Principles of Accounting II Sample
Principles of Accounting II Sample
Financial Analysis
For this assignment, you will apply what you have learned thus far from the unit lessons and required unit resources.
You will conduct a financial analysis of the Coca-Cola Company and PepsiCo. Write a five-page paper that evaluates each firm, and provide your findings and recommendation for investment or employment. Principles of Accounting II Sample
Your paper should consist of the components listed below.
- Provide a company overview for both companies, which should be one page in length.
- Include a comparison of three accounting methods (i.e., receivables, depreciation, and inventory valuation), which should be one page in length (formatted either as a table or an outline).
- Provide four ratio calculations (i.e., one ratio each for liquidity, solvency, profitability, and market) as well as an analysis, which should be two pages in length.
- Include your recommendations and conclusions, which should be one page in length.
You are encouraged to utilize the resources below to support your findings.
PepsiCo. (2019). 2018 PepsiCo annual report. https://www.pepsico.com/docs/album/annual-reports/2018-annual-report.pdf?sfvrsn=35d1d2bc_2 Principles of Accounting II Sample
U.S. Securities and Exchange Commission. (2019). Form 10-K: The Coca-ColaCompany (Commission File No. 001-02217). https://www.coca-colacompany.com/content/dam/journey/us/en/policies/pdf/shareowner-services/2018-annual-report-on-form-10-K.pdf
You may submit an appendix with any research you conducted—beyond the companies’ most recent 10-Ks—to support your analyses and recommendations. Your paper should include appropriate reference citations.
Write your responses in a Word document, and include at least two resources to support your findings. Adhere to APA Style when creating citations and references for this assignment.
Financial Analysis of the Coca-Cola Company and PepsiCo Inc.
Introduction
Coca-Cola Company and PepsiCo Inc. are the major players in the soft drink industry, controlling approximately 80% of the total market share cumulatively. The two companies have continued to shape the industry with research and innovation that keeps on the escalating competition. As the demand for a fashionable and wide range of soft drink keep on soaring, the industry continues to attract new players every day. The major products in this industry are carbonated non-alcoholic drinks and different varieties of mineral water. The industry is also characterized by syrups and concentrates of different kinds to supplement the carbonated soft drinks. This report will analyze the financial statements of Coca-Cola Company and PepsiCo Inc., provide a comparison of three accounting methods used by the two firms, and then provide ratio analysis. The report concludes with a recommendation for investors on the financial viability of the two firms
Coca-Cola Company Overview
Coca-Cola Company is the leading player in the soft drink industry. It was established in 1886 and has since grown to spread its operations across 200 countries. It currently manufactures and distributes over 2,800 coca-cola brands to its customers. Its product portfolio includes juices, coffee, tea, mineral water, coca-cola drink, energy drinks, and sports drinks. It takes pride in its repeatable global brands such as coca-cola, F anta, Sprite, and diet coke (U.S. Securities and Exchange Commission, 2019).
Coca cola’s continued dominance of the soft drink beverage industry is attributed to its consistent use of a 5P marketing mix that enables it to provide its customers with products which refresh their spirit, body, mind, and soul at a convenient price, place, and promotional strategies it has continued to add value to its customers and make a difference in their experience with its variety of products (U.S. Securities and Exchange Commission, 2019). To increase its market penetration and connection with customers, Coca-Cola has introduced a variety of new beverage brands to increase customer preference. Principles of Accounting II Sample
PepsiCo Inc. Overview
PepsiCo Inc. is a leading global manufacturer of soft drink products. It is based in Purchase; New York although it has since grown to become a multinational firm with outlets all over the world. The product portfolio of PepsiCo Inc. includes snacks made from grains, non-carbonated and carbonated soft drinks, and sweet foods that are distributed across over 200 nations in the world (PepsiCo Inc., 2019). The company is committed to achieving sustainable growth through the generation of revenues while giving its customers the best value for their money. It is also environmentally sensitive and focuses on enhancing social responsibility in its operations and activities by reducing the adverse impacts of its process on the environment.
The company is an equal opportunity employer that encourages diversity among its workforce. It prioritizes the recruitments of highly qualified employees and ensures sit motives and retains them for prosperity. The company focuses on initiatives that help it to improve its performance and increase return on shareholders’ equity (PepsiCo Inc., 2019). The company currently has 180,000 employees working across its products plants spread globally.
A comparison of three accounting methods (i.e., receivables, depreciation, and inventory valuation), which should be one page in length (formatted either as a table or an outline).
The use of the receivables accounting method at PepsiCo Inc. shows that the company has been collecting its receivables early enough without leaving them to get overdue on the customers’’ account. Similarly, Coca Cola has managed to ensure that its accounts receivables are up to date by limiting the amount which is left on the customers’ account. Both PepsiCo Inc. and Coca-Cola rely on the straight-line depreciation method of accounting to account for depreciation on their assets. They include the accumulated depreciation and amortization of accumulated depreciation in their final financial statements to get the market and book value of their ending assets. While PepsiCo Inc. Uses the FIFO method of inventory valuation, Coca-Cola uses the LIFO method of inventory valuation. This means that the ending stock and opening stock of PepsiCo Inc. will be overvalued and undervalued respectively (PepsiCo Inc., 2019). For Coca Cola, the ending and opening stocks will be undervalued and overvalued due to their LIFO inventory valuation method (U.S. Securities and Exchange Commission, 2019). Table 1 below illustrates these comparisons. Principles of Accounting II Sample
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| Company | PepsiCo Inc. | Coca Cola Company |
| Accounts Receivable | Higher | Lower |
| Depreciation | Straight Line | Straight Line |
| Inventory Valuation | FIFO | LIFO |
Table 1: comparison of accounting methods for PepsiCo Inc. and Coca-Cola Company.
