Introduction
The global non-alcoholic beverages market continues to grow due to increasing demand for soft drinks, juices, tea, coffee, water, dairy drinks, and other products. The Coca-Cola Company (Coca-Cola), Keurig Dr. Pepper Inc. (KDP), and PepsiCo Inc. (PepsiCo) are among the leading companies in the market. The purpose of this paper is to discuss the financial health of these corporations and make a recommendation to investors. For informed investment decisions, a company overview will be provided along with the financial analysis, including the calculation of ratios and the comparison of the accounting methods. Based on the comparative financial statement analysis of the three non-alcoholic beverage retailers, it can be indicated that PepsiCo is the best option for investment due to the stability it can provide for the investors.
Company Overview
The Coca-Cola Company
The Coca-Cola Company is a globally recognized manufacturer and distributor of non-alcoholic beverages, known as one of the leaders in the industry. The company is based in the United States, with headquarters located in Atlanta, Georgia. Its products are offered in over 200 countries and territories in the world, with more than 200 brands available for the customer to choose from (the Coca-Cola Company, 2018).
The Coca-Cola Company produces carbonated soft drinks, waters, juices, coffees, teas, and dairy and plant-based drinks, providing various flavors and low-calorie options. Among the popular beverages, there are Coca-Cola, Sprite, Fanta, Schweppes, DASANI, Ciel, smartwater, Minute Maid, POWERADE, Vitamin Water, Innocent, Georgia Coffee, Costa Coffee, Fuze Tea, Gold Peak, Honest Tea, and many others (“Brands,” n.d.). The company’s competitors are PepsiCo Inc., Keurig Dr. Pepper Inc., Red Bull, Nestle, Danone, and Unilever.
The Coca-Cola Company’s competitive advantage strategy revolves around several key factors, such as marketing, product quality, innovation, and research. The corporation focuses on differentiating its brand and demonstrates its dedication to evolve and digitalize in order to resonate with customers and increase profitability. The use of technology, digitalization, and innovation allows Coca-Cola to maintain high sales rates and quickly adapt its brand to constant changes.
Keurig Dr. Pepper Inc.
Keurig Dr. Pepper Inc. is a leading cold and hot beverage producer and distributor in North America, with its headquarters located in Plano, Texas. The company has access to profitable areas in the beverage industry. In particular, it offers beverages in numerous categories, such as flavored soft drinks, waters, juices, mixers, juice drinks, ready-to-drink coffees and teas, and specialty coffee. Keurig Dr. Pepper Inc. is characterized by a diverse portfolio of over 125 brands. It includes Dr. Pepper, 7UP, Schweppes, A&W, Canada Dry, Sunkist, Green Mountain, Tully’s Coffee, Van Houtte, Timothy’s World Coffee, The Original Donut Shop, Snapple, evian, Hawaiian Punch, and Vita Coco (“Our family of brands,” n.d.).
The company aims to satisfy the growing demand for non-alcoholic beverages of a broad audience of consumers. The primary competitors for Keurig Dr. Pepper Inc. are the Coca-Cola Company, PepsiCo, Kraft Heinz, Nestle, Red Bull, Diageo, and Ambev (Keurig Dr. Pepper, 2018). The corporation has a competitive advantage due to its strong brand and distribution networks that allow for successful expanding operations with steady gross profit growth.
PepsiCo Inc.
PepsiCo Inc. is another leading beverage, food, and snack corporation with its headquarters situated in Harrison, New York. Its products are offered in over 200 countries and territories in the world, targeting consumers with various preferences. PepsiCo Inc. is one of the largest non-alcoholic beverage manufacturers globally, producing soft drinks, juices, water, ready-to-drink coffees, and teas, as well as energy and sports drinks (PepsiCo, 2016). Furthermore, the company offers a full range of packaged foods, chips, and other snacks. Among the most recognized brands, there are Pepsi, Pure Leaf, Mountain Dew, bubly. Gatorade, Tropicana, Starbucks Refreshers, Aquafina, Izze, Brisk, Kevita, Lipton, Schweppes, Bare Snacks, Lay’s, Doritos, Frito-Lay, and Quaker (“Product information,” n.d.).
