Comparative financial statement analysis of pepsico and coca cola

Running Head: “COMPARATIVE FINANCIAL STATEMENT” 2

“COMPARATIVE FINANCIAL STATEMENT” 2

“Comparative Financial Statement”

Tamara Golson

Accounting 205 Principles of Accounting I

Instructor Keith Graham

April 13,2020

Comparative Financial Statement

Different companies have embraced the importance of financial statements as a tool for reviewing, analyzing and gauging their past, present and even predicting the future financial performance. There are different techniques commonly used during preparation of financial statements. The paper below describes the comparative financial statements for Coca-Cola Company, Keurig Dr. Pepper Inc. and PepsiCo companies.

“Company Overview”

Coca-Cola Company is a beverage company based in Atlanta, Georgia. It is popular for the production of non-alcoholic carbonated beverages, concentrates and syrups, which it markets and sells in different parts of the world. The company produce over 500 brands of the beverages it markets from over 200 countries in the world. Other than the non-alcoholic carbonated drinks, the company also produces, markets and distributes other kinds of drinks such as water and enhanced water, juice, ready tea and coffee as well as sports and energy drinks. The company has been facing quite a number of challenges within the beverage industry, among them being competition. The industry has been characterized with a number of companies that have been able to attract a large share of the market, thus posing a threat to Coca-Cola Company. Amongst the main competitors are Nestle and PepsiCo companies which are also popular for the production and distribution of non-alcoholic beverages within the market.

Keurig Dr. Pepper Inc is based in Plano, Texas. The company is also popular for retailing, manufacturing and marketing non-alcoholic carbonated drinks, tea, juice, mixer, water and other quality drinks. The organization founded its bottling and supply system in 2006 after acquiring full possession of Seven Up Bottling Group/Dr. Pepper, which was the largest independent bottling organization in the America. Since then, the organization has established other major independent bottling and distribution enterprises. With the diversification of the beverage products offered by the company, Dr Pepper has been able to acquire more than 50% of the market share within the beverage industry in the USA. The company has also gained access to a high population of prospective customers within the region as well as in other parts of the world Amongst the largest opposers for the company include Coca-Cola Company and PepsiCo.

PepsiCo company is also a beverage company based in the USA. It is also popular for the production, marketing and distribution of non-alcoholic carbonated drinks in different parts of the world. This company also offers juices, waters, teas, smoothies as well as other premium drinks. There are different brands of beverages that are made within the organization. The company has a sturdy manufacturing portfolio and has grown steadily over the years through expanding the portfolio. This has seen it towards becoming one of the fastest growing beverage companies within the industry and hence increased market share. The main target consumers for the company are young beverage connoisseurs. The company faces competition from other beverage companies like Keurig Dr. Pepper Inc. Company.

Ratio Analysis

Current Ratio is acquired by dividing the current assets with current liabilities. Quick ratio is acquired by dividing the sum of cash and accounts receivables with the current liabilities.

For Coca-Cola Company

Current year 2017

current ratio

quick ratio

gross profit percentage

inventory turnover

accounts receivable turnover

asset turnover ratios

1.34

1.25

64.20%

4.99

9.66

0.40

For Keurig Dr. Pepper Inc

Current year 2017

current ratio

quick ratio

gross profit percentage

inventory turnover

accounts receivable turnover

asset turnover ratios

1.64

1.46

64.20%

7.52

10.67

0.73

For PepsiCo

Current year 2018

current ratio

quick ratio

gross profit percentage

inventory turnover

accounts receivable turnover

asset turnover ratios

0.99

0.75

55.85%

1.70

10.67

0.17

Current Ratio is acquired by dividing the current assets with current liabilities. Quick ratio is acquired by dividing the sum of cash and accounts receivables with the current liabilities.

“Discuss potential liquidity issues based on your calculations of the current and quick ratios”

There are different potential liquidity issues based on the calculations of the current and quick ratios for the organizations. For instance, the issues are likely to arise in a situation where the companies are unable to converts assets into cash without losing capital or revenue during the process.

“Are there any factors that could be erroneously influencing the results of the ratios?”

There are different reasons that could affect the ratios such as occurrences of off-season lulls. They tend to affect the profitability of the companies as well s the activity analyses, especially for the seasonal products offered by the company. Other factors include revenue changes and seasonal inventory. Some product sales may artificially reduce or increase the worth of the organizational assets.

“Liquidity issues of the three companies.”

Coca-Cola Company is the most challenged company as far as liquidity of its assets is concerned, as compared with the competitor companies, that is PepsiCo and Dr. Pepper Inc. For instance, the financial statement for Keurig Dr. Pepper indicates that the company has debt and cash proceeds, which indicates a need for improvement. The company has less than a quarter debt coverage, which means that the company faces the issue of efficient operations. The lack of liquidity within the organization also indicates inefficiency of the current asset management practices.

“Comparison of Accounting Methods”

“Explain the difference between the allowance method and the direct write off method for accounts receivable. Document the method used for each of the three companies.”

When an organization uses the direct write off method for accounts receivable, the bad debt is charged as an expense especially for the reason that an invoice will not be paid. On the other hand if the company uses the allowance method, the approximated amount of projected future bad debt is charged to a reserve account immediately the sale has been done. This makes the difference between the two methods of accounts receivable (Miller-Nobles, Mattison & Matsumura, 2018).

