Comparison of quick ration and market performance of coca-cola and pepsi

Current Ratio

Current ratio shows the competence of how a company resolves its short-term debts. In other words, how fine a company is able to liquidate its business in short term. Commonly, a higher current ratio designates that the company is better in repaying its current liabilities with current assets. (Bragg 2017) Current ratio of Coca-Cola has increased from 1. 28 times to 1. 34 times while PepsiCo has increased from 1. 25 times to 1. 51 times from year 2016 to 2017 proving that PepsiCo is more liquefied in short-term compare to Coca-Cola over the year. PepsiCo’s degree of increase in the current ratio over time may indicate that the company is growing bigger in its capacity compare to Coca-Cola. Quick Ratio Quick Ratio tell us how fine the company’s capability to pay off their short term debts without taking the sales of inventory into account. This is because inventory is not as quickly adjustable to cash and is often sold on credit.

Coca-Cola’s quick ratio has increase from 1. 18 to 1. 25 while PepsiCo’s quick ratio has also increase from 1. 15 to 1. 37 times. This shows that both the companies is going through solid top-line growth, quickly changing receivables into cash so that it’s easier to be able to cover its financial obligations. Both company are doing quite well because the quick ratio from both company are exceed one but PepsiCo is performing better compare to Coca-Cola from the analysis. Due to the quick ratio are more than one which indicates the ability to payback debts therefore more banks or creditors are willing to borrow money to their company. Profitability Analysis Return on Capital Employed (ROCE) Return on Capital Employed will indicates how many dollars in profits each dollar of capital employed generates to investors which indicates how efficient while taking consideration long term financing with asset performing. Generally, the higher the ROCE ratio will be more favourable as it implies a more economical use of capital. (McClure 2017) ROCE should be higher than capital cost so that the company will be more productive and be more adequate in building shareholder value. The ROCE ratio of Coca Cola have decrease in year 2017 at 15. 12% compared to the ratio in year 2016 at 16. 76% while Pepsi co also had a decrease in ROCE ratio at 21. 44% in year 2016 to 20. 73% in year 2017. ROCE of both companies has reduced due to the decrease of net profit which was caused by the reduction in reinvested earnings.

Thus, there was an increase in long-term debt in both companies due to increasing interest payments and hence reducing the total equity amount of both of the companies. Even though there is a reduction in ROCE in both of the companies’ performance, ROCE of PepsiCo outperforms Coca-Cola by 5. 61% proving that PepsiCo is rather efficient in distributing its capital to build shareholders value compare to Coca-Cola. Net Profit Margin Net profit margin measures the proportion of income left after deducting all expenditures, taxes and interest and preferred stock dividends from the company’s total revenue. Coca-Cola’s net profit margin has decreased from 15. 64% to 3. 62% while PepsiCo’s has decreased from 10. 2% to 7. 7%. A decreasing rate for both companies shows that their ability to change revenues into profit obtainable for shareholders are reducing yet PepsiCo is still outperforming Coca-Cola based on the findings. Generally, when a company’s net profit margin is decreasing, a widespread range of issues could be responsible such as falling sales, poor customer experience, lacking expense management and many more. The main reason for the drop in profit for both companies is because of consumer factors and substitute goods factor as studies suggest that consumers are ditching sugary drinks.

Consumers have been switching to non-carbonated drinks and the sales volume has increased by 5 percent. (Choi 2017) However, this does not mean that PepsiCo has more cash received compare to Coca-Cola as this measurement does not take cash expenses such as deprecation into consideration. Gross Profit Margin Gross profit margin shows the profitability ratio of how much every dollar of earnings is left after subtracting cost of goods sold by a certain firm. Gross profit margin is the key measurement of effectiveness by which companies are compared among the rest in their overall industries. Coca-Cola’s gross profit margin increased from 60. 67% to 62. 56% while PepsiCo’s has decreased from 55. 08% to 54. 69% from year 2016 to 2017. The amount of retains on each dollar of sales to service its cost and obligations of Coca-Cola has increased by 1. 89% over the year while PepsiCo’s has reduced by 0. 39%. Activity Analysis Ratio Inventory Turnover Ratio Inventory turnover measures how effective a company can control its stocks and inventory.

The higher the turnover ratio, the better the company’s performance in handling its inventory and stock such as not excessively buying too much inventory and wastes resources by storing those inventory that are unable to sell. It also shows that the company can effectively sell the inventory it buys. This ratio also shows how well the liquidity of a company’s inventory is. Coca-Cola’s inventory turnover ratio has reduced from 5. 93 to 4. 97 while PepsiCo’s has reduced from 10. 37 to 10. 15 proves that PepsiCo outperforms Coca-Cola in liquidating its inventory due to the much higher sales of PepsiCo compare to Coca-Cola. PepsiCo and Coca-Cola are rivalry goods which consumers will choose only either one. Both Coca-Cola and PepsiCo are trying to adapt to the changing in consumer preference as carbonated drinks are less favourable. PepsiCo has the upper hand here as it has thriving snacks unit to outpace Coca-Cola.