Coca Cola and Pepsico Case

Coca Cola and PepsiCo are both instantly recognizable companies around the world. Products from both companies are some of the most well-know products throughout most any country. Both companies have been creating, manufacturing, and distributing soft drinks and other products such as bottled water for years, and as the two companies have been competing customers in a very competitive market for most of their existence. Many refer to the rivalry between Coca-Cola and Pepsi as the Cola Wars. In the market of soft drinks there are many companies all competing for the same business, some are small local companies and some are large multinational companies but the primary competitor of PepsiCo, Inc is Coca-Cola, and vice versa. The operations of both companies extend well beyond the borders of the United States. Coca-Cola and PepsiCo, Inc both market to consumers around the globe, and of virtually all income segments. Each company produces similar products and services (Coca Cola Company, 2010). It is common knowledge that when a company makes the decision to venture beyond its domestic territory many challenges await, primarily the production and distribution of the merchandise becomes a concern. Will it be less expensive to manufacture it domestically and ship the product to the new markets, or is it less expensive to open a distribution facility in the new market. Both PepsiCo and Coca-Cola own and operate manufacturing facilities in numerous countries throughout the world. Each company closely watches the other and is typically quick to launch similar advertising campaigns and promotions to market their existing products or invent new products to meet the ever-changing demands of the worldwide consumer base to which they each market (Wikipedia, 2010). Because each of the companies is multinational, they frequently encounter risks when attempting to enter a new market; they must consider several issues such as legal risk, political risk, and business risk. The companies are constantly aware that not everyone will enjoy the Financial Analysis 3 same products. Tastes change from one country to the next and even from one state to the next. Each of the companies works to maintain a high level of ethical and moral standards. Both companies, along with most other major corporations, have public relation department, which has the primary function of ensuring the companies goals and visions are properly communicated with the targeted audience. Both companies are very active members of the communities in which they do business. From offering educational grants, money to support the arts, and housing and basic necessities for those in need, the welfare of their customer is a concern of both companies. (Coca-Cola Co & PepsiCo, Inc, 2010). Horizontal Analysis PepsiCos total revenue in 2005 and 2004 (in millions) were $32,562 and $29,261 respectively. The company had significantly more net revenue in 2005 than that in 2004. The base year of this analysis is 2004. The net revenue of the company in 2005 grew by 11% when compared to net revenue in 2004. The total revenue of Coca-Cola in 2005 and 2004 (in millions) was $23,104 and $21,742 respectively. Coca-Cola recorded net revenue below PepsiCo in both 2004 and 2005. Coca-Colas net revenue increased 106.26% over the net revenue recorded in 2004. However, the net revenue in 2005 increased from 2004 by 6.26% (Weygand, Kimmel, & Kieso, 2008). The cost of goods sold by PepsiCo (in millions) was $11,031 in 2004 and $12,314 in 2005. The cost of goods sold in 2005 was 111.63% higher than in 2004. Coca-Colas cost of goods sold was (in millions) $7,674 in 2004 and $8,195 in 2005, which represents an increase of 106.79% year over year. PepsiCos sales and administration costs were $12,674 in 2004 and $14,176 in 2005 (in millions). PepsiCos operating expenses were 111.85% in 2005, which translates into an increase of 11.85% when compared to operating expenses in 2004. Coca-Cola Financial Analysis 4 reported operating expenses in 2005 of 110.75%, which was an increase of 10.75% when compared to the companies 2004 operating expenses. This is why the operating expenses were higher for PepsiCo, Inc than Coca Cola (Weygand, Kimmel, & Kieso, 2008). In 2004, PepsiCo had an operating income of $5,259 and $5,922 in 2005. The operating income of Coca-Cola for the same two years was $5,698 and $6,085 respectively. A horizontal analysis shows that the total operating income of PepsiCo in 2005 was 112.61% over the previous years operating income; the operating income of Coca Cola increased 106.79% between 2004 and 2005. Both companies posted a significant amount of interest expenses. In 2005, Coca-Cola reported interest expenses of $240 and PepsiCo reported interest expenses of $256 (in millions). The analysis indicates that because PepsiCo posted a net income of $4,078 in 2005 and only $4,212 in 2004, which is a reduction of 3.18% the company incurred a loss in 2005 when compared to 2004. In 2005 Coca-Cola posted a net income of $4,847, and a net income of $4,872 in 2004; therefore, Coca-Cola saw an increase to net income of 0.52% (Weygand, Kimmel, & Kieso, 2008). Consolidated Balance Sheet In 2004, PepsiCo reported its total current assets as $8,639 and $10,454 (in millions) in 2005, which indicates an increase in assets of 21.01% year over year. Total current assets of Coca Cola were $10,250 in 2004 and $12,281 in 2005. The liabilities reported in 2005 were roughly 16% less than in 2004. Therefore, the assets were 21.01% more than previous year's current assets. During the same period, the current assets Coca-Cola of were 16.57% less than previous year's