keurig Dr. Pepper, and Britvic. In 2009, it surpassed the Coca-Cola Company in market share for the first time after 112 years of stiff competition. In 2019, PepsiCo reported a net income of $ 7.353 billion and total revenue of $ 7.16 billion ( Sultan et al., 2019) . The company continues to advance its business operation through product branding and employing diverse marketing strategies to increase its annual performance and market share in the industry.
Coke and Pepsi Ratio Analysis
|
Coca-Cola Company |
|||
| Year |
2018 |
2019 |
2020 |
| Current ratio |
0.87 |
0.76 |
1.32 |
| Debt ratio/Debt to Equity ratio |
3.37 |
3.09 |
3.10 |
|
PepsiCo Company |
|||
| Year |
2018 |
2019 |
2020 |
| Current ratio |
0.99 |
0.86 |
0.98 |
| Debt ratio/Debt to Equity ratio |
4.32 |
4.28 |
5.87 |
Explanations: Current Ratio
Based on the current ratios of the two companies over the past three years, Coca-Cola Company can meet its short-term obligation. Coca-Cola's current ratio for 2020 is higher than that of PepsiCo, which infers it can meet more of its short-term obligations. The current ratio enables potential investors to understand the liquidity of a company (Macrotrends, 2021). A higher current ratio means that a company has more current assets than its current liability.
According to the data above, Coca-Cola's current ratio increased significantly from 0.76 in 2019 to 1.32 in 2020, while PepsiCo's increased slightly from 0.86 in 2019 to 0.98 in 2020 (Macrotrends, 2021). The data illustrates that Coca-Cola Company is performing expressively well compared to PepsiCo. Even though PepsiCo can meet its short-term obligations using its current asset since its current ratio is positive, it may be forced to settle its current liabilities using fixed assets when current liabilities. However, Coca-Cola Company is safe and pays all short-term obligations using its current assets because its current ratio for 2020 is more than 1 (Macrotrends, 2021). In a nutshell, Coca-Cola Company is doing well compared to PepsiCo because it has a higher current ratio.
Debt-to-Equity Ratio
A debt-to-equity ratio is a liquidity ratio that compares total firm debt to shareholders' equity. It measures the amount of the company's capital value financed by debt. A higher debt ratio illustrates that the company is financed more by debt capital (Macrotrends, 2021). A debt ratio of 1 means the company has an equal value of debt and shareholders' equity. In contrast, a debt value of 0.5 means the company is has debt finance of half its shareholders' equity.
According to the financial data in the table above, PepsiCo's debt-to-equity ratio has been higher than Coca-Cola Company throughout the three years. The values infer that PepsiCo finances its operations more with debt capital than Coca-Cola. For instance, in 2020, PepsiCo's debt ratio was 5.87 while Coca-Cola's was 3.1 (Macrotrends, 2021). The value means that PepsiCo finances its business operations with debt worth five times of shareholders' equity while Coca-Cola 3 times. Despite the debt of ratio the two company are not favorable, PepsiCo's extreme hence may lead to liquidation should the company fail to settle its loan term obligations in the future.
References
Brick, D. J., Fitzsimons, G. M., Chartrand, T. L., & Fitzsimons, G. J. (2018). Coke vs. Pepsi: brand compatibility, relationship power, and life satisfaction. Journal of Consumer Research , 44 (5), 991-1014.
Macrotrends. (2021). PepsiCo debt to equity ratio 2006-2020 | PEP . Macrotrends | The Long Term Perspective on Markets. https://www.macrotrends.net/stocks/charts/PEP/pepsico/debt-equity-ratio
Sultan, K., Akram, S., Abdulhaliq, S., Jamal, D., & Saleem, R. (2019). A Strategic Approach to the Consumer Perception of Brand on the Basis of Brand Awareness and Brand Loyalty: A Comparative Analysis of Coke & Pepsi Brands in Erbil KRI. International Journal of Research in Business and Social Science (2147-4478) , 8 (3), 33-44.
