Coca Cola and Pepsi Profitability Analysis Essay

Custom Student Mr. Teacher ENG 1001-04 28 March 2016

Coca Cola and Pepsi Profitability Analysis

Gross profit margin(2013) = 100 × 28,433/46,854 = 60.68%
Gross profit margin(2012) = 100 x 28,964/ 48,017=60.32%
Gross profit margin(2011) = 100 x 28,326 = 60.86%
Source: PepsiCo Inc. Annual Reports
Gross profit margin (2013) = 100 x 35,172/66,415 = 52.96%
Gross profit margin (2012) = 100 x 34,201/65,492 = 52.22%
Gross profit margin (2011) = 100 x 34,911/66,504 = 52.49%

Gross profit margin is a resource for paying extra expenses and future cutbacks. Coca-Cola Co. gross profit margin declined from 2011 to 2012 but then inclined from 2012 to 2013. However, it did not reach the level of 2011. PepsiCo Inc.’s gross profit margin, on the other hand, decreased from 2011 to 2012 however it improved from 2012 to 2013 go over 2011’s level. Comparing the two companies, Coca-Cola Co. has a higher gross profit margin which shows superior fraction of revenue existing to coat operating and other costs. Net Profit Margin (USD $ in Millions)

Coca-Cola Co.
2013
2012
2011
Net Income Before Minority Share of Earnings, Equity Income, and Nonrecurring items

8,584

9,019

8,572
Net Sales
46,854
48,017
46,542
Net Profit Margin
18.32 %
18.78 %
18.42 %
Source: Coca-Cola Co. Annual Reports

Net Profit Margin (2013) = 100 x 8,584/ 46,854 = 18.32%
Net Profit Margin (2012) = 100 x 9,019/48,017 = 18.78%
Net Profit Margin (2011) = 100 x 8,572/46,542 = 18.42%

PepsiCo
2013
2012
2011
Net Income Before Minority Share of Earnings, Equity Income, and Nonrecurring Items

6,740

6,178

6,443
Net Sales
66,415
65,492
66,504
Net profit margin
10.15 %
9.43 %
9.69 %
Source: PepsiCo Inc. Annual Reports

Net Profit Margin(2013) = 100 x 6,740/66,415 = 10.15%
Net Profit Margin(2012) = 100 x 6,178/65,492 = 9.43%
Net Profit Margin(2011) = 100 x 6,443/66,504 = 9.690%

Net profit margin is an indicator “of profitability, computed as net income divided by revenue. It measures how much out of every dollar of sales a company actually keeps in earnings“.(Wintner & Tardif, 2006, p349)Coca-Cola Co. net profit margin improved as of 2011 to 2012 although decreased drastically starting 2012 to 2013.PepsiCo Inc. net profit margin go down beginning of year 2011 to year 2012 but after that recovered from 2012 to 2013 going beyond the level of 2011. The figures above indicate that Coca-Cola Co. has a elevated profit margin compare to PepsiCo Inc., which indicates more cost-effective corporation which better control its costs compared to Coca-Cola Inc. Total Asset Turnover (USD $ in Millions)

Source: Coca-Cola Co. Annual Reports

Total assets turnover(2013) = 46854/90055 = 0.52
Total assets turnover(2012) = 48017/86174 = 0.56
Total assets turnover(2011) = 46542/79974 = 0.58
PepsiCo Inc.
2013
2012
Net revenue
66415
65492
Total assets
77478
74638
Total assets turnover
0.85
0.87
Source: PepsiCo Inc. Annual Reports

Total assets turnover (2013) = 66415/77478 = 0.85
Total assets turnover (2012) = 65492/74638 = 0.87
Coca-Cola Co.’s net profit margin enhanced from 2011 to 2012 nevertheless go down considerably as of 2012 toward 2013. PepsiCo Inc.’s net profit margin, on the other hand, worsens since 2011 to year 2012 but raised the following year exceeding the level of 2011. The figures above indicate that PepsiCo Inc. has a higher Total Assets Turnover comparing to Coca-Cola Co. which shows that PepsiCo turns its assets faster into sales. Asset Turnover is connected to Return on Assets (ROA) through Du Pont formula.

