Coke and Pepsi are the two major soft drink companies in the whole world; both companies have an international footprint. However, they also face substantial competition, as the market for non-alcoholic drinks is highly fragmented. In order to understand the investment characteristics of these two companies, it is worthwhile to take a look at these companies from the financial perspective, comparing their different financial ratios. Some of the important ratios that should be analyzed are the liquidity ratios, profitability ratios, cash flow indicators and investment valuation ratios. By analyzing the financial ratios this paper will help determine which of these two companies the better investment is.
Ratios computation and analysis
1) Using the current ratio, discuss what conclusions you can make about each company’s ability to pay current liabilities (debt).
A common liquidity ratio is the current ratio. This is calculated as the current assets / current liabilities. The current ratio reflects the ability of the company to meets its financial obligations for the next year. The current assets reflect assets that can be liquidated quickly, for example cash, inventories and receivables. The current ratio for Pepsi is $12,571 / $8756 = 1.44. The current ratio for Coca-Cola is $17,551 / $13,721 = 1.28. The current ratio illustrates that Pepsi is more liquid. Both companies have healthy current ratios, but Pepsi’s is stronger. This reflects that PepsiCo has a greater capacity to pay its debts, should they be called quickly. The debt ratio can also be used, and this is a basic measure of the firm’s capital structure, calculated as total liabilities / total assets. For Pepsi, the debt ratio