Coca-Cola uses the allowances method of accounts receivable. It assesses the collectability of its sales account receivables according to different factors such as the particular sector in which the client operates. This helps the company to gauge the ability of the client to meet the organizational financial obligations. Based on the results, the company will then reserve a particular amount of cash as reserve for future bad debts. This reduces the recognized receivable to the approximated number of collectibles that the company had identified. Other than the client’s identification of probable bad debts, Coca-Cola company also records an allowance for doubtful accounts with accordance to the past trends of company losses. The company also takes note of the past trend due to the outstanding account receivables (Keurig Dr Pepper, Inc., 2018).

Keurig Dr. Pepper also utilizes the allowance method of accounts receivables. The company does not need collateral on its account receivables. It identifies the needed allowance for doubtful accounts based on factors such as the client’s credit history and financial stability, the sector under which the client operates, as well as the economic trends within the industry. However, it is important to note that the level of allowances can also be affected by the fluctuations within the industry, bankruptcy of the client and also arising of client credit issues. The company charges the account balances against the allowances after determining the receivables that might not be recovered. Keurig Dr. Pepper Inc. has never recorded losses related to credit.

On the other hand, PepsiCo sells its products on cash or credit terms. The credit terms are based on the local and sector practices and demand payment within one month after delivering products within the USA and up to 3 months for international deliveries. The company allows for discounts for early payments. The company estimates and reserves for bad debt according to the past trends, analysis of client’s information as well as aging of the account receivables. The company classifies bad debt expense within sales and the other expenses in the income statement (PepsiCo, 2016).

“Explain the difference between the straight line, double declining balance and the unit-of-production depreciation methods. Document the method used for each of the three companies.”

Straight line refers to the depreciation method in which the value of an asset depreciates by equal amount for different accounting periods. On the other hand, double-declining balance method allocates a higher rate of depreciation in the initial accounting periods of an asset than in the later periods. Units of production depreciation method depreciates the value of an asset according to the specific product of output. All the three companies use the straight line method of depreciation.

“Explain the difference between LIFO and FIFO and document the method used for each of the three companies.”

Products recently added into a company’s inventory and are unsold but accounted for are identified as FIFO (First In First Out) products while those that were added into the inventory before, are unsold but have been accounted for are identified as LIFO (Last In First Out). FIFO method is used by the Coca-Cola Company for the finished products and manufacturing resources. Keurig Company uses both methods. It uses LIFO for its subsidiaries and FIFO for costs of the inventories. On the other hand, PepsiCo Company determines the inventory cost using LIFO method.

“Explain the different categories of intangible assets and document the method used for each of the three companies.”

There are different categories of intangible assets including trademarks, patents, copyrights and goodwill. Trademarks offer companies with the right to brand visualization such as trade dress, patents provide the companies with rights to design innovative products, copyrights safeguards the creative and intellectual rights of the company while goodwill is the outcome when a company takes over another establishment or takes their assets. Coca-Cola company uses goodwill as indicated by the use of its stock prices plus outstanding debt to establish its market value as well as multiple earnings before deductions of taxes, interests and remuneration based on appropriate industry data (“United States and Securities Exchange Commission,” 2017). On the other hand, Keurig Dr. Pepper has most of its intangible assets as a balance of brands with indefinite useful lives. The intangible assets in PepsiCo Company are categorized as equipment, property and plant recorded at historical costs.

Recommendation

From the above analysis, I would recommend investment on Keurig Dr. Pepper Inc especially for the reason that the company has diversified a lot of products under its brand. It is also a popular company in different parts of the world, and has a wide range of sales and distribution network. The company is also known to be friendly to its clients and commits to offering high quality products to its clients.

References

Keurig Dr Pepper, Inc. (2018). Form 10-K/A: Keurig Dr Pepper Inc (Links to an external site.)Links to an external site. [Amendment to previously filed 10-K annual report]. Retrieved from http://app.quotemedia.com/data/downloadFiling?webmasterId=101533&ref=12139293&type=PDF&symbol=DPS&companyName=Dr+Pepper+Snapple+Group+Inc&formType=10-K%2FA&dateFiled=2018-03-20

Miller-Nobles, T. L., Mattison, B. L., & Matsumura, E. M. (2018). Horngren’s accounting (12th ed.). Retrieved from https://pearson.com

PepsiCo. (2016). 2016 PepsiCo annual report (Links to an external site.)Links to an external site. [Report]. Retrieved from http://www.pepsico.com/docs/album/annual-reports/pepsico-inc-2016-annual-report.pdf?sfvrsn=0

United States and Securities Exchange Commission. (2017). Form 10-K: The Coca-Cola Company (Links to an external site.)Links to an external site. [Annual report]. Retrieved from http://coca-cola-ir.prod-use1.investis.com/~/media/Files/C/Coca-Cola-IR/documents/financial-reports/2017-annual-report-on-form-10k.pdf Appendix

Running Head:

“

COMPARATIVE FINANCIAL STATEMENT

”

1

“

Comparative Financial Statement

”

Tamara Golson

Accounting 20

5

Principles of Ac

counting I

Instructo

r Keith Graham

April 13,2020

Running Head: “COMPARATIVE FINANCIAL STATEMENT” 1

“Comparative Financial Statement”

Tamara Golson

Accounting 205 Principles of Accounting I

Instructor Keith Graham