Coca-Cola vs Pepsi Essay

wo of the largest and most profitable corporations in the United States are the Atlanta, Georgia based Coca-Cola Company and the New York based Pepsi Cola Company. While both are called â€Å"colas† they both attempt to address the same target tastes but from different approaches. Coke was the first on market with what is still a â€Å"secret† formula and Pepsi followed with a similar (not exact) taste. Since taste is very much a factor of your personal likes, either or neither may appeal to you or seem sweeter (Inforefuge.com. 2011). This paper will discuss the similarities and differences in the processes used by Coca-Cola and PepsiCo for place, price, and promotion. Place and Price The marketing exposure of PepsiCo and Coca-Cola is everywhere ranging from commercials, billboards, and mail advertisements all over the world. Although they target the same markets, they both use different approaches to their marketing strategies. This is evident when comparing the two companies’ websites. When browsing the Coca-Cola website you will experience a more conservative style; there is not a variety of colors besides the traditional â€Å"Coca-Cola red† in which, most their products are packaged and advertised. It is the complete opposite for PepsiCo, as their website flashes promotions for free music downloads and reminds browsers that they are the official drink sponsor of the NFL. After browsing the websites and comparing the two, you will come to understand that Coca-Cola has more of an International approach to marketing, whereas PepsiCo caters to more of the American†¦ coca The Coca Cola corporation is a beverage company and is defined to be the most well known trade mark in the world, and it is justly so. The Company owns or licenses and markets more than 500 nonalcoholic beverage brands, primarily sparkling beverages, but also a variety of still beverages, such as waters, enhanced waters, juices and juice drinks, ready-to-drink teas and coffees, and energy and sports drinks. It owns and markets a range of nonalcoholic sparkling beverage brands, which includes Coca-Cola, Diet Coke, Fanta and Sprite. The Coca Cola products appeal to a wide range of people throughout the world from all races, genders, and ages. Coca Cola is well  known for its worldwide popularity as its products are sold to over 200 countries. The company business units include Eurasia and Africa, Europe, Latin America, North America, Pacific, Central Japan, and Great Plains and Honest Tea, Inc., in the United States . Coca-Cola and Pepsi are the two most popular and widely recognized beverage brands in the world. They have been competing in the soft drink sector for over a century and both companies enjoy a high degree of brand consciousness globally. Both companies try to market as part of a lifestyle. Coca-Cola uses phrases such as â€Å"Coke side of life† in their website, while Pepsi uses phrases such as â€Å"Hot stuff† in their web, to promote the idea that Pepsi is â€Å"in sync† with the cool side of life. Ironically, both Pepsi and Coke have similar beginnings: both were created in the 19th century and both were the results of the experimental work of innovative pharmacists. Coke was created in 1886 by Atlanta pharmacist John Pemberton while Pepsi was developed in 1898 by North Carolina pharmacist and drugstore owner, Caleb Bradham. The primary purpose of this report is to identify and analyze the two dominant companies in the soft drink industry and determine the strongest performer as an investment opportunity. Ability to pay current liabilities The current ratio is mainly used to give an idea of the company’s ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher the current ratio, the more capable the company is of paying its obligations. A ratio under 1 suggests that the company would be unable to pay off its obligations if they came due at that point. While this shows the company is not in good financial health, it does not necessarily mean that it will go bankrupt, as there are many ways to access financing, but it is definitely not a good sign. Based on the financial statements below, Coca Cola has a current ratio of 1.17 while Pepsi is at 1.10. The current ratio can give a sense of the efficiency of a company’s operating cycle or its ability to turn its product into cash. Comparison of Pepsi and Coca Cola Financials Introduction Coca-Cola and Pepsi are the two most popular and widely recognized beverage brands in the world. They have been competing in the soft drink sector for over a century and both companies enjoy a high degree of brand consciousness globally. Both companies try to market as part of a lifestyle. Coca-Cola uses phrases such as â€Å"Coke side of life† in their website, while Pepsi uses phrases such as â€Å"Hot stuff† in their web, to promote the idea that Pepsi is â€Å"in sync† with the cool side of life. Ironically, both Pepsi and Coke have similar beginnings: both were created in the 19th century and both were the results of the experimental work of innovative pharmacists. Coke was created in 1886 by Atlanta pharmacist John Pemberton while Pepsi was developed in 1898 by North Carolina pharmacist and drugstore owner, Caleb Bradham. The primary purpose of this report is to identify and analyze the two dominant companies in the soft drink industry and determine the str ongest performer as an investment opportunity. Ability to pay current liabilities The current ratio is mainly used to give an idea of the company’s ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher the current ratio, the more capable the company is of paying its obligations. A ratio under 1 suggests that the company would be unable to pay off its obligations if they came due at that point. While this shows the company is not in good financial health, it does not necessarily mean that it will go bankrupt, as there are many ways to access financing, but it is definitely not a good sign. Based on the financial statements below, Coca Cola has a current ratio of 1.17 while Pepsi is at 1.10. The current ratio can give a sense of the efficiency of a company’s operating cycle or its ability to turn its product into cash. In this particular case, Companies that have trouble getting paid on their receivables or have long inventory turnover can run into liquidity  problems because they are unable to alleviate their obligations. Because business operations differ in each industry, it is always more useful to compare companies within the same industry. This is another side of the rivalry between these corporations. Profits over the past three years The Return on Assets (ROA) is an indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. Calculated