The Coca-Cola Company, Keurig Dr. Pepper, Kellogg, Campbell Soup, Nestle, Unilever, Danone, Red Bull, Kraft Foods Group, Conagra Brands, and Britvic are among the primary competitors of PepsiCo. As a result, PepsiCo’s profitability and sustainability are supported by powerful brand and competitive strategies, including sales promotions, pricing, packaging systems, and innovation of products and ingredients. Furthermore, the corporation relies on recognition, brand loyalty, quality and differentiated products, express service delivery, and customer satisfaction.
Ratio Analysis
The screenshots of the financial statements and information obtained for the ratio analysis are provided in the Appendix.
Current Ratio
Current ratio = Total Current Assets / Total Current Liabilities.
Coca-Cola: 36,545 / 27,194 = 1.34.
KDP: 2,159 / 5,702 = 0.38.
PepsiCo: 27,089 / 21,135 = 1.28.
The calculations imply that the Coca-Cola Company is in the strongest position with a value of 1.34, followed by PepsiCo, while Keurig Dr. Pepper might encounter short-term liquidity issues.
Quick Ratio
Quick Ratio = (Cash + Cash Equivalents + Short-Term Investments + Accounts receivable) / Total Current Liabilities
Coca-Cola: (15,358 + 3,667) / 27,194 = 0.7.
KDP: (83 + 44+ 1,150) / 5,702 = 0.22.
PepsiCo: (9,158 + 6,967 + 6,694) / 21,135 = 1.08.
As can be seen, PepsiCo has enough liquid assets to pay off current liabilities instantly, while the Coca-Cola Company and Keurig Dr. Pepper might not be able to pay off current liabilities at short notice.
Gross Profit Percentage
Gross Profit Percentage = (Net Sales – Costs of Goods Sold) / Net Sales * 100
Coca-Cola: (35,410 – 13,256) / 35,410 = 0.63 = 63%.
KDP: (7,442 – 3,560) / 7,442 = 0.52 = 52%.
PepsiCo: (62,799 – 28,209) / 62,799 = 0.55 = 55%.
This calculation indicates that the Coca-Cola Company has the highest gross profit percentage, implying that it can successfully produce a profit above the costs.
Inventory Turnover
Inventory Turnover = Cost of Goods Sold / Average Inventory
Average Inventory = (Beginning Inventory + Ending Inventory) / 2
Coca-Cola: 13,256 / 2665 = 4.97.
KDP: 3,560 / 505 = 7.05.
PepsiCo: 28,209 / 2721.5 = 10.37.
These calculations suggest that PepsiCo is the most successful in selling its products quickly, followed by Keurig Dr. Pepper and the Coca-Cola Company.
Accounts Receivable Turnover
Accounts receivable turnover = Net Credit Sales / Average Accounts receivable
Average Accounts receivable = (Accounts receivable at the beginning + Accounts receivable at the end) / 2
Coca-Cola: 35,410 / 3761.5 = 9.41.
KDP: 7,442 / 816.5 = 9.11.
PepsiCo: 62,799 / 6565.5 = 9.56.
As can be seen, all three companies have a similar accounts receivable turnover, with PepsiCo having the highest indicator that implies a safer investment.
Asset Turnover
Asset Turnover = Net Sales / Average Total Assets
Average total assets = (Total Assets at the beginning + Total Assets at the end) / 2
Coca-Cola: 35,410 / 87583 = 0.4.
KDP: 7,442 / 32331 = 0.23.
PepsiCo: 62,799 / 71898 = 0.87.
The results imply that PepsiCo is more efficient at generating revenue from assets than the Coca-Cola Company and Keurig Dr. Pepper.
