Comparing Coca Cola, Dr Pepper, and Pepsi: A Financial Statement Analysis, Thesis of Business Accounting

Download Comparing Coca Cola, Dr Pepper, and Pepsi: A Financial Statement Analysis and more Thesis Business Accounting in PDF only on Docsity! Why Investing in PepsiCo is A Great Idea ACC205: Principles of Accounting I Company Overview Companies are always looking to expand, whether it be in the country they already have firms in or whether their plans are bigger and they are looking to expand across seas. Companies can expand internationally but it costs a great deal therefore it is important that companies put in the time and commitment to the project at hand. Countries are developing greater openness to international trade since the 1960’s, so it is becoming an inevitable way for businesses to grow. In this paper, I will be comparing the differences between 3 well known companies: Coca Cola, Dr Pepper, and Pepsi. The Coca Cola company was established in the year of 1886 in Atlanta. In the first year, John Pemberton, who was the creator, sold an average of nine servings of Coca Cola each day. That number has increased to 1.9 billion servings of company products today. Coca Cola belongs in the non- alcoholic industry. The company owns and markets more than 500 nonalcoholic beverage brands which are grouped into the following categories: sparkling soft drinks, water, enhanced water, sports drinks, juice, dairy, and plant-based beverages, tea, coffee, and energy drinks. It also offers concentrates, syrups, beverage bases, source waters, powders, and minerals, as well as fountain syrups to fountain retailers, such as restaurants and convenience stores. The main products are four of the world’s top five nonalcoholic sparkling soft drink brands: Coca- Cola, Diet Coke, Fanta, and Sprite. The Coca Cola company’s top competitors include Britvic, Red Bull, Fever-Tree Monster Beverage, Pepsico, and Tropicana Products. While the company’s headquarters is located in Atlanta, GA, the company has thousands of different locations all over the world (The Coca Cola Company. 2017). The second company is Dr. Pepper. Keurig Dr Pepper which belongs in the non alcoholic beverage industry. It is a leading beverage company in North America and the first to bring hot and cold beverages together at scale. Keurig Dr Pepper has a portfolio of more than 125 owned, licensed, and partner brands with leadership across numerous beverage categories which includes: coffees, flavored soft drinks, teas & waters, juices, juice drinks, and mixers. The company’s competitors include Coca Cola, Admiral Beverage, and PepsiCo. Keurig Dr Pepper ranks 1st in Gender Score on Comparably vs its Company records trade accounts receivable at net realizable value. Its accounts receivable turnover is 8.58. Keurig Dr Pepper’s accounts receivable turnover is 9.42. “PepsiCo’s accounts receivable turnover is 9.04” (CSIMarket, n.d.). Inventory turnover ratios can be defined as a ratio showing how many times a company’s inventory is sold and replaced over a period. It’s also known as inventory turns. The inventory turnover formula can be calculated by dividing the cost of goods sold by average inventory. Keuring Dr Pepper’s inventory turnover is 11.77 times a year with an inventory period of 31 days. Coca Cola’s inventory turnover is 4.99 times a year with an average inventory period of 73 days. PepsiCo’s inventory turnover is 9.77 times annually with an average inventory interval of 37 days. The final part of the ratio analysis is the asset turnover ratio. “The asset turnover ratio measures the value of a company’s sales or revenues relative to the value of its assets. It can be used as an indicator of the efficiency with which a company is using its assets to generate revenue” (Miller-Nobles, Mattison, Matsumura, 2018, p. 603). To calculate the asset turnover ratio divide total sales by average total assets. Coca Cola has the asset turnover ratio of 0.4. Keurig Dr Pepper has the asset turnover ratio of 0.5. Pepsico has the asset turnover ratio of 0.8. Ratio analysis is hindered by potential limitations with accounting and the data in its financial statements which includes errors as well as accounting mismanagement where it’s distorting the raw data used to derive financial ratios. With that being said, those are the factors that could be erroneously influencing the results of the ratios. The liquidity ratios of the three companies reveal that both PepsiCo and Coca Cola have significant strengths and can meet their current liabilities while Keurig Dr Pepper may encounter a liquidity crisis due to its weaker financial power. Comparison of Accounting Methods The direct write-off method recognizes bad accounts as an expense at the point when judged to be uncollectible and is the required method for federal income tax purposes. It offsets uncollectable debts upon a determination that the client cannot pay. Allowance method uses an estimated bad debts reserve where all three companies use the allowance method. Double declining balance is a method that pertains to a constant decrease of depreciation against an asset’s progressive life. Unity of production depreciation method is where the degree of activity experienced by an asset is considered per unity of activity. Straight line depreciation entails uniform charge of reduction over the whole useful life, all three companies use the straight line depreciation method. Businesses especially big companies like Coca Cola, Keuring Dr Pepper, and PepsiCo would not flow properly without certain accounting methods. Companies use accounting methods to determine its inventory cost to have an impact on its financials. The U.S. generally accepted accounting principles (GAAP) allow businesses to use one of the everal accounting methods: first-in, first-out (FIFO) and last-in, last-out (LIFO). The FIFO method refers to a stock costing and control method where old inventory is removed first whereas LIFO is where the newer stock is removed first. PepsiCo and Keuring Dr Pepper use both LIFO while Coca Cola just uses FIFO. “An intangible asset is an asset that is not physical in nature, they are long-term assets. Intangible assets include goodwill, trademarks, patents, copyrights, and franchises. Goodwill refers to a firm’s acquisition price less net assets” (Miller-Nobles, Mattison, Matsumura, 2018, p. 556). The others provide a legal provision for a company’s operations and ownership. Keurig Dr Pepper and PepsiCo use mainly goodwill while Coca Cola uses franchise, trademarks, and goodwill. Recommendation This financial statement analysis paper made me realize that PepsiCo has the strongest financial performance based on its liquidity ratios. PepsiCo calso recorded better productivity based on the efficiency rations. I would definitely recommend PepsiCo to an investor because the company has such great chances to generate revenue from its assets. References: Bragg, S. (2019). Liquidity Ratio. Accounting CPE Courses & Books. Retrieved from https://www.accountingtools.com/articles/2017/5/16/quick-ratio-acid-ratio-liquidity-ratio CFI Education Inc. (2015). Knowledge-Finance. Retrieved from https://corporatefinanceinstitute.com/resources/knowledge/finance/current-ratio-formula/ CSIMarketCompany. (n.d.). PepsiCo Accounts Receivables Turnover Ratio. Retrieved from https://csimarket.com/stocks/singleEfficiencyrt.php?code=PEP Kenton, W. (2020). Corporate Finance & Accounting. Retrieved from https://www.investopedia.com/terms/q/quickratio.asp Keurig Dr Pepper. (2018). 2018 Annual Report [PDF]. Retrieved from Keurig Dr. Pepper Annual Report