by dividing a company’s annual earnings by its total assets, ROA is displayed as a percentage. Sometimes this is referred to as â€Å"return on investment†. The formula for return on assets is: ROA = Net income / Total Assets. The Return on Equity is the amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested. ROE is expressed as a percentage and calculated as: Return on Equity = Net Income/Shareholder’s Equity. (Investopedia.com) Based on their financial statements, Coca Cola got a return on assets of 16.19%. Over the same period, PepsiCo return of assets was 9.27%. The return on equity for Coca Cola was 38.09% while Pepsi’s was 29.86%. All these numbers suggest that Coca Cola is giving a better performance than Pepsi in 2010. Pepsi is not delivering as much value to stockholders as Coca Cola. Cash Flow and Investment valuation ratio Pepsi and Coke both offer similar dividend yields of 3%. Although Pepsi’s dividend payout ratio is slightly lower than Coca Cola’s, the difference is marginal. (Finance) The Dividend Payout Ratio means the percentage of earnings paid to shareholders in dividends. The payout ratio provides an idea of how well earnings support the dividend payments. More mature companies tend to have a higher payout ratio. This ratio is calculated as Dividends per share / Earnings per share. The Dividend payout ratio for Coca Cola is 48.2% while PepsiCo is 34.8% The price/earnings ratio (P/E) is the best known of the investment valuation indicators. It is the measure of the share price relative to the annual net income earned by the firm per share. The P/E ratio has its imperfections, but it is nevertheless the most widely reported and used valuation by investment professionals and the investing  public. The financial reporting of both companies and investment research services use a basic earnings per share (EPS) figure divided into the current stock price to calculate the P/E multiple (i.e. how many times a stock is trading (its price) per each dollar of EPS). A high PE ratio generally indicates increased demand because investors anticipate earnings growth in the future. The PE ratio has units of years, which can be interpreted as the number of years of earnings to pay back purchase price. The price/earnings ratio for Coca Cola is 12.97 while PepsiCo is 16.24. (YCharts, 2011) Decision about which company is better for an investment Possibly one of the biggest rivals in Corporate America today, the battle between Coca-Cola (KO) and PepsiCo (PEP) continues to baffle not only consumers but investors as well in determining which product is a better buy. While both companies have had recent problems in emerging nations such as India by having their products be condemned for improper ingredients, a shakeup like this might be necessary to promote future growth for possibly undersold equities. While both Pepsi and Coke stand to benefit from a recovery in consumer spending, it appears that Pepsi has stronger fundamentals. For investors looking for safe dividend stocks with strong growth potential, Pepsi looks like the better choice. In terms of fundamentals, Pepsi seems to have the slight advantage. While Coca-Cola does have the higher figures, Pepsi has the better margins in terms of operating margins, revenue, and profit which is more important for growing companies. Pepsi also has, according to Yahoo Finance, been upgraded more times than Coca-Cola during the last few months, signaling a favorable sentiment among investment banks. In terms of guidance, both companies look to secure better procedures in the emerging markets with their products which should hurt earnings for a while but eventually boost them due to economies of scale. However, recently Pepsi has had positive surprise EPS statements during its quarterly results. While Coca-Cola has also reported similar reports, the findings were at a much smaller margin, barely affecting shares. What is more important, in determining a choice between these equities, is the technical analysis involved. During the past year Coca-Cola has only remain in a five dollar range, showing little fluctuation patterns for speculators or investors. While such a figure may be encouraging for fixed income  advocates, in reality, since 2000, Coca-Cola has barely fluctuated at all in its 20 point range, showing no signs of potential growth. While the situation is unfortunate, it looks as if, like Microsoft, Coca-Cola has increased in terms of value to its maximum, and pretty soon diseconomies of scale may be evident for this once prosperous company causing shares to drop in the future. On the other hand, Pepsi has seen continued growth throughout its tenure in a nice steady growth pattern. While speculators may not be encourage by the slow appreciation of the stock, long term investors may favor such a pattern as it does not seem the price of Pepsi has peaked. The company is still in the prime of its career and should carry the stock to higher numbers in both fundamentals and shares for at least one more decade. By investing now, investors have the opportunity to see Pepsi rise to near 80-100 points by 2010 and possibly even further by 2015. While the wait may be more tedious than other penny-stocks, the process will be relativity stress free as investors will be allowed to see their capital gains appreciate over the years. Such as a process is also favorable with its dividend payoff which allows for reinvestments to increase gains. Non-Financial criteria to consider About Pepsi, recently has appointed a CEO with an Indian background who may look more favorable than Coca-Cola to the emerging markets. Such a basic presence may add increased pressure to Coca-Cola to spend more money on advertisements and other apparels to strike a similar chord in these markets as its soft drink counterpart. While it is genuinely assumed that Coca-Cola is the king of its industry, times are slowly changing for the worse for this tremendous corporation and looking more and more favorable its hated rival in PepsiCo. According to stock analysts, Pepsi has a lot more exposure to commodities with respect to its Frito-Lays and Quaker Oats, when commodity prices were falling; it gave more wiggle room on the bottom line. But now that commodity prices are probably going to increase in the next year to year and a half, which opens up the door for Coke to expand their lead. Coke always held the bigger market share in the United States. But at times, Pepsi fueled by smarter and more aggressive advertising campaigns, moved ahead. U.S. Consumption of carbonated soft drinks has steadily declined in the past decade. Part of that comes down to the array of  alternative beverages the market now offers.