Liquidity Issues and Factors Affecting the Ratio Results
Liquidity ratios are used to measure a firm’s ability to pay off its short-term debt obligations. According to Linares-Mustarós et al. (2018), a current ratio of over 1 implies that the company can pay off debt at short notice. In contrast, an indicator of under 1 suggests that a firm might encounter short-term liquidity issues. As the calculations show, the Coca-Cola Company’s current ratio value of 1.34 places it at the top of the list. At the same time, PepsiCo is marked by a relatively high current ratio of 1.28, while Keurig Dr. Pepper is at risk of experiencing short-term liquidity issues with its 0.
According to Dieste et al. (2021), a quick ratio of 1 indicates that the company’s quick assets and current assets are equal. Furthermore, this ratio measures whether a firm can pay off its current liabilities without selling long-term assets. Based on the calculations, PepsiCo is in a strong position with an indicator of 1.08, implying that its quick assets exceed current liabilities. At the same time, the Coca-Cola Company with a quick ratio indicator of 0.7 and Keurig Dr. Pepper with 0.22 might not be able to pay off their current liabilities at short notice. It is worth noting that the following factors can be erroneously influencing the results of the ratios: misclassifications of liabilities, seasonal products, and services, along with revenue fluctuations.
Comparison of Accounting Methods
The allowance method is used to estimate bad debts and uncollectible accounts receivable and set a reserve in advance. The direct write-off method for accounts receivable refers to writing off bad debt expenses against the receivable accounts.
As larger corporations, the Coca-Cola Company, Keurig Dr. Pepper, and PepsiCo use the allowance method for their accounts receivable. The straight-line approach utilizes the same amount of depreciation over months or years, while the double-declining balance method can be identified as its form that accelerates the depreciation. The unit-of-production depreciation technique calculates the depreciation of the asset’s value over time (Linares-MustarĂłs et al., 2018). Pepsi Co and the Coca-Cola Company imply the straight-line method, while Keurig Dr. Pepper is characterized by the double-declining balance approach.
LIFO refers to “last in, first out” and assumes that the most recent products are sold first. FIFO stands for “first in, first out” and suggests that the oldest goods are sold first. Both the Coca-Cola Company and Keurig Dr. Pepper use the FIFO approach, while PepsiCo combines both. Different categories of intangible assets are goodwill, patents, trademarks, and copyrights. In this regard, the Coca-Cola Company anticipates using the assets indefinitely. Keurig Dr. Pepper determines both definite and indefinite-lived assets, and PepsiCo records property, plant, and equipment in historical order.
Final Recommendation and Conclusions
To conclude, the comparative financial statement analysis of the three non-alcoholic beverage retailers provides a basis for investors to choose one of the companies as the preferable option. I must admit that all three companies are positioned strongly while involving certain risks. However, out of the three options compared, I would recommend investing in the PepsiCo company due to its high Quick Ratio, Inventory Turnover, Accounts Receivable Turnover, and Asset Turnover. Only two indicators are higher for the corporation’s rival, the Coca-Cola Company: Current Ratio and Gross Profit Percentage. Overall, PepsiCo can run the business successfully while handling the market risks involved.
References
Brands. (n.d.). The Coca-Cola Company. Web.
The Coca-Cola Company. (2018). The Coca-Cola Company: Form 10-K. Web.
Dieste, M., Panizzolo, R., & Garza-Reyes, J. A. (2021). A systematic literature review regarding the influence of lean manufacturing on firms’ financial performance. Journal of Manufacturing Technology Management, 32(9), 101-121. Web.
Keurig Dr. Pepper. (2018). Keurig Dr. Pepper 2018 Annual Report. Web.
Linares-MustarĂłs, S., Coenders, G., & Vives-Mestres, M. (2018). Financial performance and distress profiles: From classification according to financial ratios to compositional classification. Advances in Accounting, 40, 1-10. Web.
Our family of brands. (n.d.). Keurig Dr. Pepper. Web.
PepsiCo. (2016). 2016 PepsiCo Annual Report. Web.
Product information. (n.d.). PepsiCo. Web.