Provide four ratio calculations (i.e., one ratio each for liquidity, solvency, profitability, and market) as well as an analysis, which should be two pages in length.
The liquidity ratios of Coca Cola and PepsiCo Inc. illustrate the ability of the companies to utilize their current assets to offset their current liabilities. Going by the 2019 financial report, PepsiCo Inc. has managed to maintain an average of 1.246 in the current ratio meaning that its current assets are 1.246 times its current liabilities (PepsiCo Inc., 2019). On the other hand, Coca-Cola has managed to maintain a current ratio of 0.98, indicating that its current assets are 0.98 times its current liabilities (U.S. Securities and Exchange Commission, 2019).
The solvency ratios of PepsiCo Inc. and Coca Cola Company illustrate how solvent the companies are. It is a ratio that tells the composition of the capital stricture of the two companies based on the ratio of debt to equity. PepsiCo Inc. had a total debt to equity ratio of 1.178, meaning that its debt was 1.178 times the equity in its capital structure (PepsiCo Inc., 2019). On the other hand, Coca-Cola had an average debt to equity ratio of 0.89 meaning that its debt was 0.898 times its equity. The two debt to equity ratios illustrates the company has most of its capital funded by debt that denotes some level of less solvency in its capital structure.
Efficiency ratios measure the ability of a firm to utilize its assets to generate revenue. For the case of return on assets ratio, PepsiCo Inc. and Coca-Cola companies can measure the amount of net income earned from every asset they own. While PepsiCo Inc. had a return on asset ratio of 15.98%, Coca Cola had a return on net asset of 15.96%. in either case, the two companies were operating efficiently because each dollar asset generated 15.97% and 15.98% of their total revenue (PepsiCo Inc., 2019).
Profitability ratios illustrate the performance of firms by combining the aspect of debt, asset, and liquidity management in generating profitable results from their operations. PepsiCo Inc. had a Gross profit margin ratio of 52.98% while Coca-Cola had a gross profit margin of 65.98%. The market measure ratios illustrate the performance of the firms’ stock in the stock market (U.S. Securities and Exchange Commission, 2019). This ratio denotes the earnings from trading on stocks of the respective companies by taking into consideration both present and future forces. PepsiCo Inc.’s market value to price ratios was an average of $43.89 while that of Coca-Cola was $1.67 during the same period (PepsiCo Inc., 2019).
Generally, PepsiCo Inc. has a better liquidity ratio than that Coca Cola meaning that it is better placed to pay off its current liabilities faster than Coca Cola. However, Coca Cola has a better capital structure than PepsiCo Inc. because it has more equity than debts in its capital financing. However, PepsiCo Inc. has a higher capital structure ratio compared to the industry ratio which means it has more debts in its capital than equity (U.S. Securities and Exchange Commission, 2019). PepsiCo Inc. has a better return on investment ratio, asset utilization, and market measurement than Coca Cola. Principles of Accounting II Sample
Recommendations and Conclusions
Based on the financial analysis of PepsiCo Inc. and Coca Cola Company, it is evident that PepsiCo Inc. is more financially stable, leveraged, gearing, has a better market performance and profitability compared to Coca Cola Company. However, the market margins and leverage of PepsiCo Inc. are lower than that of Coca Cola Company. None the less, Coca Cola continues to hold a significant portion of the global beverage industry with PepsiCo Inc. being its major competitor (U.S. Securities and Exchange Commission, 2019). PepsiCo Inc. should thus focus on improving its profitability while reducing its debt portion in its capital structure to ensure that it remains leveraged and gearing. For a potential investor who would like to invest in either company, it is recommended that he or she settles for PepsiCo Inc. and not Coca Cola. PepsiCo Inc. stocks have yielded steady returns over the past years and stand to continue to generate profits for its shareholders in the foregoing future gong by the positive financial ratios discussed above. None the less, investors should remain cautious of unforeseen market dynamics that may change the trend of PepsiCo Inc.’s financial performance going forward.
References
PepsiCo Inc.. (2019). 2018 PepsiCo Inc. annual report. https://www.PepsiCo Inc..com/docs/album/annual-reports/2018-annual-report.pdf?sfvrsn=35d1d2bc_2
U.S. Securities and Exchange Commission. (2019). Form 10-K: The Coca-Cola Cola Company (Commission File No. 001-02217). https://www.coca-colacompany.com/content/dam/journey/us/en/policies/pdf/shareowner-services/2018-annual-report-on-form-10-K.pdf Principles of Accounting II Sample
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