DuPont Return on Assets (ROA) (USD $ in Millions)
Coca-Cola Co.
2013
2012
2011
Net Profit Margin
18.32%
18.78%
18.42%
Asset Turnover
0.52
0.56
0.58
Return on Assets(ROA)
9.52
10.51
10.68
Source: Coca-Cola Co. Annual Reports
ROA(2013) = 18.32% x 0.52 = 9.52
ROA(2012) = 18.78% x 0.55 = 10.51
ROA(2011) = 18.42% x 0.58 = 10.68

PepsiCo Inc.
2013
2012
Net Profit Margin
10.15%
9.43%
Asset Turnover
0.85
0.87
Return on Assets (ROA)
8.62
8.20
Source: PepsiCo Inc. Annual Reports
ROA(2013) = 10.15% x 0.85 = 8.62
ROA(2012) = 9.43% x 0.87 = 8.20

The ROA numbers provides investors with an overview of how efficiently the business is converting the investment into net income. (Gibson, 2009) Coca-Cola Co. ROA decreased starting of 2011 to 2012 as well as as of 2012 towards 2013. PepsiCo Inc. ROA, on the other hand, declined from year 2011 to 2012’s level however later inclined since 2012 towards 2013, however it did not reach the level of 201l. Nevertheless, Coca-Cola has a higher the ROA numbers compare to PepsiCo. which shows that the business earns more capital on a smaller amount of investment.

DuPont Return on Equity(ROE) (USD $ in Millions)
Coca-Cola Co.
2013
2012
2011
Net Income
8,584
9,019
8,584
Total Shareholder Equity
33,173
32,790
31,635
Return on Equity (ROE)
25.87%
27.50%
27.13%
Source: Coca-Cola Co. Annual Reports

ROE(2013) =100 x 8,584/33,173 = 25.87%
ROE(2012) = 100 x 9,019/32,790 = 27.50%
ROE(2011) = 100 x 8,584/31,635 = 27.13%
PepsiCo Inc.
2013
2012
2011
Net Income
6,740
6,178
6,443
Total Shareholder Equity
24,279
22,294
20,588
Return on Equity(ROE)
27.76 %
27.71 %
31.29 %
Source: PepsiCo Inc. Annual Reports

ROE (2013) = 100 x 6,740/24,279 = 27.76%
ROE(2012) = 100x 6,178/ 22,294 = 27.71%
ROE(2011) = 100 x 6,443/20,588 = 31.29%

Return on Equity (ROE) determines how sound a company makes use of reinvested earnings to make more earnings. ROE is utilized as a common hint of the business effectiveness. In other words, what amount of revenue the business is capable to generate with the resources provided by its stockholders. (Gibson,2009) Coca-Cola Co.’s ROE increased as of 2011 towards 2012 except that later declined considerably from 2012 to 2013.PepsiCo Inc.’s ROE, on the other hand, decreased starting year 2011 to 2012 but then slightly rise up from 2012 to 2013. Based on the numbers above, we can conclude that PepsiCo Inc. has a competitive advantage over Coca-Cola Co. because it has a higher ROE, which means that is growing profits without pouring new capitals into business.

References
Wintner, S., Tardif, M. (2006)Financial Management for Design Professionals: The Path to Profitability. MA: Kaplan AEC Education. Retrived from: http://finance.yahoo.com/news/abercrombie-fitch-no-profits-just-225850116.html?&session-id=7b3af266ae1a387aaf0cfe6dca24ba10 Gibson, C. (2009)Financial Reporting & Analysis. Using Financial Accounting Information (11the Ed) MA: South-Western Cengage Learning, Mason,OH

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